December a Sad Month for Many Scuba Retailers

[factor310]

Many manufacturers do not want to be perceived as a promotional vehicle, therefore they agree to sell their products only to reputable dive shops in any given teritory. Furthermore, the manufacturer limits their distribution outlets to just one or two shops in any given area, depending upon such demographics as population, per capita income, competition, etc. Moreover, the manufacturer sets the price that the retailer should sell their merchandise at - MSRP - and, stipulates that the retailer cannot advertise their product as being discounted or on sale. Additionally, many manufacturers go so far as to forbid the retailer to advertise the MSRP in any advertisement the retailer may have purchased, however, the LDS can advertise they carry the brand. In return, the manufacturer promises not to sell their products to mass merchandisers, or even to the other LDS down the street. This way they protect their brand name, thereby protecting the authorized dealer from competition. At the same time they are assuring themselves that all consumers are paying approximately the same price for any given product. More importantly, their good name does not get watered down - no pun intended - by being associated with the Wal-Marts and Costcos of the world. This in-turn creates goodwill for the company, and more importantly, is perceived by the consumer as a premium product.
Is the manufacturers pricing structure fair to the independent retailer? Evidently they believe it is, especially since the retailer has a choice as to not carry a particular brand in their store. Although, the retailer may not be able to pick-up a comparable line because the other manufacturers are abiding by their agreement with the other LDS down the street.

 

[carldarl]

Manufacturers have banded together as an industry and dictate to the retailer what he can sell their equipment for. Retailers have "allowed" this to happen and continue to support the action through their own inaction. There are no "laws" stating they must adhere to the manufacturer's wishes. They could stand up (as a group) and refuse to follow the set guidelines. Manufacturers aren't dumb. If an entire region (say the state of California) stepped up and spoke as a group there would have to be some adjustments. Manufacturers can't afford to lose an entire state/region's sales any more than a LDS can afford to lose their neighborhood's.

If you want to look at a good analogy, look at Apple computers. They tried to strong-arm dealers and kept there technology proprietary. Where did it get them in the computer world? Less than 10% of the business. (now they just laugh all the way to the bank while listening to their iPod)

As someone once said, "They can't walk all over you unless you lie down first and let them." Just my opinion and it won't even buy you a cup of coffee...

 

[Greg D.]

ok so why is it ok for people to sell gear online cheaper than the MAP? dont internet retailers have to buy from the same companies?

 

[Puffer Fish]

ok so why is it ok for people to sell gear online cheaper than the MAP? dont internet retailers have to buy from the same companies?

Sometimes yes and sometimes no.

There is more than one issue facing each side of the issue, and sometime, companies act in their own self interest, and not that of the "industry" or LDS's.

This comes down to a couple of giant issues that tend to dictate how everyone acts:

1. Is this a growing, static or shrinking market? Static or shrinking means just surviving by trying to hold onto whatever sales one has. Only in a growth market can one increase sales by reducing price (over the long run)

2. Does the individual mfg believe they will increase their sales/market % by any particular action. If they believe that internet sales will improve their position, then they will more than likely go that route.

3. The health of the company may force behavior they would normally not like to do.

There are two major players in the equipment business that clearly believe that this is a static market, and that their share of that market will not be changed by discounting. If you believe that, then MSRP is actually good for the dive shop, not the mfg.

Note: discounting would actually mean that someone would buy more expensive equipment (good for mfg), at a lower retail cost (bad for lds).

Any new equipment mfg would not share this view point. In that case, any sale is a good one.

Business models for a LDS should have been driven by maximizing total money, not percent markup, but this is not a common model understood by most small business people.

Example: Customer comes in to buy a regulator, and wants to spend no more than $300. The lds directs them to a retail cost item of $250, makes the sale and is happy. Say the next model up retails for $325 - had they discounted that one down to $300, would they have more margin money at the end of the day? If the answer is yes, then they should have discounted it. Put another way, if one is only going to get $50 after your direct cost for something, then getting more that $50 is better.

In the example above, with the discounted higher end model, the customer will feel they got a better deal, and both sides feel the transaction was good for them.

I know in the past that most dive shops have used equipment sales to make money, almost giving away classes to get a bigger market. This is the one aspect that is being seriously hurt by the internet. That aspect alone may, in the long run cause serious damage to the market.

I would suspect that most local LDS's, outside of the resort areas, will have to change focus and marketing plans to survive, and that many will not do this effectively. That, in itself, will provide growth for some of the others places. Long term, these will not be good for the market, but things may change again before that is a concern.

 

[Web Monkey]

Depends on the reg and the price.

How long do you think it would take them to sell 100 top-of-the-line ScubaPro reg. packages at $100 each? People would be tossing out their old stuff every year instead of getting it serviced.

The point is that if you beleive it's worth it for you to compete based on price, it means that someone bigger than you also believes it. Sales becomes a contest to see who has the deepest pockets, can move the most merchandise and can beat the best price out of the manufacturer.

Terry

Right, but why would Wal-mart (to pick on them) WANT to get involved in this business. Wal-mart sells low cost, high volume items.
...
If you want the quality gear the mass market is not interested in, Walmart doesn't have it.

Say they bought 100 regs from a few manufacturers (to use your example). How long would they sit on the shelf before they were sold? Does that fit with Wal-mart's business model? No.

 

[novicediver]

Oh cry me a river.... The LDS ability to make a dollar really is not my problem. Before you give me the old "where will you get your air fills" line, there are several LDS' in my area and plenty of places to get air.

 

[Divedoggie]

Consumers should drive the market. Consumers will go where they get the best deal. If there is a shortage, people will pay more. If there is a glut, prices drop. Simple.

I bought an AL80 tank from Scubatoys. Its geat. My LDS owner tried to scare me, and not fill it, because he saw the VIP sticker from Scubatoys and said, "You never know what you will get on the internet. This tank could be fake."

I get air elsewhere now!

 

[Web Monkey]

A fake tank?

Does he think you made it with your laser printer?

Terry

I bought an AL80 tank from Scubatoys. Its geat. My LDS owner tried to scare me, and not fill it, because he saw the VIP sticker from Scubatoys and said, "You never know what you will get on the internet. This tank could be fake."

I get air elsewhere now!

 

[SStrecker]

Price competition is inherently in the best interest of the consumer (for at least the short term), but it is a frightening concept for many retailers and manufacturers (over the long term), in an extremely narrow industry, like scuba diving. Given any choice, the scuba industry will fight tooth & nail to preserve the existing restrictive business model. I am not counting on a real Christmas sale at the LDS for a long time to come.