Montblanc occupy an interesting niche in the FP world: uniquely, they have a dominant strategy, one which enables them to sell premium product through their own stores to dedicated buyers, and can almost completely ignore the competition. For any business, this is an ideal position to be in. But Montblanc also have a problem, one that could completely undermine that strategy. In today’s post, we’ll have a look at the strategy and the nature of the challenge facing their business.

To understand their present position in the marketplace, we need to go back and review a little history. Fountain pens were the dominant writing technology in the 1950s and Montblanc had a wide product offering: entry-level and student pens, mid-ranged pens, and premium pens. At the time, they were not a luxury brand but a competitive brand — not unlike Pilot or Pelikan today. The market was crowded so brands invested in research to help them compete and standout, research which led to the development of products like the Parker 51, the Aurora 88, and the Sheaffer Snorkel.

The whole business began to change after the 1959 release of the Bic Cristal. Firms hadn’t just been investing in better fountain pens, they had been investing in other writing technologies that could be more reliable and more affordable than FPs. The Cristal, priced at US$0.19 (equal to around $1.55 today), proved to be superior on those dimensions than their FP competitors. The low-end part of the FP business collapsed, taking with it brands like Esterbrook who had specialised in affordable pens.

As ballpoints claimed more and more of the market, Montblanc (like most brands) reduced their low-end product offering and introduced a new line of upmarket products, the Classic Meisterstuck series (including models like the 121 and 220). This line was discontinued after a decade and took down the business’ strategy with it; an expensive project to try and save Montblanc from the effects of disruption had failed. This period — the mid-to-late 1970s — must have been a bleak time to work for the company. Their product lines were failing and the business was ultimately sold in 1977 to a minority shareholder, Dunhill. I suspect it must have been something like the newspaper business today: a few, fleeting bright spots and a lot of soul-searching and uncertainty — even doubt — about the future. Some of the older hands must have had fond memories of the 1950s boom years and been hoping the company would last long enough for them to retire. The younger and middle-aged employees would have kept an eye out for opportunities in other, more sustainable businesses.

It’s been argued that the sale to Dunhill was the catalyst for Montblanc’s revival, that they had a strategy to move the business upmarket and leave the low-end of the market — where competition was most intense — to ballpoints and any FP brand hardy (or foolish) enough to compete there. I haven’t been able to find information which verifies this, but there seems to be agreeing that the revival was due to the release of revamped Meisterstuck pens. Information is a bit vague here too — I’ve read conflicting information saying it was the early 1970s, late 1970s (to replace the discontinued Classics), and the early 1980s (after Dunhill’s acquisition). Whatever the date, the Meisterstucks helped to shore up the business — they sold well and brought in cash. Some of that cash was used to develop a new, even more upmarket line of pens called the Solitaires. These were basically Meisterstuck pens, produced with precious stones and metals. (Some people point to this development as the time when Montblanc became a luxury brand, but such techniques had been common in the pre-war years, the 1920s and the 1950s. They also still had entry-level models such as the Carrera. Neither of which really supports the argument.)

By the mid-1980s, the business was on a solid footing. Although they were selling fewer pens than the boom years, they had found a niche which enabled them to sell pens at a considerably higher price. I don’t believe this period was a time of off-the-scales success, but it was profitable and throwing off enough cash to finance investments in new product lines: fragrances, jewellery, and leather products.

But the most successful investment was not a new product, but reinvesting into their core product: pens. In 1992, Montblanc released their first Writers Edition: a limited-edition release celebrating Ernest Hemingway which has become arguably the most famous and desired of their FPs. The success of the LE model spawned other series, including the Patron of Arts and Great Characters editions, each of which now features multiple models of varying exclusivity. Special edition production runs often exceed 10,000 units while prices for LEs are often $5-10,000. Some of the most rare LEs sell for upwards of $50,000 new.

It was quite a turnaround for a business that stood on the edge of the abyss just two decades earlier, threatened with extinction by a disruptive new entrant, and it’s worth trying to understand why they have been so successful. Their pens are not necessarily the highest quality (that honour might go to Pilot) and they are definitely not the best value-for-money. And this leads some people to conclude that Montblanc must be a master marketer, able to flog inferior product at inflated prices and make out like bandits.

I both agree and disagree with this. Most people make this claim and imply that Montblanc’s skill lies in their ability to advertise and promote product in such a way that their products appear to confer status on buyers. I can’t agree with this, partly because I find the status argument unconvincing (as I’ve previously argued here) but also because I see so little advertising from Montblanc. In a reddit discussion with Brian Anderson, a Montblanc retailer, he revealed that he sees very little advertising from the brand. This has been verified by other retailers, one of whom said that Montblanc provide store promotions and merchandising as other brands, but they don’t see much support beyond that. There was obvious frustration on this point. So it’s hard for me to accept that advertising is Montblanc’s secret weapon when they do so little of it.

Marketing is a much broader concept than advertising, however: it is a company’s ability to find a valuable segment of the market, understand those buyers and their preferences, and to design products with intense personal appeal to those buyers. This broader conception of marketing is exactly the strength I see in Montblanc: they have a core group of customers and they have built their business around serving that group as best they possibly can. I’m not a marketing guy so I can only guess at the identity of this group of buyers, but I wouldn’t be surprised to learn that they are a relatively homogenous group of professionals, mostly males, who used fountain pens at school, went on to enjoy a good deal of career success, and now take pride in being able to use and collect prestigious FPs. (This is just a guess but it does fit with some of the hardcore Montblanc aficionados that inhabit FPN’s MB forum.)

If true, Montblanc’s competitive advantage is indeed marketing: it is knowing their core group of customers intimately, which enables them to create products that have an intense and personal appeal. Those buyers are much less likely to shop around, to look at other brands or compare prices, because nobody else is able to design products (or a shopping experience) which has the same level of personal appeal. That allows Montblanc to charge a premium price for their products, and make a comfortable profit from the business. This is the heart of their strategy, and has served them well for two decades.

Of course, other groups of buyers can still purchase Montblanc products and enjoy the experience, but they are effectively the fringe of their customer base, not the core. The products are not necessarily designed with them in mind, and complaints from that group — that their products could benefit from different colours or designs, or lower prices — are likely to fall on deaf ears. I suspect this is part of why some people have such a low opinion of Montblanc: the brand doesn’t care about all potential buyers, and that attitude smacks of arrogance and elitism.

When you have a successful strategy, you have a competitive advantage in the market, these issues generally aren’t much of a concern. But Montblanc’s strategy has a problem, one which has always been present but is growing more problematic with each year. If my assumptions about their core customers is correct, that group is starting to get on in age. If ballpoints had replaced FPs in most classrooms by the mid-1970s, the youngest members of Montblanc’s core segment would be in their 60s today. As they grow older, their lifestyles will change and the appeal of buying more FPs will diminish. Demography is Montblanc’s problem, it means they cannot sustain their strategy forever — and, perhaps, not much longer at all. Maybe another year, another five years, another ten: at some point, the majority of those buyers will have exited the market and the rivers of gold will run dry.

It’s hard to say how long Montblanc have been aware of this problem but I suspect they could see it back in 2004, when they appointed Lutz Bethge, a strategist, as CEO. If I’m right, he would have been brought on-board with a clear direction to transform the business and overcome their dependence on the core customer group. Such a mission would have been daunting — it is a mission to save the company, after all — but it’s also the kind of mission that any strategist relishes. If you have a successful business with a strategy that will inevitably fail, what do you do?

Fortunately, that success meant Montblanc was in a better position than the 1970s: they had resources they could use. But they still faced just two options: growing the core business and finding other segments in the pen market, or expanding beyond the core and going into other product markets. That choice isn’t totally free from constraints, though: they needed to find something where they would have an advantage over the competition, ideally something which builds on the skills already embedded in the business.

The company went with the second choice, and it’s not hard to see why: the FP market in the early 2000s would not have presented much in the way of valuable, unexploited opportunities and the market’s renaissance was still some years off (and not at all obvious at the time). So the first choice would not have had much appeal, while there was obvious appeal in the second. Montblanc already had a line of watches and were part of a conglomerate which owned premium watch brands like A. Lange and Sohn, Piaget, and Vacheron-Constantin. I’m sure the brand also felt their marketing prowess — their ability to deeply understand a core customer group — could be successfully applied to other markets, and so they dove into watches.

Perhaps that understates things somewhat. Montblanc didn’t just dive into watches, they threw themselves into it with everything they had. They hired top experts to work in the business, spent tens of millions of Euros building a brand new factory inside a Swiss villa, they splurged on advertising to announce to watch enthusiasts that they had entered the market and then splurged again in an effort to try and build respect.

A decade into the strategy, Montblanc is selling hundreds of thousands of watches each year, and using the same LE tactics to drive up revenue as they do with pens. But it’s not clear the strategy is working: although the brand has come a long way in the last decade, surprised a lot of people with the quality of their work, and overcome low expectations, the brand is not considered a heavyweight and is not as respected as the more established brands.

But the most damning thing I heard when talking to watch enthusiasts about Montblanc is that the brand, today, is good value. It seems you can pick up a Montblanc watch for much less than you’d pay for another of equivalent quality. For buyers, this is an unambiguously good thing and a sign that market competition is doing its job. But for a business like Montblanc, it is evidence that they aren’t in the same position in watches as they are in pens. They have no core customer segment, no group of buyers they understand deeply and for whom they can design products with intense personal appeal. For whatever reason, the marketing prowess they’ve used so successfully in the FP market hasn’t worked in watches. Good value means they have no competitive advantage.

Competitive advantage is that special something about a business which makes them more successful than their competitors: better design, better quality, lower costs, etc. It can come from anywhere, but it leads to one things: profits beyond what could have been earned from investing anywhere else (what we call ‘excess profits’). It is the goal of every business and the reason for every strategy, but a devilishly difficult thing to achieve and to maintain.

Despite all the time and money that has been invested into entering the watch business, Montblanc are not in a position where they have developed a competitive advantage. I suspect this is why Jerome Lambert was appointed CEO in 2013: formerly the head of watchmaker Jaeger-LeCoultre, he is credited with transforming the business from a prestigious but niche brand into a well-known, widely-respected one. Richemont obviously wanted him to work the same magic for Montblanc.

Two years into his tenure, it is hard to say if anything much has changed. There are no obvious signs of major progress, but perhaps Lambert’s focus has been internal. Or perhaps his efforts take longer to bear fruit. It’s really too early to make any judgements about his effectiveness, but Montblanc’s problem is that every day is one closer to the loss of their core advantage in pens, another day without a viable alternative. The clock is ticking.

So it is perhaps not surprising the brand has cast an eye back towards the pen market and the opportunities presented by the recent revival of FPs. For Montblanc, there are two questions which need to be considered: outside the core segment, are there opportunities for profit, growth, and competitive advantage in the pen business? If so, are those opportunities which Montblanc can grasp? For a long time now, I think the answer to the first question was, effectively, no. There were many buyers but they were too disparate, too unknown, to represent a real opportunity. But times have changed and I wonder if maybe Montblanc feels the answer is now a yes.

That means the second question has become important and I suspect the Montblanc M is a well-resourced experiment to find the answer: a new product, designed for a new audience, at a competitive price, to determine whether there is actually a market out there which is receptive to the brand. If it does well, there is clear proof that the market now offers opportunities for Montblanc; if it does poorly, it’s either a sign the market doesn’t offer opportunities, or that the M is not the project to capture that interest.

There doesn’t seem to be much information at the moment about sales numbers or whether the results have been satisfactory. My personal opinion is that the M is nice — but I don’t believe it’s going to be successful in winning over the market. It’s a respectable pen but it’s missing something (and not just a decent filling mechanism): there’s nothing which grabs the imagination in the same way as the Lamy 2000 or Visconti Homo Sapiens, nothing which inspires a deep yearning and desire to own and use the pen. And it’s a pen which is supposed to appeal to customers who have been ignored by Montblanc for a long time, but without anything to draw them in or make them aware that there’s been a change. It has been a wasted opportunity — but I am still hopeful that Montblanc continues to invest in developing pens for people outside their traditional base.

So in thinking about the future for Montblanc, we need to think about whether they find an advantage in watches, whether they find a new advantage in pens, and how long their current advantage lasts. There are a lot of different scenarios and it’s not obvious that one is more likely than the others. But there is one scenario I feel we can discount: that offered by Peter Twydle in 2009.

Twydle wrote a book simply called Fountain Pens and made a claim about Montblanc that was later repeated by Stephen Brown in one of his reviews: “Its current marketing policy is based entirely on its self-perceived importance and when the tide turns, as it inevitably will, its fall from grace could be quite dramatic.” (p68) Twydle notes that his father used to work for Montblanc until they had a falling out, so we can dismiss the hyperbole. The idea that the business will eventually collapse is a prevalent one in the community though, and it’s worth addressing.

I think this idea rests on the premise that Montblanc’s primary strength is their advertising skills, and the feeling that people will eventually realise they have been fooled. When they do, sales will collapse and the business may be taken down too. As I argued above, I don’t believe that advertising is their core strength. In my opinion, the flawed premise undermines the argument.

But even accepting a negative view of the future — for example, that they don’t find another source of advantage in the pen market — I don’t see the business collapsing or any dramatic changes. It seems much more likely that they would gradually transition into a prestigious niche brand, something like S.T. Dupont, or a legacy brand like Parker or Sheaffer today. Either way, they would surrender market share and fade into the background of the market.

And even if the brand did collapse, I think the vintage pens (particularly those made before, say, the 1960s) are likely to keep most of their value. There seems to be a lot of demand, not limited to modern Montblanc aficionados, and not that many units in existence. It’s possible we will see more product come onto the secondary market (through estate sales and the like) and apply some downwards pressure on price, but if interest stays high those prices won’t decline too far.

I’m less optimistic about LEs, particularly more recent ones. There must be a lot currently tied up in collections (many in mint condition or even unopened boxes) that will enter the market in the next decade or so as their owners sell up or pass away. As those collections come onto the markets, I don’t think there will be all that much extra interest in the products (excluding some specific units like the Hemingway, the Christie, etc.). So we will likely see price reductions, though I really can’t guess whether these will be large or not. Unlike Twydle, I don’t see much upside potential and personally would not be investing in any of these products.

I have a lot of respect for Montblanc. They seem to be better run than most other pen brands, but that is not to say they are without challenges. But the problems they face today are not new, they faced a similar situation in the 1960s and (eventually) managed to become a stronger, better company. They are in a better position today and I hope this spurs them to become a better company once again.