Too much info?

Web-based distribution operations are an increasing part of our AV market. The appeal is obvious, fewer staff, lower overheads and a cheaper product for the customer, what’s not to like. But the issue isn’t that simple, and there are many who believe that online distribution could cause lasting damage to our industry. Chris Fitzsimmons reports.

The Internet has brought us many wonderful things since the early 90’s. Penny Arcade cartoons, blogs and live cricket scores being a few of my personal favourites. It has also brought us the joy of online shopping. Lazy or busy individuals like myself across the world rejoice at being able to do their Christmas shopping online, from the comfort of their own home.

If you take it one step further and get really flash, you might even use a price comparison website to check a number of sellers at once for the best price for your mp3 player, or the latest Transformers toy for your nephew. But what about a new 42” LCD TV, would you buy that online? Perhaps not, but you’d certainly check the price, and you might even go into your local high street retailer and try to negotiate the same price or something similar.

But what has Christmas shopping to do with Pro AV distribution? Not as little as you would think. The last four or five years have seen the rise of several prominent online distribution companies that not only deal in MI or consumer product but also in professional AV products such as installation loudspeakers, high-end projectors and even DSP devices.

But what’s the big deal? Well, during my visit to Australian Monitor’s distributor event in October, the buzz amongst many of the reps attending was about the affect that these online distributors were having both on margins, and their lack of respect of territory - the internet doesn’t observe borders, one of its greatest assets.

It goes something like this: Customer A, be that an end user or dealer is investing in piece of equipment B. Being used to online cleverness he types the name into a search engine, and hey-presto a website appears offering piece of equipment B for €440. Great, except that his regular distributor is offering the same piece of equipment for somewhere over €500. No problem, customer A has saved himself €60.

But it’s not that straight forward. Ignore for a moment the fact if Customer A buys from the website instead of his distributor then the distributor’s business suffers. The more important issue is the overall impact on the industry. Let’s consider where that disparity in price has come from – the margin.

What is happening here is that the website is making a lower margin on the same product than the distributor. And with lower margin comes a requirement to cut costs to still make money.

John Midgely, MD of Beyerdynamic UK did allow that there was a place for the online market.

“It really depends on the product we’re talking about. Projector bulbs for instance, it doesn’t really matter where they are from, can be packaged up and sent off. If the nature of the product isn’t technical then online distribution is fine. We engage in it ourselves.”

The real problem in the view of the distribution fraternity is when one is talking about complex AV products that require support. “To sell value added, complicated equipment, which is normally going to be support by a distributor, on a website, I do not support,” remarked Ennio Prase.

So is it that distributors are just uneasy about revealing the level or margin they take to the end user? Not according to Midgely: “I don’t think that it’s a bad thing in terms or transparency or that’s it’s a bad thing that people can find out what prices are and I think that’s only fair to the customer base. I think the major concern from people within the distribution and manufacturing market is that if it becomes a price only issue and all else gets ignored, then what happens is a natural erosion of price and therefore an erosion of margin.

“That’s the more important factor, because you cannot then support all the other services that should come as part of being a distributor. Companies start letting go of technical support staff and cutting costs in other areas. Ultimately I think the customer will suffer as we still see a huge demand for after sales technical support in our industry.”

The support is really the crux of the matter. If there is a set up problem with a complex piece of equipment then the first port of call is the folk that sold it – the distributor. However if that distributor exists only as website, or is in another country or doesn’t have the right in-house knowledge, the dealer, integrator or customer is left hanging and ends up going direct to the manufacturer, who might be on the other side of the world.

Some online distributors offer scores of different product lines, which they can have no possible hope of providing an acceptable level of support for. Poor support will lead to poor user experience, that’s bad for the manufacturer, bad for the customer bad for the integrator and bad for the AV market as a whole.

However, it’s the perception issue itself, which more important than the actual volume of business done online. What happens in reality is that once the customer sees the lower price available, they go back to their traditional distributor who is local, who does offer support services and who does offer them an open credit account, but they reduce his price in the discussion. Of course it’s down to the distributor whether he comes down in price or not, but in today’s climate what inevitably happens is that margins come down.

“I think at the moment in our industry it’s more of a perception issue. There isn’t actually much product being purchased and shipped via online resellers, but it’s a major influence on pricing for everyone.”

But what can be done about it? Well, in the US manufacturers are beginning to take a pretty firm line with their distribution partners about the price point they sell products at. It’s known as a MAP of Minimum Advertised Price. Stuart Bennett, VP of Sales and Marketing of Net Enforcers explained: “WE are a brand protection company, which helps manufacturers to monitor the unauthorised sales of their products online, which ultimate lead to price erosion. At the same time we focus on grey market or diverted products. Products that should have gone into the EU, but have ended up in the USA because the dollar price is cheaper, or even in relations to counterfeit Viagra.

“We also monitor the authorised dealers of products, from a list that manufacturers have supplied to us. They have to stick within the parameters or boundaries set by the supplier and if they are found to go outside them, then we inform our client. The MAP ensures that our client’s brands are protected and that distributors make sufficient margin. I think it’s a pretty unique system to the USA though. If you go to Canada or the EU it’s considered anti-competitive and it’s illegal.”

So short of price fixing, which I think most would agree is a bad thing, what remains? The short answer is education and understanding. Next time you beat up your distributor for a deal, consider what will happen if you continue to do so. As an industry it’s important we believe in the value of not just the technology supplied, but also the expertise that’s needed to support it.

Article Categories

Most Viewed