Specialty Retailers: Choose Your Brands Wisely

This week I had the privilege of speaking to independent bicycle dealers at Interbike. What a great experience.

Bicycle dealers are passionate about their businesses. They walk their talk. Their hobby is their job. Unfortunately, it appears that manufacturers take advantage of them. The problem is, many bicycle dealers love bikes more than they love business. Many don’t know what they should be doing. They don’t know how other industries work.

Don’t blame the manufacturers though.  They are getting product to the market at the lowest possible prices because the dealers don’t pressure them.

Here’s what’s great though. If a large portion of the bike dealer network started making decisions in their own business interest, manufacturers would quickly follow suit. Dealers should do their best to choose brands who:

1. Don’t compete with them on the Internet
2. Enforce MAP
3. Enable higher margins at higher prices

1. Manufacturers want to take advantage of the high expertise of the Independent Bike Dealers, but they also want to sell through mass merchants or on-line. These are conflicting desires. Nothing is more frustrating to a dealer than to spend a lot of time educating a customer and then having that customer leave and buy the item from Amazon at a lower price. The solution? Dealers shouldn’t carry brands who also sell through mass merchant channels. Several manufacturers are getting the hint and only sell through the independent bike dealers. They forego the rewards of mass merchants to help the independents succeed. Dealers, reward these brands with your business. Let them know why you chose them.

2. Many manufacturers set a Minimum Advertised Price (MAP) but then don’t enforce it. To be fair, enforcing MAP is very difficult. Sometimes there is excess inventory. There is often a gray market. Some large retailers refuse to sign MAP agreements, and the manufacturers still sell to them because they wield so much power. Regardless, dealers should reward those manufacturers who do the hard work of policing and enforcing MAP. Do you want to know whether a manufacturer enforces MAP? Simply go online and search for the best price for that brand. If you find it below market price, that manufacturer is probably not doing a good enough job.

3. One thing I learned that surprised me: manufacturers expect retailers to take lower margins when they sell higher priced products. This is ridiculous. The whole approach to good, better, best is that we take the lowest price, the lowest margin at “good” because those are the most price sensitive customers. However, customers who buy “best” are much less price sensitive. We should be making higher margins from these sales. I’ll bet that the manufacturers make higher margin selling “best”. (If they don’t they should talk to me.) How can they expect the retailers to make a lower margin on these high end products? The justification is “it takes just as much effort to sell a $3,000 bike as a $1,000 bike”. So what! That may be partially true (what about financial risk, inventory costs, potential returns, amount of service required to meet higher customer expectations, etc.) but it’s irrelevant. Price should be based on customers’ willingness to pay. When manufacturers set an MSRP so low the dealers have to take a lower margin, they are taking advantage of the dealer. Dealers, do yourselves a favor, try to find brands who don’t set MSRP. If they do, make sure they are sharing the upside with you.

Of course there are brands that you can’t live without. They break every one of these rules but you still need them. Thankfully that’s not true for every product category. Work hard to move as many product categories as possible to brands that follow these rules, at least rules 1 and 2. It’s in your best interest. You will make more money with less price competition. What’s really nice though, as more dealers select brands that follow these rules, more manufacturers will start following these rules.

Mark Stiving, Ph.D.

Photo by thezartorialist.com