Gotta Read the Labels
By Brendan I. Koerner
Seriously, thank God for over-the-air daytime TV. Not only would I get pretty lonely without the virtual companionship of Judge Joe Brown, but I'd also miss out on some great column fodder. Case in point: an ad I spied during a recent 2 p.m. airing of Law & Order on TNT. (Like any good cheapskate, I go sans paid cable, relying on a spliced cable modem hookup to provide my signal; bless Time Warner Cable's heart for piping in gratis TNT and TBS.) The commercial featured an elderly couple who mistakenly donned each other's dentures. The solution? Why, a Dymo LetraTag 11944 labelmaker, of course. Print out a "His" label and a "Hers" label, and never suffer the embarrassment of misworn dentures again!
Okay, so the ad assumes that the couple in question has a collective IQ just a few points higher than an earthenware jug. But I didn't waste too much time nitpicking on the plot's believability; what stayed with me on this one was how humble labelmakers have evolved into low-end electronic gadgets, complete with two-line LCD screen and fax-like printing technology—all while staying below the vaunted $20 barrier. How do they do it? Methinks someone over at Dymo studied the shaving industry while obtaining their MBA. After the jump, a partial explanation as to why Dymo is worth nearly three-quarters of a billion bucks (for real), and where low-end favorite Casio fits into the picture.
Now, let's rewind fourteen years, to the dawn of the digital labelmakers age, and do some comparison shopping. Back then, Dymo was owned by Esselte (the Pendaflex people), and dealing with some fierce competition from market leader Brother. Dymo was actually playing catchup in the space, having been slow to make the transfer from manual labelmakers to digital ones. Its 4500 machine displayed a bit more text than the Brother mode, and cost the same—an absurd $249. Not exactly the sort of thing you'd buy to tag little Johnny's underwear for summer camp, eh?
By 2000, Dymo had gotten the price on an equivalent machine (the LetraTag 2000) down to $49.99. Now the current LetraTag lineup beats the comparable Brother offerings by an average of $10 to $20 per unit. Dymo's only real competitor for lablemaker hegemony? Good ol' Casio, with models such as the KL-60SR going for around $17. But a meager four-character LCD display? C'mon, Casio—we all expect more from the company that brought the world the VL-Tone 1.
So, no question, Dymo's the proverbial 800-pound gorilla of the labelmaker industry. (Quick etymological aside: Why 800 pounds? Why not 900, or 873? Discuss and share.) But I had no idea how much of a beast the brand truly was until I dug up news of Dymo's sale last year to Newell Rubbermaid, for $730 million in cash. True, Dymo makes a lot of coin off the enterprise market—Suzy Homemaker ain't dropping $168 on the RhinoPRO 5000. But it's the LetraTag line that gets the TNT ads, which means they're a pretty big revenue generator. Has Dymo really ratcheted down production costs that much? Have I underestimated the price-slashing effects of technology's Guandongization yet again?
Nah, me thinketh not. The catch with Dymo is that there's really no widely available knock-off tape to refill your LetraTag unit—you're stuck buying the name-brand stuff from the company, which runs about $6-$8 per roll. It's exactly the business model used Schick and all those razors folks—break even or take a loss on the frame, but make it back (and then some) on the blades.
It's a business model that works in large part because, let's face it, consumers aren't very far-sighted—myself included. When I got a "free" Mach 3 Turbo razor in the mail a few years back, I felt like I'd just hit a Pick Six at the track. Now, hundreds of dollars later, I realize that I was suckered out of my low-end ways.
Not that I think Dymo is sinister—just sharp business thinkers. They know as long as they beat the Brothers of the world on the hardware, they can make it all up on tape sales. And therein lies a couple of vital lessons on the psychology of us cheapo gadget buyers: it's easy to put stars in our eyes, and we're not particularly interested in long-term calculations.
Oh, and one more thing: we're suckers for design aesthetics that make a gadget look more expensive than it really is. That Blackberry-style QWERTY keyboard on the QX50? Makes me think I'm living in the future—a future in which I'm earning a wage worthy of T. Boone Pickens. Kudos, Dymo—you've figured out that, despite our modest incomes, low-end consumers are a vain and insecure loot as well.
NEXT WEEK: ShackWatch returns!