Business

Can you charge double and still keep your customers coming back?

Early vacuum cleaners from the 1940s and 1950s
Image caption Miele likes to keep even the oldest models working, within reason

The reason Markus Miele is running uncharacteristically late this afternoon, is that he has been on the telephone to a customer.

He may be chief executive of the German domestic appliance company Miele, he may have factories to oversee, meetings to go to, and pricing strategies to discuss, but a Miele customer from the UK has written to him personally to inquire about a replacement part for his vacuum cleaner and Mr Miele is eager to help him.

But the vacuum cleaner broke six years ago and it was already nearly 30 years old then. He thinks he can find a replacement for the cleaner's broken door, but not unfortunately in the correct colour, which he finds disappointing.

It's not clear whether he is sharing this detail to explain away his tardiness, or to illustrate the company's evangelical devotion to keeping their products working in perpetuity.

But it's a strategy that on the surface makes no sense. Wouldn't Miele make more money if people replaced their appliances just a little more frequently?

Mr Miele says that's not the way they think.

"We like the appliances to last, because not everyone wants to change all their things every day," he says.

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Media captionClick here to listen to the full report on Miele's build-to-last strategy from BBC World Service Radio

Fortunately Miele doesn't only sell vacuum cleaners. A customer impressed with his vacuum cleaner can come back for a washing machine, a tumble dryer, a cooker, or a coffee machine. It's brand loyalty the company is after.

And as they like to point out at Miele, no-one enjoys reading a new instruction manual.

"People like to change their mobile phones more often, or TV sets maybe, but not your washing machine or tumble dryer. It's a replacement market we're in," says Mr Miele.

It's a strategy, readily associated with German manufacturing, from hi-fi to industrial machinery, build quality products that last, and you'll win over customers in the long run.

Image copyright Getty Images
Image caption In the past, a new car outside the house was the best way to impress the neighbours; now some of the focus is shifting indoors

And it is working for Miele. Despite the fact that a typical Miele machine costs around twice the mid-market standard one, sales are growing year-on-year.

But recent trends are making those customers a little harder to win over and keep.

Like a BMW on the drive or a Hermes handbag, kitchen appliances are becoming increasingly about aspiration. You can blame celebrity chefs, or the revival of the kitchen-diner. Or put it down to the growth of middle class spending power.

As the latest hi-tech features migrate from our phones to our homes, machines that were previously merely functional, have become a fashion statement, from American-style fridge-freezers to your at-home barista station.

Competition is hotting up. Both fellow German brands like Bosch and Siemens and far eastern ones, such as Samsung, are targeting the kind of well-heeled customer Miele holds dear.

With so many new features on offer customers may be tempted to upgrade more often after all.

Image copyright Getty Images
Image caption Samsung is selling machines in the same premium segment as Miele, and trading on their reputation for high-end electronic expertise

And the quality of less expensive brands is catching up. While it might seem as though your appliances are constantly failing and needing replacing, Anthony Williams at market research company, GfK, says the trend is actually for improving durability.

"Evidence suggests manufacturers are putting in money to ensure good build quality," he says.

"There are so many standards that now have to be adhered to, particularly for hi-tech products, by the nature of the product they have to make sure the [manufacturing] environment is very carefully monitored."

Mr Miele refuses to be cowed by these challenges.

From the time when his great-grandfather developed the company's first washing machine out of a butter churn, their strategy has been to focus on durability.

In demonstration, Mr Miele takes a one euro coin and hammers the front of a brand new washing machine with it. It is a hard currency still, he quips. Yet it leaves no mark on the machine's enamel surface.

Image caption Miele's first washing machines were modelled on a butter churn
Image caption It was the horizontally rotating turner that was groundbreaking in the early 1900s

Here at Miele's Gutersloh headquarters, washing machines operate around the clock to check they can withstand the equivalent of 20 years of use. And walking across the factory floor we pass a shift worker employed to rub a ladies nylon stocking around every drum the company produces to check for snagging.

The backbone to this rigorous quality control, though, is maintaining a tight-knit operation.

"We have a lot of our production concentrated in Germany, more than 90%" says Mr Miele.

"With our own factory it's of course much easier to control the quality because we talk to our own people, and if something goes wrong they can react very fast." They don't outsource any components.

None of this means a Miele machine is cheap to produce.

Image copyright Miele
Image caption Miele's imposes rigorous checks such as checking for snagging with nylon tights

Yet the management has come under no pressure from its shareholders to switch production overseas, or to chase more customers by moving downmarket. That's because the firm is still owned and run by the two families that first established it.

Mr Miele splits his role with a co-chief executive Reinhard Zinkann - the great-grandson of the other of the company's original founders.

Mr Zinkann says filial devotion to the Miele cause has brought them a long way.

"If two partners know from the very beginning that they are in a marriage that cannot be divorced, because if they divorce then it will be the end of the company, then that is very helpful."

Image caption Reinhard Zinkann says that arguments are a very rare occurrence indeed at Miele

And, unlike some other privately-owned German brands, so far they've managed to avoid high-profile fall-outs at the top. Mr Zinkann says in the 24 years he's been at Miele every management and every shareholder decision has in the end been taken unanimously.

It's all quintessentially German - family-owned, a long-term perspective, engineering prowess and attention to detail.

But if in the past that might have been seen purely as a strength, after the recent scandal at Volkswagen, "brand Germany" looks suddenly vulnerable.

Image caption Once upon a time Miele also made bicycles, and even cars, but now focus on their core products

Tosson El Noshokaty, from the Berlin branding consultancy, Prophet, thinks this will present a new challenge to the company.

"No one would have expected a German brand to be the Lance Armstrong of the motor industry," he says, and that undermines any company, from Leica to Heckler & Koch, that trades on the country's reputation for engineering prowess.

"Miele is really playing out German engineering, as a core essence of their brand," he says.

"Their story is German engineering perfection," he says. "That's why you'll have these side effects."

To hear the full radio report from World Business Report on BBC World Service click here.

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