Monday, August 22, 2011

The Consumer Electronics Business Model Is Failing, What Can High End Audio Learn From it?

You read about it all of the time, another large consumer electronics retailer is going bankrupt. Just recently, HP announced it was getting out of the PC business. Why?  Because the pricing "race to zero" has made it unprofitable for them to sell electronics. There has been an artificiality to the pricing of electronics over the past decade that is now coming home to roost with these giant retailers. They are realizing that they can make more money doing other things besides selling electronics, so in HP's case, they are abandoning the low profit venture for a higher profit one. In the case of large electronics retailers, they are trying to add higher profit services to their business models in order to bolster profits and stay in the black.

What can the high end audio industry learn from this? 

  1. Dealers, being the "low price leader" is not a good marketing strategy. You will continue to work longer hours for less money, and someone will always be willing to beat your price. What are you doing to differentiate yourself from your competitors? Why should people buy from you? Now tell that to your potential customers. Offer them something that creates loyalty to you, not their wallet. Stop answering the deluge of "What's your best price on..." emails. Those are not loyal customers.
  2. Manufacturers. Its time to start developing quality dealers, supporting them AND monitoring them.  I know its nice getting a fat opening order from a new dealer. But simply having a checkbook is not a good qualification for being a quality dealer. Too often, these "dealers" are the ones giving your product to an Audiogon "fence" 6 months after they buy it from you and destroying your brand with fire sale discounts.
  3. Manufacturers/Distributors: Help your dealers with lead generation (yes that is partially your responsibility), generating product demand/buzz with reviews, product videos, a good web site and social media campaigns (not necessarily facebook). Also traditional marketing like co-op advertising, sponsoring get togethers at dealer locations and being creative about allowing the bundling of products at a savings rather than offering a straight cash discount to customers. If your dealers buy product for their showroom or to send out on audition, give them a significant discount from wholesale as an incentive, but make them sign a contract that keeps them from selling those items until the new models are out. MAP (Minimum Advertised Price) pricing is bullshit. There I said it. the MAP price instantly becomes the MSRP price to the consumer, and your dealer loses valuable margin.
  4. Monitor your dealers by secret shopping them and setting up Google Alerts for your products. Have a clear pricing and sales policy IN WRITING that all dealers must read and sign.  Do not sell any gear direct, unless you sell all of it direct, and in that case don't use a dealer network. Refer customers with no local dealer to the nearest dealer or use it as an incentive to reward good performing dealers. Don't sell the gear yourself.
I know some of my customers will read this blog, and may even get angry that I am talking about protecting profits and avoiding deep discounting to get the sale.  I understand, but understand I am taking a long term view that will preserve this great hobby, as it stands now high end cannot survive (pricing is not the only factor there, but that's another blog altogether).  This industry works on an infinitesimally smaller scale than the big box retailers, it costs more for high end audio retailers as a percentage of profits to run our businesses than large retailers who can purchase huge volumes of product.  Besides, have you ever tried calling Best Buy and have the president of the company answer?  With high end audio, you can get a level of personalized attention and service that is hard to get anywhere else. What is that worth to you?


1 comment:

  1. My New Year's Resolution:
    Educate electronics manufacturers that the race to
    ZERO PROFIT
    is NOT sustainable.

    ReplyDelete