Global Warming - AvNetwork.com

Global Warming

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I've been writing for SCN since its inception and have never received anything like the feedback following my article "Owner Furnished Equipment" in the February 2007 issue. I've received comments from both side of the aisle: manufacturers and contractors.

It's going to be a bumpy ride.

The gist of it from the manufacturer is that their high volumes and low margins have driven them directly to the end customers in order to keep their factory lines humming. If they don't do it, their competitors will, so they don't have a choice. On top of that, manufacturers are cutting out as many middlemen as possible in order to maintain their annual 15 percent or more price drop. The situation isn't going to change anytime soon, no matter how much pain is inflicted on their dealers, so they're going to have to get used to it.

The flip side is that contractors feel their dealership agreements are routinely being violated every time a "big job" comes along. Sure, there's no problem when a comparative handful of devices are involved, but when there's serious money to be made, they ain't making it. But the first time a problem crops up, the dealership is the first to be called.

The internet has changed the way that manufacturers and dealerships operate. Dealerships emerged as businesses when manufacturing companies were new and focusing on production, as opposed to distribution. The focus shifted as both product and information technology matured.

As production costs diminished with increased pressure for profits, many manufacturing companies looked for a bigger piece of the pie. Business-to-business (B2B) selling has increased dramatically. Manufacturers have begun selling their products directly to the public, and the internet is a relatively inexpensive method for doing so.

Let's face it. It's going to be a tough year for many anxious dealers waiting to see how this issue is resolved. The brutal truth is there will be more industry consolidation as the volume jobs cease going to independent dealerships.
There are basically two groups of product lines in our industry now. The first group is the high-volume monitor, projector, speaker, and amplifier business-many manufacturers of which are bypassing their traditional dealership arrangements in order to prosper. The second grouping provides all the necessary interface equipment to integrate a system, and manufacturers in this category passionately defend their dealerships. It's not too difficult to speculate that the bonds between dealer and second-group manufacturers will strengthen in the short-term.

Ultimately, the changes in the first group will bring long-term quality commercial arrangements for good-quality dealers as well as weed out perceived low-value dealers. There is no point in saying "We don't believe in the new reality," because the manufacturers will be cherry-picking which dealers they want to work with, as they are in control (at least temporarily). Dealers will have to reposition themselves by providing ancillary value.

There is tremendous opportunity for dealerships to hook themselves into the new business model by augmenting products with unique services and functionality to make themselves indispensable. If you're selling more than just a bunch of boxes, your customers will be more loyal. Embrace the new toys, and figure out how to make them more useful with your own customization. Standardize your efforts in order to create new product lines for yourself and keep costs down.

Yes, B2B has taken away some sales from the industry's dealership perks. Yet a manufacturer's website can benefit a dealership in other ways. Many manufacturers use their site to store information on the company products, providing prospective buyers with needed information that its dealerships cannot deliver in a timely fashion.

I spoke with a dealer/installation contractor last week about one of the new 100-inch plasma monitors being demonstrated in his facility. However gorgeous it is, the thing weighs 485 pounds and requires the wall be reinforced out here in earthquake land. Assuming these things take off, it's not too hard to project that the successful installation of these is well beyond the capacity of the Average Joe. The manufacturers will need to include local dealerships in their future plans.

Just because a contractor has caught wind of a certain project does not automatically entitle them to the profits in perpetuity for subsequent sales. Nor does it mean a manufacturer can drop-ship product and wipe their hands of responsibility for the system-working or not. Besides, much of this stuff is getting so big it can't be drop-shipped easily anyway.

There has to be a middle ground here in order for the industry to survive and prosper. A proper business model includes both parties in a fair and equitable relationship. We are all entering what is basically new territory with the ubiquity of display systems, which will require adaptation on all our parts.

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