Sometimes you can create new products just by making a few changes in old ones
The sign is tacky, but it makes the point. All day long in red neon letters over the receptionist's desk at Stage II Apparel Corp., it flashes: Welcome to the House of Brands.
Now like the sign itself, that message is a bit much. Unlike Heinz (57 varieties) or Nabisco (which owns the cookie shelf at your local supermarket), Stage II has only 12 brands -- such as Spalding, Members Only, and Playboy -- which it licenses from far bigger companies.
But the intriguing thing about the New York City-based sportswear and apparel company is not the number of brands, but the way it goes about marketing them. Stage II sells similar products -- say, sweat suits -- 12 different ways. Oh, it may add a little here to a sweat suit intended for a better department store or take off a little there from the sweats headed to a discounter, but in each case the product remains virtually unchanged.
This is what Detroit does when it puts a Ford Escort and Mercury Lynx on exactly the same chassis and then fiddles with the details. McDonald's does it, too, when it makes its basic hamburger bigger, adds lettuce and tomato, and sells it as a new product, the McDLT.
What we are talking about here is brand extension with a twist. Instead of sticking the same name on as many variations of a product as possible, this is, if you will, reverse niche finding. In contrast to designing a product to fill a specific hole in the market, Stage II -- like Ford and McDonald's -- tries to stretch its basic product as far as possible.
So far Stage II has stretched successfully. The publicly held company earned $3.2 million last year on sales of $82.5 million. This year looks even better. In the first quarter of fiscal 1989, earnings climbed 44% to $1.3 million, on sales of $22.3 million. Those 5.8% margins are nearly 25% better than the median profits recorded by apparel manufacturers on the Forbes 500.
Those results shouldn't be surprising, says Stage II president Robert Plotkin in his office in the Empire State Building. After all, the more products you offer, the greater your chances of success. Plus, the variety gives Stage II a number of options it would not otherwise have. Among them:
* It can offer stores a noncompeting label. "Retailers won't touch you if you are everywhere," Plotkin says, and by having 12 lines, he has a simple solution to the demand for uniqueness. He sells competing stores similar merchandise under different names. There may not be a lot of difference between sweatshirts A and B, but if they have different labels, Wal-Mart can offer A while Venture sells B.
* Stage II doesn't risk diluting its brands. If a designer has a great idea for a neon-colored sweat suit that McGregor buyers would hate, the company can market it under the Playboy name.
* It gains economies of scale. While the lines have their own creative and sales staffs, everything else is centralized.
This approach, Plotkin says, is the only way to go. "If we'd stuck to selling one kind of sweat suit under our name [and Stage II does have two brand names it created, Big & Tall and Main Event], we would never have grown much beyond $3 million to $5 million in sales."
He lays out three sweat suits to show how this marketing approach works in practice. The first is a triple-knit acrylic navy-blue suit. Priced at $29.99, it's sold under the McGregor label and does best at inner-city department stores.
The second suit, made of polyester tricot, comes in bright neon colors. It carries the Playboy name and is priced at $39.99 in discount department stores.
The third is made of a water-resistant, lined nylon. "The colors are sophisticated, more subtle," Plotkin says. Sold under the Jimmy Connors name, the suit retails for $60 to $70 at midtown department stores.
But although each sweat suit looks different, odds are they were cut from similar patterns and even could have been produced by the same factory in the Far East. (Stage II contracts out all its work.) "The only question we ask in taking this approach is 'How can we maximize business?' " Plotkin says.
Plotkin does two things that allow him to do just that. First, his nine-person design staff specializes. Nobody creates more than two lines. "With more than two, designers start to get confused. The image of each individual brand starts to blur, and we don't want that to happen. We want them to keep the buyer's preferences in mind. For example, the McGregor customer is really Joe Six-Pack, and he's afraid of cotton. He thinks he's going to have to spend all his time caring for it. So there are no 100% cotton products in the McGregor line."
Distinctions like that are made clear internally. Spalding is for the jock, Slazenger is for someone more sophisticated, and the Jimmy Connors line is geared toward folks who want to look good when they play tennis at the club.
Just as the lines are specialized, so is the sales force. A salesperson might only sell Spalding, for example. That's the second way Plotkin tries to capitalize on his positioning. "We don't want them to be able to cherry pick our lines, taking the top two items from Sergio Valente and three from Manhattan," he says. "We want them to sell an entire line. After all, we don't want a retailer to swap dollars from one of our lines to another. We want to increase our share of what they spend."
The result? A retailer may be visited by several Stage II salespeople, one pushing McGregor, a second Bonjour, and a third Playboy. "We're trying to capture real estate in the stores," Plotkin says. "If we establish our lines, we don't have to worry as much about someone coming along and undercutting us by a dime."
Retailers says that faith is justified. "By offering us exclusivity, they allow us to control our margin destiny," a buyer for a department-store chain says. "It allows us to increase our customer base by giving people another reason to visit our stores."
Says Plotkin: "You still have to put out a good product that looks good and is priced right. But by using this approach, we create franchises."
DIVIDE AND MULTIPLY
Stage II's rules of product development
Robert Plotkin's form of line extension sounds simple. But before you go modifying the products you already have, you have to know someone will be interested in buying them. Here's how Stage II went about it:
* If you want to know what customers want, ask them. Stage II's customers are the nation's retailers. Plotkin figures correctly that a good mass merchant will know what its customers want. So instead of conducting research to determine what kind of person shops at Sears, Plotkin asks Sears.
* Don't try to change perceptions. "McGregor's customers are basic, middle-of-the-road people," Plotkin says. "Anything that's wild makes them nervous." That's why McGregor clothing comes in basic colors and easy-to-care-for fabrics. Don't try to change biases -- play to them.
* Unique is better. Retailers will be happier if you offer them a label with a noncompete agreement. So Plotkin may sell the Jimmy Connors line to two stores, but not to two competitors in the same area.
* Make your own people compete. While Stage II makes everything it sells, its salespeople don't each sell everything it makes. There are separate sales forces and designers for each line. That way, the staff gets to know its customers better, and Plotkin gets a chance to increase his share of the total pie.