Log in

ISM Article

The Economy and Industry: What the Executives are Saying

9 Nov, 2004 By: Dick Norton imageSource

The Economy and Industry: What the Executives are Saying

In our look back over the last few years in the industry, it seems that the
economy has again succeeded in keeping us on our toes. Although the market never
technically went into a recession, which is defined by economists as two
successive quarters of negative growth, we managed to convince ourselves that we
are indeed in a sinking market.

For the past year, every quarter has brought us contradictory bits of
news—good real growth, marginal growth, jobless recovery, and now the prospect
of rising interest rates. This last event—the third increase in the prime rate
this year—prompted us to see if these economic conditions had caused any changes
in the approach to the market taken by manufacturers and dealers.

We recently had the opportunity to speak with Gary Barth, VP and general
manager of Canon’s Dealer Sales Division, Larry White, VP of Sales for Toshiba
America Business Solutions, Alan Nielsen, VP of sales for Ricoh Family Group,
and Ed McLaughlin, president of Sharp Document Solutions of America. They were
kind enough to spend some time with us and share their impressions of the
general and economic state of the industry today.

How’s Business?

Perhaps our sample was poorly constructed because all of the executives said
business is good—not extraordinary, but steady growth has occurred. Each company
is posting higher sales of equipment, service and supplies than a year ago. In
an overall flat market this would imply that some of the other companies may not
be doing as well in the growth department.

The executives we spoke with reported that there has been no discernible
impact on their businesses due to the economy. In all cases, these industry
leaders said that not only is business up in general, they felt quite optimistic
that the economy was moving slowly, but strongly forward. In fact, they are
counting on a steady upswing in the market.

Although each man was optimistic, they did say that the market is getting
tougher and they are “fighting like crazy” just to win business.

Finally, it was good to hear each of them talk about independent dealers;
they said business for dealers was up. In fact, Canon, which among these
companies has the least reliance on the independent dealer channel for sales
volume, said that the dealer channel was growing faster than any of their other

How Are You Coping with the Market?

Even though each executive said business was good, they also said that their
dealers are doing a number of things to cope with any slowdowns that may occur
and are preparing their businesses to compete more efficiently and effectively.
Some of the points they made are:

Many dealers are getting savvier about inventory
management. They are ordering online, cutting down their inventory investment
and effectively having the manufacturer carry the inventory for them. The
dealers are convinced that their customer relationships will not suffer as a
result of this reliance on the manufacturer and their inventory turns will
increase. One manufacturer actually helps his dealers manage inventory by
educating the dealer about the value of turns per year.

All the executives said that they see dealers
changing their approach to customers. The dealers need to sell deeper into the
organization. They need to understand hard copy asset deployment and be ready to
show a savings to a customer if the customer buys a MFP and replaces old copiers
and printers with one MFP.

All the executives said that dealers need to sell
more applications to their customers. There are a couple of benefits to this.
First, the rep gets to know the account better and is better able to develop a
proposal that will yield more “clicks” for the dealers. Second, the reps can
develop a much higher average revenue per transaction by adding solutions to the
hardware sale.

Interest Rates

One executive said that money is cheap right now and it would take more actions
by the feds to cause a substantial rise in lease rates. We’ve seen three raises
in the prime rate by the Federal Reserve in the past year. The executives we
spoke with said they didn’t think this would have a significant impact on their

However, some portion of the higher rates may not be able to be passed
through to the customer. One of the executives said that, in this mature market,
customers have a monthly payment price in mind for a certain class of machine
and they would push back on higher monthly lease prices. So, some of the
interest rate hikes can be passed along and the remainder would cause more
downward price pressure. Therefore, in a market characterized by falling prices
for the past decade, this interest rate change could add more fuel to the
pricing mix.


One of the executives strongly advocated the use of industry benchmarks to keep
dealerships running efficiently, citing BTA and CDA statistics. He said that a
very simple management tool is to review the various performance data and
financial ratios such as sales per rep, inventory turns and collection cycles,
pick where you under-perform in the industry and correct them.

It has been our experience that this simple management approach always bears
fruit. It was refreshing to hear an executive at a manufacturer advocate this
because there seems to be very little partnership between the manufacturers and
these trade associations. Of particular concern to one executive was the number
of employees at a dealership. He thought that dealers need to closely monitor SG&A
expenses so that they keep staffing levels at a point where they can make money
in times of declining hardware margins. In any event, advocating use of
benchmarking was about the best advice we heard from these conversations.

How About the Customer?

Let’s not forget the most important person in the market—the person with the
checkbook. We asked these executives if they’re noticing any changes in the
behavior of the customers. There were several interesting comments.

All of them said that customers are getting more
systems oriented, which has become a theme for customers and manufacturers. They
expect dealers to give them a fair price, install the equipment on their network
and show them how to be more productive by using the equipment. The customers
expect a more robust solution from the dealer and a commitment to work closely
with them throughout the life of the machine, which includes continuously
upgrading capabilities.

We’ve heard this around the industry for a while;
there is more involvement by IT management. It’s not a secret that IT managers
are becoming much more active in the purchase decision-making process. However,
it does reinforce that dealers must talk-the-talk with the IT manager if they
are to get the business.

A couple of the executives said that they’re
seeing a demand for longer lease terms. They said this seems to reflect a
combination of two conditions: customers are trying to keep their monthly
payments low, and they are confident that machines are more reliable today. This
last point may also signify future difficulties. Even though we are hearing more
talk about not being a box pusher, the sales conversation still often starts as
the machine reaches the end of a lease. If customers really start to demand much
longer leases, they may stretch out the replacement cycle so that selling rates
decline. This will be a phenomenon we will watch closely.

The Future

Due to the potential changes in the industry’s climate and potential for growth
in the software segment, the executives believe there is great opportunity for
the American business and for those that are smart enough to manage the future.

In summary, it was a bit of a surprise to us that we started our
conversations by asking questions about the economy, but the executives quickly
moved into a talk about systems. It says a lot about what will drive our
business and where profits will come from in the future.

The Executives’ Advice for Dealers

  1. Make your customer more dependent on you for all document management
  2. Be the total print provider for your customers.
  3. Specialize in vertical markets that are document and information
  4. Prepare for continued price pressure.
  5. Change your business to incorporate more systems capabilities and change
    the skills sets of your employees.
  6. Analyze your customers’ businesses and get to know them better so you
    can serve them better.
  7. Benchmark your business.

imageSource Magazine Quick Links
Upcoming Events
ITEX Expo & Conference
©2015 Questex, LLC. All rights reserved
Reproduction in whole or part is prohibited
Please send any technical comments or questions to our webmaster