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Competing Against Apple's iPad: Crazy or Brilliant?
 

Most would say you'd have to be crazy. But this Chinese gadgetmaker proves being crazy can make you $100 million a year.

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In a contest with a giant, you might think that you can't win. And in some ways, you'd be right, as the David versus Goliath image is overplayed. A small or medium business that tries to compete with Starbucks in mass marketing upscale coffee will likely lose. Think your tire start-up will outsell Goodyear, Michelin, or Firestone? Good luck.

But it's still possible to compete with a massive power and carve out enough out of a market to make a good business without having to sell your first born (and those of everyone in your company) for enough cash to fund your ad campaign. Look at what Leader International, a Chinese-based company that sells Android tablets, is pulling off.

Not even the Motorolas and Samsungs of the world have shaken the Apple iPad out of first place, so what can a newcomer do? How about sell enough tablets through the likes of K-Mart, Sears, and the Home Shopping Network to expect to move 500,000 units this year for $100 million in revenue?

According to Vice-President of Sales Gary Bennett, Leader's strategy was never to become a top-tier player. "In this business, Apple has 80 percent of it, maybe 75," he says. "Then you have the Samsungs, Motorola—the second tier." Following far behind are Android tablet manufacturers that skimped on materials, used smaller screens, and made other compromises to compete on price.

Leader decided that there was an opportunity in the middle. "Our tablet is the same size as the iPad," Bennett says. "It uses the same [10-inch] panel that the iPad I and iPad II use. We use the same chip set in the iPad I, which is the single core Cortex chip." The body is brushed aluminum, rather than the black plastic you can find with many lower-end vendors. Each unit also comes with a case included. "Cosmetically-wise, we're trying to take a page from the TV business: Make your product look different and stand out on the shelf." Customer service is U.S.-based instead of outsourced overseas.

Not only does higher quality help make the products stand out, but it lowers the return rate, which would otherwise eat into profitability. Returned units do get refurbished, but the company sells them in China at a discount. Doing so in the U.S. would undercut pricing.

Better quality also made the unit attractive to K-Mart, Sears, and HSN, which was key. "To try and build a brand nowadays, you're going to have to spend $30 or $40 million a year," Bennett says. Leader didn't have that kind of money to invest. But selling through major names became a replacement.

"The trick is keeping in the monthly rotations," Bennett says, referring to the ads and fliers that retailers use to woo customers. "You try to be part of their ad planning at least once a month. If you can get in more often, that's great." And, contrary to a common view, he says that Leader does not pay co-op money to the retailers to get featured. Instead, the manufacturer offers a compelling price point.

Leader does sacrifice the mid- to long-horizon product planning that large companies undertake. That is become of the thin margins it makes on its products. (Leader tablets sell to retailers for about $200.) "What we do better is faster decisions and we can make product changes," Bennett says. "All last year, [our retailers] would make suggestions on how to make the product better. They see all the competitors. Our company reacted and that's how we got the Sears and K-Mart business and HSN business. A lot of times the bigger companies just don't move as quickly, and a lot of times when they have a product plan, they stick with it."

By listening to the retailers, Leader could create a product that the buyers wanted to promote. And that opened the doors the company needed.

Last updated: Feb 3, 2012

ERIK SHERMAN's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.
@ErikSherman




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