Hidden science

After disappointing results last year, three of Esselte’s most senior executives describe the changes in OP and make a strong case for continuous innovation and evolution
OPI: Gary, Esselte has always been a very innovative and brand-conscious company. How does this tie in with the growing importance of private label and the pressure to become a low-cost provider of office products? You are obviously still relatively new in your position as president of Esselte Americas, but how do you feel about these issues? What has Esselte been doing to make its operation as cost-efficient as possible?
Gary Brooks (GB): Well, we have shifted a significant amount of volume to less expensive facilities in locations such as Mexico, the Czech Republic, Poland and China. However, we have also retained much of our local manufacturing as we need to be responsible to our customers and their needs.

Experience has taught us that we achieve success when we ensure our business decisions drive our financials, rather than the other way around. A company that has an unprofitable and inefficient manufacturing operation in the US won’t necessarily advance its business by moving the same unproductive operation overseas and staffing it with lower-wage employees. For instance, moving production to China because of lower wages does not take into account the fact that lead times in shipping are greater, often leading to less flexibility and inferior customer service.

Instead of simply sending manufacturing jobs abroad as an option of first resort, we believe in achieving better business results by improving operations with lean management practices. In 2002, Esselte implemented a lean management philosophy to eliminate waste and improve efficiencies. Based on the Japanese system of continuous improvement, or Kaizen, this quality-oriented philosophy emphasises continuous improvement in every aspect of our business (see ‘On a mission’, OPI May 2004, page 40).

OPI: Can you give an example?
GB: Sure. Take a popular Esselte back-to-school product, the Twin Pocket Folio. It is made in the United States instead of outsourcing the production to a Chinese plant, as our competitors have. We conducted several Kaizen events and were able to increase productivity and eliminate inefficiency. Our sales of Twin Pocket Folios have increased consistently since we implemented Kaizen, and we’re making an even better quality product through a production process that is more efficient. Furthermore, since there are no long overseas shipments, we have the flexibility to respond to extra orders or changing customer preferences, should back-to-school sales of our customers run well. So based on a combination of moving production to the best locations and our Kaizen activities, we believe that we can be a low-cost provider in all the product categories we operate in.

Additionally, because of our reputation as innovators in the industry, we believe that we are well positioned to become the "brand of choice" for our trade partners. Private label does not offer the breadth and depth of products nor the unique proprietary products that we can offer.

OPI: And I guess these proprietary patents are hugely important to you?
GB: We need and will establish more proprietary products because that’s how we can differentiate ourselves from the competition and private label. We all know people are willing to pay more for added benefits and value. Private label products don’t and, because of price, can’t offer that, while proprietary products do and can. Since we are able to charge a premium for these proprietary products, both Esselte and its trade customers end up winning.

OPI: So what’s your marketing strategy? What channels do you use to bring new products to market and reach your customers? Magnus, perhaps you could answer this question.
Magnus Nicolin (MN): This year we will be placing considerable emphasis on marketing to consumers through the web and via the retail channel.

We’ve analysed our segment breakdown versus the market and have found that in terms of commercial, superstore commercial and superstore web sales we track ahead of our competitors. With regards to superstore retail sales, we are on a comparable footing. But when you compare Esselte’s retail mass market sales with that of the rest of our competitors, we are lagging behind. And obviously, we see a huge opportunity there.

The work environment is changing, therefore we need to adapt to the new segments that are emerging and target the ones that are growing. Mobile workers, for example, account for approximately 32 per cent of the population (up 10 percentage points since 1998). SOHOs meanwhile, account for approximately 57 million of the population, an increase of almost 23 million since 1998 while telecommuting is up 14 per cent from 19.8 million in 1998 to 38.2 million in 2003.

Since all these people aren’t attached to an actual office, it is more difficult to market to them, which means that the importance of merchandising to gain visibility for our products on shelf versus a catalogue has to increase.

OPI: What are the specific challenges?
MN: One of the obstacles that we face is to break the tradition of how the category has always been marketed to the end user. We need to find ways to merchandise to them in "shopper-friendly" ways.

We have already completed several initiatives and are undertaking several more in order to gain share in retail channels. They include leveraging our packaging design to maximise everyday consumer communication, creating a billboard effect in-store with our new packaging, and utilising our new ‘swoosh’ design to build strong brand and logo recognition at shelf level.

Initiatives that consumers and customers could expect us to explore might include leveraging our packaging for communication and promotion opportunities. This is a highly cost-efficient and targeted method of reaching end users who use our products. It also gives us a great opportunity to cross-sell complementary products and to ‘upsell’ those existing users.

Additionally, we need to leverage our consumer knowledge and understanding to provide "solution sell" opportunities as well as "look-at" opportunities to sell across categories and to drive multiple purchases.

Furthermore, in order to differentiate ourselves from the competition and to reach the consumer in ways that they are used to being reached by consumer packaged goods companies, we need to maximise our retail displays so that we make innovative use of any available space. We’ll have to develop interesting elements that build upon our brands and cause consumers to stop, look and buy.

OPI: So is there still such a thing as a typical customer for Esselte? And how has this changed from, say, five years ago? Cezary, you are particularly familiar with the European markets.
Cezary Monko (CM): It’s not really a geographic issue. Five years ago we might have defined our typical customer as an administrative assistant or office manager. However, the number of administrative assistants has continued to decline, while the amount of SOHOs and mobile workers has soared. Therefore, since the workplace has changed, so too has our definition of our core consumer.

Basically speaking, there are two types of users now. Fixed users are those that utilise our products in a fixed location, such as a corporate or home office, while mobile users are those who tend to be "on the road" a portion of their work week.

OPI: Please describe what’s going on in these new work environments and how you are adjusting to the changes that are happening.
CM: Everybody knows that the PC has dramatically changed how we work. Esselte is constantly looking at new ways to innovate and develop solutions for users who are now more mobile and work more and more seamlessly between the traditional office and home office. Based on an Insat study in the US, nearly one third of the US workforce, or 44 million people, worked regularly at home at least on a part-time basis in 2004. Telecommuting is predicted to increase to an average of 10 per cent in Europe by the end of 2005, according to a recent Gartner study.

The facts are clear: work in the future will no longer take place at a single workstation. At Esselte, we study these trends and build them into our innovation process.

OPI: Can you be specific about new products launched?
CM: Of course. We launched Essento in 2004, expressly with the mobile/SOHO worker in mind. The products are highly portable, durable for being on the road and flexible to take work to and from the traditional office and home office.

Another great example can be seen in how we have reinvented the traditional hanging file with the launch of Divide-It-Up. It’s a traditional file that hangs in the office filing cabinet, but can change into a portable file folder by simply retracting the hooks. Using the elastic strap, it becomes the perfect travel file for completing home office work. It is perfectly mobile and can be used anywhere on the road.

On the labelling, binding and lamination front, we are trying to make it easier for SOHOs to conduct their business. We’ve upgraded many of the features in our LabelWriter series, including the speed; we’ve introduced new labelling products, which were based on SOHO feedback that will enable users to complete tasks easier. And in the autumn, we will introduce new products that will make it simpler for SOHOs to make presentations.

OPI: You are a very marketing-savvy organisation and have been fantastically successful with your Dymo campaign. How is this progressing now and what has been the impact on sales?
CM: In 2004, we had a good follow-up campaign in the UK, which increased the brand and product awareness to an even higher level and that in turn was reflected in a good sales level increase. In Germany, we had a good launch campaign of LabelWriter and achieved our targets. Both campaigns also affected our other Dymo products through the ‘halo effect’, which helped to increase sales in those unadvertised products. Additionally, because of the emphasis we placed on the Dymo advertising, we were able to garner additional listings in and outside of the traditional OP sector.

Overall, these campaigns have made it clear that we are on the right track. Although Dymo LabelWriter is only a small part of the total Esselte business, it is a very promising category.

This year we will look to debut a new advertising campaign, along with an expanded PR campaign on Dymo.

OPI: I gather you have big plans for the web, Magnus. Please tell me more about these.
MN: Well, as retail store growth and the capacity to carry excess SKUs are becoming more limited, we need to explore other options. And with global internet broadband penetration at 60 per cent, the web offers us an excellent tool to reach our targets.

Basically, we have to mean something to our consumers. We need to take our web efforts to the next level, from contacts to connections. In order to really leverage the web as an asset for Esselte, we need to transform our web traffic into an opted-in user base with a strong emotional connection to our brands.

Currently, two thirds of people looking for information on a product go to a retailer’s web site versus just one third who visit a manufacturer’s site. Therefore, we are working to make sure we have the right product information and solution advice available to the consumer in both locations.

OPI: Do you believe then that the web will ever totally replace other, traditional marketing channels?
MN: Not replace, no, but most marketers – us included – feel that the web’s effectiveness as a marketing/advertising vehicle will surpass that of offline vehicles over the next few years. Traditional advertising such as newspapers, magazines and TV are all expected to drop, while websites, online ads, targeted email programmes and direct mail are expected to grow.

Previously, our online activities sent mixed signals, on the positive side we had integrated off and online activity, acquisition of prospects via online media, key word buys, etc, and we were able to retain profitable leads through our value-added programmes such as the Pendaflex Learning Centre.

What hindered us was that we had a complex navigational system for our web, we had over 30 websites that were completely different in terms of functionality, looks and use, our content was always product rather than solution-focused, and we had no way of measuring the success of our activities.

OPI: But this is changing now or has changed already?
MN: Yes. In 2004, we implemented a plan that took us from this patchwork of platforms to a single platform with shared functionality and self administration. Now in 2005 we are integrating our on- and offline marketing, targeting the acquisition and retention of prospects. Now our sites are aligned with the brand strategies, we’ve reduced our web operating costs, our content flexibility is much greater, and we’ve enhanced the shopping experience for the consumer. We’ve completed the sites in the US and the UK. You will now begin to see new sites roll out over the rest of Europe beginning in June.

Going forward, you will see us expand our direct sales beyond our Dymo US subsidiary. We will be exploring ways to optimise our marketing strategies and tactics on the web. In other words – how do we customise the offer or communication to a particular consumer segment in order to attract and retain prospects? As I mentioned before, online advertising and key word buying/search engine optimisation will play a greater role.

OPI: And on that note, I’d like to draw a close. Many thanks to all three of you for your time today.