Move forward
McLaughlin made the announcement in early 2007 that Branders would now be the low-cost provider but changing the company was a tough gig.
“That turned out to be a very big assignment because if you want to sell success on price, you have to first structure your operation in such a way that you have lower costs than your competitors, or, otherwise, to sell on price, you’ll bleed to death,” McLaughlin says. He decided that instead of relying on third parties to import goods and put the logos on products, Branders would do both. He set up operations in Mexico, the Philippines and China. These big initiatives saved money, but he also implemented small things, like using both sides of every piece of paper — except items sent to customers.
He also had to be diligent about walking the walk because he was constantly questioned on his decisions.
“I don’t think people always do it deliberately, but people want to see what you’re going to say,” he says.
If someone asked to go on a business trip, he would ask a question back.
“You say, ‘We’re the low-cost producer now, so we actually care about everything that costs money here. With that filter in place, should you take that trip?’” he says. “And the answer is, ‘No, I shouldn’t.’”
If an IT person wanted a new laptop, yet there was a working desktop available, he’d tell that person to use the desktop.
“It’s not as convenient, I understand that, but that’s the answer,” he says. “After you do that awhile, in my case awhile took about 18 months, then the managers and everyone else get it. Then it becomes your identity, and it’s not a deprivation of suffering, it’s a coolness of that’s who we are.”
The other initiative in the new strategy was drastically lowering prices — and not just a buck or two cheaper than the competition. For example, a water bottle that would retail at Target for $9.99 was sold for $1.99 — and with a logo on it. So come the evening of Feb. 13, 2008, the computer would reset the prices of every product, thus creating the Valentine’s Day Massacre. People got excited about this and created the posters to get everyone else pumped, too.
“When we lowered our prices, we made no announcement about it and put no verbiage about it on the Web site,” McLaughlin says. “We did no before and after, no cute lines crossing out the old price. All we did was … we told the computer system that when the clock strikes midnight, reprice to these prices.”
Branders saw instant success. The rate at which visitors called or registered on the site went up 60 percent the first day, and registration is now up 85 percent where it was a couple of years ago. Repeat business is also up about 150 percent over where Branders projected it would be.
“My job became much easier because price is objective,” he says. “You can clearly demonstrate to someone, … you don’t have to work so hard to help someone understand why they want to shop with you. …
“It’s a lot easier to tell your friend, ‘Hey, try this because you’ll save a lot of money,’ versus, ‘Try this because Jerry is a really nice guy.’”
The massacre didn’t just kill the prices. Like the posters insinuated, it killed much of the competition. He started getting hate mail from competitors, saying he was ruining it for everyone. Within two months of the massacre, one competitor called and asked McLaughlin to buy it out so the company could just keep working in the industry — so he did.
Revenue grew — while Branders doesn’t disclose revenue, the industry association estimated its 2009 revenue at $120 million — and the business is finally profitable.
“In the old days, everything felt hard, and today, lots of things feel easy,” McLaughlin says. “Warren Buffett once famously said good businesses give you good decisions to make all the time, present you with choices you’re excited to make, and bad businesses always present you with decisions you hate to make. For us, it was never a bad business, but it’s a much better business now.”
HOW TO REACH: Branders.com, (650) 292-2752 or www.branders.com
