A Price-Driven Landscape Shapes the Relationships Btewteen Manufacturer, Distributor, Dealer and User.
Money changes everything. Declining pricing for mainstream professional lighting products is accelerating a condition that has been part of the distribution channel for decades, one in which the once-distinct lines between manufacturer, distributor, retailer and end user become less clear as each one jockeys for best position.
Most lighting manufacturers use the traditional distribution model whereby they make the equipment and sell it to a dealer network, which then resells the products to end users. The typical dealer is an installer or theatrical supply house that either stocks inventory for resale or provides value-added services and sells the gear as part of their service.
Production companies that also resell equipment, however, can blur the lines between the dealer and end user, because they use the equipment in their own productions, and the vast majority of gear they buy is for their own use. They sometimes have counter sales, but that’s not where they derive most of their income. Products that would have been purchased with some kind of retail markup instead are acquired at direct prices, bypassing the retail channel. Some would say that that ultimately undermines the entire industry pricing infrastructure.
Some dealers think they should be able to solicit production companies’ business, and they consider direct sales by the manufacturer to be in violation of the spirit of their dealer network. Some manufacturers, though, will counter that production companies are not end users, per se, and that they should be able to sell to them because they promote their products by using them in high-profile shows and events.
The issue isn’t so much that this is taking place and that it is a bone of contention — it’s always gone on, and it’s always caused some friction. What has changed is how increasingly pervasive it’s become. “Everyone is more aware of it now because the competition is as fierce as it is,” says Jack Kelly, president of distributor/manufacturer Group One, which owns the Elektralite brand of intelligent lights and controllers. Referring to the widely read business book Competitive Advantage, by Michael Porter, Kelly quotes, “ ‘Any industry is only as strong as its weakest competitor.’ If there are 25 makers of moving lights and a huge project comes up, the project in an environment like this is going to follow pricing. Like the airline industry, lighting has become commoditized, and any time you make a technology product a commodity, you are rewarded according to how inexpensive, not necessarily how good, you can make it.”
Eric Bernstein, owner of Intelligent Lighting Services, a dealer and service provider in Austin, says he is seeing more manufacturers’ reps at trade shows and events that have traditionally been the purview of end users.
Bernstein uses the burgeoning church market as a model for what’s happened. “The church market for lighting now is like the way things were in the early days of computers: intelligent lighting is more than a plug-and-play device, and it needs expertise to operate properly,” he explains. “Going to Guitar Center to buy advanced lighting isn’t in the best interests of the customer, really. The qualified dealer is going to provide the value-added services, and the qualified installer is going to provide the quality installation and support. You lose that when the traditional distribution channels break down over pricing. All that does is further depress pricing, and you’re in a vicious cycle.”
Bernstein says he feels squeezed the same way the independent hardware stores were when big-box chains like Home Depot and Lowe’s expanded. “Best Buy wants the sports bar business, and they can offer in terms of price what the smaller dealers can’t. I have a local bar that wanted 40 42-inch plasmas. Best Buy could offer a better price as well as financing. I can’t compete with that. It’s no different than when a manufacturer goes directly to a club. More than the price is undermined — the manufacturer is used to dealing with maybe 100 dealers in the U.S., and now, suddenly, they have a thousand in the form of clubs and other customers they have to support.”
Companies like Guitar Center, which through its subsidiary Guitar Center Pro has extended the value proposition into the territory of pro audio, video and lighting dealers, are large continents in the changing tectonics of retail in general. They’ve aimed themselves at the entry levels of markets like performing musicians, but the power of a vertical sales organization will be pretty graphically illustrated when they start approaching more traditional pro lighting markets like theatres.
Expect the manufacturer-dealer-user channel to continue to evolve, with more than a little pressure coming from the kind of pricing pressure paradigm brought on by the big-box retail trend, propelled further by the increasing amount of lighting being made in China. The equation in this kind of situation has always been the tradeoff between price and customer service. Time will tell which way the pole is going to lean.
E-mail Dan at ddaley@plsn.com.
