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

[ReefHound]

Also it is not about getting raped the discount for cash is 27%

Poor choice of word - sorry if anyone was hurt or offended. My point was that you cannot evaluate the price of an item in a package deal. You can structure a package to make any particular item look dirt cheap or even free, but we know they are not giving things away "free".

 

[RJP]

Well if just one manufacturer, let's say Scubapro, decided to let retailers sell their equipment at whatever price they want, and sell it online if they want, I bet all other manufacturers will follow suit for fear of losing a whole lot of customers to Scubapro.

Not likely. It's just not that simple.

Whatever manfacturer does this will quickly need to cut their own margin just as the internet dealers do. This will slash right into their bottom line, unless they also make similar cuts in investment in product quality, product development, breadth of product line, customer service, and marketing programs. Once they do those things, that companies products become that much less desirable.

Manufacturers have as much or more vested interest in protecting the ultimate retail selling price of their goods as the retailer does. That's why it's one of the "4Ps" of marketing that any successful marketer must control or risk their own demise.

 

[ReefHound]

Whatever manfacturer does this will quickly need to cut their own margin just as the internet dealers do. This will slash right into their bottom line, unless they also make similar cuts in investment in product quality, product development, breadth of product line, customer service, and marketing programs.

Or increase sales volume.

 

[mike_s]

I don't think the credit card companies rates are high as you indicate (7%). Maybe at some small mom and pop shops (which many dive shops fall under that category)

The American Express average is 2.3%. The industry average is 1.5% to 3%.

Merchant fees can also include a transaction fee (typically 25 cents or so ), a monthly processing fee, etc. Believe it or not, the credit card companies also charge slightly more if you key in the credit card instead of scanning it. go figure.

However, credit cards are a requirement for any business to operate, unless you are a roadside fruit stand and believe me that I've seen some of them take credit cards.

Consumer models are changing. Lots of people won't buy gas anymore unless they can do "pay at the pump" for example. McDonalds and all the other fast food restaurants take credit cards now, even at the drive through. The more they are used, typically the lower transaction rate that a vendor can negoiate.

Where the credit/charge card companies are really making it big is when consumers miss out on monthly payments, etc. Besides that late fee that is now $25 to $35 bucks, they now jack up their low interest rate to 22 to 29%. Even these low or 0% percent rate cards they make money on. Because the way the rate structure is, anything you charge on it keeps accurring interest intil you pay off that lower interest rate balance transfer.

As for American Express being nearly obselete, I don't really agree with that. They used to be "charge" only and due at the end of the month. Now most of their cards are interest rotating monthly balance cards. It's still the most popular corporate company card, mostly because of the billing statements, etc. I prefer them because they offer better customer service. They do charge the merchants more and some, but very few, places choose not to carry them, you'd be surprised of the places that do use them. I don't see American Express going obselete anytime soon.

If anything, ALL the credit card companies are going to see huge growth. Companies are going to prefer to use the charge system over cash. It's easier to account for on a per sale basis. Easier to compute service employee tips on. Easier to track transactions. Reduces employee cash theft. and on and on and on. This is one industry you are going to see huge advances in during the future.

 

[ReefHound]

As for American Express being nearly obselete, I don't really agree with that.

My bad, I was thinking of Discover. But I wouldn't advise that you go somewhere like Cozumel with only your Amex card.

 

[mike_s]

My bad, I was thinking of Discover. But I wouldn't advise that you go somewhere like Cozumel with only your Amex card.

Actually Discover is stronger than it used to be, but I've kinda got to agree with you that it's not a mainstream card (if not obselete). Lots more places take it, but lots don't. You still have to carry an Amex or Visa/Mastercard if you have a discover, so I see no real reason to have to carry an additional card, so the Discover card gets the 'axe' over the others. \

For those that say they use Discover for the CASH BACK program, which is 1% on everything and 5% on select item groups, other cards beat that big-time.


As for Cozumel... I've used my American Express for many purchases in Cozumel and never had a problem.... (well besides the merchant 'whinning' about it, which I got at any store I used it at. Some threatened surcharge but dropped that as I told them nevermind on the purchase.) The only place I didn't get any problems was at restaurants, but I'm sure that's an issue in some places also though.

But you are right. I wouldn't go to Cozumel with just my American Express card. Lots of places that don't take it there. (or won't admit they take it).

It's a 'known' that in vacation destinations like Cozumel that the merchants (at shops) try to stick it to the tourists as much as possible. They want cash preferably, especially on small purchases. They try to stick you with surcharges or give you flemsy exchange rates (as they charge your card in Peso's but most items are sold in US dollar amounts, so they convert it for the card.). Having your wife put a 99cent pocket calculator in her purse will usually make them much more honest. You'd be surprised how many times in Mexico that I've paid for a meal in US dollars and they bring the change back in Peso's and the change amount be off by 30 or 40$. Basically it's dishonst and stealing, but they dont see it that way. They see it as a normal way of life and that everyone does it and a way to stick it to the tourist.

Anyway... sorry for straying so far off topic of the thread Phil. BTW... Phil / Dive Sports takes American Express They know my card number by heart I'm afraid.... (I have no clue if they take Discover... )

 

[RJP]

Or increase sales volume.

Again, not that simple.

Assuming a contribution margin of 50% on product sales, a 25% cut in wholesale price would require roughly a DOUBLING of sales volume, just to break even.

How likely is it that a manufacturer is going to DOUBLE their sales by allowing dealers to discount? Especially when you consider that many/most dealers ALREADY discount.

But, let's assume that a manufacturer CAN double their sales volume by doing this. Big deal! Again, at the 25% lower price you need to sell twice as much stuff at the lower price just in order to make the same amount of money.

And that assumes you already have the staff and production capacity to PRODUCE twice as much stuff! If you have to buy new machines, hire new people, etc, you will actually make LESS money on TWICE the sales.

 

[ReefHound]

But, let's assume that a manufacturer CAN double their sales volume by doing this. Big deal! Again, at the 25% lower price you need to sell twice as much stuff at the lower price just in order to make the same amount of money.

You assume that a realistic alternative is to maintain the status quo and maintain current sales volume and profit. As you are fond of saying, it's not that simple. Manufacturers in otehr industries have failed to do that, those in the dive industry will fail as well.

 

[mdb]

Again, not that simple.

Assuming a contribution margin of 50% on product sales, a 25% cut in wholesale price would require roughly a DOUBLING of sales volume, just to break even.

The wholesale price will not change. The retail mark up will decrease. Dealers will have to work on 42% + margins instead of 50-65% GM'S. Within a year or less all major companies will have some sort of e-commerce program most will do so with a MAP, some will enforce their programs some will not.

 

[Web Monkey]

Or increase sales volume.

It's a limited market. Even doubling the volume wouldn't make up for losing the space between MSRP and cost.

Once the prices are allowed to float, everybody starts circling the drain because there will always be someone willing to sell for less, do more volume and put the screws to the manufacturer and dealer network.

The biggest dealers will end up selling for cost or below and making it up somewhere else (think Wal-Mart and non-prescription drugs. Do you think they care if they make 2% on a few thousand regs as long as they're still making 400% on tens of millions of bottles of Aspirin?

Terry