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Being reliable, simple and cheap means big profit – write it down

THE FIRST ball-point pens were sold in the New York department store Gimbels in the late 1940s. The happy purchasers paid a remarkable $12.50 for the novel writing equipment. Based on dollar purchasing power comparison, the same ballpoint that sold in 1948 should cost $121 today.

The company we are focusing on this morning – the French specialist in ball-points Societe Bic – would surely wish that the novelty value of these pens was sustained – because today, yesterday and tomorrow Bic will sell at least 25 million pens, as well as an array of other disposable consumer products in its portfolio.

The company's products are a perfect example of how simplicity, reliability and being cheaper than the competition will see the public beat a path to your door. Bic proves another important lesson for business – namely, that it is always possible to see off rivals even if they are the most formidable multi-national groups around.

Bic started life in France immediately after World War II, spearheaded by Marcel Bich and Edouard Buffard.

Initially, the company made parts for fountain pens and pencils but eventually got around to ballpoint pens, which they called the Bic Cristal. By 1955 the company had sales of $5m (about €3.6m), despite a sluggish performance in the US.

In the early 1960s, the company launched an aggressive advertising campaign stateside (the Gimbels price of $12.50 having been reduced somewhat) and, inside five years, was producing 500 million ballpoint pens per annum, becoming the market leader.

The success of the Bic disposable pen had a knock-on effect on fountain pen sales; thus the group bought a fountain pen maker, the Waterman Pen Company.

After a period of rapid expansion the company was listed on the Paris Stock Exchange in 1972.

In his first letter to shareholders, Mr Bich (who by this stage was a baron) stated that the company was not shaped by an American or French business school but by the tough school of business.

He explained that the company was about employees and was anti-technocratic.

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A year after its listing, Bic launched the disposable lighter, provoking a price war with Gillette. Twelve years later, Gillette retreated and sold off its lighter brand to Swedish Match. Two years later, Bic introduced a disposable plastic shaver; Gillette once again reacted by introducing a similar model.

By the end of the 1970s, disposables accounted for a fifth of the razor market and both companies had an equal market share. Bic also entered the luxury pen market with the purchase of Sheaffer Pens, another US pen maker. In recent years, it has also developed an advertising and promotion business, mainly by acquisition.

Today the company sells in 160 countries and has 9,200 employees. More than three million outlets sell Bic products, moving an astonishing 41 million products every day, of which 25 million are Bic pens, six million are lighters and 10 million are shavers.

Bic supplies different pens for men, women and kids, with annual sales of €600m. Lighter sales, while more modest than pens, still contribute €560m to group revenue, and shavers account for a considerable €380m.

North America is Bic's largest market, making up almost half of group turnover, followed by Europe with a quarter.

The ownership of Societe Bic is interesting as the Bic family still retains control of about 44pc of the stock but has almost 60pc of the voting rights. This, however, has not impeded the company's commercial success. Sales have increased 50pc in the past 10 years. Its share buyback programme, which has been in existence since 2004 (except for 2009), continues.

It shuns the use of subcontractors, producing 84pc of all its products. Last year, it had strong cash generation and continued to invest in its manufacturing capacity. It also invested €33m in research and development and claims a fifth of its sales were generated from new products. Last year's sales of €1.9bn were marginally down on the previous year but income from operations at €350m was down 7pc.

Indications are that sales this year should have decent growth and will top €2bn. Societe Bic shares were €35 in mid-2008; today, it's €95, just below their recent record high of €97, valuing the company at €4.5bn – showing that cheap, simple and reliable products can be profitable.


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