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Let me start this post with my conclusion. The channel is shrinking. Enterprises are buying less, prices are dropping, models are changing. There will be fewer dealers tomorrow than there are today. There is still plenty of channel opportunity, in fact huge. Just not as huge as it once was. When the system works right, the manufacturer and the channel are perfectly aligned. Like Yin and Yang, the businesses are interconnected and interdependent toward common goals. Both are interested in winning sales, beating common competitors, and earning satisfied customers. Both parts of this equation need the other. But sometimes this relationship gets out of alignment or lopsided. The conversation becomes antagonistic. Each side blames the other for not doing enough. Both sides have options: dealers can switch brands, and vendors can recruit new dealers or sell direct. Putting contract terms and conditions aside, do vendors have an obligation to their dealers? Obviously, vendors want their dealers to be successful. Treating dealers with respect is key to a long term relationship. But it isn’t clear that the channel, along with its current distribution and reseller model is needed in the long term. Make no mistake about this, vendor motivations are of self interest, they have as much loyalty and obligation to their channel partners as the airlines did to travel agents. To further explore this, let’s change industries. Let’s talk about BBQ. One well-regarded manufacturer of BBQ equipment is Traeger Grills. It’s a premium brand that only recently expanded nationally. Traeger products are sold through a network of specialty well-trained dealers that understand the nuances of slow cooking with wood. In addition to the core equipment, Traeger also offers consumables such as wood pellets and spices. There is an online store, but products are not available in states with strong dealer coverage.Over the past few years, Traeger discovered the Costco roadshow format. Even though Costco may get grouped as a big box discounter, the roadshow formats are actually high-touch. Costco roadshows feature items normally unavailable in the store for a 7-10 day period. Roadshows are no longer advertised in advance. A dedicated representative performs demonstrations and answers all questions. That’s typically one full-time person for a handful of products. Traeger’s Lil’ Tex Elite model at Costco sells for $669. The same model has a suggested retail price of $799 online and in their stores. Evidently, the Costco format is working, reportedly Traeger has increased its roadshow frequency to three a year in most stores. The shows feature the wood chips necessary to fuel the grills, and customers are directed to their local Traeger dealer for pellets and supplies after the roadshow. The price point and retail distribution opens the brand to many people otherwise unfamiliar with the products. Customers get Costco’s easy return policy, and an additional rebate if they use their Costco/AMEX card. Dealers get a larger base that need wood chips, and may even upgrade to larger models. Clearly, everyone wins. Or, is there a problem? Some Traeger dealers are calling foul. Here are some quotes from an online discussion board:
I do almost as much business with Traeger as the 20+ other dealer in the area combined. I have combated the Roadshows with predatory pricing (I will beat any provable price), exceptional service (I make house calls for free) & customer loyalty. Unfortunately this is with a reduction in profits from Traeger products of over 60%. Traeger products used to account for 70% of my business. My Shoppe is a family business. We have no other income.the fact that Traeger misleads their dealers and oversteps their promises on their road shows, totally disregards dealer respect for the guys trying to promote the brand, undermines their margin, does not purchase through distribution and does nothing to make up for the loss of margin for any dealer trying to match the Costco pricing to compete with them. The only way a dealer can compete is to eat their margin, advertise well in advance of the road show, take a hit on their bottom line and hope a sheer volume number offsets the loss. . Nothing like pushing the dealers as far as they can go...absolutely short sighted strategy they are pulling. Sure they make a million a month extra doing this, but they are going to kill their channel, big time.
I do almost as much business with Traeger as the 20+ other dealer in the area combined. I have combated the Roadshows with predatory pricing (I will beat any provable price), exceptional service (I make house calls for free) & customer loyalty. Unfortunately this is with a reduction in profits from Traeger products of over 60%. Traeger products used to account for 70% of my business. My Shoppe is a family business. We have no other income.
the fact that Traeger misleads their dealers and oversteps their promises on their road shows, totally disregards dealer respect for the guys trying to promote the brand, undermines their margin, does not purchase through distribution and does nothing to make up for the loss of margin for any dealer trying to match the Costco pricing to compete with them. The only way a dealer can compete is to eat their margin, advertise well in advance of the road show, take a hit on their bottom line and hope a sheer volume number offsets the loss. .
Nothing like pushing the dealers as far as they can go...absolutely short sighted strategy they are pulling. Sure they make a million a month extra doing this, but they are going to kill their channel, big time.
It is unfortunate. These dealers have worked hard to build the Traeger brand, and probably made major commitments to Traeger in terms of training, showroom models, and advertising. Now, they are being pushed aside. I don’t know about Traeger’s promises, commitments, or contracts - but from the outside this appears to be a familiar story. Local bookstores got pushed by big boxes which got pushed by Amazon. Apple dealers found an Apple store down the street. Local schools are competing against national websites. It’s becoming hard to find a stable business model. I can guess Traeger’s point of view. They wanted to increase distribution. Their brand isn’t well known, and the products benefit from live demonstrations. With tough economic times we aren’t seeing a lot crowds in speciality outdoor/appliance boutique stores. The reps they get to work the roadshows are commission only. The margins are thin, but the risk is low and they are moving a lot of product. Traeger management probably feels really bad about those dealers - all the way to the bank. I just bought a Traeger grill at Costco (happy Father’s Day). I had never considered one beforehand, but they look very nice. The in-store rep was highly knowledgeable, and even offered up a better than advertised deal. He showed me a list of all the local dealers for supplies. Conveniently there’s one between Costco and my home. The rules of distribution are changing quickly. At the recent UC Summit, I presented the new rules of sales which included a much stronger emphasis on good value. Most of us know little about the price of smoker grills, but the website and dealer network provide the arbitrary coherence to confirm the good value. Warning: Past sales performance and business models are not indicative of the future. Vendors do need their channels to be successful, but they are also obligated to explore other options. Traeger’s first obligation is to its owners, which means driving sales. This includes the need to explore new channels. This approach with Costco may indeed cause irreversible damage to its existing dealer network, but that appears to be collateral damage. Ironically, Costco works under a similar set of rules. After selling so many wood chip fueled grills, it has started selling a third-party brand of wood chips - far less expensive than Traeger’s and likely more convenient for its customers. Traeger is one more example of how the traditional value-added channel is shrinking. Now, back to telecom. Telephones and most UC products/software are predominantly sold offline through dealer networks. Now, after over 10 years, it seems that SIP is actually becoming an interoperable standard. Most UC vendors now offer SIP-compliant phones, but primarily only to their customers via their dealers. Meanwhile Polycom, Snom, Aastra, and some Cisco phones are readily available for online purchasing, and penetrating accounts that their dealers don’t reach. It can’t be much longer until companies such as Avaya, NEC, Mitel, and Siemens Enterprise Communications move toward open distribution for at least their endpoints. All of these companies stress “open” as a key part of their solution - which may indeed mean interoperable endpoints. Higher volumes lead to lower costs, and online distribution means lower prices. Moving products to open distribution, along with the reduction of revenue associated with MACs, circuit commissions, and maintenance contracts will all contribute to a shrinking channel. There will no doubt be fewer voice/UC VARs tomorrow than there are today. The channel will continue to play a critical and important role. There is plenty of money to be made, in fact open interoperable systems will create new kinds of value-add opportunities. But overall, the channel is shrinking. The vendors are preparing for this and changing their dealer policies such as geographic restrictions and exclusivity programs. It could be a good time to exit, or flip that and it could be a good time to acquire. It could also be a great time to specialize in skills or verticals. Regardless, it is a good time to BBQ. Dave Michels is a UCStrategies Expert and independent analyst at TalkingPointz.com.
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