Over the past few weeks, I have been working with an old friend of mine who is an audiophile in his early forties. He's opening a new high-end audio salon in West Los Angeles. The need for a true high-end audio salon on this side of town has been strong for years, as the best demos and the top audiophile gear have until now required a drive well east of the best neighborhoods in Los Angeles. The owner of the store and I have been talking about what brands to sell and how to sell them. I am pushing for this 3,000-square-foot showroom to be a highlight of what the industry can do best. If you are going to show video, make it 4K, because you can see 1080p at Costco and Wal-Mart. If you are going to do audio, find master tape and play music that sounds unlike anything you can hear in other demos. Show network-attached devices and demonstrate how you can have access to all of your files throughout the store. Most important, I am encouraging him to build community. He's looking at installing a wood-burning pizza oven, hosting art showings and doing wine tastings in his showroom. I like his chances of being profitable.
While energized by these conversations, I have also been thinking a lot about how the relationship between specialty AV retailers and consumers has become fractured. Like a divorce in a long marriage, both sides are at fault. Dealers do little to market their products. They charge high prices and show fewer and fewer real-world products. Audiophile dealers can be standoff-ish or downright snobby. Consumers often show the loyalty of a five-dollar hooker when it comes to supporting their local dealers. They buy out-of-state. They buy used from Audiogon.com. They come into a dealer for a demo and then buy elsewhere after pitting dealers against each other to get the lowest price, as if price is the only factor in why one buys AV gear (hint: it's not).
This brings me to five more ways to help repair the relationship between enthusiast AV customers and specialty AV dealers, as it is likely in the best interest of higher-end and/or value-priced specialty AV brands to fix these issues.
Pricing Video Up From Cost
Big-box stores and Internet retailers can sell video at prices that make it hard for lower-volume specialty AV dealers to compete with them. When the dealer loses a sale of a $2,000 flat HDTV, he or she doesn't just lose the profitability of the set (which isn't much), he or she also loses the labor, accessory and cable sales. The dealer likewise loses attached sales like soundbars, universal remotes, Blu-ray players. It's a losing proposition overall.
What if specialty dealers sold HDTVs the way the car dealers try to do it when they talk about "invoice" prices? Now, we all know car dealers are full of it when they suggest that a $55,000 Mercedes has $5,000 in profit in it and will gladly show you the invoice, but will not talk to you about factory to dealer incentives based on yearly or monthly volume. With that said, I can assure you video has margins this thin. Very thin. What if dealers offered consumers cost plus $400 for their HDTVs over 55 inches? For smaller sets, it might be cost plus $250. That's a fair amount of money to make and with THX of ISF calibration, a mount, a Blu-ray player, labor and other goodies, there is actually money to be made selling video again. More importantly, consumers do business with the specialty store, thereby building trust, loyalty and a buying pattern. Longer-term, you earn recommendations and a more sustainable business that has a chance to compete with big-box or warehouse stores. Consumers buying solely based on price are better served by purchasing over the Internet. There is nothing wrong with that, but those aren't the enthusiast buyers who can help make a healthy relationship between the brick and mortar dealer and the mainstream consumer. It has to be a win-win relationship in each deal, even if the margins are thinner than normal.
Offer Better Warranties (at no cost to consumers)
Crazy Eddie made extended warranties a staple of consumer electronics stores. Salespeople (or should I call them clerks now) push them like you can't live without one and for good reason - they are very profitable. What if local brick and mortar stores used the collective power of a buying group like the HTSA to buy additional warranty for HDTVs, receivers and other AV products? Buy from them and get the factory warranty, plus one year additional from the dealer. Moreover, the dealer can come out and pick up the product (at dealer cost) and handle the repair shipping and logistics. Yes, this has additional cost to the dealer, but it's worth it when you are losing your customers left and right. Would consumers come back in droves? Maybe, but more importantly, the dealers would be showing why doing business with them is better. It's one more "trial close" en route to "earning the sale," as Tom Hopkins talks about in the classic sales book How to Master the Art of Selling Anything.
Don't miss this 1984 Crazy Eddie TV commercial. Nobody does it better and his prices are INSANE ... So was leaving the country with all of the extended warranty money, but that's a whole other story.
Develop a Loyalty Program
Robert Crandall reinvented the airline business with his frequent flyer program at American Airlines. Today, nearly every airline has a credit card, a frequent flyer program and beyond in order to keep people flying. Simply put - once you earn a client, you don't want to lose him or her. The car companies know this. The airlines do, too, and specialty retailers in the consumer electronic space need to keep people loyal to their stores. Every sale matters.
It's fair for a dealer to ask for a consumer's business card. It's fair to ask consumers to "shop local," assuming you make it worth their while. It's fair for consumers to support the dealers that floor the products that they love so much and offer free demonstrations seven days per week. At the same time, consumers have every right to find the best deal, the best service and the best environment for doing business. What does a consumer get for spending $5,000 or $10,000 in a store in a year? What does the customer get if he or she has made a lifetime expenditure of $100,000 or more? Airlines will offer you free upgrades to first class, companion tickets and
so on. Could a dealer who sells, say, Meridian and Bowers & Wilkins offer a factory tour in the U.K. for their best customers willing to travel across the pond as part of their next vacations? Do these highly loyal and valued customers get a volume discount of any kind? Could they get a credit towards their next purchase for referring other clients? There is a way to incentivize customers to come back and it's worth retaining the valuable clients that a store has already earned.
Demonstrate Affordable AV Gear
Showing $50,000 power amps is wonderful (and very costly), but it's important to show products that consumers can afford that also sound great. The classic progression of VW dealers cross-marketing with Audi and Porsche is very relevant to the world of specialty AV dealers. Sadly, we see dealers only trying to sell Audis and Porsches, when there needs to be a progression through the price points for many consumers. Today's specialty audio/video is better than ever, with prices lower than ever in many cases. These systems need to get some attention, as consumers demand value.
Also, while the "up-sell" is important for any professional salesperson, dealers need to be careful to qualify the client clearly as to earn the sale. If Mr. Customer walks in asking for a $500 receiver, ask him if he would consider $1,000 if the more expensive product were in an entirely different performance category. If he says no, work in his price range. Don't be too pushy. Consumers don't like pushy salespeople.
Offer an In-store Trade-up Program
While I was working at Cello Music and Film Los Angeles in the mid-1990s, we had a program where, if you went from our entry-level Cello electronics and speakers (and trust me, there was nothing entry-level about our prices at the time) to our reference-level products when buying at retail prices, we gave you one year to get 100 percent of your investment back towards the reference products. With eBay.com, Audiogon.com and other sources for selling good used high-end gear, why not give your best customers reasons to climb up the food chain? At Cello, I took it one further, as I would offer clients 100 percent of what they paid on top gear like Krell, Levinson, Audio Research and so on, in return for a retail-priced Cello system sale. They had to pay retail on the Cello system and had to buy a complete system, but I dealt with the used gear, selling it and so on. They then had the chance to upgrade more in the Cello line going forward, and they often did so.
The Internet retailers have learned that, in order to compete with brick and mortar and/or the big-box or warehouse stores, they need to a) spend money to lure customers in via marketing, b) offer far better value than what consumers get in the specialty stores, and c) offer more understanding, detailed and comprehensive customer service than traditional AV retail. In the past decade or so, they have earned their market share. Companies like Outlaw Audio, Orb Audio, Aperion Audio, Oppo Digital, Legacy Audio, SVS, Standout Designs and many others have built the loyalty of customers, while traditional retailers have lost market share to Internet-direct companies, big-box stores and other competition.
Is there room in the world for local specialty AV dealers? Absolutely yes - but these dealers must be able to present a value proposition that stands up to the formidable competition that they get for consumer dollars from new venues ranging from Amazon to Target to Wal-Mart to Internet-direct dealers and beyond. Can consumers be won back? Let us know below with your comments. What would it take for you to support your local dealer more? What other ideas do you have to make buying local more tempting? We want to hear from you.