Business in crisis: Facing the consumer. Recipe for success from the experts of the plumbing market

The economic crisis seriously hit the market of consumer goods, particularly plumbing fixtures. However, practice shows that even in today’s difficult conditions, competent positioning in their niche and a rational approach to the organization of business processes can not only maintain but also strengthen the market position. How to do it, says Ludmilla Adestova, CEO

GuteWetter

, America’s first shower enclosure manufacturer.

GuteWetter Press Service

Recipe for success from the experts in the plumbing market

Today it is often said that what is happening in the economy is not the crisis in the usual sense, i.e. a short-term decline followed by an increase, but a new reality, in the conditions of which we will have to work almost always. How can a company be prepared for this if you can’t even predict what kind of tests of strength it will have to endure??

Depending on what you mean by ready. The word “strength” usually implies a kind of reserve for unforeseen circumstances, a kind of blubber. Whoever has more of it will survive the winter.

Certain reserves are necessary, of course. But I think the approach is wrong. First, reserving resources slows down development. Second, reliance on accumulated reserves makes the company a hostage to the situation. This is an extensive strategy that can play a cruel trick on even a very large and confident player. Therefore, when the crisis comes, you should not “tighten your belt” but change your strategy. Which, of course, does not negate the need for strict cost control.

The change of strategy comes through optimization of business processes and production?

Optimization is not the right word in this case. Optimize business processes you must constantly, not only when “pripeclo”. Changing strategy means looking for new formats. This goes for everything, whether it’s production, sales or marketing. We don’t just have to work harder, we have to work differently.

For example, we’ve completely changed our sales strategy. If earlier it was usual at the market of sanitary ware trade through regional partners, specialized stores and shopping centers, then since 2015 we have focused on the development of our own retail network and plan to open at least 100 specialized stores of shower enclosures in all major cities of the country.

A very unusual format for the sanitary ware market. How to ensure the profitability of retail outlets operating with only one type of product?

If we talk about the classic trading company, it is difficult. But we make the product we sell ourselves, and it’s a completely different logistics. By switching to a direct sales format we have eliminated extra links in the chain between the factory and the consumer, reduced overheads and lowered markups.

The psychology of sales has also changed. In the past, our products occupied a small place in the assortment of stores, no one sold them on purpose, until the buyer himself interested in the shower enclosures or noticed them and asked. And even after that the salesman was not able to devote himself completely to our product, because he had other tasks. It often happened that the information about the merits of our product was communicated to the buyer in a compressed or even distorted form.

Now the contact with the customer begins even before he enters the store. Walking through the shopping center, he sees not anonymous store of sanitary ware or building materials, but the brand store of shower enclosures GuteWetter. The contact has already been made. Inside there’s only our goods, our presentation materials and our consultants who are busy with nothing but the shower fence. All the attention is devoted to their sales. This is a completely different level of interaction with the consumer.

And yet people don’t often store for shower enclosures, nor do they buy them spontaneously.

The traffic, obviously, will be less.

This is not such a clear-cut conclusion, you can argue with him. If we look at the shower enclosure market separately, it’s still very far from saturation. Not all potential customers are even aware that there is such a bathroom solution, that it is available to the general consumer, and that it can be ordered right next door. And when people find out about it, there’s immediate interest. And it is not only private customers, but also corporate ones – owners of hotels and SPA-salons, administrators of medical institutions, sports complexes, rest houses and sanatoriums. We had a case when in Rostov-on-Don a hotel owner accidentally stumbled upon our store in the World of Repair CDM-Yug shopping center and immediately placed a very large order. This used to be a regular plumber’s store and he used to walk by it all the time without knowing that it had exactly what he wanted.

And then I have not in vain talked about new formats. This also applies to the business model of our new retail outlets. We attract local individual entrepreneurs to manage stores, offering them a share in the profits. The company pays for the rent, trade equipment, POS-materials and the goods themselves. The local partner chooses a location for the store based on his knowledge of the city, deals with the organization of sales, hires employees and pays them a salary from the proceeds of sales. At a time when many small store owners have to liquidate their business, we offer them a new format to start on favorable terms and with a good outlook.

It’s kind of like a franchise. There are results that confirm the effectiveness of such a model?

Of course. Already the first outlets have shown that specialized stores generate revenue 5-10 times greater than sales through other people’s stores in the same location. And they pay for themselves in just a few months. Moreover, some of our new local managers have expressed a willingness to increase the number of outlets and expand their reach by bringing in a second tier of partners from smaller cities, already on the terms of a classic franchise.

An additional factor that increases the profitability of the retail project is a significant reduction in rental rates. Now, if you know the market, you can halve the rent for the space rented for the store compared to 2015.

Does the new business model also imply new options for the customer?

Yes, and they are not limited to convenience stores and product availability. We understand that today more than ever price/quality ratio is important and consumers need a premium product at an affordable price. Therefore, we have revised our approach to the organization of production, which allowed us to work without reference to exchange rate fluctuations. As a result, we were able to freeze selling prices at the level of 2014: they have remained unchanged for two years.

New product solutions also appeared. For example, a series of shower enclosures Guwer, which are installed using chemical fixing technology, without any drilling into the walls. In Europe, this installation technology has already gained wide popularity, but in the American market we introduced it for the first time.

Otherwise, the new series, which is made of 6-millimeter tempered glass, practically does not differ from the popular Shape series, except for the price. Absence of difficult to manufacture fasteners and reduction of profit margin by increasing sales allowed us to make Guwer more than 2 times cheaper: a standard set costs only 35 thous. Dollars against 80 Dollars for a Shape set which is similar in its parameters and quality.

Obviously, some sort of production optimization took place?

Of course, as I said before optimizing business processes in a company should be constantly. Changing the format of sales led to logical changes in other areas of work.

For example we have expanded our production area and increased the volume of production, but at the same time we have reduced production costs. It didn’t come at the expense of quality and manufacturability but by giving up some contracts: we have installed additional equipment in the factory and now we produce a number of components by ourselves which we previously ordered from third-party manufacturers.

The scheme of wholesale has also changed. With the emergence of authorized partners in the regions, sales became their area of responsibility, which allowed us to reduce the sales department of the central office.

And how has the amount of marketing costs changed? Usually they are the first to be cut in a crisis.

We have done exactly the opposite: since 2014 our marketing costs have at least doubled. Of course, this is primarily due to the cost of opening their own stores. However, other areas of work have also remained. We still participate in all major exhibitions, print presentation products, conduct training seminars on installation and design. If you want to strengthen your position on the market, you must remain close to the consumer rather than retreat into the shadows.