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

Poor OSDP Usage Statistics 2019 on Jul 09, 2019
OSDP certainly offers advantages over decades-old Wiegand (see our OSDP Access Control Guide) but new IPVM statistics show that usage of OSDP, even...
Avigilon President Henderson Is Out on Jul 09, 2019
Avigilon's President and COO James Henderson is out, abruptly, after a remarkable ascension over the past 8 years, Motorola VP Jack Molloy has...
Bosch Integrating Sony Video Security Sales And Marketing Team on Jul 03, 2019
What is the future of Sony in video surveillance? In 2016, Bosch and Sony announced an atypical 'partnership'. Now, Bosch tells IPVM that they...
RaySharp Revealed - Major China OEM For Western Consumer Video Surveillance on Jul 02, 2019
RaySharp is mostly unknown, even among people in the video surveillance industry, though it is a major supplier of OEM surveillance equipment such...
2019 Mid-Year Video Surveillance Guide on Jul 01, 2019
IPVM's new 400+ page Mid-Year Industry Guide brings all of these issues and events together in a single resource to read and review. It can be...
Ivideon Russian VSaaS Profile on Jun 27, 2019
Ivideon was an early VSaaS entrant, initially focusing on the consumer market, claiming massive growth to IPVM in 2014. We spoke to Ivideon, to...
Hikvision USA Giving Free Cameras In Biggest Flash Sale on Jun 26, 2019
Hikvision redefined sales promotions in the US video surveillance market, starting at the end of 2015, with across the board discounts.  Now,...
Directory of 59 Video Surveillance Startups on Jun 25, 2019
This directory provides a list of video surveillance startups to help you see and research what companies are new or not yet broadly known. 2019...
Genetec Beats Milestone For IHS #1 on Jun 21, 2019
For years, Milestone has touted that they are the #1 VMS. Now, Genetec has beaten them in IHS rankings. But what is this? Even other manufacturers...
Risk of Amazon Alexa Guard: No Battery Or Cell Backup on Jun 20, 2019
Amazon positions its Alexa Guard Service as a "smart home security system" and says it can help you "keep your home safe". However, the...

Most Recent Industry Reports

HD Analog vs IP Guide on Jul 16, 2019
For years, HD resolution and single cable signal/power were IP camera advantages, with analog cameras limited to much lower resolution and...
How To Troubleshoot Wiegand Reader Problems - Inverted Wiring on Jul 16, 2019
Wiegand is the dominant method of connecting access readers, but problems can arise for installers. In fact, one of the most difficult reader...
ZeroEyes Gun Detection Startup on Jul 16, 2019
A gun detection video analytics startup, ZeroEyes, is being led by a group of 6 former Navy SEALs, aiming to "save lives" by using AI to assist...
Motorola Acquires Watchguard, Adds to Vigilant And Avigilon on Jul 15, 2019
2 years ago, Motorola had no position nor relevancy to video surveillance. Now, they own major video surveillance, LPR and body camera providers...
Hikvision Global News Reports Directory on Jul 15, 2019
Hikvision has received the most global news reporting of any video surveillance company, ever, ranging from the WSJ, the Financial Times, Reuters,...
Vivotek Trend Micro Cyber Security Camera App Tested on Jul 15, 2019
Vivotek and Trend Micro are claiming five million blocked attacks on IP cameras, with their jointly developed app for Vivotek cameras. This new...
Beware African 50,000 IP Camera Contract Scam on Jul 12, 2019
A “Nigerian Prince” scam for the video surveillance market is going around. You, or at least we, could be lucky enough to be the single bidder for...
Axis ARTPEC-7 P1375-E Camera Tested on Jul 12, 2019
Axis claims the new P1375-E box camera with ARTPEC-7 chip delivers "clear, sharp images in any lighting condition." But how well does it do? We...
Last Chance - Camera Course Summer 2019 on Jul 11, 2019
Last day to register is Thursday, July 11, 2019. This is the only independent surveillance camera course, based on in-depth product and technology...
Nortek Blue Pass Mobile Access Reader Tested on Jul 11, 2019
Nortek claims BluePass mobile readers are a 'more secure and easy to use approach to access', but our testing uncovered security problems and...

The world's leading video surveillance information source, IPVM provides the best reporting, testing and training for 10,000+ members globally. Dedicated to independent and objective information, we uniquely refuse any and all advertisements, sponsorship and consulting from manufacturers.

About | FAQ | Contact