1. How does the difference in Grut's and Pfeiffer's strategic vision of the business help or hurt its competitive position?

Tokyo Jane

Alex Grut, co-founder of Tokyo lane, a Danish accessible fashion jewelry manufacturer, hung up the phone, then banged a st down on his desk. The telephone call had been so upsetting he could barely contain his anger. Without warning, lightning illuminated his Copenhagen office, attended by ear- battering thunder that rattled the windows. A raging thunderstorm had gathered out of a clear sky on this day in April 2013. But Grut was too distracted to notice. The caller, chief buying agent for Tokyo Jane's most important customer in Germany, had informed Grut that the latest shipment of the company's bracelets had been of miserable quality. \"I cannot offer bracelets with locks that do not close at all!\" he had shouted. \"Send me new bracelets of perfect quality tomorrow. But if a disaster like this should ever happen again, I will stop doing business with you immediately. This is your last chance!\" Grut understood that the situation was serious and wondered what had gone wrong. Tokyo Jane's jewelry production had been outsourced from the very beginning, and once in a while some defective items arrived in Copenhagen. In the past, Grut had detected these by checking incoming orders himself. But for the last three months, Frederik Johnsson, a member of Tokyo Jane's sales department, had accepted deliveries. Could Johnsson have ignored the broken locks? Solid locks made Tokyo Jane's bracelets unique. How long, Grut wondered, have we been shipping defective products? The question sent shivers down his spine. Two hours later, Grut, Johnsson and Nfichel Pfeiffer, Grut's partner, sat in the company conference room. Grut and Pfeiffer had cofounded Tokyo Jane in 2005, and each owned 50 per cent of the firm. There was no question that Pfeiff'er had to be involved in discussion of such a signicant problem. \"I don't see the problem, to be honest,\" said Johnsson. \"Of course, I check every delivery! I make sure that we do not get necklaces when it's supposed to be bracelets. But I didn't know you wanted me to check every single bracelet. After all, we sell cheap fashion jewelry, not precious luxury goods, right?\" Pfeiff'er could not hold back his anger. \"Frederik,\" he shouted, \"we do not sell bracelets with broken locks! Is that what you think our business is about? No, it's about offering good quality for a good price." But Johnsson did not back down. \"Really?\" he asked. \"When I look at the slogan on the wall, I read 'Tokyo Jane luxury for less.' To me this means we sell products that customers like for their low price. And when you sell cheap products made by Chinese contractors, this is what you get cheap products of OK quality.\" Pfeif'fer was about to explode, Grut realized. He couldn't tell whether Johnsson was trying to provoke them, or whether he genuinely misunderstood Tokyo Jane's branding strategy. To cool off the situation, he asked Johnsson to leave the room. They would talk to him again later. \"Did he just say 'OK quality'? I don't care whether our bracelets are yellow or white as long as they are good products,\" said Pfeiff'er. \"I don't care whether we sell jewelry or bags, or whatever, as long as everything is of good quality.\" \"I know that,\" said Grut, \"but Frederik might not. Maybe there's a message for us here. I mean our slogan might not be as straightforward to our employees and customers as it is to you and me. Besides, Frederik is a shipping specialist. He's not an expert in quality management and we cannot blame him for that.\" \"I know,\" said Pfeiffer, now calmer. \"Frederik belongs to the Tokyo Jane family. He was one of our rst employees. He helped set up and manage the entire shipping process. He is a shipping specialist, but maybe he cannot manage the shipping alone anymore. Look, in the beginning he only had to handle exports to Scandinavia. Today, we export to almost the entire European Union plus Canada. Maybe we're going too fast for our employees to follow.\" There was a long pause. \"Frederik may be doing his best as shipping specialist,\" said Grut, \"but that is not good enough when it comes to quality management. It's like he's running around in Berlin with a map of New York. Even though he works hard, he doesn't get to the right address.\" Pfeiffer said nothing. Grut thought about what he had just said, then reconsidered. \"0n the other hand, what difference does the right map make when we are not sure about where we actually want to go? What is the right address, Michel? What does Tokyo Jane stand for? Where is Tokyo Jane going? And where are you and I going?\" Pfeififer shook his head. \"I thought I knew, but maybe we should think more about this and talk more about it with our employees.\" That day, Grut left the office earlier than usual. He was too troubled to stay. He felt he needed a change of scene and a beer to cool down. When he stepped into the street, he realized that it was pouring rain. Nevertheless, he walked on. When he nally arrived at the pub, he was completely soaked. THE EUROPEAN FASHION JEWELRY INDUSTRY Fashion or \"costume\" jewelry refers to jewelry made with inexpensive materials or imitation gems. It is usually manufactured in mass production and used as ornamentation to complement a garment or outt. In 2014, fashion jewelry items were sold in a price range from below 10 up to '?5 or more,1 depending on quality and brand image.2 Historically, fashion jewelry was a mere imitation of precious jewelry. As such, it did not have much intrinsic value or original style of its own. Only when French couturiers started to design jewelry items at the beginning of the twentieth century did this kind of jewelry begin to become desirable, acceptable and expensive.3 Since then, fashion jewelry had evolved in sophistication, exhibiting many different influences, depending on what was considered to be trendy and fashionable. In the early twenty-rst century, fashion jewelry still sometimes imitated precious jewelry, which, by denition, was typically made from or contained jewels and precious metals. But fashion jewelry had also become a focus of design and aesthetic innovation, valued more for art or fashion content and less for the intrinsic value of the materials from which it was constructed.4 The overall market for fashion jewelry had grown throughout the European Union (EU), with estimated aggregate sales of 62.9 billion n 2010,S second only to the U.S. market. This development was driven by the growing number of working women the most frequent consumers of fashion jewelry and increased interest in fashion. Consequently, countries where women had money to spend on jewelry items and were receptive to new fashion trends constituted the largest markets. In 2010, Germany, the United Kingdom, Italy, France and Spain accounted for about T0 per cent of EU sales.'5 The demand for fashion jewelry was very sensitive to changing consumer trends and seasonal fashion. Life cycles of jewelry collections were very short. At the same time, however, customers became attached to favourite pieces, and more and more consumers wanted jewelry items to last for more than just one season. These products were offered by producers belonging to the so-called \"accessible fashion jewelry\" segment? THE ACCESSIBLE FASHION JEWELRY INDUSTRYa Within the fashion jewelry market, accessible fashion jewelry accounted for the largest part. Products of this segment were well-finished, had fashionable designs and sold at retail prices ranging 'om 10 to 75. The brand image was an important feature of the product, especially for quality-conscious consumers, who bought less frequently than consumers of cheap fashion jewelry but at the same time were willing to pay more for a special design and higher quality. The market for accessible fashion jewelry was predicted to grow in the long run as consumers' disposable incomes increased. Moreover, the market was expected to see an increase in demand for jewelry of unique design and higher quality. As a response, there would be growing diversity in designs on the market. As the market grew, so did the supply of low-priced, mass-produced pieces from China. The resulting oversupply drove down prices. Producers in the accessible fashion jewelry industry were especially affected by this development, because they already faced difculties in retail pricing. Large retailers exerted bargaining power on producers; specialist retailers asked for lower wholesale prices due to the growing pressure from non-retail channels such as the Internet. As a result, entrepreneurs in the accessible fashion jewelry industry faced two challenges at the same time. On the one hand, they needed to find cheaper sources of supply to keep cost levels low; on the other hand, they needed to add more value to their products through enhancements in design and quality. But there were opportunities, too. Linking accessible fashion jewelry with other sectors by integrating jewelry items into handbags, belts, footwear or even electronics might open a door to new markets. However, the market for imitative fashion in general already existed and was highly competitive. Globally established brands such as Zara had long experience in doing fast imitations of higher end brands. They typically operated on a fast response to demand signals, allowing them to innnediately react to the latest trends one might find in European fashion metropolises. Brands differentiated by offering closely imitative runway styles, including accessories and fashion jewelry to complement garments and outts. THE TOKYO JANE STORY In 199?, Grut and Pfeiffer met as students at Niels Brock Copenhagen Business College, where they both worked toward an export technician diploma. Production management and logistics were central themes of their studies. Moreover, they had to do a mandatory six-month internship to gather practical experience. The two Danes seized this opportunity to gather international experience and interned with rms located in Northern Germany. In addition, they spent one semester at San Diego City College in the United States. They shared the same entrepreneurial drive from the very beginning of their friendship and developed countless ideas about business models. Pfeiffer remembered: We wanted to do something, but we never talked about jewelry. It could have been anything. . . . When we studied in San Diego, we went to Mexico and we looked at importing Mexican wine. Also, when we were in China we looked at wood oorings we wanted to import . . . or gift articles. We had a lot of ideas. I cannot remember all of them. And we still have them, but we need to focus on the business we're doing. However, after their graduation in 1999, they pursued different careers. Pfeiffer moved to France where he started to import marble and granite from China. He soon discovered that there were many business opportunities to seize in that country. He started to buy gift articles, scarves and bags during his business trips there, initially meant as small presents for his wife. Soon she suggested that he should bring back items from his journeys to sell to friends. Pfeiffer asked himself, \"Why not make a business of this?\" He did not act on this idea immediately but returned to Denmark where he accepted a job as sales employee with the Danish subsidiary of Dell Inc. in Copenhagen in 2002. Meanwhile, Grut had started a job as sales manager at 3D Connection, a small Danish company educating architects and other professionals in 3D visualization. Eventually, he changed jobs, joining a graphic design company with more than 2,000 business customers, including major enterprises such as A.P. Mcller-Maersk Group, Grundf'os NS and Lego AIS. Still not completely satised with what he was doing, Grut consulted a coach and finally quit that job too, after four years. He wanted to start something new and joined a project to establish a golf driving range in central Copenhagen. When Grut called Pfeiffer to tell him about his professional reorientation, Pfeiffer also felt it was time for a change. He recalled, \"I really did not like my job. Every time the paycheck got bigger and bigger I thought, 'No! I cannot do this for the rest of my life. I need to do something where I create something!\" Consequently, Pfeiffer quit his high-paying job and again started to import bags, scarves, gloves, jewelry and belts from China to sell in Denmark. Nine months later, he contacted Grut and suggested, \"I think if we do this together, we could actually make a good business of it. Why don't we create a brand and then start to sell accessories?\" \"Why not?\" replied Grut. \"We are shipping experts. We could ship whatever. Accessories are not a bad choice they are small and light. Them we could ship even faster.\" This idea was appealing also because Grut's driving range project had come to a halt in the meantime. Tokyo Jane as a company got its start in 2005 when Grut and Pfeiffer travelled to China to buy their first fashion jewelry collections. Celebrating this constitutive business deal at a fancy rooftop bar in Shanghai, they met an American girl, Jane, who was working in Tokyo. Over several cocktails, they outlined their ideas to her. She loved them and turned out to be so inspirational and fascinating that they spontaneously decided to name their company after her. Tokyo Jane was born. The fundamental business idea was to make luxury affordable by designing, importing and selling fashion jewelry pieces that looked luxurious but cost only a fraction of the luxury pieces the designs were inspired by. Tokyo Jane thus focused on the segment of accessible fashion jewelry, with retail prices ranging from roughly DKKlO to DKKSOO per unity (see Exhibit 1). Grut connnented: Before, we got inspiration . . . from H&M and Zara. Now we are not going there to get inspiration any more. Of course, we have to watch the trends and see what is there. Basically, it's just about nding luxury components. And where do you nd them? At the luxury shops. And how do we turn that luxury element into something that looks like it costs DKK4,000,' but costs only DKK400? That is what we developed. We are not passionate about jewelry, but about the business project. While all jewelry pieces were designed at the Copenhagen head oice, production was outsourced to suppliers in China. Sourcing from several independent producers reduced the risk of supply bottlenecks but at the same time increased the need for quality management. \"Just trying to get all the different suppliers having the same colour of gold is a big job. Ensuring that the same products manufactured in different factories are nally uniform in terms of look and quality is what we are struggling with,\" explained Pfeiffer. Once in a while, the partners ew to China to conduct quality checks and to communicate the quality requirements to the suppliers. They also considered commissioning a Swiss inspection company to constantly monitor product quality and to optimize production processes. Finished products were frequently air-shipped to Denmark, stocked in the head ofce and delivered to retailers on demand. Four hundred retail partners formed Tokyo Jane's customer base (see Exhibit 2); they ranged from small fashion boutiques to big department stores and online shops and distributed Tokyo Jane products mainly to consumers in Scandinavia, Germany, the United Kingdom, the Netherlands, Greece and Finland. The domestic Danish market only accounted for 5 per cent of total revenues, roughly DKKS million in 2013 {see Exhth 2.). Grut and Pfeiffer explained: We wanted to \"go global\" from the very beginning; we wanted to be small in the world instead of being big in Denmark. We always wanted to do export, since we are export technicians. We know how to do it and we spoke some languages. That is why we chose an international name for our company. There is actually no limit to new product lines and markets because the name Tokyo Jane can comprehend a universe. Whether or not they entered a particular market depended primarily on whether they found a trustworthy, promising retail partner. In the beginning, this occasionally meant that Tokyo Jane products were sold by housewives on a relatively small scale. Later, however, Grut and Pfeif'fer became more selective and assessed potential retail partners in terms of retail experience, nancial background and expected sales volumes. Once partners were identied, Tokyo Jane tried to differentiate from competitors by providing them with excellent service. The company offered standardized as well as customized retail assistance to all of its partners to ensure a product display with the best possible exposure. \"We are dening how we want to be seen in the shop. I have made pictures describing how they have to do the set-up in their store and they agreed,\" Grut emphasized (see Exhth 3). Consequently, Tokyo Jane's relationships with its retail partners were careilly managed by Grut and Pfeiffer. They explained: We want to help our customers nd out which products and styles they can successfully sell. Not all products sell equally well in every shop. Therefore, we do not sell everything to everybody. Of course, turnover is always nice, but we'd rather prefer less turnover at the beginning and then slowly evolve from there until we can make it a big set-up one day. Our goal is to nd what works for each of our retail partners. So we try out different products and styles and see what sells, and we take back those products that don't. It's all about our customers, so we have to work with them. It takes a long time, but it pays off once our partners start reordering. THE COLLECTION Tokyo Jane regularly launched two main jewelry collections and two socalled \"drop collections\" every year. Drop collections were launched in mid-season for express delivery. Offering mid-season collections served as a door opener to get into contact with retail partners outside of the regular order cycle; convincing them to purchase the drop collections also helped convince them to reorder the main collections. What made Tokyo Jane products recognimble was their diversity of rich, glamorous, feminine and edgy details. Natural stones, sparkling crystals, symbols and textures decorated the leather inlays or enamel llings of the bangles. Necklaces and bracelets were also made with natural stones, chains, beads, braided strings and chain variations. Changing colours and materials led to ever new combinations of these elements. Roughly 100 different braceletsfbangles, 60 necklaces, 40 earrings and seven rings made up a main collection.11 The two drop collections were relatively smaller, containing approximately 80 different items. The collections were designed to offer variation within both choice of look and price level. According to one of their catalogs: \"Tokyo Jane focuses on the full range of costume jewelry in a rich detailed look with a wide selection to always nd an accessory to style up your outt at any occasion\" Pfeiffer explained the core idea behind every item carrying the Tokyo Jane label: If a newly designed item looks like something that could have been offered at a Gucci or Louis Vuitton store for a price 10 times higher than the one we charge, then it can go into our collection. If it looks like it could be sold at H&M, it should not go into our collection. That is our guideline for how to create a new product. [See Exhibit 1.] Tokyo Jane products were inspired by jewelry sold in luxury shops located in fashion metropolises. Not only the design, but also the materials used followed the Tokyo Jane credo. All items (except for rings) were made with special robust locks, which were developed in-house to underline the good quality standards. For instance, the hooks of the locks were a little bit thicker compared to cheap fashion jewelry and thereby imitated expensive brands. Also, the products were most often made with real leather instead of cheap imitation leather, because Pfeiffer and Grut considered only real leather to be luxurious. Since the Tokyo Jane collections offered many different jewelry items, they were assigned to three different categories, each of which dened a particular kind of look. In the springlsumrner collection launched in March 2013, these looks were \"the rock chick,\" \"the glamour girl\" and \"the party starlet\" (see Exhibit 4). Items in \"the rock chick" category shared a metallic look, dark colours and simple, spiky details. hi contrast, warm pastel colours, rose gold and omainents such as beads characterized \"the glamour girl\" look. Finally, sparkling crystals, gunmetal, symbols and neon colour platings and textures dened \"the party starlet\" look. THE PEOPLE Every Tokyo Jane item of the latest collection was designed by Jeanne Rye Nielsen who joined the company in 2011. Before that, she had worked with a big Danish accessory rm where she was a member of the design team. Seeking a new and more challenging job, she was attracted to Tokyo Jane, a relatively young and fast-growing company. Nielsen hoped that if she joined Grut and Pfeiffer, she could help develop the rm by bringing in her expertise and making her own decisions. Although she was the only designer in the Tokyo Jane team, every sample Nielsen created was presented and discussed at a sample meeting with Grut, Pfeiffer and Tine Jorgensen, a sales employee. Originally, Jorgensen had been hired to perform a back-up task in the sales department. However, she also helped out other employees whenever support was needed. Because of her good overview of Tokyo Jane's operations and also because of her valuable work experience as a brand manager, she regularly participated in the sample meetings. These meetings ensured that design and sales perspectives were brought together. However, for Nielsen, these meetings were not always easy: Michel and Alex are design-driven, but in a different way than me. They want to design business models, while I sit and work with the actual products every day. Sometimes they have ideas which are unrealistic in terms of current production capabilities and the prices they want to charge. I would maybe do some things differently if I was the only one to decide . . . but sometimes it would be enough to simply have an ally arguing from the same perspective as me when we discuss my samples. When Grut and Pfeiffer hired Nielsen, they had a limited understanding of what it meant to employ a designer. They thought she would start designing new products right away, which should be very easy to sell just because they were developed by a skilled designer. However, Nielsen remembered: When I joined the company in 2011, Tokyo Jane was quite a confusing place to start, because I did not know what the brand was representing. Moreover, I couldn't realize my own ideas because back then the production set-up was not in place at all. There was nothing a designer could work with, so it was very difcult. For a designer, it's better when the brand image is clear, when everybody in the team is sure about what we want to signal, what we want to do with our products! I do not particularly like our working slogan \"luxury for less.\" A lot of brands have something similar; it is not outstanding. In addition, Grut and Pfei'er did not always agree upon which design should be part of a new collection and which should be rejected. While Grut was rather curious to try out new products and to invent new looks serving more and more customers in order to promote sales, Pfei'er tended to be more cautious. Jorgensen, Nielsen and Iohnsson were the only permanent employees at Tokyo Jane (see Exhibit 2). But they were not the only employees. From time to time, Grut would hire an intern from Copenhagen Business School, one of the top business schools in Europe and the world. Intems were not hired to do particular jobs; rather, they were hired based on their knowledge and skills. Grut recalls, \"Sometimes we're lucky, sometimes not. We had some people who were not educated in the eld they were working. We've been trying to develop the position for the person." Grut and Pfei'er also had daily job responsibilities. Pfeiffer was responsible for the bookkeeping and managed the relationships and potential issues with the suppliers. Grut was running the ofce and managing the sales and relationships with retailers. He was also in charge of managing the relationships with the 10 independent agents and distributors in Scandinavia, Greece, Russia, Germany, the Netherlands and Canada. They were not directly employed by Tokyo Jane, but they sold and promoted Tokyo Jane products on behalf of the firm. LOOKING FORWARD As he finished his first beer, Grut's iPhone buzzed. It was a message from Nielsen, who said, "Alex, where are you? You promised to tell me more about the winter collection. It is the end of April and I still do not know how our autumn/winter collection should look. Are we doing only accessories or scarves and bags as well?" "Why do we always need to tell them?" Grut thought. "Why couldn't they figure it out for themselves? I want to have a cheap product of good quality that looks exclusive in the shop window. Why is it so difficult to understand?" He felt confused. Where to go? Where to focus? How to move on? He found himself wishing he could turn back time and go back to that rooftop bar in Shanghai where he and Pfeiffer met Jane - when everything was so clear and perfect.EXHIBIT 1: TOKYO JANE'S POSITIONING High Gucci . Julie Sandlau . Marc Jacobs Pamela Love . Alexander Wang Pandora Dyrberg Kern . Sho of Sweden . Pilgrim . TOKYO JANE . Sence Copenhagen Classic . Topshop Trend . Gina Tricot . Bijou Brigitte OH & M Low Note: Vertical axis refers to price level, horizontal axis to style. Source: Company files. EXHIBIT 2: OVERVIEW OF TOKYO JANE, 2006 TO 2013 Financial year 2006 2007 2008 2009 2010 2011 2012 2013* Revenue (in million DKK) 1 1.4 2.3 4 8 8.5 7.9 Retail partners 50 150 200 270 350 400 400 280 Countries where retail partners operated Suppliers Employees (excluding owners and interns 0 2 3 3 * At the time of writing, financial year 2013 had not been closed. Source: Company files.EXHIBIT 3: SAMPLE OF STANDARDIZED RETAIL DISPLAYS Horisontal Horisontal Display High TOKYOJANE TOKYO JANE Display Low #9027 #9026 DISPLAY Vertical Display #9025 TOKYO JANE offers the possibility to show the jewellery on various displays of different heights to create the best pos- sible exposure and a unique selling point. This is with the mindset to get full value of the TOKYO JANE collection even when space is limited. Earring Display #9046 TOKYOJANE TOKYO JANE Flat table Display #9040 TOKYOJANE Necklace Display #9039 TOKYO JAKE Source: Company files. EXHIBIT 4: THE DIFFERENT LOOKS WITHIN THE TOKYO JANE SPRING/SUMMER 2013 COLLECTION 'Rock chick" look\f