Let's see what the FTC has to say about vertical price restraints in the biz.

[Genesis]

I have no problem whatsoever with a retailer or other vendor charging whatever they want to charge. Their margin is their business.

It is only when those retailers collude with manufacturers and distributors to control the pricing of the product by attempting to prevent others from competing with them on price, thereby denying me as a consumer the right to decide whether their mark-up is justified or not (by voting with my wallet), a practice that is a per-se violation of the law, that I object.

It is only when those retailers further collude with manufacturers in an attempt to make those who DO manage to "go around" these blocks "sorry" by refusing warranty service or even refusing to work on the product at all, or by attempting to restrict access to service parts and manuals for the explicit purpose of attemping to destroy the value of such "unauthorized" product sales, all of which is ALSO illegal, that I object.

Oh, by the way, before you take a cheap shot at me because I "used to own" a business, you might consider that I'm retired and 39. It seems that I didn't do oh-so-badly with that business, does it not?

I fully understand a "labor of love"; I did it myself from time to time. But to whine and cry that such justifies unlawful price restraint is an outrage. During those times that I engaged in such, I did so because (1) I liked it, and (2) I foresaw my efforts paying off in the future - it was an investment, and like all investments, had an element of risk.

Never once did I conspire with a manufacturer, distributor or other retailer in an attempt to control pricing in the marketplace. On the contrary - I took on manufacturers and distributors frequently, came very close to actually suing a couple of them (with all the attendant legal costs entailed in preparing to file said suit), and was engaged in a business with over 100 competitors in my local market in a cut-throat attempt to win by providing a superior product and service at a lower price to the customer.

Mike's complaint is similar to a bank (or liquor store) robber arguing that he shouldn't go to jail because he has six kids to feed, so he had to break the law to obtain food for his children.

 

[Scuba]

I think we can mostly agree that the advantage the small, local LDS has over the large retailers (whether internet or chain store) is in personal, one to one contact, location advantages - and service.

When you provide a service, it is rewarded to some extent. Whether sufficiently to make a profit or not depends on many specific variables. It is up to a business to come up with a profitable formula.

Having said this. MIke, I seem to get from your posts that you expect or demand of the person walking in through your door that they be the ones that provide you with a service.

You complain that you can't provide the free service of a loaner or warranty for a product which you promote yourself as an authorized dealer for, because they did not buy the equipment from you with the hidden bundled services in it. I don't hear you complain about the person who bought this bundled package and never came back to use the rest of the services he paid for. As long as you recieve first its ok, its only when you give first when its a problem. I know some of that goes to subsidize air fills cause you don't turn those away - yet, from customers who did'nt buy from you.

Service, service. Who is servicing who'm.

When I walk into a shop for the first time, and I am treated well, they fulfill my reasonable expectations. That an authorized dealer takes care of warranty problems is reasonable in my book. Now if you even give me a loaner while my gear is being repaired. Well, you just possibly exceeded my expectations. And you know what, you earned my trust. Why, because I know that when I walk through that door I am going to be taken care of. I know that you are looking out for my interests - not just looking for ways to seperate me from my money. So next time I want to buy something, unless the price difference is just outrageous. ( I can buy two or close to it for the price of one ) where do you think I am going to go. To the place where I don't know how I'll be treated. To the place where I know their going to give me a hassle about everything; or to my friend Mike who'm I trust to look out for my interests and is going to take care of me.

Sure it costs money to work on warranty repairs, or mailing it to manufacturer, also for providing a loaner. This is one side of the equation cost of providing service. What type and how much of a reward do you receive from this service, is the other side of the equation. Penny wise, dollar foolish?

I used to be in a business where you take a chance on people by providing a service without assurance of compensation. And no I did'nt get out of it because it was'nt profitable. Sure there are users and abusers out there who will cost you. There is a cost to doing business. The more service you provide the higher the possible reward.

You say you can't make it by selling gear now that the competition has found a way to unbundle the service subsidy hidden in the gear. How about concentrating on service. Taking a chance on service - by providing it, instead of demanding it.

 

[MikeFerrara]

Genesis,

I never needed a tax shelter. We are not a corporation and the shop added $3000 to my W2 so it was a little better than break even. We opened up three1/2 years ago with the hopes of making some money. Not happening. Why would I lie to you, you are not important enough.

 

[MikeFerrara]

Scuba,
I'm not complaining about anything only trying to explai the economics. I do not owe anyont the free use of a reg. I provide this service when I think it makes sense. If I don't make a sale or the markup is too low it doesn't justify the expense. We don't conspire with the manufacturer. I see what you are saying about being on the receiving end of a service but the don't buy and never show up to claim the service. What happens is they show up to claim the service but never buy. That is the way it works for real. When it comes time to buy they forget all the services that they have recieved. All I'm saying is that as margin drops our ability to provide services also drop because the services cost money but don't bring any in.

 

[Aquamaniac]

Id have to disagree with you on a few points Genisis, not all but a few.
My job role is an executive manager for a corperation involved in BOOT operations, (build,own, operate, transfer).

As a result I have been intimatly involved in the start up of a few companies, here and offshore.

With the exception of 1 business, all of them ran at a loss for the first 2-4 years. One of them still does after 5 years.
Im not talking small losses, substantial losses. All of these businesses are heavily leveraged, just because thats the way we do it, yet the banks still lend us money.!
Why, because after the start up period and initial "customer building" years, we do turn a profit, enough to cover the losses and a bit!
This is not uncommon in business, you of all people should know that.
So to say Mike is lying is a bit harsh, many businesses run at a loss, why cant Mikes?.
I only hope that soon he can turn it around, and either sell it for a big profit (obviously not an EBIT sale ) or get better margins.

Well thats my rant for the day.

Dave.

 

[Genesis]

Mike, let me relate a bit to you about my biz experience...

You've been at this for 3-1/2 years. You're new at the game. That's ok, I was too a long time ago, and it took me a long time to find a niche that ended up making me a lot of money.

I had many years when, after all was said and done, I wondered why we were doing it. Part of the time I was the only salary-drawing employee, and wondered if I'd be able to make the rent for my apartment. Eventually, I found a niche that was just beginning to go somewhere, sold the concept to a couple of others, dug into my own personal reserves, placed the biggest bet of my life - and it turned out to be a good one.

Its all about figuring out the mix of product and service sales that makes it work. There are some lines of work that simply don't work out on the numbers, no matter what you do, but surprisingly, those lines of work are few (you wouldn't know it from the business failure rate - 90% within 5 years.)

Most of those who fail do so because they have no idea of how to control cost or don't develop a service and product mix that delivers more value than cost to the customer. They die not because the business can't be run profitably, but because they failed to develop a plan that didn't make unreasonable assumptions and kept trying to protect margins instead of enhancing value.

What I do know from 20 years of doing "it" is that attempting to restrain competition or protect margins in any way, shape or form is a lost cause. You will lose because not every other competitor will play by your rules, and it only takes one who refuses to ruin you.

You will only drive away customers who figure out what you're up to, they will never return to darken your door (and those who collude with you) again, and they will tell 10 of their friends. Eventually enough people will figure it out that you'll not have enough new customers left to keep you alive, unless you live in a very-heavily-tourist-dominated area. (Then you might get away with it - maybe.)

You say you can't compete with the LPs on price. So what? You can compete with them in other areas, and paying a bit more isn't necessarily going to kill the deal for a lot of people, particularly if you think it through and provide VALUE instead of trying to protect margins through underhanded actions.

You can show me that you care about me as a customer more than you care about the manufacurers. How? By working to get rid of the protectionism and encouraging competition - then distinguishing yourself from your competitors so I have a reason to patronize you rather than Joe down the street, or LP on the net. You can band together with other dive shops to insist that labor be reimbursed for warranty repairs, and to obtain open access to specs, parts and tools, so you can service what I bring in - no matter where I got it - at a competitive (and hopefully, profitable to you) price. Manufacturers without dealers go out of business too - you can, along with others, exert this pressure - if you choose to. You can sell at a price that makes you a profit, tempered with the knowledge that Joe down the street may undercut you if you get ambitious about your margins - but you can also go after Joe's customers in the same way.

In the middle somewhere there is a balance, and you need to find it rather than protecting a lopsided system that appears to serve you only when look at through myopic eyes - in the end, protectionism which is imperfect (and it is, the LPs of the world prove it) will drive you out of business for certain.

Virtually all of the local camera shops were done in by exactly the same thing. I used to be a pretty serious amateur photographer as well, with my own color darkroom. Another expensive hobby. I watched ALL of the local photo stores go under, one by one, trying to protect pricing at "retail" levels exactly the same way the LDSs are trying to do it today. The NY mail order places buried every single one of these places, some more slowly than others, but virtually all of them are gone. All that's left are the Ritz cameras of the world, and guess what - prices on a decent camera and related services have come WAY down.

So long as you attack the "problem" of the online sellers by refusing me warranty service and attempting to treat as trash anything bought outside of your "club" of dealers, you will find that customers have no trust in you, and an ever-increasing number will thumb their noses at your shop. Why shouldn't they? You're looking out for your vendors rather than them! Its exactly backwards - the vendors don't keep your doors open, your customers do.

When I can buy TWO regulators from LP for the cost of one from the local shop, of identical make and model, you've got a hard time telling me how awful they are. I can buy two, have one break, send it in for service, and still have one to use! The rest of the time I have another one for a visiting diver - now you lose TWICE, because you not only lost my business but you ALSO lost a rental to my friend who's in town for a week and wants to go diving with me!

 

[MikeFerrara]

It's not a hobby business. My wife is in the shop full time and the goal is to eventually be there full time myself. For now working a job is a matter of survival. If I ne what I know now three years ago we wouldn't be here but it's too late to worry about that.

 

[redacted]

Genesis once bubbled...
let me relate a bit to you about my biz experience...

As a customer, I never clearly realized exactly what happened to me and my relationships with LDSs until I digested this post. Unfortunately, because I perceive the same basic business plan in ALL LDSs, I go in with my guard up and my objective very limited. I've focused much of my $$$ and effort at minimizing my dependence on LDSs.

Thanks

 

[MikeFerrara]

We don't refuse warrenty. The brands that have a big online presence we are unable to carry, therefore we are not authorized to service them and do not have access to manuals or parts. I can't service SP or Aqualung either because I can't afford to buy the dealership. We are having trouble building up the services because being able to service the big brands is tied to your ability to sell large volumes of it. It may be illegal and it certainly, IMO, is wrong. The SP dealer down the street is not going to help me become able to service SP regs because he baught the ability and doesn't want me to have it and become his SP competition. Service is a way for the manufacturer to keep divers going to the shops who have their stuff on the wall. Aqualung does not want a Aqualung reg owner hanging out in my shop looking at my Zeagle and Halcyon stuff. That, IMO, is the reason for all the "authorized dealer" BS. For my part a reg is a reg. They only want dealers to do service. We didn't invent the system we just try to function in it. We don't work with the manufacturer to protect margins. The selling price is determined by our cost and overhead.

 

[Scuba]

MIke,

I hope you read my last post and Genesis last post again, not from the perpective of trying to defend your argument, but as a possible way of doing something.

When you say:

I do not owe anyont the free use of a reg. I provide this service when I think it makes sense.

It tells me you are asking for service instead of providing it. You want to be serviced first before you provide the service that will bring in customers. There's a certain contradiction here.

You say:

What happens is they show up to claim the service but never buy. That is the way it works for real. When it comes time to buy they forget all the services that they have recieved.

If your asking them to compensate you for your service by spending twice as much as at the competition. Then you are right. But what if instead they saw an appealing price, they already know you are going to provide them with a service that the competition may not provide. Do you see how the results may be different. So you make a little less margin, but the customer returns again and again, in addition to recommending you to his friends who also want good service and price. In the end the loss of margin can be made up by increased sales.

Don't forget that a business is there to provide a service. Whether its gear, air fills, advise. whatever. Thats why people walk through that door. Not because they came to service you.