SFT

Industry strategic implications of user expectations and choice

All industries are driven by customer needs, wants, and expectations. Customers rarely get the "perfect" product, and in fact rarely expect it, even though this fact is equally rarely noticed.

Dissatisfaction is a powerful driver of choice by customers. Customers rarely become dissatisfied with their purchase unless they see a better one was possible. Product variation is necessary for customers to experience dissatisfaction.

Thus, all purchasing choice is driven by product variation: without variation there's no scope for dissatisfaction or choice. But once product variation and differentiation appear, choice follows.

The present widely recognised problem of hard-to-open bags resonates with virtually every user. This applies to the market for simple side-gusseted and side-welded (un-gusseted) bags.

The 'hard-to-open' problem now constitutes an industry instability. Why? ... because a near-zero-cost solution has finally been found, but only Licensees can use. This solution 'raises the bar' of performance and will affect customer expectations.

Users have hitherto been tolerant and forgiving because the problem has been perceived as 'the nature of the beast', i.e. unavoidable. Once users witness the solution, however, expectations of performance will rise, and users will increase complaints and product returns, and will migrate toward Licensees.

BETTER USEABILITY --> PRODUCT PREFERENCE --> PURCHASE PREFERENCE

Market dynamics and Industry consolidation

Your choice as a manufacturer is simple: do you want this before your competitor gets it?

What's market worth? What's control worth?

The flip side of 'industry instability' is business opportunity. The new Licensable IP can be a powerful business tool for Licensees. This solution will differentiate a class of products, competing in all the traditional applications of side-gusseted or side-welded bags.

After all those years of "bags that fight back", customers will witness the improvement with relief. Their performance expectations will be raised, they will demand and seek the product that relieves them of the traditional headache. That will cause a rapid shift of market toward our Licensees; in some market segments our target for this shift is 80%.

How could that play out? Suppose for example that in the first two years SFT Licenses under 25% of the current production/supply companies, or the equivalent in present market. Suppose only 20% of the remaining market's customers move to Licensees each year: within 10 years virtually the entire market will be concentrated in Licensees.

If the market switch is completely absorbed by the initial set of Licensees, that 10 years would see their own market multiplied by a factor of 3.6. The model is simple; if however we acknowledge that the customer migration rate would increase, then the market consolidation could occur more quickly.

The main driver of the industry shift is the benefits perceived by the user. Similar preference at the retail level will influence consumer choice of branded products. SFT's branding strategy is to allow Licensee brands to dominate on product or packaging while benefiting from the presence of SFT's brand as a symbol of quality.

After a small number of years it is likely that much of the market will have migrated away from non-Licensees. With markets favouring Licensees, non-Licensees would either move to other segments of the business or close. The industry will stabilise around the groups of companies able to meet the higher expectations of customers.

Licenses will allow Licensees to make, commission, use, and sell. Though not shown in the table, the retail consumer or the employee actually using bags is the driver for the market shift. Consumers drive retailers to stock the Licensed product. Employees using bags drive employers to supply bags that don't waste their time

	MANUFACTURER	SUPPLIER/ DISTRIBUTOR	MAJOR USER	END USER (CONSUMER or EMPLOYEE)
license allows	make & sell	commission & sell	commission and use	n/a
practical advantage	fewer product returns; more customers	fewer product returns; more customers	saved time/wages reduced bag waste improved workflow better hygiene	less frustration easier work fewer wasted bags saved time no spitting needed
strategic advantage	defend market, gain market (in response to customer demand)	defend market, gain market (in response to customer demand)	increased competitiveness	improved satisfaction with work/task

How to beat offshore cut-rate producers? ... control the market

Offshore cut-rate producers have taken a large market share and even with countervailing duties (sometimes dodged by shifiting the site of manufacture to some other country not mentioned in the regulation) can be difficult to compete against. As one producer told us "I can't even buy the resin for what they charge for finished bags".

So, here is an opportunity: tilt the playing field in your favour.

With a License from SFT, market SFT's better bags; order the bags (to the SFT-enabled specification) from your offshore competition, who can't sell the same specification to your market without a License.

SFT's strategy

Clearly, the consumer will demand the improved bags. To facilitate that, our Licensing strategy is aimed at having the improved product priced at no perceptible cost increase.

Our strategy is to License only a portion of the current market capacity, and let that absorb market from non-Licensees.

What's it worth to not let your competitors get this first?