Mon, Jul 15, 2002 page11

• Building up a branding

  Simon Teng, CEO and chairman of Working House, says the success of his `lifestyle concept' retail business relies on the strength of its brand name. Last week, Teng sat down with `Taipei Times' staff reporter Kevin Chen to explain the importance of the branding strategies he believes most Taiwan companies need

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  Taipei Times: What is the most important ingredient in a company's survival?

  Simon Teng (鄧學中): For a company to survive in the long term, the development of a brand name and distribution networks are the most difficult part. To become a market leader in a new product category, you need to be foremost in the minds of your potential customers. For example, 7-Eleven captured the image of being the world's first 24-hour convenience store and has easily become the leader in its niche market. Now it has been able to build a convenience-store empire on the strength of its valuable brand name. Eight years ago, Working House (生活工場) sought to bring Taiwan a new retail business model, hoping to create a special market segment by offering a unique range of kitchenware, home furnishings, stationery and general houseware items.

  

  Simon Teng, CEO and chairman of Working House says building a brand is the key to success.

  PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES

  TT: What's your definition of a successful brand?

  Teng: The definition of a great brand lies in the impact it has on customers, the value it gives them and the depth of the brand's inherent meaning and characteristics. In other words, a great brand should be something that is irreplaceable by others. For instance, if 7-Eleven stores disappeared from the streets one day and other brands such as FamilyMart (全家便利) or Hi-Life (萊爾富) easily replace it, then it would be difficult for 7-Eleven to claim its brand was very successful.

  TT: How well have Taiwanese companies done in terms of building brands?

  Teng: Well, many Taiwanese companies are weak in mapping out their "branding" strategies and lack experience in building their own brands. In fact, over the past few decades the central focus of Taiwanese businesses, especially manufacturers, seemed to be not their brands, but their products. It is reasonable that for an export-oriented country like Taiwan, our companies needed to pump out as many goods as possible to achieve economies of scale, which in turn helps them rack up lots of profit for future expansion. But based on the sole pursuit of economic scale and fast expansion, companies generally have found themselves constrained when it comes to making progress in developing their brand names as well as expanding distribution networks.

  TT: In the first few years of developing the Working House brand your organization was operating in the red, yet you pressed on. What was the strategy?

  Teng: Yes, we were not earning money in the beginning. It is a balance all entrepreneurs have to strike between making a profit and opening up more outlets and producing more unique goods at lower prices. [We chose to] take a slower pace to think through how to build our brand and expand our channels.

  Actually, we lost money for the first five years, but sometimes you just have to insist on something. To me, insisting on creating our own brand and selling products which are exclusive in our stores is something that helps our products stand out from the crowd. Moreover, this will ensure that our products or services are continually talked about in the long run.

  So during the tough years at the beginning, I went to request financial support from relatives and friends to help the company get through. We finally broke even in 1999 and since that time have opened -- on average -- 20 new stores a year, with each store being nearly 300 pings.

  TT: How is the business going so far? Do you have plans to franchise?

  Teng: With capital of NT$220 million, so far we have opened 115 stores since we opened our first 20-ping shop in 1994. We employ some 900 people, including nearly 80 in our Neihu headquarters, with an average age of 26 [per store]. Though Taiwan's economy was not good last year, we still managed about NT$1.27 billion in sales, up 37 percent from the year before, and are targeting an increase of 36 percent to NT$1.8 billion in sales this year. Also, we are introducing a sub-brand this year, "Working Plus," and hope it will someday enjoy the same success that Working House does.

  We still run all our stores on our own. But actually, in view of increasingly sophisticated consumers in Taiwan, we did dabble with franchising during the earlier years. We thought it would go down very well and help expand our business in Taiwan -- but it failed. So for the moment, I don't think it is necessary to franchise because we don't want to expand too fast.

  TT: How do you distinguish Working House from your rivals, such as IKEA, B&Q and Hola (特力和樂)?

  Teng: Customers visiting IKEA, B&Q or Hola were doing so with a purpose. They had figured out what they're going to buy before shopping there. But shopping at Working House is totally different. You may check out our shop after work or run into one while browsing at a department store. We have a more casual style, and customers are often attracted by the unique designs we offer. On the other hand, our products are quite different from our rivals. Many products on display at B&Q are something you can buy at a variety of other wholesale stores -- but the products sold at Working House are exclusive to our outlets.

  TT: How do you continue to offer unique design schemes given the large number of suppliers you use?

  Teng: The secret to our product designs is to focus on product development and design, while leaving the manufacturing work to our suppliers on a contract basis. In addition, we have learned a good lesson from Taiwan's electronics industry, in which companies are making thinner and thinner profit margins by contract-manufacturing for international brands such as IBM, Dell and Compaq. At our Neihu headquarters, we have 27 product designers and procurement specialists. On average, we spent about 5 percent of annual sales on new product development, and we also travel abroad once a month to Japan, China, the United States or Europe for procurement or exhibitions.

  As for suppliers, we now have around 500 original manufacturers from over 20 countries, which allows us to offer 2,500 new items every year.

  TT: How do you view the vast market in China and do you have any plans in any other overseas markets?

  Teng: People in China have called me many times recently -- roughly three phone calls a week -- to open shops there. But apart from China, markets in Hong Kong, Singapore, Canada and Hawaii also look promising. Yet we are in no hurry to expand our operations to overseas markets, especially China, for the time being. With few "lifestyle concept" stores like ours in the market, we still have our edge. But for sure we will go for markets in other countries in 2004, the same year we want to list the company on the Taiwan stock market. In our initial plan we will target Chinese regions mainly because Working House knows much better than our rivals about Chinese and their culture. I always tell my employees that our vision is to develop Working House into a Chinese IKEA over the next 10 years. Interestingly, both IKEA and Working House opened their first store in Taiwan in 1994, but IKEA still has only one store here while we have 115.

  TT: Are you concerned about your products being forged in China should you decide to tap that market some day?

  Tang: Counterfeiters will always find their ways to make products similar to those that we develop. Actually I am not so concerned about the piracy of individual Working House-brand kitchenware or home-furnishing items. The biggest challenge [for counterfeiters] will be whether they can imitate or reproduce the whole "lifestyle concept" store.

  TT: You are known for spending little on advertising, preferring instead to promote through in-house membership and magazines. What is the theory behind this strategy?

  Teng: Working House has never pursued a strategy to promote its brand through advertising but does need positive publicity to build up a good image in the minds of customers. So we focus on interacting with our members and publishing lifestyle and fashion magazines. Unlike Watsons and B&Q -- who rely heavily on television commercials to inform consumers about sales or the lowest prices on toiletries in town, Working House doesn't need to tell the public about our real value through commercials. This is not to say that we won't use advertising. In fact, while customer service typically helps maintain good client relationships, advertising in the print media helps promote increased name recognition to potential customers.
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