BREAKING RANK: Who will be the first big maker to bypass the UK audio retailer network?

Michael Vronski ...

I don’t claim to be a futurologist. However sometimes it’s possible to read some signs and occasionally for a view of which way the commercial wind is blowing. And I mean the way that wind is blowing, but not necessarily the speed and strength of that wind.My belief is that with the next 12 months we are going to see a UK based audio maker breaking ranks and getting rid of their entire UK dealer network and start selling direct to the UK public.

The Pros:

The benefits for the public, were this to happen, would be substantial – simply because any shrewd maker will reduced the recommended retail price by something approaching the dealer’s profit margin i.e. a buyer buying direct would be buying at pretty close to the trade price.

The benefit to the maker is that they have a direct line to the buyer without the ‘interference’ or ‘incompetence’ of the retailer.

The maker gets paid right away as they would not be offering credit to the buyer whereas currently all retailers, except the financially delinquent ones, get credit of at least 28 days and sometimes substantially more.

The Cons:

Primarily these are relating to the retailer. In such a situation, their reason for existence would be eroded.

The buyer doesn’t get a chance to audition the equipment first. But on the other hand, so many makers are complaining that a proportion of their retail network can’t and/or won’t “do a decent demo” that a new opportunity presents itself. A maker could supply on a sale or return basis. The probable rate of return would be tiny and the refurbishment costs for returned items would probably be miniscule compared to the costs of being involved with a retailer network.

Consequently a buyer might get say 10 working days to try a purchase in their home – which has got to be more attractive than a typical demo in a typical retailer.

It can’t happen here!

Oh really? Well ….. take a look at the Dell computer company. They’ve become vast and have done so with having any retailers whatsoever. PCs and laptops are infinitely more complex that audio equipment.

All an audio maker needs to do is to have the will and the know-how to set up a home-support service and a return-to-base service. Given the increasing reliability of audio equipment, this really isn’t a difficult challenge. And apart from anything else, the set up costs for such a service are probably considerably less that creating, maintaining and motivating a retailer network.

It depends on where the question is applied. For the buyer, I can’t see a down side if sale-or-return is offered.

For the maker, commercially it seems to make sense although they’d have to bite the bullet and simultaneously commercially terminate the entire UK retailer network. This in turn means they’d probably have to do the same with their entire global network simply because the reduced UK prices would incline any non-UK end-user to import from the UK rather than buy from the established retailer network in their country.

It’s not clear how the printed magazines would react. These magazines would still be the primary way that the target public would be informed of products that could now be bought direct from the makers. Naturally there would be a backlash from the retailers who had lost he franchise.

Rest assured though that the magazines would do the right thing for themselves first and their readers second. This means the ‘bean-counters’ and advertising managers would take a view regarding the short-term benefits of alienating the retail advertisers or alienating the manufacturer advertisers. Then they’d make a decision. I’ve no idea which way they’d lean.

In contrast, the online audio magazines, because of their culture and their commercial structure don’t encounter this dilemma. (I hope to expand on this in a future posting)

If it happens, who will be the first to break ranks?

There are compelling commercial arguments to suggest a Japanese company will be the first. However against this is the cultural conservatism inherent in Japanese audio makers. They don’t like confrontation, they like stability, they abhor rocking the boat. On the other hand, their network is so comprehensive and the sales so huge that no one retailer or retailer group go exert any commercial influence on the supplier. So the jury is out on this one.

My view is it’ll be a UK maker. There will come a point where one or possibly a few in collaboration will decide that rising costs, increased competition and flattening if not declining sales plus aggravation with the retailers themselves to say nothing of occasional complains about retailers from disgruntled end-users might just force the issue.

Some retailers exert far more ‘grip’ over UK suppliers than any Japanese company would allow. Maybe, just maybe one or more of these UK makers will feel that they want fewer eggs in more retailer baskets, or no retailer baskets at all!

My view is that sooner or later, the ‘zero-basket’ option will prevail. After all, I cannot envisage any marketing strategy or bullying of reviewers nor advertising cleverness that will produce the same positive impact on market share as reducing the retail price overnight by the size of the hitherto dealer margin.

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