Pattern Recognition, by Ian Sigalow

Made In China. The US Marketing Problem.

Introduction

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Ian Sigalow

Ian is a co-founder and partner at Greycroft Partners in New York City. He has been a venture capitalist since 2001.


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Made In China. The US Marketing Problem.

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Last year I bought a refrigerator from Sears – it was a Kenmore and had excellent reviews on the Sears website.  I came home a few weeks ago to find that it wasn’t working.  I had a repairman out who inspected the unit and told me that it was leaking freon, and there was nothing he could do.  The inside electronics and compressor were made in China, so it was hard to determine where the fault was, but this problem was not uncommon with these types of refrigerators.

I went back to Sears.com and found that the reviews on the site had changed in the past year – they now reflected all of the angry consumers who had similar experiences.  Unfortunately it was too late.  The product only had a one year warranty (mine crapped out at 18 months).  Sears also noted that the refrigerator was discontinued in favor of a new model, which promises to be much better.  This will start the review process over again.

Through this experience I realized that the US economy, which is largely dependent on consumer purchases, is suffering from two problems: transparency and marketing.

If I had known the refrigerator would only last 18 months I would have spent more for a higher quality product, and based on the negative reviews that came out over time I am sure that many other people feel the same way.  However, information on durability is not available online.  The fit and finish of the refrigerator were high quality and early reviews reflected that.  Long term durability, which is dependent on other factors like electrical components and machining, is hard to predict until products have been around a long time.  And by then the products are discontinued.  Normally brands help us to decipher quality, but I have heard similar stories about even high end brands that have cut corners.

A second issue is that there is no reputation system when it comes to parts suppliers that carries forward to the finished product.  I am sure the same thing happens to ceiling fans, television sets, cars, laptop computers, medical equipment, and just about everything else we purchase.  Because manufacturers launch new models every few years they have no incentive to make products that last a long time.  If you are a really clever manufacturer you realize that products only need to work for the period of time in between launching new models, at that point the reviews refresh and you get a clean slate.  As I brainstormed for this blog I just realized that manufacturers have been moving to this model for years.  This trend is bad for the consumer – it creates a lot more waste, the long term costs of owning products are higher than they would be if products lasted a long time, it creates incentives to outsource manufacturing to low cost/low quality facilities, and of course there is the frustration of owning stuff that breaks.

A third issue is that manufacturers have a marketing problem.  When you go to purchase a refrigerator at a big box store it is stacked side by side with 100 similar items.  The sales person knows the price and the visible features of the product, all of which you could see for yourself, but he or she doesn’t describe the quality of the welding, circuit boards, and general craftsmanship that would educate a consumer about why they should pay more.  As a result, consumers gravitate towards the cheapest products with the best looking finish.  If we had basic information about why a product is inferior beneath the surface we might make different buying decisions.  Because this information is not available, quality manufacturers tend to get pushed out of business.

The way this gets solved in the long run is that trends in quality retailing need to cross over into electronics and home goods, the same way they crossed over in the grocery world.  The US economy needs a “Whole Foods” for electronics and white goods.  As more consumers become frustrated with the build quality of electronics I can see a major opportunity for a merchant that will take the time to properly merchandise products and carry only vendors that meet certain quality standards.  Some of these products could even sell at a price that would allow them to be manufactured here instead of manufactured abroad.  Until then the US economy will continue to have a “made in china” problem and our purchasing will only be skin deep.

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Ian Sigalow

http://sigalow.com

Ian is a co-founder and partner at Greycroft Partners in New York City. He has been a venture capitalist since 2001.

Comments
  • user

    AUTHOR erikbower

    Posted on 3:39 pm July 2, 2011.
    Reply

    Try SubZero next time 😉

  • user

    AUTHOR matthew putman

    Posted on 5:45 pm July 2, 2011.
    Reply

    Perhaps you have a point about perception of quality. An Apple product may be made in China, but somehow the expectation is long lasting quality, which may or may not be true. The fact that Apple can charge more leaves us feeling satisfied, even if the quality was also just good enough for the latest release. i would say that it is not a quality problem, if the price point makes it affordable, and consumers needs affordability. It is also not a problem, as it spurs innovation into higher priced more innovative items. The market has room for both,and should. This is what keeps the world employed and populations happy.

  • user

    AUTHOR IanSigalow

    Posted on 5:09 pm July 3, 2011.
    Reply

    thanks for the comments – I had to clean up a few typos. We are seeing this trend towards quality emerge with clothing and I think in the long run it may be the saving grace for the US economy.

  • user

    AUTHOR djlk

    Posted on 7:18 am July 21, 2011.
    Reply

    It would be interesting if a third party warranty provider like SquareTrade would start releasing quality statistics for the major appliance brands. Transparency has a way of cleaning up company’s acts quickly.

    On another note, the auto industry has clearly been bucking this trend as cars in general are much better made and last longer than they used to.

  • user

    AUTHOR Sugarcoop

    Posted on 10:25 pm August 24, 2011.
    Reply

    Sorry djlk don’t agree a 3rd party is a solution! How many after market warranty programs are there for cars and they are pretty much ripoffs. Even the extended dealer warranties have stupid hoops to jump through and fees. Or Best buys warranty program is great for some items others price point is not worth it. And no one regulates the industry like the insurance industry, I mean that is essentially what you are doing; insuring that the item is worth buying and will last. Even with regulation the financial meltdown shows some big things fall through the cracks such as AIG insuring bundles of risk. Insurance is a company gambling anyway, here they gambling on a gamble. So if we had better quality and more ownership of the brand this discussion wouldn’t even pop up. A lot of these fridges have hundreds of model numbers for same appliance. Also the company puts out appliances under other names. Again it would be nice to be able to count on a brand name.

  • user

    AUTHOR Scottie Arntzen

    Posted on 9:08 am November 4, 2012.
    Reply

    Made In China. The US Marketing Problem. | was stored like a favorite :), I like your blog!

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