going downmarket: the Superscope example
When I got my first job as a securities analyst, rookies were assigned coverage of companies no one else wanted. So I got a bunch of firms with bad managements, poor operating procedures and/or failing strategic concepts. I was happy to be employed, but otherwise I was less than thrilled. But a comment by J.L. Austin turned out to be true. I did learn a lot more about how business works by observing things going wrong than I ever would have by watching uniformly smooth sailing.
One of my first companies was called Superscope. The company’s claim to fame was that it discovered Sony “operating out of a quonset hut” in Japan in the late 1950s. It obtained from the then fledgling electronics giant an exclusive license to distribute Sony’s innovative line of tape recorders in the US. The license made Superscope a fortune.
In the mid-1960s, Superscope bought Marantz which was then an ultra high-end maker of stereo systems.
In the 1970s, preparing for the reversion of the tape recorder license to Sony, Superscope decided it would replace the lost income by launching a line of inexpensive, mass-market consumer electronics devices. It thought it would increase the odds of the line’s success by branding its offerings as “Superscope by Marantz,” thus grafting onto its boomboxes the Marantz brand qualities of exclusivity, high quality and dependability.
As the successor company website comments, “Naturally enough, the two brands became intertwined in consumers’ minds.”
Translating this marketing-speak into ordinary language, the move completely destroyed the Marantz brand.
The appearance of low-fidelity $150 stereo systems under the Marantz name shattered the image of high quality and exclusivity that had motivated audiophiles to pay many thousands of dollars for the original Marantz systems. As I recall, it didn’t help either that the boomboxes were very far from best-of-their-breed.
the Apple smartphone dilemma
Why this trip down memory lane?
It’s because Apple faces a somewhat similar problem with its smartphone business, which produces half the company’s profits.
As some Wall Street analysts have been point out for over a year, the market for $600+ smartphones in wealthy countries is approaching saturation. The as yet untapped markets are in emerging nations like China or India, where older “feature” or “flip” phones still predominate. But if your annual family income is, say, $5000, how many $600+ smartphones can you afford. Answer: zero.
That’s why many phone makers are collaborating with local wireless companies to develop and market smartphones that cost $100 or less.
How can Apple compete? Should Apple try to compete in this market segment? The risk is that it repeats the experience of Superscope.
going upmarket is easier
Oddly, experience says it’s much easier to go up-market, although often a company will create a new, upscale brand name. That’s what the Japanese auto companies did, for example. Nokia, too, with its Vertu brand–which consists of making ordinary phones into jewelry with precious metals and gems.
How does Tiffany come into the conversation? It’s the only company I know that is able to be successful both at the high end of its market (jewelry at $10,000+) and the low end (key chains and trinkets for $100-). I don’t know how the firm accomplishes it. I offer the example only to say that the move downmarket can be done.