Death of a Sales Model, my latest article on The High Fidelity Report

[Lee]

Lee, as you know many members on WBF are in 'the business' in one way shape or form. collectively they have many, many years of experience mfrg, distributing, selling and reviewing high-end gear. based on this thread, from what i can tell none have agreed with you thus far.

don't take this the wrong way, but the manner in which you fervently defend your position doesnt come off as some guy that just wrote an article for discussion purposes but someone with a vested interest in CF. as a "marketing strategist" are you actively consulting with other mfrs on the concept of CF? I sell for a living in the services sector, I know when i'm being pitched and i feel like i'm getting the hard sell.

Rob,

I've been involved in high end audio for many years since my association with Chesky and Sound by Singer in the late 80s through the 90s. I have seen financial data for many high end companies so I am qualified to present a composite of how this works. I've also been trained by the firm that helped invent it. And you are wrong about no one agreeing with me. I have been contacted by several reviewers including John Atkinson that are supportive of my view. As with any industry there are benefits from not saying anything publicly on a controversial topic, especially when you may be dependent on that person getting you gear for review or in the case of a mfr relying on the traditional network for sales. Although several manufacturers have reached out to me and agreed. Several brand name audio consultants have also contacted me. So we feel pretty damn good.

I defend my article because there is much misunderstanding here and I want people who grew up on the traditional model to see the benefits of these newer models. The quibbling over the numbers has been shown to not change the extra cost to the Customer with having two middlemen added in-any way you slice it it comes to roughly 2X. You cannot change the facts of that, however inconvenient they may be.

The reason that there is pushback from folks in the industry here like dealers, distributors and reviewers is that they feel threatened. Reviewers are going to lose some influence here. Distributors and dealers are going to lose some business although I don't think it will be much from a profit standpoint. Dealers will lose influence. But I don't feel sorry for them because it is better off to have the Customer have more control like they do in other industries. Besides, there is not much they can do about it as change is here.

As a marketing strategist, my day job has me advising Fortune 500 firms on how these new digital trends and information sharing is making it better to go to what we call "customer centricity". I am attempting to share what I know about how this occurred in other industries like financial services and healthcare because I don't just want high end audio to "survive". I want high end audio to thrive. My belief is that we need more customers. Most of the people I talk to in the industry (and I know many of them) are very concerned about the aging of the audiophile segment. I think these new technologies are a way out or a solution to the industry's biggest problem.

So I will remain passionate about this because I have seen it work in other industries and because I care about high end audio.

Sharing the value chain numbers was the best way to start a "community-wide" conversation on what needs to be done.

P.S. I have no ownership or any personal or financial ties to anything in the crowd funding world outside of ordering a Geek Pulse.

 

[microstrip]

It is appropriate since it is an example of reaching a wider audience with a relatively affordable product with high end design (Ayre) funded by kickstarter.

Lee,

Sorry, but your article is written mainly in the perspective of the Consumer is the King versus the Dealer is King and explains the functions of both models. IMHO the Pono does not fit in your models for Consumer is the King - it has been developing for three years without raising kickstarter funds, does not rely on consumer feedback and consumers are expected to pay between 14.99 and 24.99 for a high resolution recording - people should note they call High-resolution recordings the 2304 kbps (48 kHz/24 bit) FLAC files, Higher-resolution recordings: 4608 kbps (96 kHz/24 bit) FLAC files, and ultra-high resolution recordings: 9216 kbps (192 kHz/24 bit) FLAC files. No price is given to ultra-high resolution recordings. Is this the advantage of being the King?

Please understand I am not criticizing these initiatives - I wish them success, but just debating their presentation in your article and in this thread.

 

[microstrip]

(...) The reason that there is pushback from folks in the industry here like dealers, distributors and reviewers is that they feel threatened. Reviewers are going to lose some influence here. Distributors and dealers are going to lose some business although I don't think it will be much from a profit standpoint. Dealers will lose influence. But I don't feel sorry for them because it is better off to have the Customer have more control like they do in other industries. Besides, there is not much they can do about it as change is here. (...)

Lee,

I would love to know what kind of control consumers are having in the Geek or Pono project. IMHO consumers are being driven in a reality show - happily for the project without real participation in serious matters, the real experts should design their product undisturbed. But many people are really persuaded they have the control. Did you have any participation until now, other than paying? Who represents your share?

 

[Lee]

Lee,

Sorry, but your article is written mainly in the perspective of the Consumer is the King versus the Dealer is King and explains the functions of both models. IMHO the Pono does not fit in your models for Consumer is the King - it has been developing for three years without raising kickstarter funds, does not rely on consumer feedback and consumers are expected to pay between 14.99 and 24.99 for a high resolution recording - people should note they call High-resolution recordings the 2304 kbps (48 kHz/24 bit) FLAC files, Higher-resolution recordings: 4608 kbps (96 kHz/24 bit) FLAC files, and ultra-high resolution recordings: 9216 kbps (192 kHz/24 bit) FLAC files. No price is given to ultra-high resolution recordings. Is this the advantage of being the King?

Please understand I am not criticizing these initiatives - I wish them success, but just debating their presentation in your article and in this thread.

Where is the dealer for Pono? It's manufacturer direct no?

Customer is King does not always equate to the Customer having control over all business decisions like price (likely here driven by the labels). It means a simplified value chain that creates savings for the Customer as we have used it in the article. High end design and parts too.

Geek is more customer centric thus far because it has created a Geek Forum and is actively soliciting and implementing customer ideas on that forum. It's a little early to see how Pono handles that aspect of crowd sourcing.

Check this out: http://geek.lhlabs.com/force/home

 

[microstrip]

Where is the dealer for Pono? It's manufacturer direct no?

Customer is King does not always equate to the Customer having control over all business decisions like price (likely here driven by the labels). It means a simplified value chain that creates savings for the Customer as we have used it in the article. High end design and parts too.

Geek is more customer centric thus far because it has created a Geek Forum and is actively soliciting and implementing customer ideas on that forum. It's a little early to see how Pono handles that aspect of crowd sourcing.

Check this out: http://geek.lhlabs.com/force/home

Lee,

My idea is that manufacturer direct and kickstarter are not enough to become part of the group "Consumer is the King " companies.

And I had already checked the Geek forum - a good marketing scene. It even showed as Geek Temple in my browser bar.

 

[Lee]

Lee,

My idea is that manufacturer direct and kickstarter are not enough to become part of the group "Consumer is the King " companies.

And I had already checked the Geek forum - a good marketing scene. It even showed as Geek Temple in my browser bar.

Pono and Geek are both being funded by their customers and no dealer channel is being used so I don't follow your logic at all.

I think we have to just agree to disagree on this one.

 

[microstrip]

Pono and Geek are both being funded by their customers and no dealer channel is being used so I don't follow your logic at all.

I think we have to just agree to disagree on this one.

Lee,

OK, you just see the funding and distribution. But usually it is considered that in "Consumer is the King", or consumer sovereignty as referred in economics, the consumer preferences determine the production of goods and services. All I see in the examples is accessory (just color, design) or no real involvement of the consumer. Unless the consumer unique preference is just paying less, I fail to understand how the consumer is the king with companies that do not return mails or answer calls, as referred in the Geek Temple.

Surely my points should be taken considering that the product is audio and the main function is playing music. If we were debating clothing, we would agree.

BTW, I consider that in these cases the real kings will be the companies owners, not the consumers. YMMV, and only time will tell.

 

[Lee]

Lee,

OK, you just see the funding and distribution. But usually it is considered that in "Consumer is the King", or consumer sovereignty as referred in economics, the consumer preferences determine the production of goods and services. All I see in the examples is accessory (just color, design) or no real involvement of the consumer. Unless the consumer unique preference is just paying less, I fail to understand how the consumer is the king with companies that do not return mails or answer calls, as referred in the Geek Temple.

Surely my points should be taken considering that the product is audio and the main function is playing music. If we were debating clothing, we would agree.

BTW, I consider that in these cases the real kings will be the companies owners, not the consumers. YMMV, and only time will tell.

I see your viewpoint better now. In a way I am looking at customer centricity as it most readily applies to audio. In this case, simplifying the chain of steps to the customer to cut out costs in order to provide a more customer-friendly price that will expand the market for the product.

Ultimately I believe this will drive more customers into the dealer's showroom and while only a portion of them will eventually buy those Wilson Alexias there will be now a supply of younger audiophiles for the gear that is likely to drive a particular dealer's profits. I think there is also likely to be more excitement around music and audio if done well so there may be a culture shift away from the old audiophile stereotype of the wine and cheese eating snob.

In a way I am saying as well that a crowd funding campaign and all its attendant social branding advantages may be a more likely route to attracting these 20 and 30 somethings to the world of better sound.

I only feel as strong as I do because I have seen it happen exactly this way in other industries. New options exist for the DAC buyer. I think high end audio best get ahead of the curve even if it means giving up some control and money at the distributor/dealer level.

 

[mep]

Maybe it's just me, but I feel like you are being somewhat disingenuous with regards to the article you published and what I perceive as your backpedaling from the backlash on this thread. When I read your article, it sounded like you hoped the new model would kill off the traditional supply chain that we now have in audio. Greedy distributors and stores would be cut out of the loop and the savings would go into the customer's pockets (or more aptly, the money would stay in their pockets). The "old guard" as you called them were quaking in their boots. Now you are trying to say you didn't mean all of those things you said and it really only applies to select items (read: cheap) and this will really create and drive new customers into the arms of the existing supply chain and everyone will benefit. That is not what your article was about. Your article was about killing off the old model and making the "customer king." You can't have it both ways. Say what you mean and mean what you say. I think you meant what you said in the original article.

 

[Lee]

Maybe it's just me, but I feel like you are being somewhat disingenuous with regards to the article you published and what I perceive as your backpedaling from the backlash on this thread. When I read your article, it sounded like you hoped the new model would kill off the traditional supply chain that we now have in audio. Greedy distributors and stores would be cut out of the loop and the savings would go into the customer's pockets (or more aptly, the money would stay in their pockets). The "old guard" as you called them were quaking in their boots. Now you are trying to say you didn't mean all of those things you said and it really only applies to select items (read: cheap) and this will really create and drive new customers into the arms of the existing supply chain and everyone will benefit. That is not what your article was about. Your article was about killing off the old model and making the "customer king." You can't have it both ways. Say what you mean and mean what you say. I think you meant what you said in the original article.

mep,

I'm puzzled as to why you think I believe the traditional model should be killed off. I specifically carved out expensive gear.

It’s one thing to buy a DAC from LH Labs for a few hundred dollars, but a $20,000 Da Vinci DAC is another story. If the Geek Pulse is shipped and it doesn’t work, LH will fix or replace it within warranty because their reputation is at stake. And it won’t cost much for shipping or repairs. There are many more complications that arise when buying expensive and highly specialized items. I’m not sure I would buy a Porsche sight unseen or un-driven. When it comes to higher end products, we simply need more assurance. We need that test drive when so much money is at stake.

I go on to say:

Some percentage of these young customers will gain income as they age. They will eventually want more. Perhaps even stop by a dealer and audition those amazing speakers or that impressive preamp. And they will gladly buy such products because it is time for them to do so, and because the dealer has created value by minimizing the risk of acquisition to the customer by maintaining a showroom with products available for demonstration.

These new, younger customers will eventually buy better equipment and they will then possibly look to more seasoned reviews for advice. Everything is going to be just fine – casting editorial stones only demonstrates how out of touch the old-guard press seems to be. These new business models only serve to grow the customer base. In the end, more people will enjoy music with terrific sound quality. That helps everyone.

This is 100% consistent with what I have said in this thread.

 

[esldude]

Well I at least was happy to read your article. I do agree you seem to be doing something of a sell job. But I take as more of selling the idea which is something that is clearly coming our way. Not as you selling a viewpoint you wish to push, but selling how this idea works so more can understand what it means. As with such changes, some will lose, some will win, and if it all works out the wins will outnumber the losses.

So I may no longer be friends or at least known to a local dealer (too bad for him), but if I get quality equipment for half price, and the market grows so there is more choice anyway that sounds desirable to me. I also don't see how this kills off small passionate makers of esoteric gear. If anything it should allow more of them to become successful enough to have and maintain a company.

It sounds similar to me how I once heard car companies described. German companies made some very high quality machinery. But often it was offered up as here is what we have made for you it is the best. Japanese companies took a more customer centric approach in the sense they kept searching for what customers wanted and gave it to them. A workable customer centric approach is probably going to result in more options for everyone.

 

[Lee]

Well I at least was happy to read your article. I do agree you seem to be doing something of a sell job. But I take as more of selling the idea which is something that is clearly coming our way. Not as you selling a viewpoint you wish to push, but selling how this idea works so more can understand what it means. As with such changes, some will lose, some will win, and if it all works out the wins will outnumber the losses.

So I may no longer be friends or at least known to a local dealer (too bad for him), but if I get quality equipment for half price, and the market grows so there is more choice anyway that sounds desirable to me. I also don't see how this kills off small passionate makers of esoteric gear. If anything it should allow more of them to become successful enough to have and maintain a company.

It sounds similar to me how I once heard car companies described. German companies made some very high quality machinery. But often it was offered up as here is what we have made for you it is the best. Japanese companies took a more customer centric approach in the sense they kept searching for what customers wanted and gave it to them. A workable customer centric approach is probably going to result in more options for everyone.

Exactly. I'm selling an idea and I think if looked at honestly it will be recognized as being good for everyone.

 

[taters]

I have read this whole thread and I don't understand what the argument is for. Why does one person have to be right and one wrong. I think the market is big enough for the kickstarters of this world and the traditional distribution chain. As long as people get exposed to better audio that's all that matters.

 

[Al M.]

I have read this whole thread and I don't understand what the argument is for. Why does one person have to be right and one wrong. I think the market is big enough for the kickstarters of this world and the traditional distribution chain. As long as people get exposed to better audio that's all that matters.

Sure, but I guess the problem was the hyperbole in Lee's headline "Death of a Sales Model", which did him in -- badly.

While Lee was pointing out that his model applied only to a part of the market and that he had incorporated all kinds of nuances in his arguments -- and overall seemed to be defending himself quite well -- you cannot expect an audience to pay attention to nuances if your headline is anything but nuanced.

Hyperbole never works with a critical crowd -- witness CD's "Perfect Sound Forever" (well, finally after more than 30 years it gets much closer to that initial promise than expected by critical audiophiles). I guess Lee had his "perfect sound forever" moment with his article, and hopefully will learn from that.

 

[Johnny Vinyl]

Audio or not...pick a product at will....crowdsourcing is a refreshing alternative to the traditional sales/distribution model. I'm following it with interest.

 

[mep]

Sure, but I guess the problem was the hyperbole in Lee's headline "Death of a Sales Model", which did him in -- badly.

While Lee was pointing out that his model applied only to a part of the market and that he had incorporated all kinds of nuances in his arguments -- and overall seemed to be defending himself quite well -- you cannot expect an audience to pay attention to nuances if your headline is anything but nuanced.

Hyperbole never works with a critical crowd -- witness CD's "Perfect Sound Forever" (well, finally after more than 30 years it gets much closer to that initial promise than expected by critical audiophiles). I guess Lee had his "perfect sound forever" moment with his article, and hopefully will learn from that.

Al-You and I are on the same wavelength. You made the point I tried to make earlier 1000 times better than I did.

 

[Lee]

I have read this whole thread and I don't understand what the argument is for. Why does one person have to be right and one wrong. I think the market is big enough for the kickstarters of this world and the traditional distribution chain. As long as people get exposed to better audio that's all that matters.

That's similar to the point of my article. Let's expand the pie.

 

[Lee]

Sure, but I guess the problem was the hyperbole in Lee's headline "Death of a Sales Model", which did him in -- badly.

While Lee was pointing out that his model applied only to a part of the market and that he had incorporated all kinds of nuances in his arguments -- and overall seemed to be defending himself quite well -- you cannot expect an audience to pay attention to nuances if your headline is anything but nuanced.

Hyperbole never works with a critical crowd -- witness CD's "Perfect Sound Forever" (well, finally after more than 30 years it gets much closer to that initial promise than expected by critical audiophiles). I guess Lee had his "perfect sound forever" moment with his article, and hopefully will learn from that.

The title was not entirely my idea but I kinda like it. At the end of the day, the content of the article is what matters and there we did solid research, formed an excellent composite value chain, and drew a very reasonable and positive conclusion.

The article has been positively received by even people at Stereophile and TAS. I wasn't exactly easy on reviewers but in private they will admit they worry about their influence waning in a digital world. At least the smart ones do.

I have heard from more distributors and they agree the numbers are fair. Some have said on some products the distributor margin is more around 50% than 60% but most admitted there are cases of both.

I've heard from more manufacturers. Some hated that we shared business margin data. Some loved it as a way to keep their distributors and dealers honest. Most agreed any intelligent customer knows these Dealer is King margins exist on a luxury product. It's been VERY clear that many mfrs have deep issues with dealers, several going into great detail about how they violate contract terms and often slow pay or no pay. Many feel the dealer network can be challenging for the type of customer experience they want for their customers.

I've heard from dealers. Some want to control the entire market. Some agree with the article and would happily exchange low end DAC sales (the agree not much profit anyway) for more customers. Some dealers don't get it at all and just want the Ferrari driver. By appointment only.

Bout what you would expect.

What's been very fun is that is has been posted for both the audio world and the consulting world. It's been praised by some industry consultants who agree with the viewpoint. It's been shared on marketing strategy groups and blogs and forums as another example of disruption from new business models. It's being prepared for a guest lecture at two top business schools. MBA students love talking about music and audio so that should be fun.

It's been very well read on The High Fidelity Report.

****Bottom Line****

Let's see how crowd funding works in terms of results. We can sit back and watch the market...

1. Does Geek deliver the Pulse and is it a good product? Does Geek do another campaign?

2. Does Pono deliver the music player?

3. Are there any major kickstarter failures that lead to loss of investor money?

 

[Lee]

Audio or not...pick a product at will....crowdsourcing is a refreshing alternative to the traditional sales/distribution model. I'm following it with interest.

Me too.

 

[Lee]

Interesting research and commentary from McKinsey which seems to support our viewpoint about exploring new business models and targeting new customer segments from a digital standpoint.

http://mckinseyonmarketingandsales.com/digital-disruption-evolving-usage-and-the-new-value-chain