July/August Editorial
Dear Gary,
Kudos to your recent editorial on the state of the industry. Many of your sentiments resonated very loudly with me since I personally witnessed market impacts you described. I have since left DWIN Electronics earlier this year and found a niche consulting with other manufacturers on marketing and sales management issues, product development, and business development.
I would add three more trends that have made a large impact on our industry:
1) Digitization of display technology: back in the day, high-end display manufacturers were revered for their ability to create a high-quality image from a relatively poor quality NTSC analog signal. The early pioneers who mastered the black art of analog video were rewarded handsomely for their skills. Today, with high-quality digital HD signals and digital imaging technology, many more companies can assemble a chipset that will deliver very good quality at a very low cost. More competitors usually mean lower prices.
2) Influence of Chip Manufacturing: a related trend is the economics of semiconductor chip (and LCD panel) production. The “race-to-the-bottom” phenomenon reflects the fact that large-scale investments are required to build a chip or panel “fab” (fabrication facility). When a company has billions of dollars of capital at risk, it is essential to seek the highest possible unit volumes as soon as possible to recoup costs. As prices decline, demand usually increases, so there is a strong built-in incentive for the chip company to lower prices. The chip company benefits by earning back their billion-dollar investment. The consumer benefits from very low display prices with very much improved quality. Small manufacturers and integrators get squeezed in the middle.
3) Convenience versus Quality: In the audio market, consumers (especially younger buyers) overwhelmingly prefer convenience (iPod®) to quality. (The popularity of products like Apple TV, YouTube, cell phone video, and IPTV indicate a similar trend in store for video.) Consumers do appreciate high-quality video and audio, but, I believe they are making rational trade-offs: ease-of-use and portability versus superior quality.
So, what’s the solution?
First, small manufacturers with legitimate engineering and quality advantages should price products at appropriate levels and resist competition from low-priced brands. (BMW, Mercedes, and Lexus all thrive despite the presence of Hyundai, Kia, and Daewoo). Small brands should offer high-quality service and support, for consumers and dealers alike. Small brands should enforce premium pricing and position by being more selective in dealer recruiting. And small brands should be aggressive at weeding out poor performing, marginal dealers that don’t have the right qualifications, or the technical ability. Dealers with insufficient capital, weak staff training, and inept customer service drain resources from small manufacturers.
Second, if manufacturers want to maintain premium pricing, they should not distribute products indiscriminately. If you are going to pursue the high end, your business plan should have realistic unit volume expectations. Unrealistic forecasts create pressure on sales organizations to sell to marginal dealers to “make numbers.”
Third, branding is important, but dealer education and training is crucial for success. Most small brands don’t have enough money to launch an effective consumer-branding campaign. It is pointless to try. I recommend my clients spend at least as much on dealer education and support programs as they do for consumer branding. In fact, many consumers are so overwhelmed by consumer electronic brand choices these days that they seek out high-end dealers to avoid making a brand decision! They depend upon the dealer’s professional judgment to make the call and recommend the right solution. Brand investments (like ads in Widescreen Review, brochures, in-store displays, and a good Web site) should be made in a way that reinforces and support the dealer’s recommendations.
Finally, with a dearth of high-quality displaying dealers in the country, why not create a “Widescreen Review Road Show” (think “Home Entertainment Show” but with video!). I’m sure many manufacturers would support a series of high-end shows in luxury resort or hotel facilities near high-population areas. Installers could bring prospective consumers to meet factory reps and see home theatre products displayed in a professional manner. We used this technique at DWIN with a few other manufacturers and the results were actually very positive.
David S. Brooks, President, SPS Group, Inc., www.spsgc.com
Editor-In-Chief and Publisher Gary Reber Comments:
Thank you for the expanded view. I agree with your perspective. Quality dealers with proper demonstration capability and product expertise need to be supported by high-performance manufacturers. Widescreen Review reaches out to those dealers through subscription distribution throughout the Custom Electronic Design & Installation Association (CEDIA), Professional Audio Video Retailers Association (PARA), and Home Theater Specialists of America (HTSA) channels, to which such dealers are affiliated. We provide technical expertise and education and help performance manufacturers deliver feature/benefit messages about their products and technologies through advertising and product showcases, as well as in our product reviews.
I find it surprising the number of performance manufacturers who are now selling on the Internet through catalog retailers such as Cruchfield and MusicDirect. Yet the products advertised therein are sophisticated in technology, design, and build quality and are distinguished in performance and price from the mid-fi and mass-market offerings. These products require an in-person demonstration if a customer really wants to feel confident about purchasing them, or at least be able to rely on product reviews by knowledgeable and respected reviewers and sources with a published track record.
Still, for the customer to choose to purchase through the Internet there is the “nightmare” scenario entailed with returns when the
customer ends up not being satisfied with the product purchased. For example, the following are excerpts from the return policy for MusicDirect: “MusicDirect’s 30-day money-back guarantee requires a return authorization (RA) prior to returning any item. It must be obtained within 30 days of the date the package was received to avoid a restocking fee and MusicDirect must receive the package within 15 days of the issued ‘RA’ to avoid a restocking fee. Returned packages without the ‘RA’ on the outside of the box WILL BE REFUSED. If the item is defective, describe a description detailing the defect. All original packaging, cables, instructions, warranty cards, etc. must be included in your return. If any of these materials are missing or if the product is damaged, a restocking fee will be applied. MusicDirect will refund the purchase price of the returned item(s). The customer must ensure the item is packaged, insured, and returned in sellable condition. Items damaged in shipment will not be accepted. Shipping costs for returns to MusicDirect are the customer’s responsibility. Defective exchange shipments to our customers are covered by MusicDirect. Returns must be inspected, tested, and repackaged before our refund can be processed. Returns can take up to 30 days. For questions on our return policies, consult our Web site.”
WOW! That is not, in my opinion, an easy proposition to have to deal with in the event one does not like the product purchased or if the product is defective or damaged. This is not about a CD, DVD, or LP return; this is about components and loudspeakers that cost in the thousands of dollars. I know from experience that dealing with such matters with a real live specialty dealer can be hassle free, plus the fact that one has the opportunity to experience in person the product’s performance and become educated about the features and benefits of the product before deciding to purchase (still with the opportunity to return the product to the customer if not satisfied).
I believe we need to hold on to such retail experiences and not venture into the world of “catalog” Internet retailing, which does not and cannot provide the in-person experience. Would you purchase an automobile, a watch, a boat, or other performance product without personally experiencing its qualities? I doubt many would.
So, to your point, to be successful specialty dealers must offer great service and knowledgeable expert advice, and potential customers must be appraised by manufacturers about their high-performance products using, as you say, advertising, brochures, in-store displays, and a good Web site.
As for your recommendation for a “Widescreen Review Road Show,” this is a venture that I have often thought about producing. I certainly will if there is enough support for it.
You can E-mail Widescreen Review @ editorgary@widescreenreview.com