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Entrepreneurship Development Case Study SUCCESS IN THE LOW END OF THE MARKET Many business advisers claim that low-cost strategies are outdated. Customers, they say, want more than just low prices; service, quality, and other sources of value are more important. These days, price may be one of the least effective weapons in a company's competitive arsenal, but for some businesses, price competition is a way of life. To compete successfully on price, companies must be smart, tough, and consistent. The decision to be a low-price competitor must drive every other strategic decision the company makes. Jan Bell Marketing, Inc., a jewelry manufacturer and distributor, is one of the best players in the low- price game. Low prices and cost control are essential to Jan Bell's success, given its primary customer base--most of the nation's wholesale clubs. The company manages to sell gold chains and earrings, tennis bracelets, and rings to these wholesalers for about one third of what other manufacturers charge. How does Jan Bell do it? There's no one big secret. Instead, at every step of the manufacturing and distribution process, the company does at least one little thing to keep costs down. For instance, when buying raw materials, Jan Bell purchases in bulk directly from the source. The company bypasses middle people to minimize the prices of gold, silver, diamonds, and other precious stones. In addition, Jan Bell always pays cash for its purchases. "If you don't ask your suppliers to be your banker, they will be willing to shave somewhere between 3 percent and 5 percent off the purchase price," says cofounder Isaac Arguetty. Jan Bell also spreads its purchases throughout the year, unlike most jewelers, which concentrate their purchases in August or September in anticipation of the Christmas holiday season. We're probably able to save 10 percent or 15 percent by being in the market year round," says cofounder Alan H. Lipton. The company also strives to minimize its inventory costs by manufacturing jewelry that will sell quickly and not just at Christmas. There are no one-of-a-kind items sitting in inventory pumping up carrying costs. "We're going for tonnage," says Lipton. That decision rules out much of the jewelry market, so Jan Bell concentrates on high-volume consumers. Sam's Club, Pace Membership Warehouse, and other wholesale clubs make up 80 percent of the company's sales. Jan Bell also strives to keep overhead costs low. The business contracts out about 92 percent of its assembly work. "By doing some of the work ourselves, we know what it costs to produce the product," says Arguerry. "This way we know exactly what outside contractors should be charging us." In addition, the company maintains no trucking fleets. Finished goods from contractors are logged in, inspected, and shipped out by Federal Express within forty-eight hours of their arrival. Any raw materials that pile up are sold quickly to other jewelry makers at cost plus 15 percent. Although a low-cost strategy leaves little room for error, Jan Bell makes it work--extremely well. The six year-old company has seen its sales and profits climb each year. By allowing price to govern every aspect of its strategy, Jan Bell has found success in the low end of the market. 1. What factors allow Jan Bell to keep its costs far below those of competitors? 2. Under what conditions does a low-cost strategy work best? 3. What are the advantages of pursuing a successful low-cost strategy? What are the disadvantages? Source Adapted From Paul B. Brown, "How to Compete on Price," Inc., May 1990, pp.105-107. Submitted by- Samia Shabnaz