With integration comes price competition

Categories: Business Updates

Date: 18 Jul 2014

Q: Next year, the Asean integration will start. We’re in glassware manufacturing and are worried about the coming price competition. We read, for example, that BDO president Nestor Tan said that it would be like the PBA playing against the NBA. We’ll be no match. Just to show how small we are, Mr. Tan said that if you were to combine our top 3 banks (BPI, BDO and Metrobank), these will be only as big as Bangkok Bank, which is the seventh largest in Asia.

Because more competition means more choices for consumers, there will be just more and more to choose from. That also means less differentiation. With growing commoditization, consumers become more price sensitive and look for lower prices. We’re speaking from experience. These have been, and are, all happening to us. Our sales have been declining for several years now.
What can we do about price competition? In glassware, we already face stiff competition from cheap Indonesian glassware imports and from equally cheap local glassware makers. With the coming Asean integration, it’ll be worse. We expect prices to get even lower, threatening our very survival.

A: In any business situation, current or future, there are always two sides to consider. There’s “light” and there’s “shadow.” The light is where the discussion is focused. The shadow refers to many other things “outside the agenda.” These are matters we tend to overlook. We will not answer your appeal for help by preaching.
Here’s one “shadow” to consider. I’ll assume that your declining sales come from your glass tableware and ornamental products. It’s too bad you were not specific about the type of glass of each of these products. So, I’ll assume that those glassware lines of yours are from soda lime glass, lead crystal and/or heat-resistant glass.
What’s the point of doing this? It’s for you to see your sales or revenue split among soda lime glass, lead crystal and heat-resistant glass. Check if your sales are declining in all these categories. Remember, what is true of the total is not necessarily true of the parts.

I suspect that, because of the hard times, more and more housewives have been spending more time cooking at home to save money than eat out. So, your heat-resistant glassware sales should be an exception to declining sales.

Another contributor to this exception is the ever-growing popularity of cooking because of the multiplying TV channels and TV programs dedicated to cooking.

If it’s true that sales from this product category have in fact been growing, then do a quick financial projection to check by how much. Focus on the sales initiatives concerning this product category and try to reduce or even stop the bleeding.

Of course, don’t expect that this sales effort and focusing will reverse the revenue decline. It won’t, but it will buy you time to consider other revenue-generating option.

That option can come from participating in another glassware market price segment that you’ve probably overlooked—a shadow in your business-growing search.

Right now, you’re in the economy price segment. How about going into the premium segment with high-end glass tableware and ornamental lines? If you’ve been in this industry long, you know what it takes to come out with higher priced products.

The business model here says that, even if you don’t get the volume, your much larger margin will yield to you high or even higher total profit.

But you may ask: “Will I be credible to the market as a high-end glassware maker when it’s known that I’m an economy price glassware company?”

Generally speaking, you will have a hard time. But if you have a reputation for quality, even if you are in the economy price segment, the market will believe you. Your years as quality glassware maker will count in your favor. This is why I tell clients that earning awards from legitimate and respected award-giving bodies is critical in occasions and opportunities such as what we’re now tackling.
I understand that your apprehension is aggravated by the almost-here Asean Integration 2015. When the integration takes place next year, the Philippines, together with the other 9 Asean member countries, will become “an economic powerhouse being the third most populous region, and the seventh largest economy in the world.”

So One Asean will be a big market. There’s light and shadow sides to a big market. The light side is its positive aspect: big market, big opportunities. The shadow side is its negative: big market, big competitors, some of whom may be predatory.

You’ve chosen to take a shadow attitude. But you don’t have to just stay there. Get positive. There are opportunities for growing your business in this big Asean market.

In a big market, the benchmarking literature has more and more cases of mergers and acquisitions (M&A) where it’s the small or medium company that acquires the big one. Often this is facilitated by venture capitalists, particularly the so-called “angel investors.” An angel investor is a venture capitalist who provides the needed investment for a project primarily on the business merits of the venture.

You may want to benchmark on this reversed M&A and talk to an angel investor. One of the many good angel investors I know is Ed Isidro. Go and seek his advice.

In summary, my Marketing Rx is for you to combine three options. First is for you to see which of your product categories is still revenue productive so you can find out how much time you’ll have in delaying the “fearsome inevitable.” Secondly, participate in the high-margin, low-volume premium price segment of your glassware industry. Third, with the coming Asean Economy Community, talk to an angel investor about acquiring a large glassware maker in one of the Asean member countries.

Keep your questions coming. Send them to me at ned.roberto@gmail.com.

 

Written by: Dr. Ned Roberto
Source: http://business.inquirer.net/174828/with-integration-comes-price-competition#ixzz37nc8AWQF

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