Going Direct - The Gold Rush in Today's Specialty Audio-Video Business Has a New Set Of Rules

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The boo-hooing about how bad the economy has been for the past year or longer continues on with most companies blindly cutting marketing, advertising, development and human resource costs as a desperate act of survival. Bean counters are now corporate rock stars (and increasingly CEOs) while entrepreneurs with forward-thinking ideas are told to "shut up" as few companies are willing to think beyond closing out their month despite the fact that consumers are demanding more performance and better products for a lot less money.

There is one group of companies who are delivering just what the consumer ordered and they are the direct resellers. No one category is booming more enthusiastically in these very difficult economic times with the reasons being many. Direct resellers know that they can design, make and build products affordably. There are "OEM" manufacturers here, in Asia and elsewhere that will make you top-level equipment that competes favorably with the most lofty high end products on the market today - at one third to one fourth the cost. Direct resellers know that AV reps are not salesmen - they are stereotypically lazy order-takers who want seven to 11 percent of the cost of the product for the right to get a traditionally distributed product into local, brick and mortar stores. Direct resellers of high performance AV products know what most AV companies don't - dealers are both entitled and lazy themselves. They demand 50 point profit margins, yet unlike other businesses, invest the profits in their own pockets instead of building more consumer demand. Traditional dealers think that the AV manufacturers must create the demand and still give fat margins, which is the main reason why high performance AV gear is so expensive today.

Without question, today's high end specialty audio-video products are expensive - and consumers don't care. The ones spending the money are the ones calling the shots today. The gear consumers are buying today is value packed. The big-ticket stuff they are buying is often used, thus leaving traditional dealers wondering if they should have learned how to build a better, more loyal client base. Some suggest that train has already left the station.

Look at a current Oppo Digital $499 Blu-ray player as a perfect example of a little guy beating the billion dollar electronics companies. Unlike say Sony or Samsung - Oppo makes a disc player for five hundred bones that plays every HD disc other than HD DVD. That includes SACD, DVD-Audio, Blu-ray, DVD-Video and beyond. It has a good video upconverting chip inside of it and get this... it can be upgraded in the aftermarket to have even better DACs inside of it for the audiophile in you. While the Oppo doesn't have on-demand video server functionality like some of the bigger brands - Apple TV is the best download platform on the market today and the asking price for one of those is as low as $225. Audiophile cables cost more than that. Consumers appreciate the strong value and ask the question "do I need better than this". Personally, I own a $2,000 Sony ES Blu-ray player and you do get slightly better video performance because of the superior build quality and separate power supplies for audio and video; however I do wish it would play SACDs and DVD-Audio discs. Consumers today aren't looking to make compromises the way they were willing to do just a few years ago.

Selling direct isn't for every company and respectfully most aren't firing on all cylinders. Some companies easily run out of product to sell as they don't have the might to order enough gear to meet consumer demand. Others can't keep up with the ever-changing feature sets offered at increasingly lower prices by the big electronics manufacturers. There is an increasingly disturbing trend of companies that think they can resell out-of-the-catalog Chinese-made speakers to consumers for huge markups without submitting the products for review at the more critical AV publications and without any meaningful marketing. For many of these companies, you have no idea if you are getting speakers better than the guy who stops you on the street and says "I just finished installing an audio system at this nightclub around the corner...."

Considering how many traditional brick and mortar stores that have gone out of business or that have morphed into a "hybrid dealer," I would serious consider going direct or offering a "hybrid" distribution model myself if I ran an audiophile company. Dealers won't invest in a B-list or C-list AV line no matter what kind of doughnuts your rep shows up with. Who cares to invest in another $8,000 stereo preamp when nobody ever walks in the front door to buy it? If I ran a small audiophile company I would offer a hybrid distribution model. This isn't for every company but if you have less than 20 dealers that realistically order more than $5,000 in gear once per month then respectfully, you don't have much of a business anyway. Because the art of the demo is basically dead - I would pay to dominate the showroom much like cereal companies pay to have the best shelf space at Ralph's or Safeway. Most dealers are cheap and lazy which is a fact you have to accept, so if they pass your credit test - you floor the gear for them but you show the entire line. You buy the lighting. You buy the acoustics. You determine what demo material is played. You design and create the equipment racks. You put your signage up. You load up the music server with only the best music and movies and you then rip the knob off. The dealer plugs his or her best customers into a demo that you control many of the details of so your products are always shown correctly - not as part of some Frankenstein nightmare audiophile or home theater system.

Once you setup even just a few good dealers with an incredible demonstration - now you get ready to send out the in-field demo. This demo system can be used by your brick and mortar stores too. This rig consists of five systems of electronics, cables, source components, CDs, DVD-Audio discs, SACDs and maybe even a music server. You could even offer speakers for people to audition if that is what you sell. The consumer pays the shipping. The gear comes in custom flight cases and has a 30 day in-home demo period. If it's low-cost gear - the consumer installs the equipment. If it's super premium gear - the company sends a factory rep to set up the system, to voice the system and to present the demo. The consumer pays a modest fee for the setup and all of the shipping which is credited back to them if they buy the equipment. The new-school audio company also keeps a large menu of used gear and the trade-in values so that if the consumer wants to make a purchase - the upgrade process is done and the old gear is FedExed back to the parent company for sale on eBay or Audiogon. Some might just be recycled to cut down on landfill waste.

Companies that think when the economy comes back, things will be back to normal are lost in an audiophile fog. The new economy has a whole new set of rules. The first one is that the consumer is king. Never forget that. The next one is: you better be good at creating consumer demand. Orb Audio spends over $1,000,000 on Google Ad Word ads per year. They make many time that a year in bottom line profit. Show me a traditional retailer or small audiophile company that sets aside that kind of marketing budget and pulls that kind of profit out even in a down year? There aren't many.

Everything is different. The days of selling exclusively to Baby Boomer audiophiles are ending as the Boomers are starting with Social Security. This is not to say that you can't still sell them gear, but it's not the same as the sale of that Adcom GFA-555 that I made back at Sassafras Audio in Bryn Mawr, Pennsylvania. The best new school AV companies know what Bose knows (keep your speaker insults to yourself - we are talking about marketing and distribution here) which is how to multi-channel market better than any company I can think of in the entire economy. Small AV companies can do the same but they must - and this is not a suggestion, this is a stern warning - play by the new rules set by the consumers who buy upper-echelon audio and video products.


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