Interesting post by Charlie Vlk about Kato's business plan

[Ed Kapuscinski]

Just read this (heavily cropped) quote by Charlie about when he was working for Kato. I'm posting it here because I think it's something we'd enjoy discussing, and would get lost if I (inappropriately) tried hijacking that thread.

I'm not telling tales out of school when I repeat what was disclosed in the Kato Japan article in a past Model Railroader..... Kato, by business plan, strictly limits North American sales to 15 percent of the Japanese sales...period. Making too much profit is just as bad as not meeting sales goals for the fiscal year.

(Emphasis mine)

I NOW understand why Kato does what they do, why they don't "print money" by making constant SD40-2 releases, etc...

I don't understand the thinking, but if that's the thinking, the execution makes plenty of sense.

I am constantly grateful for Charlie's contributions to these fora for insights such as this. Thanks Charlie!

[Mark5]

Yeah, "understand" 

[Hiroe]

Chewbacca Does Not Make Sense.

[Erik W]

I think it makes sense when you think about it.  If your business model is very rigid than you, 1. wouldn't want to take away from your 85% production for domestic (Japanese) sales and 2. wouldn't want to increase your production capacity to enlarge your North American sales percentage.  Enlarging your production capacity would "rock the boat" as far as the way you did business, increase in cost of doing business expenses, number of employees, production schedules, R&D, etc.  With a rigid Business model, I would think this would be a no no.  If Kato is already making enough money to keep themselves happy, why rock the boat (in their minds).  Of course this is just my ill informed opinion.

Erik

[ljudice]

Not too surprising....  CEO's get blasted just as much for coming in OVER plan than UNDER plan in some circumstances...

Develop a plan - and EXECUTE!

[wm3798]

Okay, so what you're saying is that if Kato manufactured lightbulbs, we'd still be chasing down whale oil?

It is what it is, but that doesn't make it a good business model.  

It sounds a little like the Walther's plan...  "N scale will be 10% (or whatever) of our HO releases, whether they need it or not!"

Atlas is the only manufacturer (aside from the notable upstarts we've seen lately) that treats N scale as a market unto itself.  They don't look at HO tea leaves to divine what products will or won't succeed in N scale.  F'rinstance, I haven't seen an HO shay from Atlas yet...  And the products that are cross pollinated are also cross-developed...  N scale projects appear to be researched and tooled more or less right alongside their HO counterparts, streamlining that part of the cost structure.  It's not an afterthought like WKW.

Kato is certainly in no imminent jeopardy of going down the tubes, but their model of doing business is giving rise to some pretty serious competition... Competition that is licking its chops to fill the vacuum that's left by Kato's blind eye....

Think of it... What has Intermountain attempted to do? (not always successfully, to be sure), but premium passenger cars, F units and big 6 axle models that Kato has been sitting on for decades.  And I know we're all quaking about IMRC jumping into the SD40-2 pool, but they're smart enough to recognize that there is a huge demand there that is being ignored by the only other manufacturer with the tools to meet it.  If Kato was on the ball, IMRC probably wouldn't even bother trying.

Lee

[up1950s]

Must be that new math . As long as Kato continues to produce some useful stuff for me yearly , I will refrain from haulin' off with a barge full of sludge comments to match that cesspool of an idea at marketing in the USA . Whoops , too late .

[Mark5]

It's funny, I was cruising through Ivy City on those magic carpets made of steel this morning and spotted a VRE F40PH and immediately went into thinking about all the schemes Kato has released on their model ...

(here's a hint - you can count the schemes on 1 finger)

Mark

[bicknell]

You guys aren't thinking about this with the "new math" involved.

If they cut their prices by half, they could do twice as many releases and still be at 15% revenue!

Sounds like a plan to me.

[Mark5]

You guys aren't thinking about this with the "new math" involved.

If they cut their prices by half, they could do twice as many releases and still be at 15% revenue!

Sounds like a plan to me.

This man is a genius! ;D

[wm3798]

It's funny, I was cruising through Ivy City on those magic carpets made of steel this morning and spotted a VRE F40PH and immediately went into thinking about all the schemes Kato has released on their model ...

(here's a hint - you can count the schemes on 1 finger)

Mark

But Mark, you can always hold out hope that WKW will upgrade the old Life Like lead sled F40 and release it in N.... oh.... no, that won't happen either.

Lee

[oakcreekco]

Typical "Japanese" business model/plan.  They think "long term" with a plan, and stick with it, compared to "short term" American thinking of making a huge profit now, and then being in trouble down the road.

I may not like it when more needed models don't come out, but I understand, and that's just life.

As long as Kato, as a company, stays "healthy", that's all that really matters.

[Mark5]

Long term planning over short term profit is good.

I think this is more about Kato makes it's money mainly in the Japanese market, so the US market is sort of an afterthought.

[Rossford Yard]

I saw that quote and questioned it myself.  Maybe because I am an American and not Japanese, I don't understand why they wouldn't jump on an easy profit opportunity, planned or not. Not all the projects are profitable, like their RDC cars, and a little extra profit here and there cushions the unexpected flops.

Now, I can see not expanding their plant and working within their production means. I think there are some pretty strict regulations for new factories in Japan, and the cost of expansion might not be justified in the additional product they could put out.  And, there are often some practical managment limits, like one manager for every 7 employees, for example that might make whatever expansion they might reduce the % of profitability, so why do it?  Many small businesses are very conservative when it comes to expanding past their existing space or management capability.  And I doubt opening a Chinese plant would be part of Kato's culture, so that is out.

I wonder if they could use their existing capacity and employees working overtime or in three full shifts to produce more of a popular product?  As mentioned, in many cases, it might just be the paint shop, putting out more paint schemes on already molded diesel shells of popular models. 

Atlas, for example, seems to support themselves by reissuing popular models like the GP 40 and others in new road names and new numbers.  It seems like the easiest way to pump out more product at the least possible cost.  More SD40-2 or FP40PH paint schemes would seem like a natural for Kato without doing much work.

The other possible scenario with MAP pricing is that they like the idea of Kato scarcity in an effort to keep the value and brand recognition of their products high.  Since they seem to be focusing on more road specific details now, re-issuing an SD40-2 in different paint schemes that aren't prototypical for the body styles they have may be seen as diminishing their product image, and thus WOULD require them to do more than paint.

The short version is that I understand Kato about as much as I understand women, which is to say, not so much......

[MichaelWinicki]

Okay, so what you're saying is that if Kato manufactured lightbulbs, we'd still be chasing down whale oil?

It is what it is, but that doesn't make it a good business model.  

It sounds a little like the Walther's plan...  "N scale will be 10% (or whatever) of our HO releases, whether they need it or not!"

Lee

I've been involved in many businesses over the years and I know I don't "get" Kato's business model– I really don't.

And as an N-scale modeler Kato is so far down the list as being relevant, they would have to work at it in order to get above IM, without even mentioning Atlas, Athearn or Walthers when it comes to my modeling needs.

Hey, it's like this, I don't do Unitrack.

I model an northeastern road in circa 1970 that's not electrified.

There's very little that Kato has produced over the last several years that "fit" in my location and time period.  My locomotive roster has more Atlas, LifeLike (Walthers) & IM than it does Kato.

It's not that I don't think they make a quality product because they do, they just don't seem to be interested in satisfying the needs of the market.  And because of that attitude, other companies will ultimately benefit at Kato's expense.