Cant say im surprised. Distributors catch a lot of flack in general, but, its it's tough to run a business on low margins and pay enough payroll to keep competent people. It's not the diatributors fault tho, its the business model.
For us, the people we deal with are just as important as the price or the product line. This is why we avoid ADI. In my experience the company culture is toxic and anti integrator/dealer. And ive seen it from the first visit to their counter all the way to the booth staff at ISC. At the end of the day, if I trust the people behind the counter, then im glad they can get a few bucks from bosch for a poster, itll keep my cost down. And that trust will keep the sales person from being influenced by a poster on the wall. After all, if they sell us the wrong thing, theyre going to get a call from me, not their advertiser.
"It's not the distributors fault tho, its the business model."
I do wonder if this is a chicken and egg thing, i.e., did the business model force them to do this or did their lack of differentiation?
If a distributor developed more differentiation, could they re-shape their business model? In other words, if their integrator customers valued them more highly, perhaps they could make more money that way.
ADI, as you mention, is a great example. What if ADI actually had a healthy culture where they used knowledge and commitment to help their integrators do more? Ok, that's sounds crazy even writing that about ADI but I still think some distributors could / can do more than just settle for super low margins and marketing money from manufacturers.
Before we went strictly integrator, I co-owned a small video distribution company. We were able to add big value by serving our niche, dealers who were looking to add video t their traditional alarm company. They knew nothing about video and we would build them systems, design the layout, provide quotes with their markup already built-in, customize spec sheets. We even built websites for a few of our dealers and provided direct mail services. We were their tech support department and we would OEM the recorders for them too. They looked like they knew what they were doing with us backing them. We found a niche and we served it well, and because of that we had higher margins.
The problem is, any value add that a distributor provides makes the installing company more valuable, more professional, more knowledgable. We found that after 2-3 years, the dealers would start doing their own back end stuff and cutting us out. I would do the same thing in their position. My point is that added value from the distributor has a limited shelf life.
Heres another dynamic to consider. Our overhead as an integrator remains the same regardless of how much a camera costs. As prices come down, margins MUST go up for integrators to survive. IF you have a 20 person company and you comfortable install, lets say 100 cameras a month for the sake of simplicity. You are used to those 100 cameras providing X profit to cover overhead leaving you with usually a small net profit. Lets say you now sell those same 100 cameras at half the price with the same margin... well, thats not the same amount of money in the net category, you now need to sell 150 cameras to make the same amount of money. Can you do that with the same 20 people? I know I can't. So where does that pressure go? It goes to the technicians who are being pushed to be more efficient, then it goes to the distributor to lower cost. Again, adding value adds to the price, and rightfully so, but the distribution model is one where any added value shifts to the installing company and the distributor can't keep up.
The answer? Gross margins need to go up industry wide (including some distributors). I had this conversation with the Vivotek rep that was in my office yesterday. If you are an installing company operating on sub 30% margins you will not survive the next 5 years. Sub 50%, you might make it there if you're a lean machine. Manufacturers and distributors that set pricing in a way that does not allow for higher margins are killing their own customers and themselves.
Its alot easier for a company that operates at the customer site to add value than it is for a distributor, but they better find a way, and manufacturers better realize that if their dealers are making $20 a camera, they wont be around to buy cameras in 5 years. IF that way is to fund the overhead by selling advertising to manufacturers, great, as long as the people we deal with are still human beings who trust and value relationship based sales, we will be ok.
"The answer? Gross margins need to go up industry wide (including some distributors)"
Do you mean margins on products? My gut feel was that margins / markup / pricing on labor would go up, given that I think most customers would find markups on widely available products harder to justify than personal services. Thoughts?
I started my career in distribution for 5 years, then went to outside sales for a manufacturer that sold through distribution for 4 years, and now I'm an RSM for a manufacturer that uses a dealer direct model.
Every link of the chain from manufacturing down to installation SHOULD add value to the process, but as we all know that isn't always the case.
Not all distributors are created equally either. I've worked closely with smaller regional distributors who definitely added value by researching products and recommending the best based on the individual dealers needs. These same distributors were also a pleasure to work with personally, and seemed to truly enjoy helping dealers succeed.
On the other side, I've worked with distributors whose only added value was having a product in stock, and even then would actively talk down a product and suggest a comparable product that happened to be made by the company that owns the distributor.
All of that being said, it is not fair to condemn ALL distributors based on the service and reputation of the big 2 or 3. Although it is definitely understandable! Of all models, dealer direct is my favorite to work with.
Our counter Sales Men and Women should start wearing Nascar advertising uniforms. Factory Distribution Managers standing around branches with clickers counting each time one of them mentions their brand and handing out $20.00 dollar bills. (Like Manning drinking Budweiser after the Superbowl). During my time as a factory Rep I was surprised at the pricing for "end caps"in the stores. At the end of the day location should be based on product quality and personal relationships built on trust. (not who has the biggest budget) IMH the newer counter sales personnel are less knowledgeable than years past. Order takers basically. But than I've also seen recruiting departments of major Integrator s hiring former used car salesmen and demanding Factory Reps to teach them the difference between coax and Cat5...
We have strict rules regulating this kind of thing. Manufacturers call me asking to sponsor contests, send over posters or catalogs or whatever, or just give us goodies. We can accept certain things but we're very strictly limited on what we can accept and under what circumstances. Plus I have to get written permission from my boss before I can allow any of the sales staff to accept even things which fall under the rules, which means that it very rarely happens because I have a million other things to do. Sorry, sales staff.
Upper management feels this kind of thing is an undue influence on sales.
As a competitor to ADI (and other national distributors), I would like nothing more than to give my canned talking points against such companies and why independent dealers should go out of there way to support independent distributors, but I'll refrain from that and make an objective post based on my own ongoing analysis on this topic.
When you consider national, multiple location distributors, with retail "style" setups, it becomes the "Best Buy" challenge.
On the heels of Circuity City, Comp USA, Tiger Direct and other retail stores closing, Best Buy was getting hurt badly by Amazon, Newegg and other online / eCommerce competitors that didn't have the same overheard as them. To make matters worse, manufacturers were giving these companies the same cost structures as Best Buy. How would best buy go on this way? Certainly they can't afford to offer more value, but make the same or less margins.
Best Buy's value to manufacturers is their many retail locations that afford manufacturers the ability to quickly get their product closer to many consumers, as well as their retail space. Even with drones, or airplanes, this is their advantage over Amazon. What Best Buy was previously not doing a good job of was monetizing their value proposition to their manufacturers. Instead they were trying to "charge more" to cover their additional overhead, and the consumer just simply isn't willing to pay more, ever. Especially once these other larger online retailers became very credible in their minds.
Best Buy realized their value and started focusing on brand initiatives such as "stores" within their stores, gaining free sales labor and collocation style income. Manufacturers understand, that end caps and other marketing exposure don't come free and either the business side will work out with better margin opportunities for the distributor that provides the most value, or directly paying for the value that you want, in a menu style format. It really is 6 in one hand, half dozen in the other. In some cases this is a win win, because the manufacturer can offer the same cost structure to these brick and mortar stores, and then control what additional marketing benefits they get, or choose "D" none of the above if they don't want any. (Although ADI might not be happy about that)
Now back to ADI (as the example distributor), the hope is that they don't just allow any manufacturer off the street the ability to advertise in their flyer, but it is offered to manufacturers that also make business sense for them and their integrator.
The slippery slope becomes, the balancing act between selling marketing to their manufacturers versus selling what makes the most sense for their integrator. This can sometimes create a conflict of interest (similar to what happens with their own brands such as Capture, WBox, Honeywell being sold within ADI versus other manufacturers)
Frankly speaking, I view this more as a strategic way for ADI to monetize their value proposition to manufacturers up front, and minimize their risk long term. Many manufacturers embrace this (even though they complain about it), and view ADI as a marketing portal that increases their brand exposure, as well as a logistics center. ADI competes with the major trade publications in this regard. Manufacturers know that with ADI, they will always have to do the heavy lifting from the technical side. ADI knows that the manufacturer might take on dealers direct, and they would rather monetize their value up front, than take any chances from the sales side of it.
The value proposition for the smaller independent distributors, should be less interest conflict from who is giving them the "marketing support", and more opportunity creation based on the pure benefits for the project at hand. The hope is that the manufacturers see this and protect the independent distributor on such opportunities, but that is a completely separate chapter.
The distributor should be judged by its customers, IMHO, on three primary criteria:
Any money they can get from Manufacturers for advertising can be used reduce my price, increase the inventory or extend my terms, and thats fine with me.
I would not want to pay a dime more in product costs just to get rid of promo posters. I laugh at them. So put up more posters, give me freebies, give me a Pelco Pen Protector, I'll use it all day long without guilt.
Heck, they can brand the toilet paper with the WBox logo on it, that don't mean I'm going to use it. Except for one thing that is...
Terms means youre a partner that trusts us and WANTS our business.
Not screwing up the order or timeline is what keeps us doing business, cause nothing is more expensive than "oh its just another day" when you've got 2 full time employees, their vans, tools and that rented lift on-site waiting.... just another day.
Well I was trying to make it as simple as possible, but absolutely logistical competence (same day shipping), supply chain visibility (ASNs, realistic lead times) and the like need to be there as well.
Though I can't deny the urge to go around distribution whenever possible in any sort of backorder situation, either by drop shipping from the mfr. or online stores with next day service.
The continued reliance of the telephone (IMHO, for most) as the authoritative interface is troubling, as I find it is the least reliable and leaves the least paper trail when things go awry.
Yes, perfect. Because of the easy blurring of ad and article.
Distribution may not be as perfect, since a distributor throwing up posters is (for me), relatively easy to spot for what it is.
Anyway, manufacturer's influence can affect in more subtle ways, via recommendations/product placement/carry levels etc, but this type of influence is at the very core of the distributors two-sided value proposition, and is not likely to go away.
To make matters worse, you need to pile on top of that the distributors own bias, e.g. "we got a ton of wBox 5.2 firmware that we have to get rid of, pronto!".
So compared to those covert mechanisms, that you are usually unaware of, posters seem like Glasnost and far more benign.
Off-topic, ethical question for you:
Although I know you would never actually run banner ads, like shown above on IPVM, minimally just because of the appearance of bias, do you think that if you did, it would actually corrupt you?
"Although I know you would never actually run banner ads, like shown above on IPVM, minimally just because of the appearance of bias, do you think that if you did, it would actually corrupt you?"
Whether or not it would 'corrupt' us, it would seriously undermine our reputation and credibility.
But any niche publication who takes direct advertisers is going to be corrupted somewhat by it, because the advertiser is not going to have qualms about voicing their displeasure (i.e., Hey trade mag, we Samsung Techwin just paid you X last year and now you criticized our move, etc., etc.). And the publication is either going to cripple their ad business or meet their advertiser's demands.
Related, when we speak with trade mags, it is a common comment / quip to us that if they ran what we ran, they would lose their advertisers immediately.
I would also include 4. Support. If they don't offer support, then they are most likely the kind of company that calls you every day trying to sell you a camera you don't need. If they offer support, they most likely will bend over backwards to help you.
Its not well known that Weird Al used to work the counter at the North Hollywood ADI, back before he made it big. Commercially a flop, but still one of my favorites is to this day is his disty dissing disc:
OK - I'm going for the most ridiculous (and true!) advertising within a distributor's office building....
I have seen vendors PAY for their marketing / message on the in-steps of the stairs -- stair wells. This was one of the big IT distributors... I thought it was the most ridiculous thing I've ever seen.... looked similar to the pictures below