The Multiple Views of Multiple Branding6 Oct, 2004 By: Lou Slawetsky imageSource
The Multiple Views of Multiple Branding
of the long-standing arguments in our industry concerns the relative advantages
and disadvantages of multiple branding versus single line distribution. The
simple question is, are dealers better off focusing on just one brand, or should
they establish relationships with more than one vendor? It depends on who you
you are a vendor it’s a certainty that you’re going to favor a strategy that
dedicates the dealer channel to a single brand. On the other hand, if you’re a
dealer, you may have an entirely different, but understandable, perspective on
begin by examining a mantras used by just about every vendor when confronted
with the issue of multiple branding on the part of their dealers.
“Gross margins are higher for single line dealers. Multiple branding results in
dealers spreading their volume purchase potential across more than one supplier.
Lower discount levels result in lower margins.”
Sorry, but the facts just don’t support this position. We’ve recently published
our annual “Imaging Dealer Distribution Strategies” report in which, among other
things, we analyzed gross margin data for both single and multiple brand dealers
and found that the numbers were almost identical (Chart 1).
course, gross margins become more meaningful when they are weighted by their
revenue contribution. High margins that do not contribute to total revenue flow
are largely irrelevant. So, we also examined the revenue contribution of
hardware, service and supplies for both dedicated and multi-brand dealers.
Again, the numbers are nearly the same (Chart 2).
Weighing each gross margin category by its revenue contribution, we find
virtually no difference between the two groups (Chart 3).
Honing in on gross margins, we found the greatest difference between dedicated
and multi-brand dealers is in the supplies category. Even here, though, the
difference is barely significant. How can this be? Don’t dealers have to carry
multiple parts inventories? Isn’t service more expensive? Wouldn’t hardware
margins be less due to lower multi-unit discounts?
examine each of these arguments. Multi-brand dealers carry increased parts
inventories only when they are duplicating the entire product family for both
brands. Generally, that’s not the case. For example, a dealer may carry low-end
products from one vendor and production systems from another. Or a dealer may
carry monochrome systems from one company and color from another. Consequently,
there is little duplication when it comes to parts. Even with a single brand,
the parts required for low end products are completely different than those
required for production systems.
about service training? If the dealership is large enough to segment the service
force by brand, it costs no more to train a technician to service brand A than
it does for brand B—so much for that argument.
about margins? Our research shows that when a dealer carries more than one
brand, the primary brand, which produces the greatest percentage of hardware
revenue, accounts for 72 percent of activity. Yes, the second or third brand
“stole” 28 percent of hardware revenue, but that decrease is not enough to
lessen the impact of quantity discounts.
there does not appear to be a substantial difference in margins when we compare
single and multi-brand dealer strategies. Apparently, dealers have already
figured this out. Our most recent research indicates a significant shift toward
multi-branding strategies. In just one year, the percentage of dealers carrying
more than one brand has increased from 46.2 percent to 60.8 percent—an all time
high. Why the apparent sudden shift in strategies? We think that it’s in
response to vendor-driven changes in distribution.
Acquisition Trends: Our industry is currently going through a massive
consolidation on several fronts. In recent years, we’ve seen Ricoh Corporation
acquire Savin, Gestetner, Monroe, Lanier and, most recently, Hitachi (printing
systems). The result of these acquisitions is that, with the exception of
Hitachi, the remaining four brands consist of the same products. Even the covers
see the dynamic repeated with the merger of the Konica and Minolta brands. The
newly formed company decided to common brand their products. The brand, Konica
Minolta bizhub, has resulted in increased competition for each dealer within the
same geography. You will recall that, prior to the merger, many of the products
for the two companies were already the same. Konica was supplying production
solutions to Minolta, while Minolta was supplying low end and color products to
Konica. Yet, dealers were able to keep these separate in the minds of their
customers. Many dealers see the common branding strategy resulting in further
erosion of already thin margins.
Because of these acquisition trends, dealers are now faced with competition on
several fronts from other dealers or direct branches selling the same models.
Differentiation becomes more difficult, which causes erosion in margins. The
addition of a second brand becomes, for the dealer faced with this situation, a
defensive strategy in that it offers a way to set themselves apart from their
local competition. In these cases, multiple branding can actually increase
Direct Distribution: Technology aside, this may be the most significant trend in
our industry. Ricoh’s acquisitions, especially Lanier with its strong branch
network, have resulted in a network of direct, company-owned outlets that
account for more than half of the company’s total unit placements. The
combination of Konica and Minolta, each of whom brought their own branches to
the party, now boasts 78 branches covering virtually all of the major markets in
the U.S. Toshiba is actively acquiring dealers, making them virtual branches,
and Sharp is offering dealers financial partnerships in exchange for single line
representation. The list goes on throughout the industry.
Competing with other dealers selling the same brand is difficult at best. But,
at least in those cases, competing dealers can purchase product for equivalent
prices. In the case of competition with a company branch, pricing parity is
suspect in many cases. Dealers find themselves competing with their own
suppliers for larger accounts. In fact, one major vendor is said to have told
its dealers that its branches would always have favorable pricing for major
accounts and that the dealer just “should not go there.”
surprising then that when faced with this type of competition, dealers opt for
another brand as a way to gain an edge in the competitive arena? Often,
multi-branding is the only path to survival.
far, we have focused on the comparative profit margins for hardware, service and
supplies. We have not, though, considered the implications of multi-branding on
software support requirements. A relatively short time ago, most copier systems
were standalone devices.
unfortunately, is no longer the case. Our research indicates that more than half
of all digital imaging systems sold are now connected to a workstation or to the
LAN. This requires multiple layers of software, including, drivers, user
interfaces, controllers to communicate with the printer and, network
administrative tools to allow the IT staff to manage the peripherals.
these basic categories, we must add software to manage scanned files, support
Internet fax, support LAN fax, allow for authentication, enable LDAP (Light
Directory Access Protocol), generate cost accounting reports, and remote
communication for software upgrades, meter reads, error reporting, etc.
can see that the integrated system sale is infinitely more complex than that of
the standalone copier. What’s more, software issues increase the level of
required support exponentially.
this stage in the evolution of digital technology, vendors are struggling to
establish common controllers, drivers and user interfaces across their entire
product line. Some, such as Kyocera Mita, have succeeded. Most have not. Dealers
are struggling to support a full range of products from a single vendor—a range
that includes multiple iterations of software components. Service technicians
are under constant pressure to keep up with the latest round of revisions. Sales
representatives often scratch their collective heads in an attempt to explain
the relative benefits of one user interface over another. And, of course, user
training becomes a nightmare.
Imagine then, the complexity of that task spread across multiple brands. It’s
enough to keep your systems engineers awake at night.
like other things in life, multi-branding strategies present a trade-off.
impact on hardware margins
impact on service (break and fix) margins
impact on supply margins
Significant positive response to changes in vendor distribution strategies
Significant negative impact on overall support requirements
is no “one size fits all” answer to this dilemma. But now that you understand
“the rest of the story” you’re in a better position to formulate a strategy that
best fits your own, unique business model.