Exmark, Toro, and economies of scale

Discussion in 'eXmark' started by brucec32, Sep 9, 2003.

  1. brucec32

    brucec32 LawnSite Platinum Member
    Posts: 4,403

    Just curious, we all know that the more units of something you build, the cheaper they get, since you can spread design, tooling, and other costs over more units. In automobiles, this can be big $$$$, since you don't make a dime until you hit that magic "breakeven" volume. Seems that if you added Toro and Exmark's combined sales, you'd have a spectacularly profitable mower design.

    I was wondering if Toro and Exmark have studied how much it's really costing them to put out two similar but different designs in ZTR's and other mowers? This doesn't even count the duplication in marketing, systems, inventory, and other selling costs. Many of the differences are cosmetic (tanks, paint, trim items, controls) or of questionable value (Toro 52" vs Exmark 52"). Seems like it'd be better to just pick whichever company's particular part design worked best and go with it.

    I notice other makes have "rebadged" versions of other otherwise unrelated companies' mowers out there, it seems to me like coming up with two designs of basically the same mower makes them cost more than they should.

    I don't see any compelling reason to buy a Toro because of anything better or different in terms of performance (some aspects are generally regarded to be inferior). The wb's are a little different, with two distinct types of steering available, but even then, it's a shame I can't buy a T bar mower with an Exmark deck, or a 44" deck Exmark, etc, etc.

    I understand the reason to keep the Toro and Exmark brands and not consolidate them, but not the reasoning behind the different minor design elements and corresponding costs that go with them.
  2. eXmark

    eXmark Manufacturer / Sponsor
    Posts: 4,258


    There are actually several reasons why the designs are different.

    One of the big reasons is customer preference. You may like the Exmark deck better but someone else may like the Toro deck. You may even like the T-bar while I may prefer the ECS and someone else may prefer the pistol grips.

    The other thing to consider is the independently owned and operated power equipment dealers. They too have preferences. They may prefer the Exmark service department, distributor or various other departments and programs. Another dealer may prefer the Toro system. Neither system is right or wrong just different.

    Why did Chevy have the Camaro and Pontiac have the Firebird? Because some people are Pontiac people and others prefer Chevy.

    It really comes down to what the market wants. The market wants Toro and Exmark both; they like to have a choice. Look at it this way. You can buy and Exmark Lazer Z as an example or you can buy the second best zero turn on the market and go get a Toro. Just kidding................


  3. brucec32

    brucec32 LawnSite Platinum Member
    Posts: 4,403

    I see your point about people have their various preferences......

    but oooohhhhhh, bad example using the Firebird and Camaro! GM's "clones" spread amongst 2-4 different brands (Olds, Pontiac, Buick, Chevy) have been highly criticized in the auto press for just the reasons I mentioned. Most of the "differences" were just cosmetic, or minor enough not to warrant the higher costs involved. So instead of selling 300,000 units like Honda does Accord, they were spread out amongst the various brand names, even though basically the cars were the same design. The costs involved were killing GM. And Oldsmobile's recent demise is perhaps one result of that. They had too many brand names (and parts to stock, seperate designs to pay for, seperate factories to maintain, etc, etc). And unlike cars, the various styling differences aren't an important buying factor (I assume!) when buying a mower.

    Now 2 brands isn't too many with Toro and Exmark, but I still think that my point was correct. I would be happy to see at least a little more parts-sharing between the two if it lead to lower costs. For example....The Exmark 52" deck is, from what I read and have experienced, superior to past Toro designs. Stronger, deeper, better cut, etc. So I would go only with that. But even if it weren't, I would say that economies could be found simply on the cosmetic and other things like fuel tank shape, trim items, controls, etc. Having to design two distinct mowers (nearly every part is different) when functionally they are the same seems wasteful to me.

    I suspect it has more to do with the realities corporate turf wars following a merger/purchase, than economics though, with each brand fighting to remain distinct, which is also understandable, even if it costs money. And I doubt a Toro dealer would complain if Toro mowers showed up sporting Exmark decks with Toro labels on them!
  4. eXmark

    eXmark Manufacturer / Sponsor
    Posts: 4,258


    The problem with your theory is there is no “best” design. Best based on what? Based on durability, strength, performance, cost etc. There are different designs on the market and with in the Toro/Exmark companies that exist because there is more than one way to build a lawnmower. It still comes down to the perception of the buyer and what he/she prefers.

    I’ve always said there are performance advantages to each design given the right conditions. Our advantage is that we perform better in a wider variety of conditions.

    As far as GM goes I suspect the multiple brands were a fairly small part of their issues. While most automakers appear to be struggling in today’s economy the Ford, Lincoln, Mercury, Jaguar, Volvo, Rover, Aston Martin, Mazda group seams to be holding their own. I doubt Honda’s success is because they only offer one line and limited models. They may be successful because they are a well run company that responds to their customers needs.

    If there is a “best” way with in a company then there is a “best” way with in the industry. I don’t really want to tell a “power stroke” owner that he really needs the “Cummins diesel” and that’s all that is available.


  5. brucec32

    brucec32 LawnSite Platinum Member
    Posts: 4,403

    Interesting debate here.....I still think I have a shot at winning<G>

    You're correct. There is not always a distinct "best" design in a mower, and we all love choices. But surely you're not telling me that the gas tank shape on a Toro has to be any different than that on an Exmark? Or the size bolt used on a section of frame needs to be different? Or that the design used to mount a hydro motor has to be different? Or that there is a significant buyer preference for mounting the hour meter in one spot vs. another? That buyers are demanding thinner stamped steel deck designs over the fabricated ones Exmark makes? There are thousands of design elements in a mower. I would think that Toro/Exmark would take every opportunity possible to save design costs by using a standard design in the more mundane areas.

    All I know for sure is that I read a lot of posts about mowers here on lawnsite, and I can't recall someone saying they hate their Exmark Lazer and want to dump it. But I've read very mixed posts on Toro ZTR's, with many saying they got rid of them as fast as they could. Not because of reliablity. Not because of the wheel drive system. But because the decks left clumps or didn't cut as well as they wanted. I just get the impression that Toro uses a different design because someone in the organization decided they need to be different, not because it's better or cheaper to do so.

    But all this gets away from my initial point, that a single factory producing 100,000 units of an identical design (except for decals or paint color) will be far more efficient than two factories, one of which produces 70,000 units, the other 30,000.

    And this doesn't even count design costs. Anyone who studies the defense industry knows that when a jet fighter costs $50 million, nearly half of that cost is in the design process. It's not the cost of putting one together, it's getting to the point where you can do it (years of design, testing, building a factory, designing machine tools for it, etc). Just think of all the different line drawings a 52" toro has vs a 52" Exmark. That's got to add up.

    To wrap up, my point is that unless the mowers are distinctly different and each fill a demand-niche, I bet the minor sales increases that come from the wider variety of "choices" don't justify the huge cost increases. It's one thing to offer a different design (out front deck vs. mid mount) or deck size(48" vs 44"). I can understand that somewhat. But different deck frame assemblies or deck height adjustment handles or whatever?

    I love my Exmark mowers, but at purchase time I do notice that there are less expensive models out there. And I would assume that for the typical cash-strapped new businessman, or even established larger company buying 10 units a year, a $800 less expensive mower would be far preferable than the ability to choose tiny differences in design.

    Factor in duplication of design costs, duplication of physical plant facilities, duplication of supply channels, duplication of advertising costs, duplication of management structure, duplication of dealer networks, duplication of customer support (well, maybe not, compared to Exmark, Toro doesn't seem to have any!) etc. and it seems apparent that this is adding at least 10% to the cost of the mowers. What CEO wouldn't like to add 10% to his bottom line?

    BTW, I'd love to hear a single different "choice" that Toro provides in their ZTR design vs. Exmark ( before 2004 models with their movable deck baffles) that would induce anyone to buy a toro over an Exmark. Choice is great, but it does add costs. Choices should be made available only when they're shown to add to revenues significantly enough to justify the costs.

    I've found that Toros are cheaper in real world pricing around here, btw. Perhaps because there are so many more dealers around, though each is smaller than the big Exmark guy here.

    And yes, from reading auto trade mags, Honda does owe much of its success to its sharing of platform design costs and simplification of model lines. The accord platform is the base for the Accord, the Acura TSX, the Acura TL, and the SUV. And then there's the simple 1 or 2 options ordering process. They can add power windows or doorlocks or whatever to EVERY car at lower costs than making it an option on only some models. Because the costs of managing different models with and without various options costs more than it saves. Go buy an Acura TSX. It has ONE option (NAV).

    Meanwhile, I can buy, if I count right, SEVEN different 60" deck Lazer Z engine/model combinations. Add to that FIVE different Toro engine/model 60" combinations. That's 12 different designs of essentially the same mower. Yes, with differing performance, but still.....each has it's own design elements, spare parts, parts numbers, etc. It's got to add up.

    That choice is great to have, but it all comes at a cost. I can't just drop a Kohler 25hp on the frame of a Kawasaki 25hp or an XP 31hp diesel, so obviously there are design costs merely for each engine choice. I'm just wondering how much of the price of a Lazer Z, the #1 selling ZTR design, is in those various choices.
  6. eXmark

    eXmark Manufacturer / Sponsor
    Posts: 4,258

    Bruce 32,

    The Accord is a lot like the Lazer/Toro. There are many differences in design between the two machines and all your information is reasonable but you still miss the point of the buyer.

    Economies of scale only work so far. Buy 1 and it cost you $100, buy 100 it costs you $95, buy 1,000 it costs you $94, buy 10,000 it still costs you $94. The suppliers can only dip so deep into their pockets before they can not justify the discounts just like you guys. Cut 1 acre its $40, cut 10 acres it $350, cut 1,000 it's ? At some point the big volume doesn't justify the further discounts because you no longer profitable. The point being both lines are at that level individually with the suppliers just like many other manufacturers.

    Second point. The tanks are actually a really good example of two bests. One has a built in compartment to put stuff. MANY operators like this feature. Our tank does not have this but then again the operator can see the drive tire so he/she knows when he/she is spinning and tearing the turf. It's tough to squeeze a compartment in, still be able to see the drive tire and have room left for fuel. Which customer do you satisfy? The one that likes the compartment or the one that likes to see the drive tire or do you satisfy neither and give up the fuel capacity. There’s the buyers perspective again.

    Again if your theory was correct you would not have different levels of the Acura, Honda etc. They would offer one model that would have the best stuff and that would be the end of it.

    By offering the multiple models the Honda and Acura groups gain in market share and in sales because they satisfy the wants and needs of more customers. Otherwise one of the customers might have purchases another brand.

    There is a reason why we are not the cheapest brand out there and it's not because we are different from Toro. We spend more time testing and developing.

    Toro has a new deck this year. It's different from ours. I don't know if it works or not. There is a competition not only between our engineers and every other manufacturer but between us and Toro. One of these may be the best in the industry (won't tell you which one) the other may be the second best. They do work together when they need to but much of the time they are pushing each other to do better. It's sorta like the rivalry between my brother and I. He can't help it that I'm smarter and better at everything (not to mention better looking) but that doesn't stop him from trying. The competition pushes us both to do better.

    The big thing is that with the two lines we can satisfy more customers, which the means more sales, which means more dollars for the shareholders which ultimately means everybody is happy. Except me because I don't have any of their stock.


  7. brucec32

    brucec32 LawnSite Platinum Member
    Posts: 4,403

    Good points, but only to a degree. You're right. Supplier discounts can only get so low. Quite true. But I was thinking more along the lines of the other costs involved, the fixed or non-volume-related costs. For example, it still takes an engineer extra time to design 2 or 5 or 11 different ways to mount an engine on different mowers. And you still have to stock and maintain systems to deliver 11 sets of different parts, etc etc. I've made the argument before. Those are the main costs I thought could be reduced, not just getting supplier discounts for high volume. The very substantial fixed costs involved, not the variable costs of parts.

    I'll have to take your word for it on storage compartments in the tanks. I know you were just giving it as a quick example, but all I can say is that having a place to put a pair of sunglasses or shears, or a ham sandwich on a mower ranks about 85th on my list of priorities, and I suspect others would agree that they'd rather have the better visability and money saved from having only one design. Everyone has their own preferences, but I can honestly say I haven't once seen a lawnsite thread where someone asks "hey, I need a new ZTR, which one has the best storage?" It's these "nonfactors" which I suspect don't win sales that I'm talking about making uniform on both brands. Each alone is a relatively small added cost. But the dozens of them that could be standardized really add up I bet.

    I agree that having more than one model, and having options is a good thing. The questions, how many is enough? I pointed out that there are about 11 60" deck mowers made by the two companies. Acura/Honda has exactly 3 entries in the midsize sedan category (acura tsx, acura TL, honda accord), and this in a segment where personal styling preferences are far more important than with lawnmowers. And of those 3 types, the differences are distinct and important to consumers (TL has power, size, handling, and safety feature advantages, TSX combines luxury with affordability and handling, Accord is the low cost option that maximizes bang for buck) One point about honda is that they SHARE common parts whenever possible. Which was my whole original point in this thread. (Share when possible, differentiate only when it leads to extra sales sufficient to justify the costs)

    With Exmark or Toro, one doesn't have to go to another brand to get what they want even if the number of options was halved. What segment wouldn't be covered? Those wanting gas tank storage? Those who prefer leaving stringers and clumps? : ) I'm not saying don't offer choices. But I think there are just too many and I'm curious how it affects costs.

    I do think that having a distinct difference in decks (toro movable baffle vs. Exmark's design) would be worth having and would increase sales. So in that case a difference is sensible. But to force a customer to choose a Toro if he wants that technology is pitting Exmark against Toro, which basically means you're competing with yourself. Conversely, making something different just to be different (seat shape or hydro hose routing or spindle parts , for example) is a money waster. Trust me, Exmark's non-greaseables are much superior to Toro's greaseable ones! Who wants to have to do that every day?

    Again, my point is not to just offer one choice, but to make sure that the choices really matter. It's very tempting to capture extra customers by offering new products. But that only goes so far before it becomes counterproductive. You used the analogy of trying to discount to our customers in lawn maintenance, and it's a good one. But I know that in our business trying to fill every niche out there and win every customer, one usually winds up pleasing none and spending tons on equipment that is only used on one or two lawns. I've made that mistake myself. One could offer tree service and get more revenue. But would the dispersal of management time, talent, and added insurance and workers comp costs justify it

    Some people are Kohler people, some are Kawasaki people. Some want Liquid cooled or diesel power. So offer those choices. But to offer 17,18, 21, 23, 25, 26, 27, 28, and 31hp engines of two or three different makes on what is basically the same design may be pushing it too far. Or not. But when you then repeat that process on Toros it's hard to believe it's not adding to the bottom line cost significantly. Each different choice offered requires a cascading string of design, assembly, sales, parts management, and service costs down the line.

    But since Toro hasn't invited me to be on their board or offer them strategic management consulting, I think I'll wrap this already overlong thread up. This is what is wrong about taking one too many strategic management courses 20 years ago.

    Nice talking to you. Thanks for taking the time.
  8. eXmark

    eXmark Manufacturer / Sponsor
    Posts: 4,258


    Again all good points and I agree this one is getting long. In fact I had to take a handful of aspirin to relieve the pain in my hands from typing when I left.

    This correspondence reminded me that there is always more than one perspective. Your perspective is really one of accounting, cost management and numbers. My perspective is one of marketing, sales and meeting the wants, needs and desires of the customer. The key is there is a balance. The difficulty isn't necessarily finding the balance but showing the evidence to support ones case.

    Showing in black and white how the numbers add up to support your case is actually quite easy. All the numbers are out there. Save a few cents here, eliminate some staff there all to commonize the two lines. What isn't easy to gauge and show the evidence is the market response to such changes. That is the difficult part. You can't understand the storage compartment but for MUCH of Toro's core customer base that is more important than fuel capacity or seeing the drive tires. The vast majority of our customers are commercial contractors and their needs are far different from that of the consumer which is another company’s core customer.

    I thank you for the joust not only did it get my brain working again but I can now type like the girls here in the office.

    Have a great weekend.



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