What happens when the Messiah becomes the Anti-Christ ?

Why the company that every manufacturer and Rep in the CEDIA channel loves to hate, is on a collision course with retail and what that means for the Custom Installation Dealer.

Preface: Let me begin by saying that I think the company that I will be talking about here has a genius marketing department and has timed their entry into our market perfectly. I think everyone reading this post will grasp who this company is, but for now, I will refer to them as "Messiah". I know some dealers are very passionate about this company and you will not hear me downgrading the company or their products in any way in this post. I think they make a good product for the money and are a good all around company. My point in this blog hinges on the way that their product is distributed. This post should get some very interesting comments!  Read on....

As an Independent Manufacturer's Rep, my line card has traditionally been filled with higher end goods for our channel. Most of the goods sold by "Messiah" did not crossover into what I was selling my dealers. But over the last year and a half, "Messiah" has started introducing product that directly competes with some of my middle priced lines. I did not think much about it at the time, but after I started asking my dealers if they do business with "Messiah", a funny trend started appearing. Half of the ones I asked readily admitted that they did and the other half said no way and would not admit to it! But, upon walking through the facilities of the ones that said "no way", I started seeing a "Messiah" box in a corner, on the shelf in the warehouse or installed in the wall in about 30% off them. Hmmm, I thought to myself, I have 50% of my dealers that admit to doing business with them and also 30% that say they are not but are. That's 80% of my dealers in my 3 states that I cover! Again, I'm not saying that if I was a dealer in this day and time that I would not be doing business with them either. Their approach to the dealer channel is very appealing, especially in the hard times that we live in today.

Let's look at why their doing so well:
     1. Free Shipping- no matter how small of an order.
     2. VIR programs- different levels.
     3. Huge margins.
     4. Can't be shopped on the Internet.
     5. Great return policies.
     6. Very convenient website ordering.
     7. Extremely fast and easy dealer sign-up.
        (This one winds up being part of my point later.)

A lot of my dealers in my 3 states have been hit hard over the last few years with the recession. Before the recession, most of them were bigger firms that had personnel in the office to place orders, keep track of VIR programs and make sure product was on time for their install. This person was one of the first ones to go in the downturn of the market. Now the typical day for the typical 4-5 man dealer operation goes like this:
Works all day doing installs; gets off at 6:00pm (or later) eats dinner; gets the kids in bed; watches a little TV; then gets online around 10pm-12 to order product for the next week's jobs (a lot of the time from "Messiah"). 

I had originally thought that most dealers of "Messiah" were only buying basics (mounts, wire, widget/gadget type products, etc.) but after sitting down and talking to a few big dealers of theirs, I have come to realize that this company's products encompass 60-80% of the products on the job. It makes sense for the dealer to do this because of the above mentioned 7 benefits. I cannot fault them.

Here is where I start playing devil's advocate. Most of the nicer lines I sell as a Rep are territory restrictive. Meaning, I cannot have 10 Bryston dealers in Nashville, TN. It makes no sense for Bryston and it makes no sense from a competitive standpoint for the dealer. So, if I have 80 percent of my dealers doing business with "Messiah", the chances that a perspective client getting several quotes from a few dealers and that quote being made up largely of the same SKUs are very good. Remember, it took less than 5 minutes to become a dealer for "Messiah" on-line and any person with a tax re-sell certificate can become a dealer. At this point, what happens to the awesome margins that the dealer was getting from "Messiah"? The client is going to play that card and 1 of 2 things will happen:
     1. The dealer will cut their margins to get the job.
     2. Their competitor will cut their margins to get the job.
If it is not happening yet to a dealer, it soon will based off of the shear number of "Messiah" dealers in any given market. Either scenario is bad for the dealer because the custom dealer is the person that is supposed to have something special for the client to make them stand out from their peers. Now 2 out of 3 companies (or more) that the client gets quotes from are proposing the same thing. This does not come across as "Special" to the client.

It is my opinion that "Messiah's" dealer base is reaching saturation and their dealers will start to fall away quickly when most dealers in a given market start butting heads on the same line. When that happens, what do they do with this huge "machine" they have created with too few dealers to help keep running? The answer is simple and they are already geared up and have the infrastructure and business model for it. They will one day soon, turn the key and go direct to consumer leaving their dealers out in the cold but thanking them for making it all possible. It is the nature of the beast but make no mistake....the Anti-Christ is coming!

My question proposed to the dealer is - Do you sell your "Identity" of your business to this company for some of the 7 above mentioned benefits or do you do just a little more work and give your business to the Real Messiahs (traditional, restrictive manufacturers that have supported their dealers and the channel throughout the years)? Some of these manufacturers offer some of the same benefits and partner with some great Reps that make interacting with these manufacturers just as profitable and pleasurable as doing business with "the Messiah" and the best thing about it is the dealer gets to keep the Soul and distinctiveness of their business!  
          
   

Is the Magician about to die? Part 4 - The conclusion

How iDevice GUIs have taken away your "magic," forever changing the Custom Integration market and some suggestions on growing your business in spite of them.


Preface: Thanks to everybody that has taken the time and effort to read my thoughts on my first blog attempt! This post concludes my series on the Magician. Remember, these are my thoughts and I'm sure there will be people that disagree with me and that's .....okay. If you have not read the first 3 parts of this series, please go back and do so now. If you don't, this continuation of the magician's story will not make any sense to you. Let's pick up where we left off...... 

Present Day and Future - So, where does all of this leave the magician and his industry and how do we go forward?    

Let's see where we stand today:

        - No margins left on flat panels.

        - Margins dying in automation.

        - No new construction recovery, so pre-wires and multi-room audio

          are slow.

        - Systems are getting simpler so we have to turn more with

          fewer billed labor hours.

        - Gas is $3.50 to $4.00 a gallon! I thought I would just throw that

          one in there.

        - Fighting for every retro job we can get.

          

So what should we do?  One suggestion is:

Get back to your audio roots!

Let me ask two questions:

1. When was the last time that your hair stood up on the back of your neck when you were listening to music, much less when your clients were?  

2. Have the margins in higher-end audio and speakers changed in the past twenty years? 

There is a crazy trend (in our eyes) happening today and that is the re-birth of quality audio and even 2 Channel (that's right, you read it right- 2 Channel). A lot of dealers and even the industry is not understanding and is dumbfounded about how this is happening. I think I can explain if you will follow my logic below:

- Audio is the only sense that can give you that euphoric feeling of goose bumps.

- 25-38 year olds are who I consider to be the iDevice generation. They grew up listening to iPod and never have been presented with an audio demo that gives them "The Experience." 

- They’re bored with 1 million songs in their pocket because they have lived with it for so long that it has become commonplace and they’re searching for something to fill the void.

- They’re stumbling upon vinyl again and the resurrection is beginning. Sales for vinyl have grown the last four years and in the last two years, have grown 33% and 14% respectively. Even though the numbers represent less than one percent of total music sold, 2.8 million vinyl albums were sold in 2010, up from 2.3 million in 2009. The demographic buying these albums aren’t your dad and mom's generation; they are the 18-38 year olds. If they’re buying vinyl, they’re interested in quality audio and looking for equipment and speakers to play it on because they’ve never owned it or even known that this level of playback ever existed. 

   

- They’re the demographic that have at least a little disposable income. 

- They still have some "kid" left in them and, like their parents were with 2 Channel at their age, are susceptible to the idea that making their system sound just a touch better for $1,000 dollars, is worth it. 

- The best thing about this revival is that it is being pushed up from them to the industry instead of the other way around. Usually the industry tries to shove things down the consumer's throat. Just look at all of the manufacturers that were scrambling to show their re-worked turntables just in time for CEDIA last year!

What do you have to do to garner these new clients ?

Automation - You still have to do automation and do it right. Today, you have to sell and properly hang a flat panel with hardly any margin, don't you? The same will apply in the next few years with automation. If it is not a DIY project, you will have to do it correctly and at a fair price and it will have to be reliable and be user friendly. Your only concern needs to be to make sure you are partnering with a company that is respected, makes a reliable product, has a good track record and, last but not least, has the most legitimate margin that you can find.

Demo Space - You will have to have some type of demo space to raise hair on clients’ necks again with an audio demo. This can be a showroom, your home or a client's home. Your competition, more than likely, will be showing automation very similar and at the same pricing that you will be, so you really need to have audio equipment and speakers that set you apart from them and are capable of emotionally moving the client. If the rest of the job is similar in pricing and quality, the client will remember the dealer that "moved" them and which dealer just showed them  a pair of dumb-dumb in-walls.  

Education - Get a re-fresher course or learn everything you can about sound and the physics of sound. Don't just talk the talk. You really need to understand sound and learn to present it to a client in a simple, non-technical way. Most clients get turned off when technical jargon starts spewing out of our mouth.

  

Product Mix - Develop a high margin/high quality audio equipment mix that is hard to shop on the Internet, but keep your offerings slim so that you are important to your manufacturers and not the other way around. Keeping your lines to a minimum also cuts down on a lot of client confusion. They are coming to you because they see you as the expert. It's up to you to confirm that to them and relate to them that you chose this manufacturer because you (the expert) see it as the best. Why would they want anything less?

Salesmanship - The art of actually selling will have to make a comeback into your model. The easy sell is over and very few jobs are being delivered to your door like they were in the mid 90's. Focus on your selling techniques. Educate your staff on this fundamental talent and practice it with them in your down time.   

To sum up: Things have changed rapidly in the past 14 years since I’ve been in the industry, but one thing has not changed. If I know more than my client about what he is interested in and can give him an "experience" he will always put me on the pedestal as his magician. True magic comes in trying to figure out what act our client will want performed 2 years from now and prepare for it starting today. 

The magician is not dead, he is just changing his set.

Is the Magician about to die? Part 3

How iDevice GUIs have taken away your "magic," forever changing the Custom Integration market and some suggestions on growing your business in spite of them.


Preface: If you have not read Part 1 and 2 of this series, please go back and do so now. If you don't, this continuation of the magician's story will not make any sense to you. Let's pick up where we left off...... 

June 2007 - The ushering in of the Dark Ages.

1. The New Construction collapse.

2. The introduction of the iPhone.

 What happens when your whole world changes? It seemed like over night that "sticks" stopped coming out of the ground and my regular contractor clients stopped calling. On top of that, contractors that still owed money, were getting very hard to contact and corner. Clients that were still in the midst of building projects, started coming back to the design table wanting to cut certain sub-system controls or leave rooms pre-wired for future fill in. The press was in full swing of casting serious doubt on the economy and the public was listening! The press did not have to tell the banks that our gold mine of a housing market was about to play out, because they caused it and knew they were just bidding their time. A lot of our clients couldn’t afford our toys anymore because the banks wouldn’t allow them to get rolled into the mortgage. The ride had officially come to a stop and a lot of dealers started to exit that had based their model on new construction and automation.

About this same time, that pesky little iPod company pioneered and shipped a new cell phone that re-defined the word magic and how I practiced it. Our clients wanted to buy our cool toys, but began to save their money in fear of the economy. They could however, let go of 500 or so dollars and buy Apple's latest gadget. It was far more than a gadget in retrospect.

Let's talk about what happened when it was released:

Sales - They sold 6 million iPhones (touch panels as far as we are concerned) the first year! Let me ask a question...how many touch panels do you think we sold as an industry since the first Pronto or RAV came to us in 1999? That's right, everybody reading this should have their head hung low by now. It's been 12 years since then and Apple eclipsed us in just 1 year!

GUI (The start of my blog point) - Their GUI immediately became the standard to which everyone else’s was compared. Most of Apple's customers had never seen or touched a touch panel before. Their first experience was one of fun and amazement. The GUI educated millions overnight to the simple expectation that all touch panels should be easy and just work. Even we as an industry could not wait to get our hands on them and we had been doing touch panels for at least 12 years!

  

Multi-Touch - Try explaining to an AMX or Crestron client that his 12 thousand dollar touch panel he just paid you for will not do flick or gesturing like his iPod in his iPhone does. That is not a good conversation! 

What did the iPhone's introduction do for us? 

Loss of credibility - We have to look through our clients eyes and step out of our industry to fully understand what was going through our clients’ minds when we were pitching them on our touch panels since the iPhone's introduction. Most of our new clients were introduced to touch panels through the iPhone and here we were pitching them something that does not do as much (in their eyes) or is not nearly as clever for four to twenty times the price of their iDevice.

Decrease in customization = decrease in programming billing hours - Their GUI spoiled our clients and caused many to settle for it instead of desiring a fully custom GUI from us.

Bye, Bye Margins - No more high margin touch panels sales.

Made some of us Trunkers! - I have a lot of dealers during this time that looked at their bottom line and realized that the total margin they were showing did not have enough money in it to support a showroom anymore. They closed it and became "by their own definition," a Trunker with a van. In all honesty, they were better off because the jobs that they were getting, were by referral anyway and the client never entered the showroom.       

January 2010 - The iPad is introduced. See my thoughts above and multiply by ten!      

Here is where I make the point that it’s the iDevice GUI, not the hardware, that is changing our industry. Could I sell another twelve thousand dollar touch panel? Sure I could, as long as it could make the iPhone /iPad GUI of today look terribly outdated like their GUI and features did to us in 2007. Most of our rich clients have as much or more money than they did back in 2007, but they have to feel justified that what they’re buying is going to be tops in the market for a while and turn their peers’ heads just like my Pronto did back in 1999. For now, you have to tip your hat to Apple. They have done an incredible job! Here is the scary part.... Apple did this to our industry with a ricochet. They weren’t even going after our industry or developing a product for our channel when they introduced first the iPod and then the iPhone. We’re but a pebble in their pond. What would happen if they took aim at us and put serious resources and thought into developing for our channel?         

September 2010 - Little black boxes and the cloud.

CEDIA 2010 brought a barrage of companies wanting to "play nice" with the iPad and iDevices. Companies started to spring up (Bitwise, Red Eye, etc.) that had these little networked black boxes that had control ports on the rear and claimed that all you needed for control was one of these boxes (that are inexpensive-low margin) and an iDevice. Dealers were flocking to these companies trying to understand how they could use them to spring board into the lower/middle end of the control market. Just as my clients pushed me in the early days of the iPod, their clients are starting to give them push back and demanding to use their iDevices to control their home. These clients are being educated by the iDevice GUI and the App Store that going forward, they should only buy networked equipment and "programming" is as simple as downloading the App. Even if they spring for a Crestron or AMX processor, they are cutting back on the number of sub-systems attached to it because of the high cost of programming. 

To add to the race to zero on automation margins, later that year, companies like ADT and Schlage Link started using the "cloud" to monitor these boxes and even give (included in your monitor fees) you storage space in the cloud to store your footage from your IP security cameras and re-stream them back to you. 

So now, as a dealer, I'm not making much margin on the iDevice or core equipment and programming of these systems is much less complicated resulting in not as many programming hours billed. My "gold mine" in the midst of the booming new construction market has turned into a "coal mine" in the downturned new construction / iDevice era. I have to move a tremendous amount of systems in order to make a decent living now. 

The worst thing that has happened here is that magic is starting to dissipate from our industry. Even today, we do not get the reaction that we used to when we would press one button and the client would watch a multitude of things happen as a result. In the past, that was an "experience" to him and in some degree, magic and it validated us as pros at what we could offer him. In the next few years, that experience is going to turn into a DIY project for most of our clients. It will be expected and part of everyday life because of iDevices and devices like them that are yet to come.