Pros and cons of distribution models (dealer vs. internet direct)

To echo your point of demand, I think the pricing of certain gears are specifically derived from some niche demands. Normal PCs and smartphones, though complex, are conglomerations of some mediocre functions - they don't really excel at a specific function (photography, audio DA-converstion, recording, precise GPS location, you name it) that can satisfy a niche demand (and BTW, IMO gaming is not a niche demand). Assuming no market manipulations, when the niche demand calls, the pricing answers. After all, if something (say Hugo TT) is not making a profit, which means there isn't sufficient demand even in the niche, the price should fall or the product should go extinct.

 

I personally think that these 2 factors are the biggest factors at play in keeping the prices of audio hardware up.

The costs of R&D for components are spread across fewer people (e.g. a 100-series chipset from Intel is sold to EVERY motherboard manufacturer), and making them by the hundreds of thousands is a lot cheaper than doing it by the thousands. And like DAC manufacturers, motherboard manufacturers buy most of their controllers from other companies (ASMedia, Intel, Qualcomm), who sell to everyone in the industry, which in turn allows them to take advantage of economies of scale once again.

The objectiveness of the computer hardware industry is built on the lack of personal preference in how a computer performs. You don't care how it runs Crysis 3, you only care that it does it quickly and consistently. And while that doesn't exist in audio, there will always be higher prices.

But I honestly don't think objectivity is possible in audio, because once personal perception is involved, the objective standards crumble. And on that note, has anyone here read the Tom's Hardware article from February 2014 where they test motherboard audio against more expensive hardware? Be interested to hear thoughts.

 

Oh man, this is going to be an exciting thread.

That said, looks like it's gotten a little off-track, focusing on the manufacturing end of "why's this so expensive?" rather than the distribution end.

Bringing it back to the distribution side of things, as the guy who made "Audiophile" the first category on Massdrop, I've had a first hand look at all the different distribution structures at play in the industry. It's also worth noting that my perspective isn't biased by decades of selling stuff via old business models (had zero sales and distribution experience when we started Massdrop), it's based on analyzing the industry and taking the next logical step needed to make a successful business.

Generally, every Audiophile company falls into one of these three distribution structures:

1. Sold direct from manufacturer to customer

This strategy works well for companies who are patient, believe they have something truly valuable, and are willing to climb the mountains necessary to make it successful. These mountains include making sure people know your product exists (something that used to be impossible without a dealer and distributor network, changed by the internet), and pricing correctly (it's easy to play "guess and check" on price when you've got at 70% cushion in-front of your cost, but selling direct means you have fewer guesses, especially since it's your credibility at stake vs dealers and distributors).

If the product is good, people will talk about it (this is a real possibility now by virtue of the internet), you'll gain a following, hopefully you ace the pricing, and you reap the rewards. Overall, more work for more reward, but all the work in the world wouldn't have gotten you that reward before the internet. ​

2. Sold from manufacturer to a network of dealers

This is essentially the same as above, except you shift some of the pricing and advertising burden to your dealers. At this point, with the internet as a tool for advertising and communicating, dealers don't hold much value for manufacturers. Only reason they still exist is because companies have built up their networks over ~30-40 years and their business now depends on their dealer network to be successful. Reality is, if they wanted to take that part of their business in-house (establish an ecommerce and support operation), they'd be better off as a company, but it's change (read: scary) and some businesses don't want to deal with the extra work. ​

3. Sold from manufacturer to distributors, to a network of dealers

Again, essentially the same as #2, but with everything multiplied. Same trade-offs as #2 (change, work, etc) but arguably higher value. This model was created when consumers couldn't easily communicate between each other, and when shipping individual units internationally was scary/complicated/expensive.
​

Overall, #2 and #3 are based on the assumptions of 20 years ago. #1 is based on the assumptions of today. #1 is harder but worth it in the end, #2 and #3 are easier but have worse potential. Customers and the community at large would be better off if everyone switched to #1.

 

agree with Will's thoughtful points above. however, the nice thing about dealers is that you can see and try various options in-person. when selling manufacturer direct to customer, you cannot really try the product beforehand and often the smaller boutique type businesses that operate that way have restocking fees.

I do think personally there will always be a place for a dealer, especially for goods like niche audio gear that are not commonly found at other retail stores. The idea of a personal demo or being able to compare a variety of different products from different brands prior to purchasing is still something that many people value highly. Think Best Buy or Nordstrom where you can shop among multiple different brands of the same product. There is a lot of value in that type of experience.

While the cut that dealers get really does drive up price points quite significantly, I do feel that even if the dealer was removed for an individual company, the product would still likely be sold at a similar price point as pricing is often set based on competition or just what the manufacturer thinks consumers would be willing to pay. It would just be the manufacturers who get all the profit margin instead of dividing it with the dealer.

There would need to be a untouchable price point and very highly lauded performance to drive the industry away from their current set-up. At the same time though, I think there is an inherent price bias and subjectivity in this hobby that makes it difficult to really establish what type of performance is reasonable at specific price points, so I don't think audiophile companies are ever worried about their targeted customers will ever be uncomfortable spending too much. In fact, the higher price points is sometimes the selling point that draws some of their customers' attention.

 

Thank you for your interesting post Will. I think there is a lot of truth in your post about the distributor-dealer-system having originiated in a world that is profoundly different from the world today (mainly: no internet and more difficulties in international transactions of any kind).

However I wonder what you think about my conclusions in the first post of this thread: Dealers and distributors do THINGS for the manufacturers (advertisment; product support; customer support; exhibiting at local hifi shows; dealing with customs and shipping to customers etc. etc.). That is among other things what they are getting paid for by receiving a cut of the retail price. Switching to a manufacturer-direct-model would necessitate the manufacturer to shoulder those responsibilities. They would have to hire customer support people, marketing people, telephone people. They'd have to buy customer database software; bigger offices etc etc. All these new employees need rooms to work in and money to come in for every day. This cost has to be covered by the retail prices of your products. And all of a sudden you're not that far off of distributor-dealer-system pricing. Sure you're probably a little cheaper, but customers also lose the ability to audition before buy, so you lose a certain percentage of customers (those unwilling to buy multi-thousand-doller equipment blind on the internet) as well.
Thats why I cant see manufacturer-direct as some kind of magic bullet that saves the customer great amounts of money.

I believe thats exactly right. Look at watches. A lot of watches are very desired because they are very exclusive. You own something few other people do. But why are they exclusive? Because they are retardedly expensive. So really, you're paying massive sums of money to be able to pay massive sums of money. This representational character of luxury goods is definitely also a part of our hobby.

 

people love to buy all their stuff from a single site though. no one wants to have to remember individual domain names

 

Okay, now of course I am biased, but I have to wade in here with some opinions and editorialization based on our experience.

First, I am 100% in agreement with Will. The dealer/distributor model is squarely based in the pre-internet age and is fundamentally broken in an era of cheap, fast shipping and free, instantaneous one-to-many communications. It is broken in cost, it is broken in assumptions, it is broken in execution. Massdrop is one example of distribution based on the realities of today—and Amazon is another.

But before the pitchforks come out, the fact that the dealer/distributor model is fundamentally broken doesn't mean it's a walk in the park for direct, either. I'll get to the challenges of that one, too, (which are far less than in the quote portrayed above, as long as you follow some new rules of the internet age.)

First, let's start with what's right about dealers (as in, physical spaces that stock gear):

1. They allow people to compare gear and choose something that works better for them based on an actual audition.
2. A really good dealer will have a social aspect that brings customers back and creates its own sub-community (though this is rare.)

What's wrong with dealers? Unfortunately, a lot:

1. They do not "do things," or at least not many. Advertising? In what? Newspapers? Come on, Mr. 19th Century. Product support? Sure, send it back to the manufacturer, that's support. Unless you're talking the car-priced gear that should be shipped with dedicated headshrinkers, in which case yeah, I'll give you that (but I think it's better simply not do to car-priced gear in the first place.) Exhibiting at local shows? What shows? Dealing with customs? Yes, internationally, sure. Shipping to customers? Uh, isn't the point that the customer comes to the dealer?
2. The reality of popularity-, advertising-, and margin-selling. Although there are great dealers who really care about the product, most really want a product that is popular, heavily advertised by the manufacturer, and high margin. Not all three of those? Sorry, you're not on shelves. Or not pushed to the forefront nearly as much. Or, if uber-popular, simply used as a hook to swap the customer over to a high-margin brand.
3. Their margin is too bloody much. The dealer wants to make more money than the company that designs, engineers, produces, supports, warrants, and repairs the product, at least at the margins they "feel comfortable with" (read, 40-60%). Sorry, making more money for putting a box on a shelf and handing to the customer is NOT right. Now, dealers say they cannot get by on thinner margins, and that may be true. I cannot comment on that. But if they are supplanted by new distribution methods, well, then, there you go.

Now, what's right about direct sale? A lot:

1. Unsurpassed value, period, full stop, end of statement. Sorry, the "manufacturer has to take on more work" does not wash. Dealers and distribution are the largest pain in the ass for any manufacturer. Responding to their needs, changing their order 5x a day because they're indecisive, chasing them down for payment, and chasing them down again, and sending them to collections, and having to go to a bank for receivables financing because they're so slow in paying, dealing with their broken stuff, which includes both broken stuff and non-broken stuff, and stuff they broke, and dealing with the customer questions they don't want to deal with, and dealing with their weird customer requests and questions....all of this stuff falls away with direct. Here is the absolute reality, based on running, and working with, direct-sale manufacturers: direct-sale products cost about 1/2 of what distribution products do. Or less, if you're talking megadollar products.
2. One point of support for the customer. The customer is talking to the manufacturer--the company that designed the product--not a salesman playing guess-the-answer-from-the-datasheet. In audio, the direct sale companies I know all employ enthusiasts for their support, so you're getting real answers, not stonewalling.
3. A closer relationship with customers results in better products. Distribution and dealers are layers of insulation from reality--they help keep the company apart from the "users." (Ah, I hate that word.) As a result, the company can hide behind a wall of advertising and PR and basically ignore everything that's happening in the industry, unless they screw up big time. A direct-sale company is directly connected to its customers, their needs, and the industry they're in. The result is a better understanding of their needs--and better products.

What's wrong with direct sale:

1. The price advantage breaks when you get outside the country of origin. A lot of this has to do with things the manufacturer cannot control, such as VAT, duties, and exchange rates. We're now setting up "direct partners" (first in Europe, then elsewhere) to help keep the costs closer to the US costs. This is not an onerous thing, but it is slow, because the partner has to be a real partner, not a typical distributor.
2. Service becomes a pain when you get outside the country of origin. We're dealing with this in the same way as the above--the direct partners provide support.

"But...but...how do you get the word out about your product with direct? Isn't there a ton of advertising cost?"

No. Not if your product provides unsurpassed value. Hint: don't price at "what the market will bear." That's also stupid old-timery, professor-of-marketing-that-never-made-a-product-in-his-life crap. Price at "what people can't ignore." There is a reason that Stereophile said, "Bifrost is the highest-value product we have ever reviewed." Yes. Ever.

"But how about those customer support people, marketing people, telephone people, new offices?" you ask.

Customer support? You'll need it anyway. All of our customer support is handled by one part-time person, working remotely. They don't even need an office. Marketing people? We don't have any. Nor salespeople. Telephone people? This is the 21st Century. Provide online support in minutes and you'll have a complete record of what was said, as well as thrilling people who are tired of waiting 48 hours for a response (or talking to someone in a call center whose only product knowledge comes from a trouble tree.) New offices? Again, this is the 21st Century. People don't have to work in your office. Anddd...how about all those people you won't need because you're not chasing dealers for money?

Biased? You bet. But I've seen how it works in both the pre-internet era, and today. And I will stand by my final statement:

Today, instant one-to-many communications and online direct sale makes it possible for more people to create more companies to provide higher value in the market than at any other time in history. It is a huge boon to both manufacturers and consumers.

Oh, and Amazon? They're just a piece of the puzzle. Sell direct on Amazon and get in front of more people than any dealer can ever imagine putting you in front of. They take 10-15%. What does the dealer want again?

 

Hi Jason! Great to find you sharing your thoughts here. Clearly you are (at) the very forefront of dealer-direct business in hifi today, so your experience is appreciated. There are however a few points where I dont follow. If time permits, perhaps you'll expand on those.

The experience I'm drawing on here is working part-time for the last six years at a local hifi dealership in Switzerland. To get a feeling for the kind of dealership this is: We sell speakers starting from 400$/pair up to 18'000$/pair, with the most commonly sold units being about 2'500$/pair. Oh and the dealer is almost bankrupt, so there is that. With the exception of one (!) brand, ALL the products we sell are produced abroad. Swiss hifi exists, supposedly its even very good. Unfortunately its also retardedly expensive (as are all things here). What I'm talking about are therefore products being built in France/Great Britain/the U.S./China and imported into Switzerland by a distributor we work VERY closely with. We're basically their nr.1 store showcasing all the products they import. And those are some big names. We sold among others Monitor Audio, Wharfedale, Thiel Audio and Martin Logan.

We actually did advertise in a local newspaper once. Never again though. Its very expensive and you have no idea how much you actually gain from it. We do advertise on the internet though - which as you know is where it's at today. There are small number of price-comparison & product review websites in Switzerland. We are present on all of them, showcasing the products. The distributor literally drives around the whole country with products in his trunk, going from dealer to dealer, advertising the products he's bringing into the country. If there are semi-worthwhile audio shows in the area he WILL be there. Here it's mostly the 'High End Swiss' which happens once a year. Distributors in conjunction with dealers set up rooms there to show of the products they sell to the interested public. Additionally, distributors will know the relevant 'opinion-makers' in a market and send out review units to these guys. Again - advertisement for the brands.

On product support: About 90% of speaker repairs and 50% of electronics repairs we handle our selves. With speakers its easy: Identify the issue (mostly broken drivers), order spares from the manufacturer and put them in ourselves. For more complicated stuff we have an electrical engineer closebuy that we work with. With the exception of the swapping of laser modules in CD-players almost all electronics go to him as well. He manages to fix most of it, and in a few days no less. If something is so fucked that we cant fix it here, we send it in of course. Then its usually MONTHS before the customer gets the fixed unit back. Depending on how long we estimate the wait to be we give out replacement units to customers for the duration of the repair.

Customs: Yeah, dealing with customs is quite the bureaucratic bullshit. Distributors do that.

Shipping to customers: A sizeable percentage of our customers require us to deliver the products. Some dont have a car, others dont have a car big enough for 2x80kg floorstanders, others simply like the convenience. Of course we also set the systems up at the customers home if they so require (especially older people do). (Of course sometimes we charge extra for these kinds of services, so thats not all covered in the retail prices of the products). Soooo... yeah, dealers and distributors that want to stay in business do DO stuff.

I believe this is mostly a consequence of the market for hifi gear in general shrinking (headphones and vinyl being the only notable exceptions. The later of course starting at a very very low point). Less buyers means more competition between brands. Dealers get to pick the brands with the greatest name recognition and profit margin. Do you really believe there arent better speakers than Martin Logan to sell in Switzerland? - Of course there are. But good luck trying to establish a new brand. ML sells itself on name alone. Also: Manufacturers put a lot of pressure on distributors. Case in point: Monitor Audio heavily pressured one distributor for not meeting their expectations. This trickles down. Dealers are told to push Monitor Audio. Not necessarily because MA are better products than other brands, but because the other brands arent threatening to go away if you dont sell enough.

In our case it's 40%. Which is a lot; perhaps too much. Then again I think you underestimate what dealers and distributors actually do. If being a hifi dealer only consisted of putting a box on a shelf and handing it to customers who keep walking in, everybody would want a piece of that pie. The reality for the market I'm familiar with is that dealers keep dying as the market shrinks. NOBODY is getting into being a hifi dealer because thats a way to get rich - quite the opposite. ALL of them started as hifi enthusiasts.

I'm not familiar with the manufacturer end of the story, but I find it hard to believe that one (1!) professional business partner per geographic region (a distributor) could be more difficult to deal with than a thousand individual customers with all their strange little requests and misunderstandings and last-minute changes of heart etc. Also: dealers are like a first line of defence with regards to 'broken' products. Whatever a customer thinks is going wrong with his unit: its going through the dealer first. The amount of non-broken stuff that actually gets sent in to the manufacturer for repair is a minuscule percentage of the total customer complaints.

This is where you totally lose me. So you're saying that you have 0 employees for marketing, 0 employees for sales and 1 part-time (!) employee for customer support - who also doesnt get a workplace. I'm truly stunned if that works for you, but I'm certain Martin Logan or Monitor Audio would be equally stunned to hear this. They could certainly not get away with 0 marketing employees, 0 sales employees and 0.5 customer support employees. Perhaps our perspectives truly are different here because I come at it from the speaker world (shrinking market, LOTS of competition over ever fewer buyers, name value is VERY important, brands have to find buyers) while you come at it from the headphone enthusiast world (growing market; lots of buyers for everyone; relatively easy for upstarts to find an audience; buyers find the manufacturers). As many manufacturers of speakers that go out of business every month, as many headphone-amp/portable dac/custom in-ear monitor/headphone companies shoot out of the ground in the same time. As a headphone enthusiast I like this. I also dont think it will last. And once it changes and competition intensifies I think we'll see a very different market dynamic. For the better (more competition at reasonable price points) and the worse (higher costs of operation for everyone. no more free lunch for manufacturers).

Anyway... everything I didnt quote and comment on I'm in total agreement with

 

That is pretty interesting. Lowest audio dealer mark-up I've heard of is 30%. Commonplace to see much higher mark-ups, which sometimes does seem a bit over the top.

I agree with all the insightful points brought up by Jason. The only thing is that there will be customers who value a space where auditions and comparisons are available to them, which would really only be provided by dealers and tradeshows. I think Amazon will reach a wider audience, but will not offer that personal space where enthusiasts can demo gear.

This is interesting as well. One of the 'fun' facts of the audio world that never seems to really be discussed is the amount of perks that can be offered to 'reviewers' for their 'unbiased' opinion. Happens via distributors and via direct manufacturers, but it does make it very daunting wading through posted reviews and impressions. Press discounts or freebies seem very prevalent in this industry. Quite scary to see how many 'reviews' read more and more like advertisements nowadays.

I do think dealers will always have a place if just for the simple fact of offering a space for actual personal auditions. IMO, that is almost always the most valuable tool from a customer's perspective. Nothing can really replace a personal audition and direct comparisons for the amount of insight gained. I would always recommend trying to do your own personal auditions if possible. With gear that is only sold direct, it can be quite difficult to achieve that at times. It is always a pleasure to meet a dealer who is passionate about the hobby as you. With their access, often can learn some very interesting perspectives/insights on the current crop of gear. That being said there are some helpful dealers and not-so-helpful dealers. Some dealers heavily push products that have the highest profit margins rather than products that is best-suited for an individual's needs.

 

Sounds like you are one of the good dealers (actually, I guess, dealer/distributor.) That definitely puts some perspective on this. It also sounds like you are doing much more than a typical dealer.

Seriously, in our experience at Sumo, a dealer did exactly three things:

1. Sit around and wait for customers to show up.
2. Find any way to sell a higher-margin product to the customer.
3. Find any excuse not to pay us on time.

At Theta, it was slightly different. Dealers:

1. Used Theta's popularity to get customers into the store.
2. Sold them Theta, until Krell and Levinson had more expensive DACs, then they found any way they could to sell those instead.
3. Find any excuse not to pay Theta on time.

And, at the same time, the volume of calls that came in from customers who either (a) read a review in a magazine, or (b) were referred to us by the dealer were not inconsiderable, plus the time spent troubleshooting stuff with the dealer personnel, many of whom didn't seem to know how to connect a DAC...it didn't seem like anything was being deflected from us.

But this is a typical US dealer, circa 1989-1993. Not a distributor. Not a service center. They definitely didn't drive around the country, they didn't go to shows, they didn't send out review units, they didn't do anything other than provide shelf space. Just a stocker of boxes sitting in wait for customers to come in--and one that would grouse incessantly if the margin wasn't 50%. The dealer literally made almost 2X what Sumo did on every sale. Seeing that--and seeing the dealer constantly shirk their responsibility--colored my perception of dealers just a tiny bit.

And it continues today. A manufacturer of inexpensive speakers we know was recently approached by a sales rep (an in-country sales agent, basically), who said, "Well, the dealers want 60% to move the speakers, 50% to tolerate them, plus my 20%..." This guy laughed him out of the room. He's selling $1500 direct-sale speakers that probably only have about a 2.5X markup on them. Maybe only 2x. You do the math.

Beyond that, some answers below:

Actually, think in terms of dozens to hundreds of domestic dealers, plus dozens of international distributors. That's the scenario I am familiar with. Dealing with their constant late payments, plus the ones who really thought they were big swinging dicks--yes, this ate up more than one person's time. Thousands of individual customers? No problem. Put in cart, buy product. Done. Want to return it? Sure? Have a problem? Here's an instant answer. But we spent lots of time putting lots of info on our site, so there really aren't that many questions, and there really aren't that many problems. Again, direct is a HUGE incentive to get stuff like that right.

Not in our experience, unfortunately. None of our dealers or distributors really had servicing capability. Their "tech skills" frequently made the problem worse. Sounds like we had some really crappy ones.

Correct. Marketing and sales only exist to push products people don't want to buy; when the product provides compelling value that simply can't be ignored, you don't need marketing and sales. I'd rather work on the latter, rather than the former.

And our support guy "doesn't get a space" because he doesn't feel like coming into the office. We allow anyone to work anywhere they like, as long as they get the job done. This is not the 19th Century. This is not a sweat house.

Again, direct forces you to get it right, not hide behind channels. Our repair tech probably spends about 12-15 hours a week on repairs, total, for all products in the field, since inception. We are over 150k units in the field. Our efficiency numbers make other manufacturers fall out of their chair, in terms of number of employees to sales. Is this because we're all-knowing and perfect? No. It means we worked hard, from the start, to make things easy to manufacture and easy to repair--things that are frequently lost when you have a sea of MBAs justifying the reasons you moved all manufacturing to China.

It works spectacularly. No sales, and the credo of "no hard selling" means there are no endless conversations with customers or debates about "what's better." We'll freely tell people what we like, and recommend products that are relevant to their system and budget (or tell them to buy better headphones first), but we won't promise them sonic nirvana. It all becomes very straightforward.

Then maybe they are fundamentally broken. If they priced not "what the market will bear" but "what can't be ignored," they would do a lot better. But that would mean losing the distribution network to start.

I am confident that we will be able to maintain our position--or even grow our share--as the market evolves, because, well, I don't think anyone's looking at bringing back the distribution model anymore...they're simply working to make modern sales channels more efficient. But of course, I could be wrong.

 

I fully support Schiit and all of my Schiit products have been ordered direct from them. They have always shown me outstanding support, even when I have stupid questions, they treat me with respect, and I always receive a supportive reply - and their products to me are unsurpassed for their value. My entire setup besides my headphones are Schiit, and will probably be for a very long time.

 

Ha Ha, I once bought several pieces of Sumo gear from a dealer. He believed that the bias on the amp should be set higher than the factory did. So he rebiased it which caused it to overheat. At that point it went back to Sumo, who presumably fixed it. However, UPS dropped it and smashed it. Somehow, and I am not quite sure how, I ended up with a newer piece of Sumo gear out of all this. I always assumed the dealer ate the difference, but as I think about it, now I'm not so sure.

 

Very interesting, Jason. I wonder to what degree our different perspectives are because of geography: You having dealt primarily with dealers inside the same country, I having dealt exclusively with manufacturers from abroad. Clearly there is less to do for distributors/dealers in the same country as the manufacturer. Not only regarding customs and shipping bureaucracies, but also with regard to advertising and product support. Whatever advertising a manufacturer does, it directly benefits the dealers. However if your manufacturer is sitting in a different country, speaking a different language and adressing a different demography, the task of 'localizing' the advertising suddenly becomes non-redundant. Equally for product support. The reason we try to handle as many repairs as we can ourselves, is because shipping back and forth with a manufacturer is prohibitively expensive and time consuming. Boxes have to be packed, shipping companies paid, drop offs managed, custom documentation needs to be filled out, and finally we have to wait for weeks to months for the product to be returned, all the while an ever-angrier customer keeps calling about updates. I imagine having the manufacturer inside the same country would mitigate a lot of those issues and lower the bar for dealers to send units in. Being an American, you probably couldn't have imagined that a sizeable (think 50%) percentage of our clients REQUIRE us to ship the products to their home, because they dont have a car or dont wish to use it. Distances are smaller here, public transportation is great, people are more eco-conscious etc. All these little differences might add up to explain our very different perspectives.

Oh and for claritys sake: The dealership I've been working at has it's fair amount of shortcomings as well. Customers are regularly hard-sold on expensive cables (with markups far beyong 40%); B-stock is sold 'as new'; waiting times are played down fully knowing delivery wnt be ready in time; not every product is perfectly understood by the dealer, so he'll basically say whatever he thinks the customer needs to hear in order go get a sale; attempts at price-fixing from the distributor etc. Hell, we've even lost repair units. What I'm trying to say is that the dealers and distributors here are no saints - but they dont just sit around doing nothing all day long expecting customers to fall in their laps.

I do hope you're right. I certainly appreciate the way you do and think about business. And I really look forward to hearing more about that european 'branch' of Schiit audio. There might just be some good schiit in my future.

 

Some disjointed thoughts:

My company manufactures and sells to both reseller/distributors and end users (provided the end user is willing to spend enough) and we've been doing this for almost 40 years. Before the internet/Amazon it was trade shows and resellers. There were a few good resellers, but many have been squeezed out or pivoted into other industries or services. In the current market, here are the drawbacks we've experienced with resellers: (Note my industry is not directly related to audio, though many audio companies do business with us.)

1) They are horrible payers. If you make the mistake of putting some of these guys on terms, prepare for Net30 to drag 45-60, then further, then for them to be doing this horrible balancing act of how-overdue-can-I-be-and-still-place-new-orders. Why do they pay late? Well, its partially because many of them are on precarious financial footing, but its mostly because many dealers offer terms to their end user to entice them to buy. That means the dealer is waiting on the customer to pay so they can pay you. You're not vetting the customer, and the reseller usually does a horrible job on this. They want orders. This may not apply in the audio industry as the end user is a consumer, not a business, so virtually no one is on terms with their local dealer. We recently switched to Behalf to weed out the people looking for terms because they don't have money rather than for convenience. It does a pretty good job, and has enabled us to pare down our accounts department as no one needs to do credit reference checks anymore.

2) They are the most picky customers. If you sell to an end-user who has a problem with your product, it is really easy to deal with them. You either replace/repair, or you explain how their expectations are impossible with current technology/materials/abilities. Usually fairly easy to handle. Resellers suck up to customers and agree with them that every small non-issue is grounds for no-charge return and replacement, paying shipping both ways, and no-charge rushes. They hate telling customers like it is and so basically defer every minor issue to the manufacturer, who they do not give the luxury of dealing directly with the end user. They also tend to know the product less well than the manufacturer, so often get something wrong (especially on custom jobs) and then try to pin it on the manufacturer to reproduce. The result of these issues is a returns rate an order of magnitude higher than orders directly from end users.

3) You are often selling to your would-be customer base with smaller profit. If the customer would end up finding you anyways through google/amazon/referrals/whatever, and you are making 40-60% on resale but would make over 100% selling to an end-user, you are then dealing with a reseller so that they can give you a hard time and not pay you for the reduced profit margin you are paying in the first place.

4) This one only applies in rare instances. But resellers sometimes become quite popular in your industry, and in that case they often to put their money back into... developing manufacturing capabilities and competing directly (and successfully) with you. So, you may be making some money feeding the fish, only to have them grow and be going after you and your end users. This doesn't really apply so much in audio where brand name is half the battle. We've also run into resellers using all that money to compete with us on adwords. So, now our marketing budget is largely wasted because resellers are competing with the OEM. We'll still show up first in organic searches, but a search with a description of function will sometimes run into this issue.

Are there pluses to resellers? Sure, from a manufacturer's point of view and the end-users:

1) As a manufacturer, we value some resellers as they can sometimes find customers we never would have had otherwise. Many big box places only go through distribution/resale networks and (to their own financial loss) would have never found the source manufacturer who OEM'd anyways. Better to make 40% (or even 20%) off the reseller in that case than nothing.

2) When there are lean times in the economy and many end users just aren't buying, some of these resellers can surprise you with the consistency of their orders from rural Alabama.

3) As a consumer or end-user, resellers often provide a chance to demo locally as well as in some cases localized services the manufacturer just can't or won't offer. That's becoming rarer and rarer though, as more and more resellers are essentially dropshipping and not providing in-house services anymore.

4) Resellers/Dealers often act as a one-stop-shop and will sell a customer products from a much wider range of brands and industries than we would ever be willing to sell. That convenience can be worth it, especially to businesses that don't have a portal with hundreds or thousands of vendors for every possible need.

From our vantage point, we see many dealers and resellers going out of business. Sometimes they are cashing out if there name still means something. The ones who are sticking around distinguish themselves with low markup, great service, and local (physical) presence.

In audio, I see dealers sticking around for things like speakers as shipping is so expensive and you really need to hear them (plus shows are not in that many cities so they can't really usurp that role for most.) For something like headphones? Mass-market will still use dealer network for a while as those customers don't really know what they want, they often just want something "good" and need a salesperson to tell them what they want. But high-end products for the more discerning customers? Read some forums, compare prices, buy direct with a return policy.

 

Thank you for summarizing what I couldn't express well in more words. Read #2 again and again. This is 100% our experience. Read #3 again and again. This is also 100% our experience.

#1 was 100% our experience in the 1990s. We have no experience with that today, because nobody gets terms.

Annndd...I'm not so sure the dealer model will survive, except in very tiny and rarefied niches, at least in the USA. It's far easier to simply get an Amazon Prime subscription, and buy/return until you're happy. Not saying that's 100% right, but that's what's happening.

(And, in the interest of full disclosure, the amount of stuff Rina and I buy on Amazon is shocking, including items you'd expect to swing by the grocery store or office supplies store for...and it costs less, shipped to our door, in 2 days. Again, not saying this is right, but don't discount the convenience of no-effort, one-screen ordering in the decimation of brick and mortar. If you told me 5 years ago I'd be buying laundry detergent and manila envelopes on Amazon--and saving money--I would have laughed you out of the room.)

 

Do not discount the value of your time. If you are able to apply 2 billable hours to clients instead of physical shopping, you have both saved and made money.