Customer satisfaction results in high profit margin in high end market

Most of the consumers’ good retailing companies in the west are fighting to keep large market share even when they are earning low profit margin. Most of the goods are manufactured in China and there is little room for any innovation to have cheaper logistics (and it is more difficult when the oil prices are heading north). Retailers have pushed the manufacturers and suppliers in the People republic of China to such an extent that there is no room left for reducing any cost. But there is still high end market that has not been shifted to any developing country and there is any chance that it will have happen in near future. There are many reasons behind this. First, it is very difficult to translate the exact requirement for some of products and manufacture them in other countries. It’s more about the culture rather than the technical specifications of the product that cannot be translated. Every country has some culture and that is difficult to replicate. As I was talking to one of my friends from Kenya, she told me that they used to have a traditional dress in their country and that used to be quite expensive because that required a specific kind of fibre for clothes and they were hand woven. Now in the last few years situation have changed and now they can get that traditional dress very cheap because it is manufactured in China. Problem is not with manufacturing something in China. Problem is once something is manufactured in China, customers expectations are to get product at cheap price. So these new traditional clothes are made of synthetic fibres and every Kenyan who had seen traditional clothes a few years back can tell the difference. Other problem is manufactured in other countries so far have no idea about the local cultural values and they can sometime make some products those are not easily acceptable in different cultures (e.g. white and black colours have different meanings in different countries).

By understanding this problem, some of the local manufacturers in the developed countries can fight with the flow of the cheap good coming from other countries. Though it is almost impossible to fight with the flow of the goods but the local manufactures in west can still produced some of the high end products that have high quality and adhere to the local cultural taste. For example, Scandinavian citizens are used to of very standards of quality of life. And this has been very well exploited by a company Vipp in Denmark that sells vey high end, high quality bins at a very high price (some of the bins are even for Euro 500). These are handmade with high steel by local craftsmen. For keeping earning high profit margin in this market by selling high end products, one needs to be very clear about following practices

Never compromise on quality for cutting cost: Always remember that by cutting cost by reducing the quality will not work. You are targeting some of the customers, who prefer to pay for the quality, so don’t disappoint them. Short term profit can hurt in big way in long term.

Mixing low quality with high quality: Don’t try to serve all the customers together. Even the company like Walmart is not able to serve the high end customers even after spending lots of money on advertising. It is the culture of the organization that serves the customers. So if you want to serve the high end customers, don’t try to mix product range because competing with the low cost product from Asian countries is near impossible so keep the market that can be protected and gives heavy profit margin rather than single digit that retailers make.