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24 March 2009

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The Master Lock item reminds me of a classic marketing story I read while at business school. It poses the question: what does the customer really value about your product?

About a hundred years ago a company in Manchester in Britain made an absolute fortune selling cheap rubbishy padlocks by the ton to India. These things were so flimsy a child could pick them with a pin.

Eventually the company grew a conscience, and developed a much more robust and effective padlock, far more difficult to pick, and sold it for the same price as the old rubbishy one. Sales plummeted. The Indians hated them.

It turned out that padlocks were universally respected by the Indians. Anything padlocked was regarded as a hands-off item, even by thieves. So it was not necessary for a lock to be robust. And because people were always losing the keys, it was actually an advantage to have it easily pickable. A difficult-to-pick lock is a damned nuisance when you have lost the key.

I forget whether they returned to the old padlock model, or got out of the business entirely.

I work for a company that claims its brand worth some $40 billion dollars. The way they talk makes it sound like it is something we could package up and sell for that amount. The reality is that the products we've built over the past 40 years have created customer confidence. In the end it is the guys on the floor and doing the R&D and selling the stuff that make our company valuable, not the marketing gimic or brand name alone.

Bill,

Thanks for this perspective. Painfully obvious, and yet it's always good to be reminded of these facts. (Even if you have the subtlety of a polo mallet to the temple.)

Thanks Dan. The mallet to the head style is the result of a great deal of urgency I feel for manufacturing. Jobs are being lost and people's lives are being trashed every day by miserable (non-lean) management, and I don't feel as though I have the luxury of letting subtle points sink in over time. I swear I am not this way in the rest of my life - I am actually a fairly pleasant person.

Thanks for adding the byline at the top of the post!!

I have been a good customer of several Fortune Brands products over the years and I have not noticed any degradation of the quality of these products. (I even blogged about the difficulties of being lean when your lead times are measured in years like they are for Jim Beam and Maker's Mark during my former working life.) An unfortunate probability is that the accountants and lawyers running Fortune Brands would have moved those products to Mexico a long time ago except for the fact that it is illegal to sell whiskey labeld "bourbon" in the US unless it is made in the US. On the other hand, the people in charge of making Jim Beam and Maker's Mark seem to value the craftmanship that goes into those products, so it is possible they have been able to force FB to maintain a "hands off" approach.

I don't know the specifics, Mike, not being a Jim Beam drinker myself (and Jim Beam accounts for 1/4 of all of FB's liquor sales). Nonetheless, Fortune Brand's revenue on the liquor side of their business is down 5% from 2007 to 2008, and their profitability from liquor is way down (30%). So FB's customers are trying to tell them something - whether the message is quality, price, or something else I don't know.

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