(Editor’s note: I originally wrote this article for ENX magazine back in 2005. I thought it would be fun to look back at those concerns and see how many of them are still an issue today. I’ve edited this for TWII.)
Spend any amount of time around office equipment dealers and there’s bound to be a fair amount of moaning and complaining about business, their manufacturers, customers, new technologies, economic conditions, and market changes. It’s not a knock. That’s just the way it is.
To be fair, these are concerns and issues that are universal and many are common to anyone running a business, not just office equipment dealers. But lo and behold, we just happen to be writing for an office equipment dealer audience, so we’ll stick to that program.
Comments from dealers at industry functions are the primary inspiration for this story. Another is the 20th Annual Dealer Survey conducted by Marketing Research Consultants and published in the June and July issues of The Cannata Report. That survey validates many of the concerns that have been shared with me in my travels or in my daily life covering the office equipment industry.
What follows is a list of 10 concerns—in no particular order.
1. Declining margins
Some dealers blame this on cut-throat competition, others on over distribution, others on manufacturer’s direct branches whose low cost per copy quotes–in an effort to capture market share–are forcing dealers to match those quotes eroding once precious service margins. But no matter the source, hardware and service margins have indeed been declining during the past few years.
“Declining service revenues are my number one concern, no ands, if, or buts,” moans Dave from Pennsylvania. “Service contracts have come down to nothing.” He blames the situation on manufacturers such as Canon and Ricoh who are lowering prices and grasping for market share for all it’s worth. “I have to match them and it’s eating away at my margins, especially on color,” says Dave. He believes these lower prices aren’t necessary.
“It doesn’t make sense to me and you’re not winning on your own merit,” he adds. In his opinion, customers don’t pick the vendor with the lowest cost per copy, they pick the vendor whom they want to work with and then come back to them and say, ‘If you want my business, you have to match your competitor’s cost per copy.’ “When my competitor’s lose business to me, I lose margin,” says Dave.
2. Over-distribution
Thanks to over-distribution, today you’re likely to find more dealers in more square feet of territory selling virtually the same products than ever before. Sometimes they’re not competing against other dealers, but their own manufacturer’s direct operations. The oft-mentioned culprit here among dealers is the Ricoh Family Group (Ricoh, Savin, Gestetner) as well as Lanier. However, other manufacturers (Canon and Kyocera Mita are two other names that are mentioned.) are causing concern for their dealers as well.
“The duplication of dealerships in a given area and the politics that make it happen are disgusting,” says one dealer. “I am so unhappy at this and the deteriorating margins that I am selling the business.”
3. Rising gas prices and rising insurance rates for commercial vehicles.
Combine this with rising gas prices and it’s become increasingly expensive to maintain and operate a fleet of vehicles. These two concerns cut across all industries, but any service intensive business with vehicles in the field, has got to be concerned about gas prices approaching $3 a gallon as this article is being written.
“These costs have been consistently rising over the years as are what we are paying our techs,” observes Brian in Louisiana. Although he concedes that these costs are somewhat expected, declining margins make it difficult if not impossible to pass these costs along to customers.
4. The commoditization of Segment 2 & 3 systems and printers.
“These products are now open to anybody to sell,” says Joe, a Philadelphia-based office equipment dealer. Once the domain of independent office equipment dealers, Segment 2 and 3 systems are now found in more channels than ever before.
Part of the problem may be the reliability of the machines, but this trend has some dealers concerned as certain channels are being provided with machines at prices dealers can’t get when buying directly from their manufacturer.
Any talk of commoditization would be incomplete with mentioning printers. “My vendor is not only selling printers through their dealer channel, but through Ingram Micro and Tech Data,” says Tom in California. “As a result the Internet is crowded with printers at or below our costs.”
5. Manufacturers driving dealers towards a solutions-selling mentality while still setting quotas that keep that box selling mentality alive and thriving.
Although more dealers are selling solutions, in order to hit manufacturer quotas, they’ve got to move boxes too. It’s a bit of a Catch 22. As Mike, a Florida-based dealer told me, “Manufacturer sales promotions are designed to move boxes, not solutions.”
One of the reasons this box selling mentality continues at the manufacturer level is the monthly numbers game they all play. “Manufacturers will ship you the kitchen sink at the end of the month just so they can get their numbers,” adds Dave, a dealer from Philadelphia.
6. The difficulty of finding quality people.
“It’s the same problem year after year and it doesn’t go away—hiring good people,” says Dave. “This problem has always been there and that’s no different than it was 10 years ago.”
Rick, a dealer I met at a Toshiba dealer outing in Las Vegas offers similar sentiments, “The business has changed so much and sales reps entering the business can’t make that quick score anymore. They don’t have the patience to wait it out and learn the business,” maintains Rick.
The aforementioned declining margins also make it difficult to bring in experienced sales reps from other industries. “It’s become harder in our business to find a guy who is willing to make a career change and be able to come in and support his family from the get go,” observes Dave. “They just can’t do it.”
7. Poorly trained district sales managers and regional sales managers.
“Most manufacturer reps today are very poorly trained,” notes Stan, a Memphis-based dealer. Typically, they just want to come in and have coffee and talk and then call on the phone at the end of the month to pick up a big order so they can hit their quota. Most of them know virtually nothing about their products. They can’t solve parts problems, warranty problems or backorder problems. And most of them will cut your throat to win a contest or get a prize or a bonus.”
Dave from Pennsylvania generally agrees although to be fair he says, “About half the manufacturer reps out there are probably excellent while the other half are useless.”
The other problem he sees is that the culture within many of these companies tend to tie the hands of the reps. “Most manufacturers don’t give their reps–whether they’re district sales managers or regional sales managers, the authority to make decisions,” says Dave. He cites his rep, who is responsible for a multi-million dollar territory, but who doesn’t have the authority to pull a defective $300 fax machine out of the field without first getting an okay from a superior.
8. Transitioning employees into a solutions environment.
By 2005, one would think that the necessity of selling solutions would no longer be a concern of office equipment dealers, and that the transition would have been long since completed. Not quite. It’s a complex situation.
“My major concern is as the office equipment product offerings change from the old analog world we lived in for so many years to a solutions (software) environment, that the spirit may be willing but the capabilities of the employee or potential employee are not,” observes Mike from Florida. He attributes this to a number of factors, including younger employees who lack the ability to look deeper into a prospect’s needs to propose an integrated, multi-level solution; older workers who find it difficult to communicate and gain favorable attention and credibility with IT personnel or network savvy buyers; and local management who is struggling with those very same issues, but don’t know the proper ways to manage, train or direct the salesperson.
He adds that manufacturers are dealing with these issues internally themselves. “They are not responsive to train at all levels the sales and management to move into this arena,” notes Mike. “They feel that their job is to provide a solution-based product offering and it is the distribution channel’s job to move it. This is evidenced by the lack of formal training schools, seminars or meetings on these subjects.”
9. Not Ready for Prime Time Products
Dave from Pennsylvania blames this on the competitiveness of the industry and manufacturer’s rush to get products to market even when they know there are problems. He believes that many manufacturers are willing to introduce defective products and then work on the fix after it’s been shipped because it may take three to six months of R&D to correct the problem and they can’t wait that long. That’s one of the reasons Jay from WashingtonD.C. went from being a dual-line dealer to a single-line. “Their products weren’t reliable,” he unabashedly opines when asked why he decided to drop one of his manufacturers.
Compounding the problem, manufacturers are hesitant to make good on that defective product and will let a dealer’s techs make countless trips to the customer before the problem is corrected. He concedes that the problem is usually fixed over time, but by then the customer either has a negative opinion of the dealer or the manufacturer. “If they’re going to eventually make good on defective products, why not right away?” he questions.
10. Toner-Inclusive Cost Per Copy Service Contracts
“It’s the worst thing that ever happened to the industry,” says Brian from Louisiana about toner-inclusive CPC service contracts. Not only are they difficult to monitor and expensive to manage, he and other dealers are finding that some customers are taking advantage of the system.
Yes there are customers who misplace the toner in their offices and mistakenly order more, but Brian notes the proliferation of toner on Internet sites like eBay. “I know of one guy who is financing their kid’s college education, one toner bottle at a time,” adds Tom from California. “It’s one thing to see toner on eBay from a machine that’s no longer in production, but when you start seeing toner for machines that were only introduced recently, you’ve got to wonder.”
Brian places a lot of the blame on dealers and manufacturers who mistakenly believe that this was the best way to lock in a customer’s toner business against toner pirates and other third-party toner companies. On top of that he believes that the 5-6 percent image area manufacturers are using is ludicrous and has a direct affect on toner-inclusive CPC contracts. “Manufacturers should bump that up to at least 12 percent,” he says.
