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Successful Dealers Leap into the Future

16 Dec, 2003 By: Robert Sostilio imageSource

Successful Dealers Leap into the Future

I remember back in 1973 telling a typewriter dealer that if he wanted to
become an authorized copier dealer he would have to hire one service technician
for every 100 copiers he sold. At that time, the average typewriter dealer had
one technician for every 1,000 to 2,000 typewriters installed and only made
annual visits to clean the unit. The guy almost shot me when I told him that he
would have to send the copier technician to a five day technical training school
some 900 miles away. Then, after successfully completing the course, the tech
would be qualified to perform emergency and scheduled periodic maintenance every
three months per copier in order to maintain the copier's optimum performance.
He literally threw me out of his office (I weighed considerably less in those

I can still hear the parting shot from the dealer telling me he'd be selling
typewriters and carbon paper long after my "copier dealership" went
out of business. The thinking at that time was that Xerox owned the copier
market with its rental base of dry toner 914 and 2400 console copiers. New
alternative technology, including coated paper electrostatics and thermofax, had
not become an overwhelming methodology to produce exact copies. But the market
was heading toward low cost, liquid toner and table top models that customers
could own outright. Those dealers that updated their business models benefited
significantly when 20 years later they sold their "copier dealerships"
for tens to hundreds of millions of dollars.

In the late 1980s and early 1990s, I heard a similar reaction when I keynoted
dealer and manufacturer events or gave presentations at industry and company
conferences where I informed attendees that they had to learn and sell digital
multifunctional peripherals including networks, connectivity, printers and
solution software. Only this time, following my trend analyses and forecasts,
dealers buttonholed me and told me in no uncertain terms that they would rather
"sell their dealership" than sell a single digital connected copier
MFP. Yet, those who listened and modified their business models are enjoying
significant growth selling connected color and black/white copier systems, while
the standalone business begins its downward slide.

Today, dealer organization membership may be one-third of its original self,
but there are still over 7,000 establishments listed as office equipment dealers
(excluding 14,000 selling computers) listed by SIC and NAIC codes. Thousands
belong to dealer buying groups. These independent dealer establishments
represent $36.6 billion in annually sales of office equipment and, by updating
their business models, have continuously grown this market over the last twenty

2002 Trends

These aforementioned incidents call to mind how hard it was for many of the
thousands of calculator, cash register, fax, typewriter, and duplicator dealers
to accept new technology and plan how it would impact their customer base and
ultimately, their future.

Sostilio & Associates International (SAI) recently completed an in-depth
dealer survey and found that many dealers still rely on facsimile sales, yet the
trend shows it to be a lost leader. As the 77 percent of the dealers claimed,
facsimile sales accounted for 11 percent of their revenues (see Figure 1).

Forty-nine percent reported declining facsimile revenues in 2002, which was a
40 percent increase over the 35 percent reporting declining revenues in 2001.
So, if facsimile is in your business model, you should be evaluating new
products that will replace that lost revenue. Our study found that 27 percent of
dealers are selling network services and that over 60 percent of reported
revenues were above previous levels both in 2001 and 2002 (see Figure 2).

Yesterday's And Today's Business Models

In order to succeed, office equipment dealers in the 1970s and again in the
1990s had to create a new business model based on hardware and service support.
Those who were successful changed their business models to include not only new
technology, but made plans for service expansion, dispatching, manpower yields,
compensation packages, marketing, telemarketing, and recruiting along with sales
training and product knowledge training for the sales force. Many dealer
principals took calculated steps to keep up with the changes taking place in
their customer base and were properly positioned for growth as their client's
needs expanded.

Once again, business models need to be updated to insure continued growth and
financial success. New models need to contain a web strategy and e-commerce
considerations. Many of the dealers we talk to tell us that they are cutting
back on "yellow pages" advertising in lieu of web-based programs.
Those programs include lead generation, technical support, sales presentations,
supply sales, and order tracking.

So, are you ready for a business model update? If you have to question what
your latest product offerings are-copiers or solutions, or whether your reps are
"box" salesmen or consultants working for future business, chances are
you need to update your business model. If you are unable to determine if you
are profitable selling a solution or, for that matter, selling copies for mils
of a penny, then get out the business model and recast your goals. By now you
should know that the adaptation to digital imaging systems is one of more than a
single variation that will solidify your dealership's future.

Most dealers today are better informed, prepared and disciplined in running a
business. They have access to more information and better business tools that
didn't exist years ago. Most hardware and supply vendors offer free web-based
newsletters that inform dealers, in real time, about new products, programs,
evolving trends, and emerging user requirements to the office equipment markets.
Many dealers are clients of consulting and research firms who offer electronic
and hardcopy newsletters for reasonable annual fees.

Using our survey data once again, we found that many dealers have already
adjusted to the new business model. We learned that 77 percent of the U.S.
dealers surveyed sell connected copiers. Of those who sell connected, it was
interesting to note a correlation between the rate of connectivity and the
dealer size (see Figure 3).

The number of smaller dealers (those whose yearly revenues are under $3
million) selling connected copiers has grown over the years but the connect
rates are still too low given the demand of users to have more flexibility with
their networked devices. The picture was not any rosier when we asked about
color copiers. Only 69 percent of the dealers we interviewed sold color
connected copiers. Although their connect rates were higher in all sizes of
dealerships, the overall number should be higher given the fact that every major
manufacturer has a color product offering in its portfolio (see Figure 4).

A New Business Model

The new business model has many facets including marketing, hardware, software,
sales, and support. Since a web strategy is a given, adjustments to the business
model should include support for the evolution of the site as your business
grows. This could involve additional recourses to maintain real time on-line
technical customer support, firewall maintenance, credit card transactions, and
order tracking. Since the market is no longer an even playing field, dealers not
only have to compete with IKON and Global, but also directly with branch
operations of their own suppliers. In doing so, it is important that the dealer
marketing piece insure that pricing formulas are well established to sell blocks
of support time from the help desk. You might even want to consider taking
pricing down to a month-to-month support fee basis.

In the hardware portion, include your vendor's laser black and white and
color printers or a competitive model that will broaden the portfolio. A printer
offering is absolutely necessary in order to penetrate deeper into your existing
accounts. Also, add high speed scanners and large capacity storage devices that
will help your customer convert hardcopy to digital images. Have a plan to
charge for scanned pages. In addition, don't overlook hard drives, controllers
and servers.

On the software side, include forms-generating solution software. As more
companies look to reduce paper workflow, this software or lack thereof, can be a
deal breaker. In addition, security issues are paramount with users, so have a
package that will add the necessary levels of security for data capturing and
web transactions, both for the dealership and your customers.

When it comes to the sales portion of the business model, include
compensation programs that give the dealership the necessary flexibility in
addressing personnel retention issues while maintaining leverage to insure the
reps are rewarded for selling "value" along with the hardware.

Last, but not least, the backbone of any well managed dealership is the
service module of the business model. One aspect of the service business that
has changed is the expansion of in-house support and post customer support. In
both cases, the additions are necessary to manage customer inquires and requests
in real time. More service training is needed when it becomes necessary to have
additional certified technicians. And, don't overlook the compensation package
to service personnel that gain and encourages retention, yet leverages the focus
of the dealership.

Don't overlook the possibility of developing partnerships with VARs or
integrators that will provide you with a broader product and system offering. We
know that one in four copier dealers today are looking to grow their business
through acquisition of another dealership or software entity. Don't be like
those thousands of typewriter dealers who did not want to invest in the future,
but rather sit back and enjoy evaporating residuals. As the copier industry
transitions from standalone black and white image duplicators to networked
capturing and color output printing engines, make sure you are prepared to offer
the services and support your customers have grown to expect.

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