Articles and whitepapers

Business Issues: Custom Installers - the New High-End Distributors? (1/3/2007)

By David Graham, Grahams Hi-Fi

High-end audio products have always had an important place in the hi-fi and home cinema market. Traditionally, these high-performance units were bought by keen enthusiasts from specialist hi-fi dealers, in a marketplace where distribution was tightly controlled. The appearance of the custom installer (CI) has changed the nature of the high-end market. Moreover the balance of customer types has been changing too.

CUSTOMER PROFILES

Customers for high-end type products can be broken down into two general categories: the enthusiast and the non-enthusiast.

The enthusiast may have been sewn the seeds of higher performance equipment many years ago by a specialist retailer. We should not underestimate the potential long term effect of this 'seed planting' that will most certainly not exist in the CI sales approach. Retailers see many examples of customers in the 35-50 year age group who purchased good quality budget hi-fi separates as a student, who are now high-flyers with serious disposable income.

Non-enthusiasts may comfortably be able to afford high-end equipment, but their choices will be based on a number of factors. Every purchase this group makes, from clothing, homes, cars and jewellery, will be of a 'quality' product. Brand names and status may also be a major factor, and the final choice will probably not be made on a subjective performance criteria, but based on recommendation and ultimately, cost. They are used to paying for quality merchandise and the word 'cheap' will not usually feature in their vocabulary.

TRADITIONAL SALES APPROACH

The traditional method of sales for high-end hi-fi and now home cinema equipment was through a specialist retail outlet. This store would usually sell its products by demonstration, which often persuaded customers to buy better performance products.

Customers are clearly interested in the performance of any product they buy. But most manufacturers appreciate that this is only one factor in the customer's final buying decision. The other key factors are ease of use, visual appearance and the brand.

Commitment from the dealer

The dealer in the traditional sales approach will have had to invest large sums of money in laying out their retail store, fitting out demonstration rooms, investing in demonstration stock and making sure the staff are properly trained. They may well have tens of thousands of pounds tied up in demo stock. Also, being a retail business, it is very likely they will have extra stock of at least the more popular products in an adjacent store room, ready to sell to customers immediately.

Installation services

As part of selling these high-end products, the dealer will ideally offer to install and set up the equipment in the customer's home. During this time they will be focussed on making sure the product is set up, calibrated and sounds as good as possible. They will understand the attention to small details that they knows will make the difference between a system that simply works and one that can thrill the customer. These differences may include the careful choice of system cables, how they are terminated, the positioning of speakers, the steadiness of equipment stands and mains supply issues. In a home cinema system, it should include accurately calibrating speaker levels and distances and setting up the video display properly.

Technical expertise

In terms of technical expertise, the dealer will have one big advantage over the CI dealer who needs to be a 'jack of many trades'. Experience counts! A good specialist dealer will have spent many hours experimenting with their systems to find out how to get the very best from them. Sales targets will only be achieved if they out-perform their competition by demonstrating a superior solution time and time again.

Commitment from the manufacturer

The specialist dealer can have quite high overheads in terms of performing pre- and post-sales service, holding stock and generally running a high street retail outlet. Considerable time and effort must also be invested in staff training. This all requires sufficient achievable margin from suppliers to support the business, and this has lead to a symbiosis between manufacturers and retailers of high performance equipment. Traditionally they have needed each other to survive and prosper, and of course they both need a sufficient flow of customers to support this model.

Products that are available from all and sundry usually cannot support all the above requirements. Therefore, manufacturers/distributors that are selling through several channels will need to consider a different discount structure for different types of dealer.

THE CUSTOM INSTALLER SALES SOLUTION

Most CI sales will be based around equipment being specified by the dealer - and not the consumer. Surprisingly, a CI project may only devote 20-30% of the overall budget to audio-visual systems, with the remaining 70-80% being spent on lighting, security and systems integration. The audio-visual systems are often treated in exactly the same way as any other part of the whole-house solution. The big difference is that there are absolutely vast price and performance variants on the AV equipment, much more so than almost anything else in the house.

Take the example of a DVD player. A CI could install a £150 player from Sony, a £1600 model from Arcam or an £8000 one from Meridian. All three will 'function' almost identically, from the control perspective. All can be integrated into a whole-house touchscreen control system. But of course the difference in audio and video performance is reflected in their prices.

Now consider the lighting control system for the house. The cost will be broadly determined by the number of zones of lighting to be controlled and the number of control keypads being used. The only way to get an equivalent swing of £7850 in the lighting control budget, as in the DVD example above, is to add another 60 zones of lighting. The two situations are thus completely different.

How does the customer choose?

Once the equipment is 'specified' by the CI and presented to the customer, the final choice is most certainly going to be on the basis of cost, because the non-enthusiast is less interested in spending the time to audition the options. There are vast differences in cost and performance of the AV equipment, so a simple and effective solution is to either offer two or three different price/performance options and let the customer choose on this basis - recommending the best one in the hope that the customer will accept it. In many cases this will simply happen, and a sale for the high cost system will be accepted. In other cases, the customer may come back and say it was too expensive, in which case the custom installer simply re-specifies a lower-cost solution, and the customer usually accepts it.

For example, initially specify the AV system at £60k and then offer them one at £40k if they baulk at the price. The custom installer is now the good guy for 'saving' them £20k. This is the complete opposite to an enthusiast's reasons for praising a retailer, where he or she may consciously have chosen to spend more money than they originally intended, because they were shown the performance gain from doing so!

It is also important to understand who exactly may be controlling the decision process. In many cases this may be the spouse, a project manager or client representative. Quite often the end-user is never actually seen by the custom installer. This concept is something that is hard for a traditional retailer to comprehend.

Commitment from the custom installer

The custom installer may be heavily committed to promoting and supporting particular brands, possibly even to the same level as the traditional retailer. But this is not always the case. Some CIs will simply want to supply any equipment the customer asks for, but this approach does no one any favours in the long term.

The technical expertise of the CI dealer is potentially not an issue. The most important thing is that if the CI dealer is supplying specialist high-end equipment, the staff have proper manufacturer training to make sure they understand the product and can get the best performance from it.

Commitment from the manufacturer

Retailers and custom installers need to be treated differently by manufacturers. Custom installers may have demonstration facilities in offices or sometimes in the home of the company's owner - very different from a traditional retailer paying for high street premises in expensive locations. Those manufacturers and distributors that supply demonstration stock at the same subsidised rates to custom installers as to traditional retailers are missing the point. Retail businesses need a higher level of margin than those who do not have such high overheads.

Manufacturers and distributors do need to be committed to supporting their dealer base, whether they are traditional retailers or custom installers. This support will need to cover all areas including good technical support, technical documentation and dealer training.

It is vital that manufacturers produce clear technical documentation because this will help the custom installer specify the equipment with ease. Surprisingly, the final choice of equipment being specified may simply be made on the fact that one supplier's documentation shows the size of their products more clearly than their competitors'.

SUMMARY

The pros

It is clear that the CI channel to market can provide some important and additional generation of sales. Without considering any downsides, this in itself may be the driving force behind widening the distribution channel.

Most CI dealers are interested in the higher margins that these types of products attract. Most of them will add value to the product by ensuring a quality installation and potential long-term back up and support. It is unlikely that these types of dealers will simply 'box shift' the product at a discounted price because this is not their business model.

Manufacturers and distributors will need to offer a different pricing structure for CI and retail dealers who are, in most cases, going to have different overhead issues to contend with.

The cons

Manufacturers and distributors will need to be prepared to make sure their existing dealer base does not feel that the 'exclusive', 'high-end' brand is now being offered to all and sundry. They must ensure that any appointed CI dealer is going to be committed to the brand by way of investing time in technical and sales training, whether or not the dealer has a demonstration facility.

One final factor concerns how the product was sold in the first place. From time to time, we see customers who have bought expensive equipment without having reference to its performance, and often feel the product is expensive and over-priced. Customers who are sold high-end products by demonstration, will usually have made an informed decision about their purchase and will appreciate why they have bought into the products.

Conclusion

The inevitable downside of a customer who does not appreciate the value and performance of their purchase is that they are unlikely to recommend the products or dealers to their friends. Over many years of trading in the hi-fi business, this recommendation is known to be a vital requirement for a successful ongoing business. Custom installers must represent high-end products as well as the traditional retailer does so that they do not damage the reputation of manufacturers too.

David Graham is the Managing Director of Grahams Hi-Fi Ltd, a board member of CEDIA UK, and the CEDIA UK membership chair. Grahams Hi-Fi is a specialist hi-fi retailer and custom installer of home cinema, lighting control, structured wiring for telephone, computers, television, cable, satellite, and complete home control systems.

www.grahams.co.uk

This article was first presented as a paper at the Audio Engineering Society's 21st UK Conference 'Audio at Home', April 2006.

www.aes-uk.org