Why Isn't There a Free Market for Scuba Equipment?

[rescue15]

We're really slinging the mud now aren't we Terry?

As a consumer I can say in the Baltimore area, there are no better prices, quality of equipment and no better customer service than at Off the Wall. I have made several purchases and have upgraded my old gear this year. At first, I shopped around, went to a shop in Parkville and always walked out empty handed and frustrated. The salesperson was less than helpful...didn't seem like she wanted to get up out of her chair. I always seemed to end up at Off The Wall. When I realized how much gas I was wasting I stopped shopping and just went straight there.

As far as MAP goes, A manufacturer with a shrewd legal dept can make a case against you even if you sell the product at MAP and throw in a bunch of give aways...I used to own an archery shop. At the end of the year I had a sale and promptly lost several dealerships because I sold under MAP. That's how I lost my bow dealership...sold the bow for MAP and threw in a complete accessories package for free. I still made a nice profit but it brought the bow price below MAP. A week after I started my sale I had a call from the bow company...a week after that I was no longer a dealer. If they want to get you they will...if you sell enough of their product, they will look the other way. I found this out because I discovered another shop doing the same thing I was doing. They moved 5 times the product I did. They still have the bow dealership.
There are manufactures that use MAP in accordance with it's intentions as I understand them to be...you can sell at your price but can't ADVERTISE at a lower price. I had several archery component manufacturers work it this way and never had a problem.

It seems the only retailers that want to keep MAP pricing are thoes that don't have enough business to keep their doors open ...let's look at a different sales strategy...instead of selling 1 item at a large profit...sell 10 items at a lesser profit. You'll have more profit and 10 times the satisfied customers that will continue to come back instead of giving their business to Leisure Pro...hmmm that will never work - it makes too much sense LOL

Keep up the good work Ken!

 

[drbill]

Hmmm... perhaps a related question. Why hasn't there been a bailout proposed for all the LDS'es that are going out of business?

 

[offthewall1]

Hmmm... perhaps a related question. Why hasn't there been a bailout proposed for all the LDS'es that are going out of business?

I can address this with a good bit of detail...

The manufacturers say one thing - and desire another. They claim MAP is in place to help the little stores stay open and level the playing field. In the past - say 10 years ago or more that was true... before the proliferation of the internet.

When deep pocket entrpreneurs came into the industry and web sales sites started popping up all over the place, these deep pocket entrpreneurs became the top sales avenues for the manufacturers. Have a look at the top 10 sales producers for any manufacturer... you will not find local dive shops on the lists... only internet resellers. Some of these are LDS's that also do internet sales.

The last newsletter I received from a major manufacturer listed 10 out of 10 internet sellers as the top product movers. This is a no brainer since they reach an exponentially larger market. MAP pricing is a double edged sword in the sense that it worked in the beginning and it will work in the end for the manufacturers.

Just like government is controlled by special interest - so to is the scuba industry. That small band of deep pocket entrepreneurs now wants MAP in place - and because they buy in such volume, the manufacturers have caved to special interest in a time when they should be re-evaluating - much like Obama and McCain talked about in the debates last light.

Manufacturers turn a blind eye when you buy enough... and they respond to complaints from the Deep pocketeers anytime a little guy tries to grow and better themselves. Manufatcurers also sell to the deep pocketeers at unpublished pricing... As one internet retailer recently told me... just call a manufacturer and tell them you want 100 of something... and you want it at a better price. This allows them to buy below what an LDS can buy for - and therefore sell below what an LDS can sell for... and the manufacturer is not going to cut off the hand that feeds it. This is just business in one sense... but violates trust between the LDS and manufacturer.

MAP now makes it harder then ever for the LDS to compete with the deep discounting internet resellers. This is what is driving LDS's out of business. This is what the big money people want... and the best part for the manufacturers and the deep pocketeers is that the LDS's are too dumb, too blind and too slow to react to this. As the LDS owners who saw protection for 10, 15, 20 years continue to hold onto their beloved protection, they are only burrying themselves. It's like they're laying down in a hole and pulling dirt over themselves.

I am trying to educate the consumer and the LDS's out there - that the only way they are going to compete is to rebel against MAP pricing and advertise their products at the same pricing as the internet sellers. The internet is not going away - internet resellers of scuba equipment are growing by leaps and bounds and accounting for higher and higher percentages of sales.

The idea that the LDS is safe because they provide training and air is also gone. The training agencies have adopted internet scuba classes so that people can take a class then finish up on a vacation somewhere. Unless the LDS is in Florida, California, Texas or some other location where Diving is a Mecca (or at least some local diving exists within an hour or two,) the days of the LDS are numbered. The idea that shops need to be open to provide air is ludicris. Air compressors can be bought by those few who need them for local diving in Montana... and for the overwhelming number of divers - probably more than 80% of divers - who only dive on vacation... they get their air where they are going - they don't even own tanks..

The original mark of this post was consumer education - now I'm adding LDS education.
There are hidden forces in this industry (big money forces) dictating to the manufacturers to keep MAP in place. It will take a total collpase of the industry (just like the collapse of the mortgage industry) before the truth will come out and things will change. I wonder how many LDS's are going to survive it. As I've said this is a microcosim of what is wrong with our country.

I'm always happy to answer yuor questions. Please, stand up and fight for the industry you love.

 

[RJP]

LDS buys BCD from MFG for $200. - Sells to consumer for $600. This is a 300% mark-up. Retailers should be able to more than adequately keep their doors open and make a decent living with a 50% mark-up. This BCD should cost the consumer $300.00. The mafia style protection from the manufacturers cost the unknowing consumer $300 and puts it in the retailers pocket. It is no wonder why bad businessmen like this style of protection - it requires them to do little work for big profit.

I am trying to educate the consumer and the LDS's out there - that the only way they are going to compete is to rebel against MAP pricing and advertise their products at the same pricing as the internet sellers. The internet is not going away - internet resellers of scuba equipment are growing by leaps and bounds and accounting for higher and higher percentages of sales.

Before educating others, you might need some yourself. Take an intro level macro-economics class and learn a little bit about price elasticity and pricing-demand curves. Doing so will provide some insight as to what needs to happen in order for "retailers to make a decent living with a 50% markup" as you suggest.

In your example an LDS is making $400 profit on the sale of a $600 BCD. If they were to lower the price to $300 (50% markup) as you suggest that would provide a $100 profit. Accordingly they would have to sell at least FOUR TIMES AS MANY BCDs to make to same profit. Probably 5x as many, given increased inventory costs, shipping, sales costs, etc.

Scuba diving is relatively price-inelastic overall: The absolute price of gear is not the most significant barrier to entry for scuba diving, in fact it's probably not much of a barrier at all in the grand scheme of things. Accordingly, lowering the price will NOT generate a 400-500% increase in sales volume.

So the upshot of lowering the price will be that roughly the same number of divers will be spread out among all available retailers - on and offline - but at significantly lower profit per diver. This becomes a "low margin, high volume" battle which puts the LDS at an even greater disadvantage vs the e-tailer because, as you point out, the e-tailer can by definition reach a larger possible audience and achieve higher sales volume.

It's that simple. Folks may not like it, but it is just that simple.

 

[offthewall1]

Before educating others, you might need some yourself. Take an intro level macro-economics class and learn a little bit about price elasticity and pricing-demand curves. Doing so will provide some insight as to what needs to happen in order for "retailers to make a decent living with a 50% markup" as you suggest.

In your example an LDS is making $400 profit on the sale of a $600 BCD. If they were to lower the price to $300 (50% markup) as you suggest that would provide a $100 profit. Accordingly they would have to sell at least FOUR TIMES AS MANY BCDs to make to same profit.

I'm well aware of the economics involved as I'm also well aware of the need to increase interest in the sport by 4X the number of new participants in order to make my plan work. Go back and read my posts about making scuba affordable and of interest to a family of four.

I agree there is more than pure math involved in fixing the problems. I have reiterated it time and time again here and on other posts.

The manufacturers and LDS's are doing two things with MAP. 1. Hurting themselves and 2. Shrinking the sport. Just look at the numbers. Other factors that are affecting the sport right now include; 1. the overall economy, 2. Video games and computers (people sitting at home instead of getting out and seeing the world, 3. a lessening of the educational requirements by the training agencies leading to new divers who don't feel confident and competent when they finish their class - so they give up on diving before they even get started, 4. an economic impact of less travel leads to less certs, 5. people getting a bad taste in their mouth when they visit LDS's who bad mouth the internet and their competitors, 6. people feeling gouged by the LDS after they buy then find out how much later they overpaid - so they don't go back into that shop, 7. interest in other activities that cost less - camping, tennis, bowling etc...etc...

All of these - or should I say most of these things could be changed if diving was marketed as an activity for a family of 4. DEMA came up with a great "Be A Diver" TV advertisement... I'm still waiting to see it play on TV... but when (or if) it ever does... the LDS's better be ready to have affordable classes (offering excellent training) and affordable equipment when the newly interested parties come walking into their store.

By using our model - enticing families of four into the sport... we can sell 4 sets of gear... and exponentially increase the number of divers and by extension the number of divers taking classes and the number of divers buying gear. This is after all what we should be trying to do.

The current model has Dive shop owners sitting in their store waiting for that one sucker to walk in. An uneducated (regarding the internet and pricing) who will hapazardly plop down more money then he should - who they can charge that 4X higher price to. This is the same customer they will never see again after that first purchase as he becomes enlightened to the way of the world.

This person bad mouths the shop... does not bring anything new to the LDS, becomes a Scubaboard member and starts buying online - and in-so-doing takes all his friends with him.

This may not hold true everywhere in the country - but I've seen it happen in my area for the past 10+ years. It is why we are thriving and have people coming from hundreds of miles away to take courses and buy our gear. We are the model for the future... and we are not the only ones. I applaud all of those who are doing what it takes - as you are all the ones helping to grow the sport by producing competent, happy divers who feel good about the sport, their shop and the amount of money they are putting into it.

 

[RJP]

4. DEMA came up with a great "Be A Diver" TV advertisement... I'm still waiting to see it play on TV... but when (or if) it ever does... the LDS's better be ready to have affordable classes (offering excellent training) and affordable equipment when the newly interested parties come walking into their store.

Speaking as someone who spent much of my professional life in senior-level positions at two of the largest ad agencies in the world I can tell you for certain that the whole "Be A Diver" campaign is a poor execution of a flawed strategy.

The fact that YOU - as a DEMA member - are still waiting to see it run on TV makes my point.

In case you are not aware of the details of the "Be A Diver" campaign, in order for YOU to specifically benefit from the campaign YOU are supposed to run it on TV:

From DEMA's April 14th press release:
"All professional dive centers are strongly encouraged to purchase local broadcast advertising in order to take advantage of the interest that can be created by DEMA’s media buy, and DEMA members are encouraged to utilize the professionally developed commercial, available in two versions, to increase the effectiveness of the campaign in their area."

So why haven't you ponied up to run the commercial locally?

 

[cdreamer]

He's too busy trying to overturn the supreme court decision that made
map policies LEGAL. Good luck with that Ken.

 

[DA Aquamaster]

I'm well aware of the economics involved as I'm also well aware of the need to increase interest in the sport by 4X the number of new participants in order to make my plan work. Go back and read my posts about making scuba affordable and of interest to a family of four.

I agree there is more than pure math involved in fixing the problems. I have reiterated it time and time again here and on other posts.

The manufacturers and LDS's are doing two things with MAP. 1. Hurting themselves and 2. Shrinking the sport. Just look at the numbers.

The sport is shrinking? Show me the numbers. I have been involved with diving since 1979. I saw a huge expansion in the industry beginning in the mid 1980's when PADI, etc decided there was more money to be made in dumbing down cert standards and appealing to a larger market (essentially the family of 4 you keep talking about). If the numbers are decreasing - and the real world numbers of how many divers continue diving after getting their cert is extremely hard to track accurately - I'd lean toward the opinion that it is a normal correction in an overly expanded market.

When I compare real world dollars from the early 80's to today, I am not really paying anymore for scuba equipment at MSRP now than I did then and in many cases I am paying a lot less, so prices have declined over the last 25 years due in part to more competition. But price of gear is in the end not really the big issue in the sport.

On the other hand, you need to look at the trends in dive shops. There are fewer, especially in smaller markets and the smaller market shops seem to survive best when piggy backed on another business tank testing, etc). That has an impact as all the cheap internet gear in the world UPS'd anywhere in the world will not get more divers involved without the people, culture and little things like compressed air and ntrox that a local dive shop brings to the local dive environment. Cutting prices seems like a great idea, but in a market of fixed size, that is problematic in an industry where profit is already elusive.

I cannot speak to a family of four, but I did maintain a family of three divers for nearly a decade. It is a major cash committment and equipment purchases are a very small percentage of the total. Once the gear is bought the cash drain stops in that area, but it continues in all the others and it requires a great deal of time, committment, desire and discretionary income to keep 3 or 4 divers in the water. Frankly, as a general marketing strategy it is a really bad one as the odds of a family's interests aligning that closely are small and then it has to be matched with time and money. entire families that dive are great but they will always be the exception.

The dive business is too small to support, and is ill served by, those retailers who try to survive by creating strife and ill will or resort to shady business ethics. I do think that in any market the strongest retailers that provide the best customer service and the highest degree of integrity will survive, and I for one will be proud to give you my business at your going out of business sale.

 

[offthewall1]

I for one will be proud to give you my business at your going out of business sale.

What you should do is stop by the store and get those (Going Out of Business Sale) prices everyday of the year... You'll never walk out of a dive shop with so much for so little... and you don't have to wait - they're available right now!

Happy Diving!

 

[300bar]

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