Channel Sales Harm Security Users

By: John Honovich, Published on Feb 14, 2011

The standard security sales model encourages bad system designs and poor integration skills. Specifically, manufacturer's varying discount levels to integrators creates incentives that work against the needs and interests of security users. While integrators should focus on providing the best design, installation and optimization of security systems, the standard sales model incents them to push products that provide them the best relative discounts. Following this path can provide a 5%+ total cost advantage, a substantial advantage in winning projects.

Background

The standard sales process consists of integrators selling end users a full solution. The integrator provides a single quote that covers all products and labor necessary to integrate the system. In most surveillance projects, products represent a majority of the total system cost, often reaching 40% - 60% of the entire project (i.e., a $100,000 project might be $50,000 in product costs and $50,000 in labor costs).

Integrators buy products from manufacturers, or their representatives, at various price levels and then re-sell them to end users. This price each integrator pays can vary greatly depending on a number of factors:

  • The more products an integrator buys from a manufacturer, the greater the discount provided
  • Being the first integrator to recommend a manufactuer's products to a user often results in bonus discounts (called 'project registration')
  • The greater the size and power of the integrator, the more likely the manufacturer will provide steeper discounts (especially if the manufacturer is small)
  • The manufacturer's perception of the tactical role of an integrator can impact discounts (Can an integrator help get the manufacturer into a new region? Does an integrator have a strong relationship with an end user the manufacturer desires?)
  • Whether an integrator can buy direct from a manufacturer rather than through a distributor (buying direct often increases discounts)
  • The negotiating skills and tenacity of the integrator

While each manufacturer's specific policies and tactics vary, some combination of the above almost always occurs. The end result is that 'most favored' integrators regularly buys products at 10% or greater discount than an integrator who only occassionally sells the manufacturer's products.

The Incentive Structure

Securing the best possible product discounts is an important advantage for integrators. Since product sales are such a large component of overall projects, small variances in product discounts can result in significant overall cost advantages. For instance, in the $100,000 project we referenced earlier, an integrator with a 10% advantage in product discount pays manufacturers $5,000 less (10% times $50,000). If labor costs were similar (as they often are), the end user would save over $5,000 from the integrator who had the better discount from a manufacturer. The product discount significantly increases the integrator's odds of winning the project.

Conflicts Arising

Since the skills needed for product procurement and system integration are so different, the standard sales model inflicts important inefficiencies. Organizations that excel at procurement need to move high amounts of products, be tough negotiators and have a lean cost structure (think Wal-Mart). By contrast, companies that excel at integration need to have great technical expertise, strong problem solving skills and personal dedication to the client (think boutique firms like software development, accounting, etc.). Forcing these two fundamentally distinct practices together, creates difficulties in excelling at both.

Furthermore, higher discounts often make integrators more dependent and aligned to specific manufacturers. 

Get Notified of Video Surveillance Breaking News
Get Notified of Video Surveillance Breaking News

Impact of the Incentive Structure

Practically, this fosters two common problems:

  1. Encourages integrators to design systems or advocate solutions based on products that they possess the best discounts
  2. Reduces the value of integration/labor skills as integrators can win projects based on superior discount structures / product sales abilities

This is almost certainly the opposite of what security end users want. Of course, they want and need product but they are poorly served when product sales interfere with the best overall design and implementation.

While many integrators put the interest of their users first, doing so puts them at a competitive disadvantage to those who play the game more shrewdly.

From the perspective of manufacturers, incenting customers to buy more products is quite rational. However, since the proportional cost of products in a project are so large, those incentives can help align the integrator more to the manufacturer than the customer.

Many decry falling product margins yet if integrators only sold their services ('smarts'), we'd likely reward better integrators and foster stronger overall security solutions.

What Do You Think?

Related Reports

Axis Cracks Down On Illicit Channel Sales on Nov 01, 2019
Axis has stepped up efforts to crack down on illicit channel sales according...
End User Buying Axis At Prices Better Than Axis Gold on Jan 10, 2020
IPVM recently found an integrator contract with an end-user that guaranteed...
Verkada Speaks On Disrupting Security Sales Channel on Aug 28, 2020
Verkada's fast growth has taken the industry by storm and their enterprise...
Remote Access (DDNS vs P2P vs VPN) Usage Statistics 2019 on Oct 25, 2019
Remote access can make systems more usable but also more vulnerable. How are...
IP Camera Mount Shootout - Axis, Bosch, Dahua, Hanwha, Hikvision, Vivotek on Nov 04, 2019
Which manufacturers offer the best or worst mounts? We bought and tested...
Tailgating: Access Control Tutorial on Oct 31, 2019
Nearly all access control systems are vulnerable to an easy exploit called...
IPVM To Disrupt Trade Shows With Launch of Online Shows on Mar 17, 2020
IPVM is launching Online Shows, a series of ongoing events that allow sellers...
Securing Access Control Installations Tutorial on Oct 17, 2019
The physical security of access control components is critical to ensuring...
Commend ID5 Intercom Tested on Sep 12, 2019
Commend touts the new ID5 intercom as 'timelessly elegant' and the slim body,...
Breaking Into A Facility Using Canned Air Tested on Jan 28, 2020
Access control is supposed to make doors more secure, but a $5 can of...
VSaaS Will Hurt Integrators on Aug 06, 2020
VSaaS will hurt integrators, there is no question about that. How much...
Vehicle Gate Access Control Guide on Mar 19, 2020
Vehicle gate access control demands integrating various systems to keep...
Help Security End Users Facing Coronavirus Improve Remote Access on Mar 24, 2020
Many end-users and integrators are struggling with the impact of coronavirus...
JCI / Tyco Security Products Layoffs on Jun 05, 2020
Johnson Controls / Tyco Security Products has confirmed COVID-19 related...
Aiphone Video Intercom Tested (IX Series 2) on Nov 05, 2019
Aiphone was one of integrator's favorite intercom manufacturers but how well...

Recent Reports

OnTech Smart Services Partners With Google and Amazon To Compete With Integrators on Sep 25, 2020
A pain point for many homeowners to use consumer security and surveillance is...
The Future of Metalens For Video Surveillance Cameras - MIT / UMass / Immervision on Sep 25, 2020
Panoramic cameras using 'fisheye' lens have become commonplace in video...
Hikvision Sues Over Brazilian Airport Loss on Sep 24, 2020
Hikvision was excluded from a Brazilian airport project because it is owned...
China General Chamber of Commerce Calls Out US Politics on Sep 24, 2020
While US-China relations are at an all-time low, optimism about relations...
IP Networking Course Fall 2020 - Last Chance - Register Now on Sep 23, 2020
Today is the last chance to register for the only IP networking course...
Drain Wire For Access Control Reader Tutorial on Sep 23, 2020
An easy-to-miss cabling specification plays a key role in access control, yet...
Norway Council of Ethics Finds Hikvision Human Rights Abuses "Ongoing" on Sep 23, 2020
Hikvision's involvement in "serious human rights abuse" in Xinjiang is...
IPVM Camera Calculator User Manual / Guide on Sep 23, 2020
Learn how to use the IPVM Camera Calculator (updated for Version 3.1). The...
Installation Course Fall 2020 - Save $50 - Last Chance on Sep 22, 2020
This is a unique installation course in a market where little practical...
SimpliSafe Business Security Launched Examined on Sep 22, 2020
SimpliSafe has launched "SimpliSafe Business Security" that the company...
FLIR CEO: Many New Fever Entrants "Making Claims That The Science Just Won't Support" on Sep 22, 2020
FLIR's CEO joins a growing number calling out risks with fever / screening...
China Bems Temperature Measurement Terminal Tested on Sep 22, 2020
Guangzhou Bems (brand Benshi) is the manufacturer behind temperature...
Axis Exports To China Police Criticized By Amnesty International on Sep 21, 2020
Axis Communications and other EU surveillance providers are under fire from...
Milestone XProtect on AWS Tested on Sep 21, 2020
Milestone finally launched multiple cloud solutions in 2020, taking a...