A few years ago, I attended a workshop where a manufacturer shared how his ‘Made in Kenya’ reasonably priced leather belts hardly moved from the shelves. On the advice of the Indian shop owner who stocked his products, he removed the patriotic label and doubled the price. The belts started flying off the shelves.
This is an illustration of the fact that unfortunately, the Kenyan consumer doesn’t necessarily perceive products made in Kenya to be of better quality than the imported ones, even the ones from China, the most renowned exporter of cheap products. This is the first hurdle a Kenyan manufacturer faces in competing against cheap imports.
The term ‘cheap imports’ often refers to imports from Asian countries; especially China. The quality of imports from China is often perceived to be lower than imports from other countries. There are two dimensions to quality: design and durability. Customers believe that Chinese imports will be of lower durability and hence some customer segments are unlikely to purchase those products. A segment of users in most markets are price sensitive and willing to try the lower-priced product in case the savings is substantial. Experience has shown that for a similar durability, a bigger number of clients will eventually begin to purchase.
Cheap imports equals to low prices, though a sound marketing strategy consists of more than just price. Here are three non-price tactics to face cheap import.
- Don’t Compete on Pricing
The first natural response a brand that’s attacked and feels at risk is to respond by discounting their prices. Resist the temptation as such a strategy is rarely effective. Your competitor may have the financial clout to weather the low-price/lower-margin/market-share gaining fight.
- Compete on Product Differentiation
Cheap imports initially target the low end of the market, where production and engineering challenges are few and unit sales larger. Manufacturers who sell products with a range of features and costs feel the sting of new competition first in the products with less features, most of which are cheaper and lower margin already. The manufacturer could opt to sourcing the low end products from Chinese producers while continuing to manufacture high-end products. Such a strategy can be sustainable for products with constant technological change and a high degree of customization. However over the long term it is difficult for companies to differentiate based upon features, quality and product performance.
- Know Your Ideal Client
For a company it’s always important to identify market segments that value its product offering and are willing to pay. The greatest sustainable advantage of a company is its customer knowledge, channels of distribution and brand reputation. A company should have an in-depth knowledge of its customers and the value provided by its products. Thus the company develops a strong brand reputation, with efficient marcom (marketing communications) and a strategy that delivers the products and services that meet the customer’s needs. This strategy may comprise of a direct sales force, indirect partners and alliances that eventually deliver the right package. A company’s direct sales force and/or relationships with partners and allies are often a major defense against cheap imports since without the appropriate channels the cheap imports can’t easily reach the customer.
These strategies can keep cheap imports at bay for a long time if the importer cannot get access to the key customers and channels that dominate a market. Unfortunately, for many companies facing import competition, the exporters may be smart enough to know the strength of end user relations, get a foothold through these methods and companies wake up to find their own distributors competing with them with much cheaper products.
Given the increasing role and importance of China and other developing countries, a company cannot ignore them but should not overreact to the hype surrounding them. The issues and opportunities regarding cheap imports may be complex, but many studies have demonstrated that in-depth knowledge of customers’ segmentations and relationships and clear thinking (thinking differently) are crucial to any strategy aimed at competing effectively with cheap imports. Ultimately it’s upon Kenyan manufacturers to turn the tide in their favour by consistently producing quality products and having continuous new product development programs in place.
Are you competing with cheap imports? How do you go about it? Please share your experience with me in the comments below.