Major Industry Change re: Online Scuba Sales....

[djanni]

So, in another 8 years we should have the PADI BP/W and Long Hose specialty course...

Yes... and by then DIR/GUE will embrace the Jacket BC, pony bottles, Octo Inflators and Split Fins and the Frog Kick will be passe.

 

[Thalassamania]

And Elizabeth Taylor will have married us all.

 

[Diverdoris]

you also owe a little gratitude to......................

scuba.com
scubatoys
divesports.com
diversupply.com
crazyscuba.com
joediveramerica
diveriteexpress
wow, the list goes on and on.......

These stores (there are hundreds of them) put on the pressure that is now making SOME local dive store understand the game. Some of them are becoming the real deal. I am glad your local dive store is one of them. Thanks.

Phil Ellis

Now you are aware that big online stores get pricing that the small stores don't get? So if you’re telling your LDC to compete with price (and service) then you need to tell the manufacture they need to have one flat price, not "unpublished" prices for Scuba Toy or Scuba.com.

 

[PhilEllis]

Now you are aware that big online stores get pricing that the small stores don't get? So if you’re telling your LDC to compete with price (and service) then you need to tell the manufacture they need to have one flat price, not "unpublished" prices for Scuba Toy or Scuba.com.

Hi Doris. I am going to assume that you either own, work for, or are very closely allied with a local dive store. What you say is both correct and incorrect. Many scuba companies have a "tiered" pricing structure. This should come as no surprise, as it is typical in the distribution of almost all consumer goods.

There is no "secret" price list maintained by the scuba companies. Almost all of them will offer additional discounts beyond the "best" price for volume purchases of a particular item or class of items. This is not a "special price" made available to on-line stores to give them a jump on the local guys. It is available to anyone who is willing to take the risk to make large purchases. You see, that is the American way. When you take risks (maybe by purchasing 100 regulators instead of 2) you get some potential rewards from the risk. The reason many local scuba stores feel that such volume purchases don't work for them is often due to the action they take after they make the purchase. If a local scuba store is selling a particular regulator for $599, and moves two a month, they will not gain much benefit from getting an extra 10% on a purchase of 100 if they continue to sell the regulator for $599 and move two a month. It would take them 50 months to move the inventory, completely wiping away the volume purchasing advantage.

On-line stores take specific actions to move larger quantities of merchandise to justify making volume purchases. In the case of my particular online store, it is much of a chicken-and-egg prospect..........I must get some volume deals in order to lower the price to the level that will move the merchandise in much larger quantites than is possible at higher prices.

Unfortunately, while I have many misgivings about how the scuba companies distribute merchandise, I could not recommend that they give the local store, buying 2 regulators, the same advantage they give to the volume buyer, purchasing 100 regulators. After all, how they choose to price their product is their business.

It might be of interest to you that I am harmed as much by these poicies as is your local store. As a smaller internet operator lacking large funding, I don't get many opportunities to take advantage of the volume purchases that would be little financial strain for larger companies like scubatoys, scuba.com, divers supply, and host of others. That being said, I have to work extra hard to be price competitive with those companies. Consumers have no mercy on me because I am small.

It is sad but true. Consumers will not have much sympathy for the local scuba store if they are uncompetitive due to low retail volumes and inability to fund volume purchases. The responsibility to solve this problem does NOT rest with the manufacturers. It is the responsibility of the very local scuba store for which you advocate. THEY must do something to change the status quo. In the end, only the local scuba store can do anything that has a substantial chance of saving the local scuba store.


Additional Industry Note: Some companies do not offer volume purchase discounts. Michael at Apollo feels that it is best for HIM if he publishes ALL of his prices, the requirements for getting the best price, and the promise to never violate that policy. He has two price levels......dealer and case price. His case prices are available to any dealer and are not a gigantic investment to get the best price. He requires no annual promises, no product booking orders.....simply buy by the case (saving him some packaging and handline cost) and he passes the savings to the local store. Local scuba stores, unable or unwilling to change themselves, should consider Apollo and companies with a similar approach. Thanks.

Phil Ellis

 

[ReefHound]

Now you are aware that big online stores get pricing that the small stores don't get? So if you’re telling your LDC to compete with price (and service) then you need to tell the manufacture they need to have one flat price, not "unpublished" prices for Scuba Toy or Scuba.com.

Think about how the "big online stores" got to be big and why the "small stores" remain small.

 

[bwerb]

One of the other details of price structures which most people don't really think about is the accounting requirments. As a sales rep, I actually like very simple price lists. I have one product line that lays out their pricing with price columns...buy this much, here is your price, regardless of who you are. I have another which asks "are you a retailer or a distributor?" Retailer price list is list less 40% less 10%; distributor is less 40% less 25%. The distributor gets an additional discount for secondary handling and stocking. These are simple to track...especially for order desks and accountants.

When it gets really complicated, every individual item is by quote...and each quote is customer specific. What does the customer want? Prepaid freight? Warehouse allowance? Co-op/marketing funds? Defective Allowance? New store opening discount? Show fees? Booking Discounts? Buyback funds? Listing Fees? etc. It becomes an accounting nightmare as each order has to be referenced and cross referenced as the question "what's my price" becomes an exercise in..."I'll call you back."

You'd think that this would be a computerized process...it is somewhat but the majority is still item by item with a calculator.

At the end of the day, there tends to be a "window" of price which everyone pays within...a lot of it can be a shell game but it comes quite close...then you start dealing with really large accounts (think Walmart, Home Depot, Costco...their overall program, details, costs do tend to be better as an overall package...they have all sorts of great clauses in their vendor agreements which are somewhat like hostage negotiations which ensure that if you as a manufacturer want their business volume, you will need to adjust YOUR internal profitiability requirements and trade your margins for volume...it goes all the way up and down the chain...with much risk, their is the chance for much reward, or tremendous failure).

What most consumers don't realize is the difference between "front half" program and "back half" program. Invoice price to mark-up or sales margin is only one calculation. Often the buyer is judged on this performance...ie a "blended margin of 35%" as a target for their department. This means that they make an average of 35% on everything they sell when averaged out...they may be giving away one product at 5% and selling another at three times it's cost...at the end of the day their "blended" margin is 35%. This is all based on INVOICE price...price list price...what it says on the PO. What many people don't realize is that the "program" can be just as lucrative for the company. I have one company which has 22% back half program and a blended margin of 48%...in otherwords, they can sell the product "at cost/invoice price" and still make 22%. This is in the form of advertising money, rebates, fee's etc.

As manufacturers, we also have all sorts of fun when one company buys another. The accountants tend to go over each invoice and price and bill you back for any differences between the two...so I sold Bob a product for $10 and Bill a product for $10.50. I get a bill for the $.50 x all that Bill bought to "balance" the cost difference.

Or alternately, you get outside accounting firms which are called "profit recovery groups". These are accountants which go over every single deal, PO, booking discount, etc. to ensure that every single possible discount was applied to every order (often from years back). You get a statement of deduction for the following "missed" discounts which you must provide detailed paperwork proving that this discount was not entitled to have been taken for whatever reason. The deduction is off monies owing and is immediate...fighting the deductions can be drawn out for months. Often times the buyer and seller are no longer in the same department, store, job and you are left with sometimes massive bills from programs of many years past which everyone involved knows likely was the result of someone misreading the contract etc...in other words, largely illegitimate. The profit recovery groups get paid by what they recover. They typically get 25 to 50% of what they find...the retailer pays them nothing. So...what a great gig, you go to a retailer, offer to check their books to see if anything is off...at no charge.

Many people think that the manufacturers are all out their trying to screw over the stores, often times it is a battle of survival on both sides of the fence.

 

[ReefHound]

Add a clause to the contract that all billing disputes must be presented within 90 days.

 

[Web Monkey]

There is no "secret" price list maintained by the scuba companies. Almost all of them will offer additional discounts beyond the "best" price for volume purchases of a particular item or class of items.

You're exactly right. There is no "secret price list." There's the price you get from the rep, or his boss if you get big enough, or the owner of the company if you get really big. But it's not on a list.

That's one of the things that makes competition so difficult. There's no way to tell when you're getting a better or worse price than anybody else.

There's also no way to tell if you're about to get burned by buying 500 of something, when next month the New Hot Thing will be some feature the one you bought doesn't have, or there's a big price cut coming, and you just bought 500 to get the same price everybody else gets now for buying 10.

Terry

 

[Scuba Brad]

We try and straddle both sides of the line.

We have "dive shop" clients who only want to buy at our local dive shop and those who would never go to our dive shop and love shopping on our site. We encourage those who try to buy off our web site who live locally to actually come by the store so we can best service them. Out of our local market we do our best to take care of those customers on line. We take the same customer service orientation that we do in the dive shop. We only use experienced divers to sale product on line.

Will it change the industry?...........I think any retail business is facing the internet as a significant opportunity. Last year, ICSC the International Council of Shopping Centers, announced that 30% of their "normal" walk in business now shopped on line and not at the mall. They anticipated as much as 65% to be lost to the internet by 2010.

Its not a 'dive industry' thing. Its more of a life style issue.

As we become more of a convience driven society the internet will become a stronger partner to the LDS. Our web site sales substatinaly out preform our dive shop sales and at a higher profit margin.

I can understand PADI's position, after all they are in the dive training business, not the equipment sales side of things.

Happy Diving

 

[PhilEllis]

You're exactly right. There is no "secret price list." There's the price you get from the rep, or his boss if you get big enough, or the owner of the company if you get really big. But it's not on a list.

You are right. But it's not a secret. That's the point. For any scuba store owner to not be aware that such deals exist is simply silly. The problem is, many of them want the volume deal without buying volume. I can tell you that is not going to happen as a standard matter of course. I fully understand that a local dealer who only sells a couple of regulators a month will never be able to take advantage of the volume discounts. On the other hand, if you are only selling a couple a month, the discount doesn't matter in real terms of dollars anyway. For years, local scuba stores have been obsessed with "margins", without paying attention to the things that REALLY kill you......stale customer base, uncompetitive price, low sales volume, obsolete merchandise, poor merchandising......the list goes on.

That's one of the things that makes competition so difficult. There's no way to tell when you're getting a better or worse price than anybody else.

You see, that doesn't matter. It is not important if you are getting the best price. By the way....you never will. No matter how much you buy, someone will come along and buy more and drive a better deal. What's important is simple......at the price I paid for this, can I sell it in a way that meets my business model. The biggest mistakes scuba store owners make is letting the customer walk out and buy from the internet, simply because you can't get your "margin". As an owner, you are MUCH better off to make $50 and a 15% margin on a regulator than to make nothing because the customer leaves to buy it elsewhere. If you make the sale, you have made a customer. If you don't, somebody else has made a customer. You guys in local shops.......NEVER LET YOUR CUSTOMER COME TO ME BECAUSE OF PRICE! Always make the sale yourself. Once I have his or her name, I am going to do everything possible to make sure that EVERY future purchase comes to me. That is just how business works.

There's also no way to tell if you're about to get burned by buying 500 of something, when next month the New Hot Thing will be some feature the one you bought doesn't have, or there's a big price cut coming, and you just bought 500 to get the same price everybody else gets now for buying 10.

This is a major problem with our industry. As dealers, you should get SOME fore warning when things are going to be removed from the lineup. I personally think advance purchasing advice from the scuba companies on things like this would be helpful. I once took on the dealership for the Deep Outdoors line. I made a pretty serious buy-in. Two months later, they were having a fire sale and you could by BC's on ebay for half of what I paid for them. That is bad business.

Anyway, I enjoy this back and forth.

Phil Ellis