Quite a bit of feedback on last week’s post and I must apologise to those who have gotten in touch but haven’t received a response (yet). We’re in the middle of final exams and students are claiming most of my free time but I’ll try to get back to everyone. Today’s short post will follow up on a few pieces of feedback which I thought were interesting.
Before we get into it, two other things I wanted to mention. Unfortunately, I missed yesterday’s Sydney pen meet but I’ve been told repeatedly that it was a great day. Fountain Pens Australia now has semi-regular meets happening in Sydney, Brisbane, Perth, and Melbourne, and I’m really pleased with what it has become. The Facebook group is a lively source of discussion, debate, and enabling, and it’s really wonderful to see the friendships which have been sparked. If you know of any Australian FP addicts, young or old, be sure to let them know about us!
Also, I recently asked on twitter whether readers would be interested in a post about poverty and development, which has become an interest of mine after my adventures in the Philippines. The response was largely positive so that will be another project for the winter break. I’m really looking forward to writing this and it’ll provide a good opportunity to think through my ideas before I formally present some of them next semester. Hopefully be published late this month or early next (no promises though). And now, on to the main course of today’s offering.
Ian Hedley and Marek Kubica
Ian and Marek (The Hyperpessimist) both had similar feedback on the post: Twsbi may have a real advantage when it comes to the US market, where both the Eco and Safari are roughly the same price, but Lamy hugely outperform in Europe where the price difference is more like 2:1 (even 3:1 in the UK). This is absolutely true and I’m afraid it reflects a bit of sloppiness on my part, and not specifying the market that I was discussing.
Of course, it raises the question about why Twsbi is so much more expensive in Europe. The easy answer is to say it’s because of transportation costs, import duties, and the transactions cost of currency movements. The more complicated answer is that it’s because Twsbi — who are pretty relentless in cutting costs — haven’t really invested in European distribution yet. Once they do, their costs should fall, and we should see them become more competitive.
That will strike some of you as counterintuitive: after all, a distributor has to pay out money for rent, wages, taxes, and a whole range of expenses, all of which increase the costs of doing business. This is all true but there are savings which should more than offset those expenses. Setting up a distribution centre would allow Twsbi to ship product from the factory to the Continent in greater bulk. That can then be broken down for delivery to individual retailers. A distributor would also grow the size of the distribution network, the number of retailers who carry the product, and enable some economies of scale to be realised. And a distributor would also work to improve brand awareness, further increasing sales. When a brand is of a certain size, setting up a distributor can end up costing more money than its worth. But beyond that size, it can start to become more worthwhile — and often it becomes more and more worthwhile as the business grows. I suspect Twsbi is already at a size where they are thinking about ways to economise on distribution and further reduce the retail prices they need to charge.
That they haven’t already leads me back to a mistaken assumption which I made in the original Eco analysis. My thinking was that Twsbi at the time had three main avenues by which they could increase sales: new products, US expansion (particularly outside of specialty retailers), and European expansion. My mistake was in assuming that the first avenue was close to exhaustion, that they couldn’t possibly have many more products in the pipeline. Since then, they have come out with the Vac Mini and the only product rumours are of a new school/learners pen which largely fits with my thinking. But I didn’t foresee the limited colour runs as becoming a big part of their business. These are surprisingly popular and seem to offer Twsbi a way to grow their revenue with less risk and less capital investment than the other avenues. I’m not sure if this is a sustainable approach but it seems to be working for them for now. Once the market is saturated and buyers show less interest in new colours, we should see Twsbi start looking at those other avenues and hopefully European buyers will start to see some more competitive pricing.
That said, Marek's post is exactly the kind of response I love to see: someone who has read a post, thought about it, has a differing view and explains it clearly and reasonably. Ian and I have had a similar exchange in the past and I think it's marvellous that some people in the community are willing to jump in for a constructive debate.
Ed raises a point on Twitter that comes up now and then, when he points out there’s no data or sources in the Lamy post. As regular readers have probably noticed, that’s standard for this blog even though I understand it can be frustrating for those who want to delve deeper. It’s something which I considered and rejected early on in the blog history. possibly before I even went public with the site. Nowadays, academic economics is largely about data, statistics, diagrams, etc and it becomes impenetrable to anyone without a master’s degree. While there are good reasons for this, it also means that economics is often inaccessible to the general public. As this blog is all about making economics more accessible, I decided that I wouldn’t use any equations, any statistics, any diagrams, nothing that would prevent someone with time and interest from understanding any posts.
Now you might disagree with that position and I think it’s entirely reasonable for anyone to do so. But that disagreement brings up some other issues which need to be considered: is using more data possible and is it desirable? It’s very rare for any business to reveal much data about their operations: even publicly-listed companies only give out the bare minimum about their aggregate operations. If you were to ask a retailer or a brand for sales figures, revenue numbers, production costs, I’d be surprised if they were willing to share any of that with you. I have good relationships with some people in the industry, there’s some trust there, and even I struggle to get much in the way of hard numbers. Absolute numbers (we sold x Twsbi Ecos this month) are quite rare; people are more comfortable sharing relative numbers (we sold x% more VPs this year than last year) but these obviously tell you much less.
The problem is that, even if one retailer or one brand decided to give you access to all of their numbers, it still wouldn’t necessarily be enough to make the kinds of certain judgements that Ed seems to be seeking. Lamy could open the kimono but without Twsbi’s data, it’s really hard to say much at all. Sometimes you might need to know about what’s happening in the rest of the market: maybe Safari sales are actually up, but there’s still Safari-to-Eco substitution and that’s disguised by the fact the market as a whole is growing, and growing much faster then Safari sales. Their market share would be in decline, but you wouldn’t know without a few different entities offering up data which they wouldn’t normally make available. So even accessing data from one firm isn’t necessarily desirable as it tells you nothing in isolation.
My approach then is what’s known in economics as methodological individualism: you think about individual behaviour, either buyers or firms, and try to figure out what’s driving them or why they might do certain things. Thanks to the blogs and forums there’s often plenty of insights available with which to form hypotheses about general phenomena. I try to find information which supports or rejects the hypotheses and, if they check out, I’ll think about what that means more broadly. Would this approach be sufficient for publication in an economics journal? Heck no. But our goal isn’t to reach a state of absolute truth, it’s for me to describe what I believe is happening, apply an an appropriate theory, and investigate the implications.
One of the things which every serious academic has to grapple with is the nature of truth: whether it exists and whether it’s something we can figure out and learn. Personally, I believe that it’s possible but I doubt many academic disciplines are anywhere close to it (including economics). Realistically, the best we can do is to try to incrementally get closer to the truth, even though our new theories and conclusions might be almost as flawed as the previous ones. Anything which helps us progress an accurate understanding of things is therefore desirable and that’s rather the role I see this blog as providing. Not bringing absolute truth to the community but bringing ideas and insights which help us move towards a place of improved knowledge and understanding.
A few readers have sent in social media comments that they’ve seen where Lamy fans have had their feelings hurt and have grown critical. And that’s fair enough. There’s an idea called status politics, which claims that some people will closely identify with something — be it a brand, an idea, a lifestyle, a sports team, anything — and want to see it raised in social status. They react strongly against anything which they perceive to lower its status. So you might believe that the homeless lack status and therefore you’ll support any policy which raises their status, regardless of the actual costs and benefits.
For me, status politics wasn’t all that credible an idea until the blog started. I remember seeing a thread online somewhere when I first published my taxonomy of pen brands, where some hardcore Cross enthusiasts were deeply upset that Cross wasn’t perceived as being as a highly competitive brand. My comments weren’t that the pens were bad, not that their users were idiots, or anything like that: simply that they didn’t offer as much bang for the buck as other brands. Nonetheless, it was taken very poorly and status politics seemed to explain that behaviour better than any other theories.
The same kind of thing can be seen in our community with almost every brand. They (almost) all have dedicated fan bases, and a subset of those fans are people who want to see their preferred brand raised in status. I’m not sure that behaviour is harmful in any real way but it doesn’t really add anything which I find interesting. There’s no analysis, it doesn’t enable constructive debate. So I don’t see much point in engaging. Those people aren’t going to like the things I write about their favourite brands unless it is cheerleading. And some of their behaviour — like reducing posts to a single sentence which doesn’t reflect the content — can be a useful signal to readers about whether to expect analysis or affirmation.
Finally, before I wrap up, a retailer emailed me this week saying that they’d been asked about their relationship with me. In case any readers aren’t aware, I’m friendly with industry folks (retailers, distributors, and brands) but there’s no sponsorship or any other formal arrangements. The firms that are spruiked are ones where I’ve had good experiences, not because of relationships, payments, or any quid-pro-quo. I’m just a guy writing what I think.