In late August 2012, Nortek further consolidated it residential technology brands and changed the brand combination's name from The AVC Group to Core Brands.
This group consolidated 10 residential brands from Nortek’s technology solutions segment: Aton, BlueBolt, Elan, Furman, Niles, Panamax, Proficient, SpeakerCraft, Sunfire, and Xantech.
|Core Brands senior VP of marketing Paul Starkey |
Nortek said that combining its audio, power management, and control brands would leverage economies of scale and strengthen the group’s ability to invest in new technologies and marketing programs.
At the start of CEDIA EXPO last month, Petaluma, CA-based Core Brands announced the implementation of a focused management structure comprised of eight individual brand managers. That brand management team reports directly to Core Brands senior VP of marketing Paul Starkey.
Having let the dust settle from this most recent series of changes, Residential Systems
interviewed Starkey to learn more about the goals of the consolidation, to find out why other Nortek brands were not included in the group, and to understand the changes to the Group’s distribution model and what other changes dealers might expect in the future.
Starkey was refreshingly candid in acknowledging previous missteps by The AVC Group, how Nortek plans to “make sense” of its latest Core Brands mix, and why he and a few other upper management executives survived the transition while others did not. Jeremy Glowacki: What was Nortek’s motivation for expanding beyond the seven brands that constituted The AVC Group?
The simple answer is that the original move to consolidate brands within The AVC Group yielded meaningful and measurable results that could be built upon. The formation of The AVC Group marked the first time that Nortek, having acquired all of these distinct brands over a period of 10 years, took the first step to achieve higher levels of operational efficiencies without sacrificing the integrity of each of the brands. Frankly, the Great Recession was the catalyst that drove this decision, but it was an idea that was inevitable. We look at The AVC Group as the “proof of concept” phase that ultimately led to the formation of the larger, and we believe better focused, Core Brands portfolio of 10 brands. We made some mistakes with the initial consolidation, but we’ve learned from those mistakes and the value proposition delivered by Core Brands is going to be all the better because of it.What were those mistakes that The AVC Group made that you learned from?
In hindsight, we didn't move fast enough to consolidate our regional sales organizations, and we didn't move fast enough to open up the brands to a greater synergy for dealers. I guess we were too hesitant to upset the apple cart, and we lost some opportunities because of that. That's why we took the first course of action that we did with the formation of Core Brands. We created a new compact regional sales organization that puts more brands directly in the control of each regional manager. This reduces the number of contacts a dealer has to have in order to buy our brands and it opens the door for qualified dealers to carry more of our brands.
In addition, we didn't fully anticipate the enormity of the task of consolidating customer service and tech support, and we took some hits because of it.
Finally, we didn't focus enough on creating new end-user markets to help our dealers sell more products and systems to new customers. We've started it now, but it should have started sooner. At the end the day, our dealers expect us to create more compelling products and, through marketing, more new customers to buy our products.What benefits will consumers and dealers experience with this integration of more brands into the Core Brands group?
Everyone is going to benefit from the formation of Core Brands, make no mistake about it. Our primary objective is to unleash a new era of innovation for each of our brands by sharpening each brand’s “core” focus, maximizing the performance and business synergies between the brands, and in the process eliminate the redundancies that only serve to interfere with efficiently meeting the needs of our dealers. Core Brands represents the only strategically sound way for Nortek to go to market in the new CI industry of the 21st Century.
Having said that, we are also being very careful not to change too much too quickly for our 4,300 dealers. They can certainly expect to enjoy the benefits of more predictable shipping, consistent rep support, tech support, training, and order processing for all 10 brands. They can also expect to have immediate access to more of the brands than they would have had in the past. This opens up major new line opportunities for dealers to bring more choice to their consumers and they can do so knowing that the critically important back end infrastructure components—shipping, rep support, training, and order processing—are going to function at a higher level of efficiency.
Also in the immediate future (in fact it is now underway), our support structure for dealers and reps is being streamlined and made more local in focus. As of today, a single regional manager is now responsible for all 10 brands in a smaller geographic area. We have created six regions for all 10 brands instead of the previous two or three regions per brand. We have also integrated field technical support and training within the six regions. We estimate that this will, overnight, triple the impact of our field support efforts and streamline the point of contact for our dealers who want to simplify how they do business with our brands.
What’s more, our brands are now being actively encouraged to cross propose lines to qualified dealers, making access to profitable products easier for dealers. Having said this, however, let me be clear about one important basic fact: we are not simply authorizing everyone to sell everything. We are maintaining, and in fact strengthening, the selective distribution model that has made these brands successful and important to our dealers in the first place.
Longer term our dealers can expect to place integrated, multi-brand online ordering on a single sales order. Stronger buying programs and a streamlined across-the-board credit process are also being finalized. Why weren’t SpeakerCraft and Proficient part of the original AVC Group consolidation?
There simply wasn’t any immediate need to include SpeakerCraft and Proficient in the first round of consolidation. Unlike the other brands at the time, SpeakerCraft and Proficient were operating at a higher level of efficiency. However, once the business model was proven to work, it was decided to include all of Nortek’s core CI audio, video, and control brands into one unit. It’s the right strategic thing to do. These brands face the same dealers and end users as the other brands. Their addition to the Core Brands portfolio simply strengthens the value we bring to the marketplace.What about the rationale for splitting BlueBOLT off from Panamax?
We see a great future for BlueBOLT as a stand-alone brand that is separate and distinct from Panamax. Frankly, the market played a big role in this decision. Our dealers, and their customers, aren’t asking for a Panamax BlueBOLT solution. Almost from the beginning, they asked for BlueBOLT. It’s a name that really says it all: it provides real-time, cloud-based control and monitoring of the energy used by a consumer’s electronic devices. It’s the “bolt” that keeps everything powered when power is interrupted. We see an opportunity to build an entire eco-system around the BlueBOLT brand—one that will generate a significant and new revenue stream for our dealers. Why wasn’t Gefen integrated into the Core Brands?
The simple answer is Gefen’s go-to-market strategy is more compatible with the other video brands within Nortek that are distributor-based and higher end commercial market focused. The Core Brands portfolio is comprised of brands that fundamentally serve the residential CI market and secondarily the lower end commercial market segments served by CI dealers and installers.
With the goal of eliminating redundancies and finding efficiencies, what are the chances that a brand within the Core Brands would be deemed “redundant” and get eliminated?
Frankly, there isn’t much of a chance a brand will be eliminated, and that’s the beauty of the brands that comprise Core Brands. Each is distinct. Each has its core competency. And each brand is going to become even more focused on its core competency as we move forward. Elan is our control brand. Niles is our audio systems brand. SpeakerCraft is our speaker brand. Panamax/Furman are our power management brands. Sunfire is our home theater brand. Xantech is our connectivity brand. Aton and Proficient are our distributor-focused audio brands. It’s entirely possible we will add new brands in the future, either through organic development like BlueBOLT or through acquisition, but the 10 core brands will remain part of our portfolio for the long term.How much incentive is going to be given to dealers to cross-sell multiple lines among the 10 Core Brands?
Simplicity, profitability, relationship, and ease of doing business are the key incentives to the dealers. We think we can earn a significant share of the dealer’s business and we will strengthen our brand profiles to the consumer, which we know adds big value to the dealers by attracting more customers.What are the biggest challenges to maintaining the unique identities of your individual brands?
Like anything else in business, the key to success in this area is focus and execution. This is why we have created brand managers to be the stewards of each of our brands. These are the custodians who are responsible for extending the legacy DNA of each brand into its respective future. Clearly positioned brands that deliver a high value proposition to dealers and consumers drive business for our dealers. Weak brands only weaken our dealers’ business. We certainly do have overlap among our brands, but we are absolutely focused on eliminating the overlaps and restoring each brand’s “core” DNA to its rightful place and focus. Our brand managers will play a critically important role in making sure that brands complement but never again overlap.Do you have all of your brand manager positions hired yet? If not, which are still open?
We operate from three business segments (Power, Control, Audio) and those leaders are in place. Joe Lautner heads up the Control Segment, Mark Weisenberg heads up the Audio Segment, and John Benz heads up the Power Management Segment. Five of the seven eventual brand managers are in position and we are actively recruiting additional talent. Several of our brand managers will handle two brands. We will be announcing the brand management team when everyone is in position.When do you expect have the specific strategies in place for each brand, so that their identities, technology categories, and distribution strategies are more clear? For instance, in the AVC Group technology overlap between the brands appeared minimal once consolidation was complete. Now, however, it’s a bit harder to define the difference between, say, SpeakerCraft and Niles, beyond their distinct dealer bases. How does one draw a distinction between architectural audio brands?
We’re finalizing the strategies as you and I speak. It’s really not that complicated. Now that we have a unified management team in place and a clear agreement on each brand’s core DNA, the strategies for each brand will roll out quickly. A lot of the current overlap is simply the result of each brand’s prior “stand-alone” stance that forced them to try to become all things for all dealers and consumers out of a need to grow. Now that each brand is part of a larger whole Core Brands, they are free to grow by pursuing their core DNA. This is very liberating, and already we can see the innovation being unleashed in each of brand’s product development teams. When you’re freed from trying to be all things to all people, you can concentrate on just being yourself. It’s true for people, and it’s true for brands.
So, in a nutshell here is the DNA of each brand: Elan for control, Niles for audio systems, Sunfire for home theater, Xantech for connectivity, Panamax/Furman for power management, SpeakerCraft for speakers, Proficient and ATON for entry-level distributor-sold audio, and BlueBOLT for remote power and energy management.Can you outline the long-term plan for the group?
I can’t and won’t put a five or a 10-year timeline to any of our plans, but I can tell you this: We are harvesting a number of very exciting technologies and opportunities. Streaming audio, new wireless/wired distribution options, remote power management, and expanded home control solutions are the primary areas that we are focused on and, frankly, that’s because these are the areas that offer our dealers the greatest future opportunity to grow their business. We are also actively looking at targeted acquisitions to complete our “food chain.”It seems that when consolidations occur, entrepreneurs and original team members don’t stick around long. While some notable veterans have departed, how it is that other highly visible members of the current management team, such as you, Bill Pollock, Dave Keller, and Keith Marshall, have been able to make the transition with this consolidated/integrated group?
Bill Pollock, Dave Keller, and Keith Marshall, along with our segment and brand management teams, all enthusiastically support the expanded mission and vision of Core Brands. Chemistry is a big component of this new management team. We have it, and we are committed to expanding it throughout our organization as we grow larger and more successful.
It is a natural part of business for some founder entrepreneurs to move on once the brands they have created become established. Their interests lie more in exciting start-up phase, and that’s fine. The key thing for you to remember is that Core Brands is still very much led by entrepreneurs with a great vision of the future. Bill and Dave built Panamax and Furman into the brands they are today. I have been with Elan since its inception, and most of the team that created g! is with us today. All of us are committed to taking this new organization to a new level. We have incredible support from a new Nortek corporate management team who is looking for better ways to grow the market and not simply participate in it. We are very excited to be a part of what we see as a great enterprise that has a noble mission. We believe we are part of something that is bigger and better than all of us.