On average, that pay is $1 more an hour than they could get at similar jobs. Even though he pays more, however, Maglica is finding it harder and harder to attract new employees. "Working with screw machines is becoming a dying trade," he says. It has gotten so bad that Maglica is setting up a training school for willing but unskilled workers. He has no idea what the program will cost. "That would be the wrong way of looking at it," he says. "The question I ask myself is, what will this cost me if I don't do it?"
However he looks at it, Maglica has pursued a way of doing business that not only guarantees his costs will be higher, but that they'll be higher forever. For example, if you're positioned as a state-of-the-art company -- which is how Mag justifies its high price tag -- you have to allocate huge sums of money to R&D just to stay ahead of the pack. You can't copy. You must innovate.
But if costs are higher, you must charge more. That simple conclusion has amazingly complicated effects.
Charging more influences where you can sell your lights, who can sell them, how many you can sell, and the way you have to position your product. Your entire marketing effort has to be different from the efforts of your lower-priced competitors.
Maglica sells through independent reps, but the kind of rep he can use is dictated by the cost of his flashlights. The company's best seller, the Mini-Mag, retails for about $16.95, double the price of the flashlights you'll find in most stores. Mag's top-of-the-line model -- once you add the AC converter, battery pack, and wall-mounting bracket -- lists for about $150. These prices mean Maglica must deal exclusively with salespeople who handle high-quality goods and are good at explaining why their product costs more than anyone else's.
But with prices this high, the reps have a limited number of retail outlets. They need stores where (a) there are sales clerks and (b) the clerks know enough about Mag to explain to shoppers why the flashlights are worth the money. To have any hope of moving the product, the reps must concentrate on selling to your local hardware store, not to the cavernous discount center out on the highway.
Limiting distribution doesn't directly take money out of Maglica's pocket. But it does, of course, restrict sales. If people don't see your flashlight, they can't buy it.
* * *
Is there an upside to being state of the art? Obviously, yes. First, your marketing costs are less. If customers like their Mag lights -- and with hardly any provocation, Maglica pulls out fistfuls of letters from delighted buyers -- they're likely to tell their friends. And while U.S. companies spent more than $100 billion on advertising last year, a word-of-mouth recommendation is still the best marketing there is.
What would come a close second is a rave from objective observers such as Consumer Reports. And that magazine rated Mag best in its category, over better-known rivals Black & Decker and First Alert. This reputation for quality makes it easier to add new products. The Mini-Mag, a palm-size light, and the Solitaire, a tiny flashlight that attaches to a key chain, became best-sellers with virtually no marketing support. For people familiar with the company, having the Mag name on the product was good enough.
Each year, thanks to word of mouth and consistent quality, the number of people who recognize that name steadily increases. Magazines such as Fortune routinely include Mag in lists of the best American-made products, and the flashlight has appeared in books that celebrate the finest in American design. As a result of all this, the flashlight has become a status symbol. Folks who will buy a Mont Blanc pen for the perceived prestige are likely to pick up a Mag light as well. Could the Mag name be extended beyond flashlights? "I think about that sometimes," Maglica says. "But for the time being, at least, we'll stick to flashlights. I think we've barely scratched the market's surface."
Even if he never extends the name, Maglica still owns a brand-name flashlight. And people who own brand names can charge more than those who don't. The result, Maglica says, makes the company very profitable, although he won't discuss specifics.
But could it have been more profitable without the $16 million in legal bills, the scrap, the heavy R&D expenditures, the higher labor costs?
Maybe, Maglica says. But then Mag wouldn't be Mag. It would be just another run-of-the-mill company turning out run-of-the-mill goods, and there'd be no way to maintain the profit margins that come with charging twice as much as everyone else.
When you try to determine why he can charge so much, you realize there is only one secret to Maglica's success: his obsession.
He created a niche -- high-quality flashlights -- out of his dissatisfaction with the shoddy ones he was forced to build. He demanded more of his flashlights and their appearance. After all, he was a craftsman. And a craftsman with good timing at that. His product appeared just as consumers were demanding higher quality, and its sleek appearance played to the growing appreciation of good design.
But look at the corner Maglica has painted himself into as a result of this way of doing business. There's no way he can change his marketing or positioning without risking everything he has created over the past 11 years. Maintaining his company's good name requires constant vigilance.
How constant? Well, consider this: Tony and Claire Maglica, who have been married for 19 years, always take separate vacations. They have to, they say. That way, there's always a Maglica minding the store.
Not surprisingly, though, the Maglicas don't view their obsession with quality as a hardship. In fact, they can't imagine doing business any other way.
"We all take pride in what we're doing," says Claire Maglica, whose desk is at a right angle to Tony's. "Maybe it's our naïveté, but we define success as putting out the best products we can."
