Unmasking the Mystery of the Multi-Line Dealership21 Apr, 2004 By: Lou Slawetsky imageSource
Unmasking the Mystery of the Multi-Line Dealership
What a touchy
subject! Ask any vendor and they’ll tell you that multiple branding is the worst
thing you can do for building profits. Ask any number of dealers, and they’ll
tell you that multiple branding is the only way to go. So, what’s the answer?
The true consultant’s response is, “It depends.”
In order to make
sense out of this subject, let’s begin with a brief background. In the not too
distant past, say ten years ago, it was not uncommon for dealers to handle
three, four or more copier brands. The reasons for this were obvious at the
single vendor had a complete product line, so multiple branding was necessary to
round out the dealer’s offerings.
• A specific vendor had a “hot box” and dealers were anxious to cherry pick the
product line in order to fill in.
• Vendors opened competing locations within a dealer’s marketing area, causing
the dealer to take on a second (or third) brand as a defensive measure.
• The partnership between dealer and vendor deteriorated to the point where the
dealer felt compelled to take on additional brands as a defensive measure.
Of course, there were
other reasons that might have applied to specific dealers or geographies, but
the reasons above appear to have been the primary motivators. Our research at
the time indicated that fewer than 40 percent of dealers sold only one brand.
Furthermore, the average number of brands carried by multi-brand dealers
approached four per location.
This would not have
presented a problem to vendors if there existed an infinite supply of dealers.
But, alas, that’s not the case. Vendors quickly realized that they could
increase distribution only by capturing a greater share of the business
(preferably all of it) from each of their multi-brand dealers. Thus, a
“dedicated dealer” PR campaign was born. Vendors began to build strong messages
into their training, pricing and promotion programs including the following:
Vendors offered discounted pricing for sole line dealers including off-sheet
• Vendors reiterated that carrying multiple brands required a higher investment
in inventory due to the need to duplicate parts. While this sounds valid,
Industry Analysts’ findings indicate this to be only partially true. After all,
the parts required for high volume systems are not the same as those needed for
workgroup or desktop products, even if they are from the same vendor.
• Vendors also stressed the potentially higher cost of service training
resulting from a multiple brand strategy. Again, we did not find a direct
correlation between the cost of service training and the number of brands
carried. Few dealers use the same service technicians to work with the entire
product line. Specialization means separate training, regardless of brand.
• In an attempt to capture the hearts and minds of the sales reps, some vendors
implemented promotions targeted directly at the rep and completely bypassing the
dealer. These would include prizes, trips and, in many cases, direct
commissions. Since sales reps will follow compensation regardless of its source,
the net effect is that many dealers lost control over their placement
Some of these efforts
have had an impact. Industry Analysts’ latest research indicates that the
percentage of dealers selling more than one brand has dropped to 46 percent.
These dealers carry an average of 2.5 brands each. Overall, dealers carry an
average of 1.7 brands each.
So, what about the
profit picture? Are the vendors correct? Does it really cost you money (in terms
of profits) to carry more than one brand? Industry Analysts analyzed gross
margins for copier/MFP hardware, service and supplies in both multi-brand and
single line dealerships. Here’s what we found when we compared the gross margin
data from both groups.
Guess what? We found
no significant differences in gross margins for hardware, service or supplies.
So, multiple branding would appear to be the correct strategic decision, right?
Once again, “it depends.”
Here are a few good reasons to consider carrying multiple brands of copiers/MFPs.
1. The “All Your Eggs
In One Basket” Syndrome—Dealers are reluctant to forgo the options represented
by multiple branding. They view this strategy as a hedge against:
Gaps in the product line of a sole vendor. It’s hard to believe, based upon the
rate in new product launches, but product gaps still remain, as manufacturers
leapfrog one another in terms of their technological progress.
• Software evolution. Software developers typically play leapfrog. Many dealers
feel that in order to remain competitive they need more than one source to
remain on the leading edge.
2. Combat Multiple
Locations—This is a competitive response to expanding vendor distribution within
the same territory. With most vendors expanding distribution by adding dealers
and/or direct branches (or subsidiaries), those dealers impacted respond by
offering customers the alternative of another brand. It’s a simple way to
3. Respond To Direct
DistributionBranches or subsidiaries represent a unique problem for dealers.
Often, these locations are able to offer special pricing not normally available
to the independent dealer. Countering with another brand rather than attempting
to compete solely on the basis of price may be the best way to go.
4. Federal, State and
Local Requests For Proposals—RFPs may call for specification requirements such
as speed range, paper supply or drivers that dealers cannot meet with their
primary brands. In addition, some contract prices, negotiated by the vendor may
be more competitive than those offered by the dealer’s primary brand.
5. National Account
Contracts—A vendor may have negotiated a national contract where the local
dealer is eligible to receive “ship outs” for local installation. This, alone,
could be justification for adding a brand.
For a balanced look at the multiple brand issue, here are some considerations on
the other side of the issue.
Inventory—How many times have you been “stuck” with an inventory of models that
have been discontinued? True, you can discount the price in order to unload the
inventory, but your already slim margins disappear. Now, consider what happens
if you’re dealing with more than one brand and both vendors discontinue products
at the same time.
Accessories—It’s almost impossible to balance accessories (along with all the
hardware needed to connect them) and mainframes so that you deplete inventory of
both at the same time. Ever been left with finishers and no mainframes? Multiple
branding increases this problem exponentially.
3. Inventory Cost—Be
prepared to carry more inventory for two brands than you would with only one.
Even two or three units in each speed range can add considerably to your cost.
4. Credit Line—Will
you be able to support two separate lines of credit? Some dealers feel that they
can balance one line against the other, switching when one is maxed out. We feel
that’s a dangerous financial strategy.
5. Direct Sales Rep
Compensation—This one’s not as obvious as the others. Many vendors run sales
contests targeted directly at sales representatives. Some even give your reps
commissions based on unit sales as an extra “spiff.” An indirect impact of these
programs is that you may lose control of your sales force in multiple branding
situations. When they are compensated directly, they’ll sell what they want.
And, they want the sale that makes them the most money. That might not be
consistent with your overall strategy for balancing each of your multiple
two brands doesn’t mean you sell twice as much. Splitting your business between
two or more vendors means you qualify for fewer promotional rewards.
vendors offer lower price schedules for single line dealers. You’ll risk losing
that discount when adding a second (or third) brand. Even without those
specials, you may not be able to purchase at sufficient levels to qualify for
quantity discounts to build your margins.
8. Software—In our
estimation, this is the major problem with multiple branding strategies. It’s
hard enough training your sales and service forces to sell and support a single
imaging platform. Multiple platforms are almost impossible to support, given
constant operating system and driver upgrades. Add to this an ever-changing cast
of alliances with scanning, document storage and image management partners and
your multiple brand strategy becomes almost impossible to manage.
So, is multiple
branding the right strategy for you? The choice is yours, but whatever strategy
you choose, make the decision with a full understanding of all the variables and
the impact of each. In other words, make a sound business decision—not an
emotional response to a single vendor action.