After all of the positive feedback for my post on Goulet Pens (thanks guys!), I’ve decided to keep this going as a series and even expand it beyond retailers. It seems I’m not the only one who finds the businesses in the FP market to be quite interesting, and so we’re going to be looking at more over the coming weeks/months. These posts do require a bit of thought and investigation so they won’t be especially frequent, but they will definitely continue. We’ll kick off the first brand (manufacturer) analysis by looking at Twsbi, the company that I regard as the most interesting and innovative in the market.
I actually find Twsbi to be a bit challenging sometimes, in terms of whether I actually like them or not. As an economist, I see them as a disruptive force in the industry and enormously fascinating for that reason. As a user, their products can be both awesome (most of the time) and incredibly frustrating (when they fail). While I really want to see them succeed in challenging the incumbent firms, I also want to see them slow down and spend more time getting the products right. I thought that SBRE Brown and Gourmet Pens did a good job of conveying this ambivalence in their recent review of the Twsbi 580.
As you might be aware, Twsbi was formed in 2009 as the subsidiary of a Taiwanese precision manufacturer, who produced fountain pens for other brands. Their first product, the 530, was a pretty big hit amongst the enthusiast community and the company has had a devoted following ever since. It isn’t a perfect company – plenty of people have legitimate concerns about the build quality and longevity of the pens – but it is a successful one.
The conventional economic explanation for the company’s success is that it is disruptive: Twsbi’s products are innovative and aggressively priced. For anyone who needs a reliable pen with large ink capacity, it’s hard to beat the 580AL ($60) or Vac ($65). In the same price range are pens like the Faber-Castell Ambition ($70), Lamy Studio ($80), Monteverde Invincia ($68), Parker Urban ($65), and Sheaffer Sagaris ($65). All of these are quite nice-looking, well-made pens, but they are cartridge/converter pens with limited ink capacity. To my knowledge, the only cheaper piston-filler pens are the notoriously unreliable Noodlers pens. Indeed, the closest real competitor is almost double the price, the Pilot Custom 74 ($90 Asia/$160 US). Although the 74 comes with a gold nib, Pilot don’t offer swappable nibs or design their pens to be dissembled like Twsbi do. It’s easy to see why these pens caught on, and why everyone in the market was forced to pay attention to the Taiwanese upstart.
That said, the 530 (as well as its successors, the 540 and 580) have suffered from quality-control issues like brittle plastics that can crack and poor nibs. The ability to dissemble also leads to users inadvertently breaking things (even me), and all of this has created something of a reputation for low-quality products that is obviously in conflict with the low-price/good-quality position Twsbi has obviously attempted to establish. Twsbi has moved to address these problems, by having JoWo manufacture nibs on their behalf, redesigning the 5xx-series to improve build quality, and – most effectively, in my view – building a reputation for customer service that is second to none.
Twsbi’s core users are the enthusiast community, who don’t seem to mind product quality issues (if they did, it’s hard to imagine Noodlers would still exist) and appreciate the ability to easily access support and replacement parts. But looking at opinions around the community, it’s clear that users who aren’t really tinkerers still have some concern about spending money on a pen that might be prone to breakage. As Gourmet Pens said, you wouldn’t give someone a Twsbi because you’d be afraid that it would break. The quality issue is a weakness for the company but does appear to be one they are working hard to overcome.
To my mind, this also demonstrates Twsbi’s real strength: its internal architecture. As I discussed in the last post, internal architecture is the ability of a company to communicate information and respond to it. Twsbi certainly seems to do this quite well; the customer service element is part of their marketing structure but is also integrated with the producer designers. User feedback clearly influences the design (and redesign) of the products in a way that I’ve not seen with any other brand. I hope that we see more brands engaging with users in the future and giving users more power to influence the decisions of the company.
Now let’s look at where Twsbi’s strategy is leading them. If everything goes to plan, Twsbi will begin selling the new Eco in April this year. The Eco is another piston-fill demonstrator but will be priced at less than $30: perhaps the most aggressive move in their company’s history. It has been in development for more than two years and I understand that the build quality has been one of the main concerns. If they can produce a reliable, high-quality pen at that price, it is going to have a huge effect on the entry level of the market.
That tier of the market is currently dominated by two pens: the Pilot Metropolitan and Lamy Safari. The metal Pilot Metro is quite a different product to the Eco: it is half the price ($15) and the nib quality is just sensational, which makes it seem likely that the Metro will retain its appeal. The Lamy Safari, however, is facing a massive threat. Both are plastic pens with swappable nibs and demonstrator options, but one has a piston-filler and the other has a C/C system. Once you take the $5 converter into account, the Safari will actually be more expensive than the Eco. Ultimately, the only reason that I can see any choosing the Safari over the Eco is for the swappable nibs – and even then, they cost $13 each. When it comes down to a choice between a Safari and two extra nibs, or two Ecos, I think a lot of users will opt for the Twsbi.
So if the Eco does steal a lot of market share from the Safari, what effect is this likely to have? Well, obviously it would mean that Twsbi sells a lot more pens. That increase in volume would bring in a lot of cash and allow them to fund more innovation, so they can take on different parts of the pen market. It might also allow them to step up their distribution and potentially have the Eco sell at more retailers – possibly even the kinds of places that a Safari currently appears, like big-box stores (Staples, Officeworks, etc). I would be incredibly curious to see what Twsbi do with the cash generated by that sort of growth; my instinct says they have other products in mind already, and not at the premium end of the market ($200+). I certainly wouldn’t be surprised if Twsbi had spoken to Jowo about sourcing some solid gold nibs for future products.
If I was working at Faber-Castell, Kaweco, or Monteverde, I would be paying very close attention to their next moves. (And if Parker, Sheaffer, and Waterman were competitive brands, they’d be paying close attention too. But I’d be surprised if anyone at those companies had even heard of Twsbi).
We can’t overlook the effect that this would have on Lamy. They might try to redesign the Safari or develop an entirely new product, but it’s hard to see them matching the quality and price of the Eco. The loss of sales would also mean a big hit to revenue, and less cash available for developing a new product. My feeling is that the Safari gets new users into Lamy, and the swappable nib units make those users more keen on Lamy models (like the Vista, AL-Star, and Studio) than they otherwise would be. Losing the Safari would therefore have a knock-on effect on all of Lamy’s FP sales (except perhaps the Lamy 2000). This would massively diminish Lamy’s presence in the FP market, and it’s shocking that a six-year-old company could be in a position to do this.
If nothing else, this demonstrates the power of innovation, particularly in a fairly sedate market like FPs. Through innovation and disruption, Twsbi has made itself into one of the most formidable and competitive manufacturers today. It will be extremely interesting to see what they do over the next five years and how much they manage to reshape the landscape of the market.
As always, I hope that you have found this interesting and I’d be delighted to hear your questions or feedback. You can comment below the post or get in touch with me directly. Thanks for reading!
As there seems to have been some misunderstanding about my last post, I thought it would be useful to do a follow-up that explicitly considers the nature of strategic analysis, in the context of Twsbi. Some of this has been implied in past posts but may be useful to unpack. The post that was scheduled for today has been moved back to Friday morning (AEDST), and that will probably generate some discussion too.
The first of the three broad points I’ll make is that, with these kinds of analyses, the post reflects a possible future scenario and not a certain one. The post suggested that the Eco would be a huge success for Twsbi but it is also possible that the pen will flop, or that it is only a moderate success, and doesn’t change the market at all. This outcome is certainly possible, and I wouldn’t rule it out. The discussion focussed on the success scenario for a few reasons: first, in my opinion, this is Twsbi’s actual goals and it’s worth considering what success could mean for them (and for Lamy). Second, this scenario is a great example of how a disruptive startup can knock out a dominant competitor. Finally, it’s interesting! I’m not sure what you would rather read about, but I’d much rather write about the possibilities of dramatic change in the market than saying everything will stay the same.
Second, when considering these scenarios, the most important thing is not whether the assumptions are realistic (what you might call the external validity) but whether there is a logical consistency between causes and effects (the internal validity), and whether all of the relevant factors are included in the analysis.
Challenging the assumptions of a scenario is a way of determining how realistic it is, and therefore the probability of it occurring. I see this a lot – it’s a natural instinct – but it ought not be the priority. External validity is a much lesser concern than internal, for two reasons: first, if I was Lamy and facing an existential threat to my biggest-selling product (and, potentially, the entire FP business), I would not care if the probability of that scenario was 5% or 50%. It would become my focus either way and bar nothing. Second, most assumptions relate to things that can either be confirmed by research (and yes, the Safari/Vista/AL-Star are the majority of Lamy’s FP business) or can be influenced, even changed, by human agency. Some people use the phrase ‘construct your own reality’ to mean some psychological rejection of what they perceive; I use it to mean that we have the power to cause change in the world, to make it more conducive to our goals and strategies.
Its something similar to playing chess: you need to think through the different scenarios, all of the future moves in each, taking into account what is possible and how your opponent might react. The scenarios that you focus on are the ones that lead you to victory or defeat. And while you can’t force your opponent to choose a particular strategy, you can influence whether he plays aggressively or defensively, you can change the basic assumptions of the game.
Third, some people engage in two-stage thinking: they look at the initial cause (the Eco’s release) and the ultimate effect (a much-diminished Lamy), and dismiss the strategy as unrealistic. It’s not an approach I like because it misses a lot of the nuance and subtlety that is needed for a successful strategy.
I used to encourage people to look at things salami-style, but recently that’s been supplanted by a great quote from House of Cards*: ‘How do you devour a whale? One bite at a time.’ Whatever metaphor works for you, the focus is on looking at a strategy as a series of distinct stages, with each one offering you a chance to gain something for yourself and deny it to your opponent. Twsbi can’t defeat Lamy in a single day, like two armies on a battlefield, but it’s certainly possible that they can devour the whale over a course of several years.
In the first week, the Eco will massively outsell any of Lamy’s products, that’s to be expected. After a few months, when the pent-up demand has been satisfied, we’ll start to get a sense of how the Eco is performing against the Safari. If the Eco can gain popularity within the online community, it’s certainly possible that it could start to displace the Safari as one of the main pens recommended for newbies. With enough cash from the initial run, Twsbi has the ability to invest in its infrastructure for the war ahead: product refinements, production capacity, distribution networks, and marketing. That enhances its ability to place its product in stores (both online and brick-and mortar) and in markets where it hasn’t previously had a presence (eg Australia). As the business and sales grow, the company starts to benefit from economies of scale and can lower its price or invest in further refinements to its infrastructure.
At the same time, Lamy is facing the opposite situation: its sales are falling and its costs are rising. Cash is being drained out of the company. At first, this might be a minor problem – Lamy’s products are sold in big-box stores, in department stores, in newsagents and stationery shops around the world, which are safe from the initial Twsbi onslaught – but this activity goes through distributors and central buying teams. Once Twsbi has a decent market share, production capacity, and a respected product, it can start to attack these pinch points: it can go to major chains and pitch them on the benefits of carrying Twsbi’s lower-cost, higher-quality product (you might argue whether this is true but that’s certainly the argument they would make). Once one chain agrees, and the others see that Twsbi can handle that level of volume, it becomes much easier to convince the others: particularly if the Eco outsells the Safari in that kind of environment.
And let’s not forget that this isn’t a contest between Twsbi and Lamy alone. Once Lamy is under threat, the sharks will begin to circle – other brands, aware that Lamy’s business is collapsing and an opportunity exists for them to capture market share. Pilot might make a push to have the Metro replace the Safari at some US retailers, Pelikan at German retailers, and Faber-Castell in the UK. Devouring a whale doesn’t necessarily mean you’re eating alone.
So those are the three key points I really wanted to emphasise: that strategy is about possible scenarios, not certain ones; that our focus ought to be on internal validity; and that there are a lot of discrete stages within strategic execution. I realise that there will still be people who dismiss this entire scenario out of hand; I think it’s probably just human nature. If I were Twsbi, I would be assuming that the folks at Lamy are just as strategically competent as I am; but I’d be hoping – hoping like crazy – that they dismiss this scenario as easily as others have.
*Which you should definitely consider watching, if you enjoy strategy.