Tuesday, May 22, 2012

Made in the USA: Can it be a Differentiator?

How does a furniture maker compete with low-cost rivals producing goods in China?  It has several options.  It could outsource to China itself, so as to make its furniture more economically.  Alternatively, it could continue to produce in the USA, but try to differentiate its product so as to justify a significant price premium.  The latter strategy can be very successful in some product categories, but it has been difficult in a category such as furniture.   The Wall Street Journal reports, however, that one crib manufacturer is trying to produce a premium product right here in the US.  The Stanley Furniture Company hopes to persuade customers that they can worry less about product safety recalls if they buy from a company producing cribs in the US.   They also offer a wide variety of colors and designs, many more than can typically be provided by a firm producing its cribs off-shore.   However, Stanley charges a significant price premium - $700 vs. roughly $400 for many cribs made in Asia. Stanley is counting on the fact that customers are less sensitive to price when it comes to their infants.  Moreover, grandparents often contribute a significant amount to the purchase of a crib, according to the firm's research. 

Will the strategy work?  It could work, provided that Stanley delivers on its high quality promise.  Beyond that, though, the firm ought to think about the potential advantages that vertical integration may offer.  For instance, producing the cribs in-house here in the USA gives the company the opportunity to do more than offer many different colors and designs.  It also can change its designs much more frequently than an off-shore manufacturer can.  Moreover, it may even be able to offer some level of customization to the consumer.   Mass customization might help support a hefty price premium.    In all these cases, the company relying on outsourcing has a disadvantage, as they will be counting on large production runs of standardized products to take advantage of economies of scale.  Stanley could sacrifice those economies in return for providing the customer some benefits for which they would pay enough of a premium to offset the higher manufacturing costs.   Such a strategy comes with some risk, but given that Stanley cannot compete on cost with Asian manufacturers, it may be the only way to go. 

4 comments:

Andrew Boysen said...

Honestly, I think $400 is insane for a crib made in China, but $700 sounds pricey but reasonable for one made in the US. Another differentiation could be that cribs can designed in ways that are less shipping friendly (possibly sturdier, or more intricate), if cheap US truck delivery is possible, as opposed to shipping it in pieces in a box. I would be shocked if there wasn't some room in the price though - or ways to find inefficiencies elsewhere. I know people (friends and family) that hand-make wood stuff in the US, creating a vastly superior product, and still profitably sell for the same price as imports - because there's so much fluff in the entire process of international importing of most expensive goods.

Doug E said...

We bought Stanley cribs for our 3 year old twins prior to their birth. Very nice furniture that is well made. Someone forgot to tell our kids that though, Lol! They are hard on the furniture.

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