Battling the big brands with an online strategy

Ruslan Kogan began selling cheap electronics in an industry that tells consumers you get what you pay for. So convincing the market to trust his online offerings has required a specific brand management approach. By PATRICK STAFFORD

By Patrick Stafford

Ruslan Kogan began selling cheap electronics in an industry that tells consumers you get what you pay for. So convincing the market to trust his online offerings has required a specific brand management approach.

He founded Kogan Technologies two years ago after shopping around for an LCD television. Astonished by the high prices, he sought a better way of providing cheap high-quality electronics.

Searching the internet provided Kogan with a solution – contact Chinese factories directly, pay them to assemble products with components from different manufacturers, ship them to Australia, and sell them online.

The lack of overhead costs means Kogan sells electronics for hundreds of dollars cheaper than other retailers.

“We are all about making technology affordable for all Australians,” he says. “We work with factories and get them to put products together for us. One television may have a panel from Samsung, another from LG… it’s all about finding the best parts for that specific product.

“We’ve seen 20% month-on-month growth pretty much right from the start. We started with one container from China and any time now we have up to 20 containers on the waters… often they are half sold out before arriving.”

Kogan is expecting a revenue level of between $15 million to $20 million for 2008-09.

Building a reputation

But in an industry where cheap rip-offs can be spotted quickly, Kogan has had to work hard convince consumers he’s the real deal.

“Building brand credibility has been our biggest challenge,” he says. “We need to convince people who don’t know our brand, who just look at the price and think our products are not as good value or as good quality as some of the other brands.

“Maintaining that level of service has been a great challenge to us… getting people to buy Kogan and accepting it’s not risky.”

To help build his company’s reputation, Kogan has spent hours in online community sites, chatting on forums and blogs and establishing a presence that consumers can trust. “We’ve been participating in the industry so people can see we are legitimate.”

Another key to building a legitimate brand has been consistently listening to customer feedback and quickly fixing problems. “Anything bad that happens in this business spreads really quickly online.”

But Kogan wasn’t always so accepting. In fact, he says his biggest mistake was rejecting constructive criticism.

“Being so young – I was only 23 when the business started – I took criticism too personally. I got defensive about it. You’ll see on the forums where I’ve introduced myself and was discussing products, and as soon as anyone said stuff to make me upset, I reacted to it and wrote things that were very defensive. I wasn’t able to look at every comment objectively.

“But I’ve matured a lot more as a businessman. I appreciate all feedback, and look at it objectively and act on it… and now I look at every opportunity to improve the business.”

Keeping up with the pack

The electronics industry is extraordinarily competitive. Major manufacturers such as LG, Samsung and Panasonic, and big retailers such as Harvey Norman and JB Hi-Fi, dominate with their huge volumes and ability to discount to win market share. It is a constant challenge for a smaller player like Kogan.

Kogan says he has to make sure the business is ahead of the game all the time. “It’s a very competitive industry that we’re in, and retailers are driving prices down. Blink for one moment and everything changes in the tech world. If you’re not on it, you’re going to miss out.”

The group is forced to find ways to compete with the big brands. One of the methods it uses is rapid dispatching, whereby customers who have ordered products at 9am received that product six hours later.

Kogan also emphasises the ability of an online company like his to provide rapid customer feedback and access to product reviews – something he says other brands don’t provide.

“Shopping online is safer than in a retail store. You don’t know what people have thought about products in a store – there’s no feedback. But when you go online you have customer testimonials and see feedback from the last 1000 customers.

“Online businesses offer more and more transparency.”

Keeping costs down

Kogan’s main attraction is offering lower prices, so the company is always on the lookout for ways to cut costs. But Kogan says this does not just apply to products.

“Being online, we have a lot of uni students who are really into our business model, and they prefer to work from home doing live chat tech-support, which runs pretty much 24/7.”

Kogan also says the business is completely paperless, and relies on email to get things down quickly.

“Another recent initiative is when we decided we can save people $10 per TV by just having a plain box. We decided to make a thicker box, knock the price off the TV, and everyone’s happy. Rather than printing manuals, we now have all our user manuals online, which are frequently updated.

“Little things here and there make business more efficient.”

But Kogan says other businesses should look out for small ways to cut costs – they add up, and will help during the looming downturn.

“I look at the economic downturn as an opportunity – there’s opportunities for companies to innovate and create better money for value solutions, which is exactly where we sit in the market place.”