Norman, a PC retailer once briefly worked for an unethical (and now bankrupt) company. He knows you can't support a massive advertising campaign and rapid expansion while selling at a 10 per cent margin without resorting to dirty tactics such as parallel importing, counterfeiting, carrying your own warranty (that makes it very difficult for users to get a repair), insurance scams and paying employees cash-in-hand to avoid superannuation and income tax.
He soon opened his own specialist reseller business and for a few years achieved an average 30 per cent margin on PC sales, easily converting clients away from major vendors like Dell and HP or the large retail chains. The margin allowed him to offer superior pre- and post-sales service. If a PC broke down he could afford to loan parts like hard drives, motherboards and DVD-ROMs to get customers out of a jam.
During the past 12 months, he found it was getting ever harder to make a sale because PCs, notebooks and peripherals became commoditised like toasters. Despite his skills and ethics, he was finding it tough going to add value to his PCs. "It's all about price, price, price now," he lamented.
Specialist IT resellers are fast losing ground to the major CE retailers who can blitz the market, supported by generous manufacturer's co-op advertising funds, cash rebates and massive economies of scale - none of which are available to the specialists.
A specialist cannot buy or build a PC with a 19-inch LCD for anywhere near $999. Manufacturers are no longer interested in specialists - if you don't buy by the truckload, forget it.
It is no secret that CE retailers are also hurting from margin reductions but at least they can turn to other profit avenues such as extended warranty sales and the tidy sum they make out of kickbacks from 48-month interest free credit providers. It is now standard operational procedure for sales staff to use high-pressure 'interest-free' spiels.
The average day for a specialist reseller such as Norman is spent giving prospects advice on the right goods to buy, doing a lot of valuable pre-sales research to ensure higher levels of customer satisfaction. But all too often that prospective customer goes grocery shopping at the local mall and sees the exact same printer for $10 less or a $999 PC special with 48-month interest free credit. No prizes for guessing what happens next.
Then the product lets them down or won't do something. They call the CE store and are shoved to the manufacturer's helpdesk (a term fast becoming an oxymoron). The result is frustration caused by a total lack of effective post-sales service without paying for help. So they magically remember the local specialist store and expect help. Norman says two words - "Piss off!"
IT journalists can tell millions of sheep to Google "Dellhell" or to shop at specialist retailers (so they don't disappear) but there are always many more sheep willing to graze on different slopes.
So what are the lessons here? Should IT specialists buy a CE franchise or retire and go fishing? The short answer is that its time to learn about Specialist Retailing Mark 2 and beat the CE retailers at their own game. More on that next time.