Making Money in Spite of Your New Warehouse Club and Box-House Competition - ResidentialSystems.com

Making Money in Spite of Your New Warehouse Club and Box-House Competition

As we look at the events surrounding this year's CEDIA EXPO, I am reminded of an interesting comment made by a participant in one of my seminars at last year. As a preamble, the questioner stated a fact that everyone acknowledged: Pricing for flat panel displays, particularly 42-inch WVGA plasma display panels (PDP), was dropping faster than a poorly installed PDP drops to the floor during an earthquake. That said, the question asked how any custom installer could compete with the low prices for products from warehouse clubs for products that were once the exclusive province of the specialist, but which are now available in a broader range of outlets.
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As we look at the events surrounding this year's CEDIA EXPO, I am reminded of an interesting comment made by a participant in one of my seminars at last year. As a preamble, the questioner stated a fact that everyone acknowledged: Pricing for flat panel displays, particularly 42-inch WVGA plasma display panels (PDP), was dropping faster than a poorly installed PDP drops to the floor during an earthquake. That said, the question asked how any custom installer could compete with the low prices for products from warehouse clubs for products that were once the exclusive province of the specialist, but which are now available in a broader range of outlets.

It was a valid question, for it is one thing to see people in line at the warehouse checkout counter each weekend with their basket containing not only groceries, paper goods, tires and lawn furniture, but a plasma screen as well. It hasn't gotten any easier in the past 12 months, with more big-box and warehouse stores selling products in the same categories you do. Adding to the mix, computer brands have joined the fray, selling "our" products at low prices, backed by constant exposure to millions of potential customers through national television and print advertising. How, indeed, does one compete with all of that?

It isn't easy, but on the other hand it isn't as difficult as it might initially appear. Perhaps the first thing to do is to stop worrying, take three steps back, take a deep breath, and think a little. As you examine the situation, it actually gets easier as you go along. Now that calmness prevails, the first thing to do when selling against clients or prospects who ask you to respond to low-price PDPs is to look at the branding and specs. To date, all of the 42-inch models being sold by the warehouse clubs and computer companies are WVGA models, which means that while they are "HDTV Compatible," they are not "HDTV Native."

That is a significant difference, and it accounts for part of the pricing variance. More importantly, it means that all of these 42-inch WVGA models require down-scaling to display 720p or 1080i images, and your goal is to point to the quality of the scaling in the products you sell, even in that same category.

Find some demo material that shows the quality of the models you offer, and invite the prospect to try that material on the warehouse club's set. Make certain that your demo models are properly calibrated so that the images look good. Think about it, have you seen one PDP on display in a warehouse store displaying images the way you would want them?

Keep going, you're on the right track. If the scaling isn't up to snuff, remind your client that you also offer external scalars (You do, don't you?). Switch in and out between the set on its own and with a quality scalar in the line and point to the difference. Remember that display of HDTV imagery is the goal here, so have an off-air HDTV reference ready to switch in the line. That's something else rarely seen in the warehouses, where a $99 DVD player is usually the input source.

By now you should be close to winning the argument, but don't let up. Your specialty is installation and integration, and it's doubtful that the warehouse club or computer brand can handle that service. Talk to your customer about mounting options, lifts, lighting control, integration of remote controls, mitigation of problems relating to the impact of PDPs on infra red remote controls. You will begin to build a strong case for the fact that buying a PDP is more than getting "a deal" on the price. Emphasize the hidden details that your team knows how deal with and that the competition doesn't even know exists.

Among those items, display placement is always critical, and it is more so with PDPs. Any resident of an earthquake-prone area will tell you that secure mounting is important, and you need to emphasize your expertise in seeing that any PDP, whether table- or wall-mounted, is installed correctly. You do that. Similarly, lifts, "picture frame" mounts and in-ceiling retractable installations add significantly to the appeal of thin displays. You do that. Running the correct cable and doing it so that it is as invisible as possible is another reason for consumers to favor PDPs. You do that.

At this point it is worth moving a bit deeper, as this discussion should not be limited to displays. More broadly, when mass-market merchandisers or familiar brand names with no real consumer electronics presence (read that as computer manufacturers and brands) begin to compete with the custom installation specialist, you need to take a close look at what the product does, what it connects to and how it operates. Look closely, and you will almost always find the right marketing hook for the brands and models that you offer and the services that accompany the actual hardware. A good example is the DVD recorder introduced recently by a major computer brand that is billed as being able to "convert your VHS movies to DVD." No lie there, and the device does an excellent job of performing its stated purpose. Consumers might also look at that description, note the modest price and call on you to defend that product against your more expensive DVD recorder products. A problem? Not at all. Don't put the other product down, but do point out that while it has composite and S-video inputs, it does not have a 1394 connection allowing you to directly dub DV camcorder footage. Sure, it can do that when you use the handy USB connection to hook it up to your computer. Wait a minute; the client does have a computer in the home theater, don't they? Looking further, you have to present the benefits of the products you offer, albeit at a higher price.

It's a sure thing that no matter which brand or format of DVD recordable you offer, it not only can dub from a VHS, Beta, 8mm, Super 8mm or DVD deck, it can probably record programs off the air using a built-in NTSC tuner, and do so with the use of an EPG to allow for "VCR-style" programming. Beyond those standard features, many of the consumer-oriented DVD recorders also include a hard drive for true PVR functionality that extends way beyond what a simple recordable drive is capable of.

When you compare the two products side-by-side the purpose of each is obvious: One is designed as a computer peripheral whose main purpose is to serve as a "DVD burner" to archive files and create DVD discs from the output of material edited on your computer. Oh, and yes, it has an MPEG encoder and easy-to-use authoring software so that it may be used to make copies of videos from analog sources. The other (a full-fledged DVD recorder from any of the major brands in any of the various recordable formats) is capable of being a true "VCR replacement" in almost every sense of the word, with some even allowing full hard drive recording, as well.

Easy to understand what's what when you look at it this way, but what will consumers think when they see a product named the "Movie Writer?" Will they comprehend what's going on, and know which unit has a remote control and which needs a computer connection to function? Some will, some won't. That's why you have to be ready to explain things in a cohesive manner.

Remember that the price spread won't be as much as you might think. HP's dc3000 is a good buy at $399, but so are the consumer-oriented, fully featured DVD recorders that you are likely to be selling at prices starting around $499. Pricing is something you can't get away from no matter what you do. It doesn't, however, always work against you, as the previous example shows. In the normal course of events you should easily be able to justify some spread in price between your installed pricing and that of a mass-market competitor. It shouldn't be different when the competition is a $6,999 HD-native 50-inch-wide PDP.

Indeed, that is where this story comes full circle. Even taking into account the fact that the panels the warehouses were selling at one point were not up to the quality standards and technology generation of what he normally sold, one attendee at our CEDIA course last year said that he loved it when people asked him about the "cheap" PDPs sold at the warehouse stores. And yes, he said it with the smile that told everyone in the room that he "got it." Why did something that makes others shiver generate sales and hard cash for that fellow? First, he said that he always did a comparison between the various sets, and that is what won over some of the fence sitters. When that didn't work, he switched to "Plan B": a pitch that included a package with cables, a wall mount, installation, integration with other components in the prospect's existing system and a variety of choices for HDTV reception. That didn't always win the sale of a PDP, but it did win a fair amount of system business that, in turn, led to more significant business down the line from consumers who still bought their first PDP from the other store.

The secret weapon? This enterprising designer/installer is also an imaginative sales person. He went to the "other store" and bought one of the PDPs that was causing everyone in is market fits, installed it in his showroom and hooked it up to a decent-quality, brand name scalar. When he didn't get the business from the first two techniques, he would demo the off-brand model both with and without the scalar. You can guess the results. He didn't always get the PDP sale, but he almost always got the scalar and installation sale with what ended up being better total profit than he would have gotten on the sale of a lower-end, lower margin PDP where he would have had to resort to a "meet price" to get the sale.

The final laugh? After the session was over, this very clever business man said that he actually ended up buying more than a few of the very warehouse PDPs he was competing against to sell at the same price as the warehouse just to get the rest of the package sale. Something certainly not recommended for the faint of heart, but it does prove that if you plan you understand the technology and properly hone your staff's sales technique you can absolutely fight fire with fire. Pit your knowledge, depth of products and installation skills against low pricing and you will win the job much more often than you think.

As you evaluate the products on display at CEDIA EXPO, this points to a new way of thinking. Remember to look not only how they stack up against those your traditional competition can work, not only as to how you will present them to your typical client, but think of them in a new vein. How can you use them to effectively combat the products from brands and retail outlets you haven't had to compete with before? How will you use them to establish the value for the total package of services you offer to a consumer who is drawn to high technology audio/video products from the advertising of another company?

Your reputation, or perhaps your own advertising brought them to your door to see if that low-priced product makes sense. Be armed for that type of inquiry with the right ammunition and you will win the battle more often than you think!


Michael Heiss (CaptnVid@aol.com) is a technology/marketing consultant based in Los Angeles.

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