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KIH #18 – Product vs. Marketing

  • Attending audio shows creates opportunities. Some of those involve sitting down for extended chats, perhaps over a quick lunch or an after-hours dinner. It’s during such times that a curious journo can learn things about the industry which go beyond raw product and deal with the way business is done.

    At the recent Warsaw Audio Show, I sat down with a number of newer manufacturers. The stories they shared weren’t really news per se—I’d come across their sort plenty of times before and dealt with them directly when I handled sales and marketing for three US-based hifi makers prior to my writing career—but they were a good reminder about what faces start-up/upstart joiners to the hifi game.


    A very common mistake many of them make and admit to is pricing. Few have any a priori grasp on all the layers of profit that must be built in to become attractive to dealers and distributors. If your entrenched competitors offer 40-point dealer margins, perhaps you need 50. If their importers get 25, perhaps yours should get 30-35 to overcome objections of making a name for a newcomer. If US- based rep firms get another 10, perhaps you ought to make it 12 just in case. If your competitors offer an additional 10 points for demonstrators and another 5 for volume discount, should you too? How will you deal with fluctuating currency exchange rates and value-added or luxury taxes which vary vastly from country to country? Have you even considered promotional costs yet?


    That all this margin padding shits in the face of most makers’ desire to offer the customer the best deal is obvious. That you can’t otherwise get to the customer unless you sell direct becomes equally obvious if more painfully so. If initial product has been reviewed already, your insufficient pricing has been published around the worldwide web. If you were way off, a common solution is to rush a MkII range or model where minor parts or bling upgrades become the excuse to move pricing up to what it should have been and build in the initially overlooked margins. That actually requires knowing your precise build costs. Most newbies don’t. Do you factor R&D time? How much is your time worth? How do you break down operational expenses and flow a percentage of telephone, heating, rent and such plus development costs into per-unit pricing?


    When you’re new and hungry, any credit card waved at you looks golden. Cash flow is king. That setting up the wrong importer or dealer can cost you dearly in the slightly longer run is something one learns the hard way. What are some of the possible liabilities?

    1. said importer never orders anything again. Until you figure that out, 9 months have passed.
    2. aside from having lost time in his market, you begin to realize that his competitors and yours don’t like him. What that means is that he isn’t readily replaced. Most serious alternatives don’t want to touch any brand which that chap handled because they don’t know what type of bad karma they’ll inherit. By signing the wrong guy, you’ve actually lost far more than just 9 months. You’ve shut down an entire market for a few years.
    3. your importer does place reorders but far fewer than you think his market warrants. That’s because, as you learn, he isn’t really an importer but a solitary dealer who grabs dealer + distributor margins. Because of that, nobody else is interested to sign on as his dealer. They could never compete against his store pricing which allows hefty discounts whilst still making the same profit as actual dealers would.
    4. your importer signed on to block you and protect his successful brands. He never intended to sell anything in the first place.

    Welcome to regional audiophile mafias who protect their interests. This extends to the dealer level as well. Say a dealer has made a name for a brand to become its regional destination and institution. For him it’s money in the bank. That brand today accounts for 35% of his annual turnover or more. He has worked for years, perhaps decades to build that up. He can’t afford to now jeopardize his golden goose and risk having the brand pulled because its owner polices in-store competition to play hard ball. It doesn’t matter that your product is better for less. Its mere existence conflicts with the status quo.

    Related to this is the obvious fact that good dealers and good distributors have cherry-picked through available brands and products. They already have what they want and can reasonably support. Adding a newcomer would often not be about adding but replacing. Why replace proven winners with unproven wannabes?


    When a newbie’s time comes to attend their first global trade show, having insufficient product margins kills all subsequent discussions. They might as well not have gone. But most make a lot more mistakes (though being new is far from a requirement here). Here are some common errors:

    1. work a joint exhibit to split attendance fees but end up with mismatched product and mismatched presenter personalities
    2. show barely finished virgin product that’s not broken in until the show is over
    3. play endless DJ to get no actual business done
    4. return home with nary a business card or hard contact in hand to have nothing to follow up with

    This gets us to the heart of the matter: lack of a good sales & marketing manager. Most newcomers to our sector are engineers and designers, whether accredited or self-taught doesn’t factor. Their focus is the product. If they acknowledge any need for marketing at all, they tend to do it themselves. That plain fact underlies many start-up issues. If it didn’t, startups would know that before any serious international action kicks in, they’ll have to stick it out 3-5 years whilst bootstrapping it. They’d know about margin structures. They’d know about the upfront building of data bases for dealers and distributors and press members; about sending out personal show invites. They’d know about what product features and cosmetics work and are required, which ones aren’t or don’t work.

    Knowing (or sensing) what one should do versus what one can do often hinges on money or rather, the lack thereof. Even so, it’s a truism writ in stone that the most successful product is the one with the most successful marketing, not the best performance. Designer types tend to wrestle with this endlessly and mostly without doing the needful about it. This includes the quality of their web presence, promotional materials and advertising. Some (cough) don’t even have English pages or anyone on staff who speaks or writes proper English without running through an online translator.


    When you’re new, it’s not just waved credit cards which look good. Reviewer interest sparkles too. Without knowing that lay of the land, pursuing the wrong interest can backfire or slow things down. Nobody can win in any game without first knowing its rules. Build it and they’ll come is serious tunnel vision. That’s back to engineering types making do without an equally strong marketing background. Doing one’s due diligence on every aspect of the game is mandatory to have a good chance at success.

    None of it exceeds common sense. Some of it requires money which newbies often don’t have. Now the chief bottle washer needs to wear a few more hats. Time, aptitude and experience tend to become selective about what task gets handled when if at all. It’s really better to have a dedicated marketing manager who calls out bullshit and makes demands from the resident circuit tweak relative to his area of expertise. As readers and consumer, if you’ve wondered why certain brands you read about aren’t locally available… now you might have a few more likely reasons…

    Further reading: Srajan Ebaen’s 6moons coverage of the 2014 Warsaw Audio Show

    Srajan Ebaen

    Written by Srajan Ebaen

    Srajan is the owner and publisher of 6moons. He used to play clarinet at the conservatory. Later he worked in audio retail, then marketing for three different hifi manufacturers. Writing about hifi and music came next, then launching his own mag. Today he lives with his wife Ivette and Nori and Chai the Bengal cats in a very small village on Ireland’s west coast, between the holy mountain Croagh Patrick and the Atlantic ocean of Clew Bay in County Mayo’s Westport area. Srajan derives his income from the ad revenues of 6moons but contributes to Darko.Audio pro bono.


    1. Interesting points. This is not exclusive to the audio business. As a former U.S. resident I get a fair number of inquiries on distribution into Australia. The first question I ask is how many widgets are you selling in the greater L.A. area now? And the standard answer is usually not that many, why? The next part is something that is frankly astounding because when I point out that their Los Angeles market is LARGER than all of Australia, they don’t initially believe it. Most small businesses do a pretty miserable job when it comes to understanding markets beyond their region or borders. Acquisition of solid sales and marketing is key. Hiring a ‘nice guy’ distributor is fraught with danger and frankly can be the demise of companies. In many cases it would nearly behoove these companies to deal direct if they can. Although certainly harder if one were selling 200 LBS of loudspeakers.

    2. Very good read Srajan. Very insightful. Isn’t it possible to have some industry folks give presentations at the audio shows in how to start a business? I am thinking of someone like Dan Clark and some more established names.

    3. Hello Srajan,
      There is a variation on #3 above which actually works in favour of many products. We import three brands into Canada – ATC, Audiodesk Systeme and Marten Design. We have consistently worked to offer our Canadian dealers these fine products at 10 to 20% less than if they were to work with the US importers of said products. Not because the US pricing is actually too high, but as we do other activities (we are retailers) we can reduce the profit we need when we import products to distribute in our market. By doing this, these products are more keenly priced than they would be which means more sales for these products. One of my frustrations is when an importer only has: a cell phone, a small storage space, no employees, and works from home, but demands certain high margins to run his business. Compare that to most retailers who pay high street rent, has 5 or 6 employees, 4 telephone lines, all the costs of running a store 6 days a week, – retailers absolutely need to make profit otherwise they are quickly out of business. By us doing both retail and importation/distribution while safeguarding our dealer’s territories, I think all can be successful – the manufacturer, the importer, the retailer, the end user.

    4. Bryan, yours is a lovely example on how to make things work better within the system. The type of ‘non’ importer you describe really doesn’t deserve the title. In many countries, an importer is expected to warehouse products for quick dispatch to his dealers; handle regional advertising and trade shows and reviews in his market’s press; organize warranty repairs; and provide dealer training, dealer product demonstrations and dealer maintenance. Inventorying takes cash flow, proper maintenance of a dealer network (which first has to be built) takes employees on the road whilst someone else must man the main office… it’s really a lot more than just placing onesy-twosy orders which a dealer can do himself just the samewhilst demanding distributor margins …

      Newcomers to the manufacturing side who end up signing with such ‘importers’ often run into serious issues of the type I hinted at. Your approach would seem to be more effective.

      • Hello Srajan,
        Also, to clarify, there are a number of spectacular distributors out there. Companies which provide excellent technical departments, large marketing departments, and huge inventory for dealers to draw upon. I was once at a Montreal importer’s warehouse who imports a variety of products in both hifi and musical instrument markets. They had two luthiers on staff to check every guitar and also to correct problems with guitars before they were shipped to the dealers – this kind of service is nothing short of fantastic. They also met with government officials to inspect electronics to ensure they passed the CSA safety rules – as most imported high end electronics do not. These kind of importers earn their income every day of the week. I am not criticizing their performance but rather the importer with a cell phone who usually does not answer calls or emails very rapidly. Just wanted to be clear!

    5. btw, there’s another business aspect I didn’t mention yet – financing. It’s something that killed many a deal for me when I was the traveling S&M guy with a van and speakers in its back. Many new companies must insist on COD. Big companies can extend 90-day terms. Really big companies can give dealers 1 to show, 1 to store inventories where nothing comes due until it sells. Many really big dealers use flooring companies just like car dealerships must who have millions of dollars on a lot. That means the manufacturer isn’t paid by the dealer but the flooring company (which obviously takes a percentage) and the dealer makes monthly payments to the flooring company.

      ‘Playing bank’ for dealers or distributors isn’t something most start-ups can afford. But when it comes to competing in the market place, what type of payment terms a maker can extend (versus what the competition offers), can often make the difference between a deal and a ‘no, thank you’ – which has nothing to do with product quality and all with financing.

      That happened to me a lot. “We like you and/or your product better blah blah blah, but…” – we had to do COD and that killed it. 90-day terms for a new company? We couldn’t. But our competitors could. Many were more outrageous still, particularly when it came to outfitting new dealers with store-filling orders…

    6. Wow. Interesting writing, great read. This is explains why companys that decide to sell direct (Emotiva comes to mind) one has a hard time finding a dealer that has something at least half decent to say about them. Makes you think.

      • Interesting point. I’ve always wondered, do you get better-for-less (more bang for the buck) from internet direct companies?

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