D.C. Hotline: Pushing back
With the elections over and the Republicans having gained the majority in the House and having made significant gains in the Senate, many in Washington have witnessed a change in the tone of legislative activity.
In the spirit of the times and with what appears to be a more favorable Congress, the National Lumber and Building Material Dealers Association (NLBMDA) recently urged members of Congress to conduct investigations of the most onerous existing and proposed federal regulations that are hurting job creation and economic growth. The EPA’s Lead: Renovation, Repair and Painting Rule — with its poor consumer awareness and inadequate test kits — is a main target.
The rule continues to create turmoil in the installed sales business and with many dealers’ customers.
The NLBMDA also intends to combat three OSHA proposals that may negatively impact dealers: 1.) OSHA’s initial efforts to develop a combustible dust standard for general industry; 2.) OSHA’s recent proposal that would mandate a standard for employers’ safety and health programs, referred to as an Injury and Illness Prevention Program; and 3.) OSHA’s recent effort to revise its noise reduction requirements.
All represent costly and excessive policies with little or no benefits.
Jeremy Stine is manager of government and public affairs for the NLBMDA (dealer.org).
The challenge of quantifying pocketbook patriotism
Having worked heavily with marketing research for more than 30 years, I know just how useful it can be to make better business decisions, but like all tools there are limitations. One very important issue with marketing research is that we often measure peoples’ attitudes, but what we really care about is their behavior. In some cases, there is a very close link between the two and sometime not so much. Let’s consider two examples.
As our first case we want to understand what people put on their hamburgers. We could ask them a very straightforward question and give them a list of condiments from which to select. Since there is no acceptable answer, people are very likely to give you good information. Were we to check, we would likely find an almost perfect correspondence to what people said in the survey and what ends up on their burger. Why say you use ketchup in the survey if you don’t?
Now let’s take a different case and ask people if they are willing to pay more for a plumbing part if it came in a package made from recycled materials. Here the respondent may consider that there may be a socially acceptable answer. If I care about our world, certainly I should be willing to pay more for that recycled packaging. This bias toward the socially acceptable answer can yield market research information that is much more optimistic about the sale potential of products with recycled packaging materials.
A good example of this type of issue was faced when the Home Improvement Research Institute (HIRI) decided to look at green benefits in some depth. HIRI made sure to get a profile of respondent attitudes toward green, but also to look at the green behaviors they have exhibited. As expected, there was a good-sized group of respondents who talked a good green game, but didn’t walk the walk.
While we may get inflated answers, we can track trends over time. In fact, The Futures Company does regular tracking of consumer attitudes on a broad range of issues. Since 2007 it has been examining the dimensions of what it means to be a good citizen today — including buying products made in the USA. As one might expect there was a clear rise in this measure as the economy weakened, with the selection rising from 60% in 2007 to 70% in 2009. But as the economy improved slowly in 2010, the rating fell to 61%.
Does this all mean that “Made in the USA” lacks marketing value? Clearly that is not the case. It just means that one needs to be careful when interpreting the absolute values in this type of research results and also not to rely on this attribute as a sole purchase motivator. With the current economic problems and unemployment, there is no doubt a desire to buy American when possible. As with most things, some people will see the benefit of buying American to be worth more trade-offs than others. If product quality and price are competitive, then the “Made in the USA” label can be the deciding factor.
My recommendations would be for American manufacturers to make their products as attractive as possible, with “Made in the USA” a bonus. While we work in a global economy, there is no problem rooting for the home team.
A 23-year industry veteran, Fred Miller is the managing director of the Home Improvement Research Institute (HIRI). He can be reached at [email protected]
Counterpoint: Priced out of America
This “Made in the USA” issue of Home Channel News profiles several companies that point to the benefits of domestic manufacturing. But for many more companies, sourcing product to low-cost overseas factories makes compelling economic sense. Home Channel News interviewed an executive from one such company — a manufacturer of a well-known brand of home improvement products — who spoke openly on condition of anonymity. Call him “Manufacturer X.”
Home Channel News: Your company is looking to manufacture more of its product in China. Why?
Manufacturer X: The big issue is cost. Our retailer customers are not allowing us to increase prices. And even if they did, they wouldn’t allow us enough to substantiate the margins we would need to survive. By going overseas and taking advantage of the lower cost structure, we are able to survive and compete.
HCN: Was it a difficult decision to bring manufacturing out of the United States and into China?
Manufacturer X: We watched a major portion of our business slip away, and that volume has hurt us dramatically — both in dollars and loss of employment. We’d love to remain a domestic manufacturer for all of our products, but due to demands of the marketplace, we’ve been forced to do it.
HCN: Describe the cost savings that you see overseas.
Manufacturer X: Let me put it this way: We have a machine here in the U.S. We load it up and it runs, turning materials from one end into packaged products at the other end. We move the product into the warehouse with a forklift. It’s all automatic, and still it’s 30% more expensive than manufacturing in China, where the same product is made by people. And that includes paying the freight, duty and cost fees. That’s just an example of the tremendous cost savings available to Chinese-made products.
HCN: What about the logistical benefits of domestic manufacturing? Are they meaningful?
Manufacturer X: Yes, they are. For instance, what if you’re forecasting 10,000 pieces, and all of a sudden the market demand is 20,000? If you’re buying from China, you’re not going to be able to get that extra 10,000. In the States, I can ramp up production quickly. In China, it’s 90 days from order to shipping.
HCN: Americans think U.S. products are better. Are they right?
Manufacturer X: That is accurate. I believe American-made products are significantly better than Chinese and other foreign suppliers. The quality of the goods from overseas is just not the same as the quality of goods in the U.S.
HCN: Can’t overseas factories be managed with the same high-quality standards and specifications as in the United States?
Manufacturer X: Yes, they can be set, but it’s an awful lot of work. And it’s part of what we have to specify when we go overseas. We have to specify every tolerance. It takes a lot of work and a lot of engineering work to get to that same quality standard as you’d find in the U.S.
HCN: How would you describe the consumer and DIYer — to what degree do they want Made in the USA products?
Manufacturer X: Generally, the consumer says they want Made in the USA goods, but when placed in a purchase situation, they tend to buy the cheapest goods available. But there seem to be more people asking for Made in the USA, and their voices are growing louder. The problem is, the majority of the volume of the marketplace is purchasing based on cost of goods. And the lowest cost of goods has moved overseas.
HCN: Is there a happy ending for domestic manufacturing?
Manufacturer X: The happy ending is that not all U.S. manufacturing will go overseas. There are specific markets and specific manufacturing processes that will continue to be done in the U.S. But they’re not going to be the large-volume, the large-scale processes that we have known in the past. They are niche small markets that have specified needs that a U.S. manufacturer at this point is the only one that can provide.