Most companies struggle on a
daily basis to keep their costs down because, these days, that’s about the only
way to improve the bottom line. The idea of arbitrarily raising prices seems
absurd. Sure, you can get away with it if oil is a big component of your
product (or its transportation). But you have to have a justification.
How can a company escape what one
writer called the “tyranny of price competition?” It seems impossible.
Imagine, for example, trying to
sell this business case to a potential investor: “I’m going to manufacture
a product that will cost more than twice as much as other products of similar
quality while performing exactly the same function. Furthermore, I’m going to
manufacture exclusively in the U.S., paying my work force as much as ten times
the labor rates of my offshore competitors.”
No one would invest a dime in
such a proposition. Yet that’s exactly the proposition behind American Apparel.
The company’s primary product is T-shirts, although it has branched out into
other garments such as briefs. They’re all relatively pricey compared to
competitive brands. But, as the company’s early slogan stated, they’re “sweatshop
free.” They also have no visible logos, which is important to many of young
customers. These products are, in a word, cool. And they have propelled American
Apparel from one retail outlet in 2003 to well over a hundred today, backed by
a factory in Los Angeles that employs about 4,000 workers.
American Apparel would seem to be
an aberration, but it’s not. A couple hours southeast of the American Apparel
factory you can find another company where price isn’t the main issue: Intense
Cycles. This is a company that doesn’t even think about price. The workers
simply make the best bicycle frames they can, and then offer them for sale –
starting at about $3,000. Intense sells about $5 million dollars worth of those
The market for high end bicycles
is a lot smaller than the market for American Apparel, but it is still
influenced by a “cool factor.” In this case, it’s about the fact that
World Cup downhill racers often choose Intense frames.
I’m not sure there’s a business lesson here that’s
directly transferable to most manufacturing companies. All the hype in the
world won’t help you raise the price of components that are part of a large
value chain such as those found in the auto industry. But there is something
inspirational in the fact that some people have figured out a way to get beyond