The Appliance Brand-Name Game

New York Times - August 23, 1990

NILES, Ill. - At Abt Television and Appliance here in this Chicago suburb, no fewer than 15 models of washers and dryers crowd the showroom. So why Is Kitchen Aid, a Whirlpool subsidiary best known for its premium dishwashers and heavy-duty mixers, muscling into the market with its own brand of laundry appliances?

In the brutally competitive appliance business, deep price cutting and relentless promotions have depressing profits for some time. And, of late, appliance makers have been faced with the additional prospect of a sharp slowdown in sales growth as demand has dropped - a result of weakening sales of new houses.

The response by appliance makers has been a headlong rush into new product categories, as one appliance maker after another scrambles for whatever business it can get:

The trend is a classic illustration of what marketing experts call "brand extension" and cynics refer to as "brand creep" - attempting to transfer the good will developed In one product to a related product or products. But there are doubts about the extent of customer loyalty to a single brand, about whether retailers will make room for the new products on their showroom floors, and about. whether appliance makers will be able to recover the added costs of designing and manufacturing the new lines.

Appliance-Industry executives say that offering a full line has become a competitive necessity - critical to going head-to-head with industry giants like the Whirlpool Corporation and the General Electric Company, both of which have offered full-line brands for some time.

Benefits for Dealers

And they say that appliance dealers that carry a broader line of appliances from a smaller number of manufacturers end up saving on purchasing and transportation costs. The appliance makers themselves benefit, industry executives say, because they use their existing manufacturing and distribution systems more intensively, lowering unit costs.

Nowhere has the full-line concept been more heartily embraced than at Kitchen Aid, which has been a source of new-product introductions. Before being acquired by Whirlpool in 1986 from Dart & Kraft Inc., Kitchen Aid was basically a dishwasher and mixer company, selling a few trash compactors and stoves. Since then, Kitchen Aid has been turning out just about every type of large appliance, from microwave ovens to refrigerators to in-sink garbage disposals. In-deed, last year, dishwashers accounted for only about 47 percent of its appliance sales, down from about 87 percent in 1986.

The transition has not been easy. Dealer floor space is at a premium in the appliance business. The typical dealer has just enough space to display existing models. So when a company like Kitchen Aid wants a dealer to carry its new products, some other manufacturer’s products have to be dropped.

In this battle for dealer loyalty, Kitchen Aid has resorted to a broad range of tactics - from offering dealers higher-than-normal profit margins on new products to aiding in setting up point-of-sale displays and model kitchens so that customers can visualize how a home equipped entirely with Kitchen Aid appliances would look. Kitchen Aid has also played hardball, ceasing to do business with dealers who refuse to sell its entire line.

The results, Whirlpool says, have been encouraging. While declining to give details, David R. Whitwam, Whirlpool's chairman and chief executive, said Kitchen Aid's financial results are "on target" and "improving year by year, quarter by quarter."