Segmentation research

On the last day of the annual World Economic Forum in Davos, some of Germany’s top business leaders meet for a celebrated ski race. Beneath the bonhomie, the mood is ruthlessly competitive, with each participant determined to gain any split-second advantage. Although none is a professional sportsman, all have the money and determination to splash out on anything that might enhance their performance, from the sleekest aero-dynamic ski suits to the slickest skis. About 100km away in the small Swiss alpine village of Disentis, Simon Jacomet has created a business, Zai, that aims to meet the needs of just such exacting and wealthy potential clients. Last year, Benedikt Germanier, an old friend and former ski teacher turned banker, joined as chief executive to spearhead growth In 2003, Mr Jacomet, a former ski instructor who was working on ski development at two established brands, set up Zai, a boutique ski maker that claims to produce the best skis in the world. Costing between SFr3,700 ($3,420, €2,520, £2,220) and SFr9,800 a pair – well above even the top ranges of mainstream brands – they need to be. Mr Jacomet, a shy, softly spoken 46-year-old, says: ‘I’d learnt what the big manufacturers did – and didn’t do – making skis. The market is phenomenally competitive. Lots of compromises are made to keep costs down.’ Backed by Thomas Staubli, a close friend and a former Credit Suisse banker with a holiday home nearby, and six other investors, Mr Jacomet created a ski unbound by convention and designed for top performance, irrespective of price. ‘The idea was to create a ski that made no compromises,’ he says. All the founders, who contributed the start-up capital, were friends united by an interest in skiing Mr Jacomet admits he lacked management experience, let alone knowledge of how to run a company, but says: ‘We were all passionate skiers, but none of us went into it to lose money. We analysed the market and concluded there was a niche.’ At Zai’s small factory, a dozen craftsmen work with high-tech machinery in a snow-bound, mini version of Switzerland’s precision watch industry. Mr Jacomet hired employees for skill, but also for a willingness to innovate. ‘We had perfectionists – but, in the end, they weren’t always ideal,’ he says. Locals were given preference to outsiders partly to create jobs in Mr Jacomet’s home town, but also to safeguard intellectual property. ‘We reckoned locals were less likely to betray information,’ he says. Zai already has many patents. Even today, he declines to employ apprentices, in case they betray trade secrets when they move on, whether by accident or deliberately. Though similar in appearance to cheaper rivals, Zai’s skis combine traditional materials, such as ash, cedar wood and even stone, with high-tech reinforced carbon fibre and rubber to create an unusually light, yet stable and extraordinarily responsive ski. Sales have climbed from SFr500,000 in 2004–05 to SFr1.9m in 2008–09, and should top SFr2m this year. Surprisingly, Mr Jacomet says the recession has had little impact, with revenues cushioned by the relatively resilient economy in Switzerland, where sales are still concentrated. Mr Jacomet admits he could probably have continued like this, focusing more on technical prowess than sales growth. Although his business plan aimed for profitability within five years, Zai’s backers accepted a two-year delay when Mr Jacomet argued for reinvesting yet more of the already high proportion of sales allocated to research and development. Last year, however, the investors said it was time for a crucial choice: to stay on the same path, making 700–800 pairs of skis a year and aiming for breakeven at about 900–1,000, or to aim for a leap forward via diversification. ‘We’d built a strong brand and reputation, largely on word of mouth,’ says Mr Germanier, the extrovert 43-year-old who was appointed to spearhead growth. ‘The investors saw potential to expand.’ Central to the decision were Patrick Aisher, a British serial entrepreneur and private equity investor, based in Switzerland since 2000, and Mr Germanier, who last summer quit his job as a UBS currency strategist to take the sales burden off Mr Jacomet, so that his long-standing friend could focus on his passion for applied research and product development. Mr Aisher became interested after hearing Zai wanted to raise new money on top of its initial SFr450,000 funding. ‘I only tested the skis subsequently – fortunately, they were very good,’ he says. Mr Aisher also contributed his experience of investing in small companies and even helping to take them public. His two key messages were that the board, which included almost all the investors, was ungainly, and that Zai needed a new, sales-oriented chief executive. ‘It’s usually a warning sign when there are almost as many board members as employees,’ says Mr Aisher. ‘All the board members were experts in their fields, but none had any knowledge of running a winter sports company.’ His plan involved appointing most of the investors to a non-executive board of directors, and creating a three-strong operating board, comprising Mr Jacomet, Mr Germanier and himself as a link between the two bodies. Mr Germanier, meanwhile, replaced a former chief executive whose sole focus on financial discipline was no longer appropriate. ‘Zai could have remained a “hobby” company for its shareholders for years. But that would have been a shame, as it has built such a strong brand,’ says Mr Aisher. As a former ski instructor, Mr Germanier combined an understanding of the product with the business experience gained from eight years in banking. Moreover, as Mr Jacomet’s friend, he knew what he was getting into and, it was hoped, would reduce the potential dangers of management friction with the arrival of an outsider. ‘I’d been feeling like a battery hen. I wanted a new challenge and to take on more responsibility’, he says. Mr Jacomet adds: ‘He had to convince the board he was the right candidate.’ The first fruits of expansion will be seen in May, when Zai unveils a golf club based on the expertise in materials that has already distinguished its skis. The driver – the crucial club most regularly upgraded by golfers – will be priced significantly above rivals, though the margin will be smaller than with the skis. Further ahead, the company is looking at crosscountry skiing – another sport with an older, generally affluent, clientele – and accessories, such as sunglasses. ‘I’d see this company in two or three years having more than doubled sales, and added 100 per cent again from associated non-skiing products,’ says Mr Aisher. ‘It then starts to become a “small” sizeable business, with products spread across the seasons and with a particularly international clientele. Our customer database alone would be worth a fortune.’ Toughness designed for luxury Zen-like simplicity and perfection may be among Simon Jacomet’s goals for his ski-making company, but the zen-sounding word ‘Zai’ in fact means ‘tough’ in the local variant of Romansh, Switzerland’s littleknown fourth language, that is spoken in the Surselva region. Mr Jacomet says the unorthodox mixes of materials such as cedar, ash and stone in Zai’s skis are no marketing gimmick but have a genuine basis in the skis’ functional needs, notably damping – the ability to translate a skier’s movements into a physical response with minimal interference. Lacking bigger rivals’ resources for advertising, Zai has grown by word of mouth. About 80 per cent of sales come via specialist dealers, mostly in Switzerland, but about 20 per cent stem from direct factory visits from customers or special sales events. Apart from its main lines, Zai has produced one-off limited editions for Hublot, a high-end Swiss watchmaker, and Bentley, the luxury carmaker. Mr Jacomet says the skis’ conservative appearance, alongside the often-raucous styles of competitors, underlines the brand’s sobriety and that its products are meant to last

1 What is Zai’s business and why?

2 Why does Mr Germanier want to expand the business? How can segmentation research help?

3 Which quantitative approaches to positioning research might best apply to Zai?


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