Which Customer Is Always Right?

Companies that don't sell directly to their end-users often wind up paying more attention to their distributors than to their consumers. FireKing's profits come from figuring out how to satisfy both

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It's the lament of small manufacturers everywhere. We make a wonderful product and consumers love it, but we don't sell to consumers. We sell to wholesalers or retailers, and they don't always have consumers' best interests at heart. Talk all you want about features and service, but these intermediaries focus most on margins and prices. What's more, we don't have the resources to try to reach consumers, so we have no choice but to fall into line and compete on price.

In many ways, it's a convincing argument. Just don't give it to Van Carlisle, the soft-spoken chief executive officer of FireKing International Inc., in New Albany, Ind., across the Ohio River from Louisville. If Carlisle had accepted it 13 years ago, when FireKing was the number-six producer of fireproof filing cabinets in a field of six, he would still be there, instead of where he is today: number one, with annual sales of $16 million.

The story of how FireKing got out of its sixth-place rut is instructive for any company that has to sell through retailers, distributors, and other middlemen -- and, these days, that includes almost any company with a product. It has become so expensive, and so inefficient, to maintain a direct-sales force that even the likes of Procter & Gamble Co. have turned to third-party sales organizations. But whereas the giants can run massive advertising campaigns to influence consumer choices, that's seldom an option for smaller companies. Instead, most of them feel compelled to bend to the realities of the marketplace and to cater to distributors by competing on price.

FireKing could easily have headed in that direction back in 1974, when Van Carlisle took over. His grandfather had started the company in 1948, and it had provided a living for its owners for more than 25 years. But by 1973, the elder Carlisle had died, and the 50-employee business was losing money on its annual revenues of $750,000. Van Carlisle, then 24, decided to leave his job at a small regional elevator company and try his hand at running FireKing.

As he looked at the company, he saw a few strengths but many more weaknesses. Its primary strength was that consumers viewed FireKing's files "as the finest product around," Carlisle recalls. But even that strength created some problems. For one thing, the perception of quality was based largely on the files' weight. Fireproof files are insulated with a plasterlike substance that makes them heavy, and FireKing's, at 750 pounds on average, were the heaviest around. That made the company's freight costs the highest around as well. And even without the freight costs, FireKing's files were about the most expensive on the market.

What especially struck Carlisle, though, was the difference in how consumers and retailers looked at his product. "The fact that our files were the best was of limited value to dealers," he says. "Their reaction was "They're better, so what?" His first task, he decided, was to identify and articulate what quality meant to retailers. And he quickly saw that the most effective way for FireKing to define quality was to compare its products with its competitors'. "A strength is not really a strength unless it hits a weak point of the competition," he says.

From that perspective, Carlisle felt that FireKing's costly process of making separate insulating castings and curing them in drying ovens before placing them in the files was a special strength. Three of his competitors used the more efficient but less expensive method of pouring wet insulating material directly into the existing steel walls of files and letting it air-dry. While that method lowered costs, it created a problem if the files weren't sold quickly. Without the frequent opening and closing of drawers that occurs in offices, the insulation didn't dry completely, and the files rusted in the stores. In humid climates, they even rusted in offices, making for unhappy customers. So FireKing began to define its quality to retailers in terms they could understand: "With us, they didn't have to worry about their inventory rusting."

The tactic had mixed success. It worked against one competitor, Carlisle says. But another company, which had a serious rusting problem because it was using too much water in its insulation, fought back. It recalled 15,000 units and replaced them all, sending a clear message to retailers that the company stood behind its products. Still, FireKing was beginning to establish itself in retailers' minds as a more aggressive competitor.

In 1977 and 1978, Carlisle addressed the nagging problem of weight. To consumers, weight meant quality: the heavier the file, the more fireproof it must be. But to dealers, weight meant freight costs. FireKing's competitors, focused on retailer concerns, constantly tried to lower freight costs by reducing their products' weight. But Darlisle didn't want to make his files lighter, since that would undermine their quality in consumers' minds and force him to lower prices. So he tackled the freight issue head on by organizing his own distribution system using contract trailers. That way, he not only got lower freight costs, but he knew in advance what they were. Then he began offering a prepaid freight program.

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