Don’t make a commodity and complain about prices

The Redwood blog
Published:  29 October, 2013
Mike Redwood

I had dinner recently with one of my oldest and closest friends in the leather industry. Between us we manage to sweep past 100 years of working in tanneries. Yet neither of us can remember a time when tanners were so squeezed on margin, and when even the chemical companies were suffering. Yet the luxury industry is doing well, craftsmanship is back in vogue, and we are told that consumers like leather. Hide supply is not growing so leather should be more valuable. So what is going on? 

Complaining about the high price of hides, or about tanners being too small to negotiate effectively with big meat packers is the usual starting point. It certainly has been for the last 130 years, since meat packers first began. It was the reason that 170 tanners got together to form the United States Leather Company in 1893. The US Leather Company is famous for being one of the founders of the Dow but not for making profits.

The real answer, difficult as it is, lies with the tanners; and with a better understanding of marketing. With my LeatherNaturally! hat on I argue that well thought out marketing is the only foundation on which to build. Sometimes this gets misunderstood and thought to be all about selling. In simple terms we should remember that selling is about the product, marketing is more about the customer.

In the modern world with younger customers from many new parts of the world becoming increasingly important two points stand out:

  1. No customer needs to buy leather; there is always a substitute
  2. An article is more often bought based on value; the traditional concept of price alone is in decline

Just the same issues arose when rubber began to replace leather in soles and in belting. An advert making the very clear point "nothing takes the place of leather" did not turn the tide and a subsequent analysis argued that the tanners should have added (in their own minds at least) "at 14 cents a pound" as that was roughly the maximum price shoemakers would pay before deciding to switch away from leather. It was the maximum price at which the consumer felt they were getting value for money.

A most notable aspect today is the speed of substitution in different leather markets when the price of finished leather rises above certain thresholds. Unlike ever before the substitutes, especially new synthetics, are ready to fill in when leather prices pass that point.

Leather is rarely bought just as a utility so a high price, which reflects the emotional element - touch, smell, look and the feel-good factors which they lead too - is quite appropriate. Yet to achieve this tanners have to consistently develop leathers at all grades, which match that proposition, and they have to educate the channel (not just the consumer) so that the final consumer is properly able to appreciate that value.

Selling more cautiously at higher prices is not an easy task, nor is designing leathers that really add value to all grades. And to make it work all tanners have to join the party. Large swathes of our industry making commodity leather and complaining about hide prices guarantees failure. It is a party we need every stakeholder to come to. When you are already in a hole you do not keep digging. 

Mike Redwood

mike@mikeredwood.com

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