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Management Memo (April--May 2008)

Readers' Comments on The Case of the Reliable Refrigerators

Venture into New Markets
Eskimo Appliances should not proceed to build in planned obsolescence as its main selling point has been its excellent quality; doing so would erode its competitive edge and in the long term, it would lose customers who value quality. Repeat customers who pay lower prices for the redesigned refrigerators would feel cheated once they realise the refrigerator quality is no longer excellent. Ultimately, the Eskimo brand would suffer.
        It may take about six years from the commencement of research and development (R&D) to realise the actual gains from the redesign. With profits plummeting 20 per cent in the last financial year, the redesign may not be timely to save the company in the coming years; there are unforeseen risks of failures in the R&D too.
        In lieu of the planned obsolescence, Eskimo could explore the following alternatives:
1. Seek out other markets outside Asia
2. Cut down production cost through outsourcing some functions, and investment in more efficient machinery
3. Invest in R&D into more energy-saving or energy efficient features of the refrigerators, which could give customers better returns and savings over time; market this as another selling point to complement the excellent quality of the refrigerators.—Contributed by Ong Kian Hui

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Five Suggestions for Improvement
Eskimo Appliances is renowned for providing lifelong quality products and such recognition is not acquired overnight. Based on the company’s financial status and the time required in research and development, the idea of proceeding with the S$2 million R&D project with built-in obsolescence may further jeopardise the company’s bottom line in the short run and its reputation in the longer run.
       The Eskimo brand will not suffer or face any ethical issues as we do not support the implementation of planned obsolescence. The following suggestions will help improve the company's business:

1Adopt “the trade-in old refrigerator” method as this will help the firm to retain current customers and attract new customers
Freeze the hiring of new staff and this supports the management’s idea of keeping loyal employees, and reducing operating costs
Branch out to developing more popular products (for example, portable cooler fan) to assist in increasing the sales to tide through the company’s financial crisis. Alternatively, they could acquire the licensing of other refrigerator-related products and gain additional revenue
Work on fringe products to enhance sales by adding on more features and functions. To avoid incurring high expenses, raw material costs must be kept low so that the products will attract low-budget customers
Market the company’s products to corporate clients such as developers of condominiums and hotel-related business.—Contributed by Joyce Chan, Genet Leong, Mohd Jofri Osman, Jacqueline Tay, and Dorasen Khoo

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Continuous New Designs Should Save the Day
Eskimo Appliances Co may have been around in the Asian market for more than 15 years, but that does not mean that it will not be replaced by its competitors. Research and development is required to plan built-in obsolescence and hopefully lead to the introduction of new technologies. With R&D, Eskimo can find out what customers need today and produce them accordingly.
       The firm does not have to worry that its image will suffer in the long term as long as it continues to come up with new designs of refrigerators. It is important for Eskimo to generate enough marketing publicity so that it can create awareness of its products. When its name is well-known and its appliances affordable, customers will not mind paying for a refrigerator with a shorter life span. When the R&D department comes up with new technology, Eskimo can then create new models to cater to different groups of customers with different needs and budgets. This will ensure that it is able to widen its market share and not be left behind.
        There should be no ethical issues involved as customers are not made to pay for appliances which are supposed to last much longer than they should. As long as R&D results in the use of cheaper materials and components for some models, these savings can be passed on to the consumers in terms of cheaper end products. In fact, most customers would prefer that these refrigerators do not last that long so that they can change to a new one every few years, which in this case is every three to four years. This will ensure that the company gets repeat business and, in turn, increased revenue.
       Alternatively, if Eskimo does not have the means to go into R&D, it should look into ways to create awareness of its products, introduce new marketing strategies like a trade-in policy, extended warranty for high-end refrigerators which are costlier but should last longer, or giving huge discounts at certain times of the year. These measures will help to increase sales and eventually lead to increased revenue.—Contributed by Goh Mui Choo Monica, Kwa Yan Fei Angela, Lim Lynn, Ong Soh Hui, Yeo Amy, and Gary Tan

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