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Is ‘Irrational Group Behavior’ Killing the Industry?

Larry Pexton of Triad Speakers says 'irrational group behavior' in pricing hurts the custom channel, dubbing it 'a mutual circular firing squad' and challenging integrators to improve their sales, business and listening skills.


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“Margins - outside of speakers and headphones - have been compressed to near zero,” says Larry Pexton. “I don’t know where the [flat panel] displays of the future are going to come from.”

“It’s not clear how this can end happily,” Larry Pexton, president of Triad Speakers, says bluntly when he talks about the continually decreasing pricing models, the growing lack of sales and audio listening skills by integrators, and the lack of business acumen in the integrator channel.

Indeed, in reference to lowering margins, Pexton dubs the current situation as “a mutual circular firing squad” and cites “irrational group behavior” by video manufacturers. In an interview with CE Pro, he also openly challenges custom installers (and CEDIA) to improve their selling skills and business acumen.

When Pexton speaks about these issues, it is from a position of authority. For the past 30 years, his company has been synonymous with the custom channel, opting to only sell through dealers.

“From 1990 on, you cannot separate Triad’s success from CEDIA’s success. Our growth rate and CEDIA’s growth rate are almost identical … right up to the peak year at Expo being 2007 and our peak sales year being 2007,” says Pexton. “Then the recession happened and CEDIA got a bit smaller and we got smaller, and life got harder. But I am happy to report that we’re now back into year-over-year growth and consistent profitability. So we are looking forward to keeping at it for a long time.”

Declining Margins
Even with that diehard devotion, Pexton is openly challenging the industry. For example, he notes that distribution pressures are not new to the industry.

“There have always been big-box retailers, over-distributed product and disruptive forces in the pricing universe. It used to [be] mail-order houses and stereo discounters. The specialty guys have always had to figure out how to differentiate. I don’t think that problem has changed, but the democratization of information on the Internet has certainly accelerated margin reduction. That is the really profound problem that we haven’t figured out the answer to,” he says.

“Margins — outside of speakers and headphones — have been compressed to near zero. I don’t know where the [flat panel] displays of the future are going to come from, because every manufacturer in the display business is losing money. It’s a mutual circular firing squad.”

He adds, “It’s almost getting absurd how video manufacturers will over-produce their products and miss their forecasts and cut prices so they don’t lose marketshare. It’s completely irrational group behavior and gives consumers the expectation that everything will get cheaper forever, while removing the value equation from the distribution chain. It’s not clear how this can end happily.”

Industry Needs to Shun Compressed Digital Audio
Pexton also sees failings in the way the audio component industry has allowed the music industry to dictate the quality.

“The amount of entertainment software that is available now and the ease to which it is available dwarfs anything that was imaginable 30 years ago,” he says. “The quality of the playback has improved dramatically and consistently over time, but the music business has gone in a direction that has not taken advantage of it. Most of what’s out there on MP3 files is made with the same mindset that people used to have who put music out on AM radio … they want the track as loud as possible, which means it tends to be compressed and dull. And that’s a real concern. There is a little bit of a movement fighting that, but there is an awful lot of performance capability that simply isn’t being used or experienced by most of the world.”

Dealer Education Lacking
Meanwhile, Pexton cites his “greatest frustration” as the lack of education among integrators.

“The early generation of CEDIA was founded by a bunch of folks who grew up selling hi-fi,” he recalls. “They brought basic listening skills and selling skills that served them well if they got the necessary technical skills. A lot of the people coming in today don’t have that background. They don’t even have the basics of understanding speakers and acoustics. They may have the ability to sell systems, but they don’t necessarily have the skill set to install them in a way that gets everything they should out of them.”

“Where are the bright, young, up-and-coming manufacturers’ reps who will offer the right kind of education?” he asks rhetorically. “There is not a big hunk of them. So we’re not offering the right career path to people in the industry which will make this training model work. That points back to how important it is what CEDIA does in terms of training, such as making it available online.”

He continues, “Lack of business skills has been an ongoing issue forever. I would never characterize the CEDIA community as being filled with brilliant business minds. There are a few dozen guys who know what they are doing and run tight businesses. The industry is mostly intuitive folks who figure out how to share their excitement with clients and make it up as they go. If they survive long enough they kind of learn that they have to do better planning. Business management is still a weak point.”

Is Pexton right?





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Article Topics

News · Audio · Speakers · All topics

About the Author

Jason Knott, Editor, CE Pro
Jason has covered low-voltage electronics as an editor since 1990. He joined EH Publishing in 2000, and before that served as publisher and editor of Security Sales, a leading magazine for the security industry. He served as chairman of the Security Industry Association’s Education Committee from 2000-2004 and sat on the board of that association from 1998-2002. He is also a former board member of the Alarm Industry Research and Educational Foundation. He is currently a member of the CEDIA Education Action Team for Electronic Systems Business. Jason graduated from the University of Southern California.

6 Comments (displayed in order by date/time)

Posted by Paul Collins  on  11/27  at  01:01 PM

I concur Larry. It’s increasingly difficult to attract dealers to local education events. 

Fortunately we know the dealers who regularly attend, and they receive the highest level of service from Paul Collins Group and our vendors.

Reps are literally a dying breed.  Commission rates have been reduced to a point it is nearly economically unfeasable to attract younger, talented sales reps.  Commission rates are trending lower, against rising costs of business.

The majority of industry rep contracts are terminable ( with or without cause ) with only 30 days notice. 

Most manufacturers that predominantly sell to the CEDIA channel can not financially afford a effective direct sales force.

Independent reps serve both dealer and manufacturer.  Perhaps forming a national council of reps and manufacturers to develop a plan to prosperity is in order.

Posted by bobrapoport  on  11/27  at  01:59 PM

There has never been a better time to be a true audiophile/videophile than now.  On Sat nite, I played the new Blu-ray music concert Led Zeppelin’s reunion show in London 2007. At native 1080p on a 111” diag screen, with DTS MasterHD audio, bit-for-bit identical version of the studio master recording capable of 120 dB dynamic range, I experienced the best rock concert in history in a way that exceeded the live event.  I was on stage with them, I could see their eyes when they met, they knew that they were nailing it, in full flight, defiant, majestic, holy, it was EPIC.  Listen to Kashmir, http://www.youtube.com/watch?v=PD-MdiUm1_Y

There is ample reason to be excited by this trend; SADE Live, Adele, Peter Gabriel, Madonna, Stevie Wonder, Sting,
and many more bring the live experience home for the first time in history. 

Going digital with no compression should be a no-brainer, yet many people hardly know it exists.  We finally find the Holy Grail and nobody cares.  Shame on the industry for not making more people aware of this, doing demos celebrating the highest fidelity ever. 

In the end, its up to the vendors to pre-sell their products and force them through a small bottleneck of dealers who know how to sell.  Demand is still required for 80% of what gets sold today.  Just ask Best Buy or Amazon, they dont sell it, they just clerk it.

Posted by Joseph Tonco  on  11/27  at  09:17 PM

When Triad learns to not make their line the most confusing line in the entire industry with 50 different models of bronze mini, bronze micro mini, bronze in-celing monitor etc. ad nauseum…when they learn about these things called SKU’s that make it easy for dealers to order the right product, that just about every other manufacturer figured out 10 years ago….then I’ll concern myself with what the president has to say.

Posted by Rob  on  11/28  at  07:45 AM

Time.

The dealers nor the consumers have the time or maybe have the desire to invest the time. Consumers are all about good enough, it’s better than it was, I don’t have/need to invest a lot to get something great, I don’t need extraordinary.

Vendors need to understand NOT to schedule training during business hours. We’re busy. We’ve tighten our workforce. We’re doing the installs too. Don’t schedule a freakin webinar in the middle of the day, I’m not coming!

Send me your literature, make videos available on line or better yet downloadable or email so I can view them on my tablet on the couch at home. Cut the junk out of your email, seriously don’t need the same header in every email that takes the first 1/2 page, you know what, I won’t bother to scroll past it.

If you’re a vendor or a dealer, get to the point, be concise, I don’t have the time to invest cause you’re not marketing properly.

You want an example of who’s doing it right, look at snap. Info when I need it.

Posted by Richard Fairbrother  on  11/28  at  12:13 PM

Larry is right in the sense that fewer and fewer dealers take time out to invest in training and sales skills.  Look at the decline in attendance for CEDIA training.  Many dealers don’t have the time or the resources to invest.  That shouldn’t be an excuse, but it’s a reality.

In addition to being on the road and making relationships with our dealers, our Rep Firm uses line card shows to promote training and our lines which has been successful and popular but at great cost.  But therein lies the rub. 

What makes us valuable to our manufacturers is our ability to compress their products, value in the marketplace and company story into a concise story, while painting a picture of value and positioning in our marketplace.  We are, in essence, their commercials.

In terms of sales training, the same is true but with one great distinction.  No Rep has ever been successful by walking into a dealer and declaring they need training and we’re here to give it.  We have to be asked.  We have to be trusted and we have to prove we’re in it for the dealer, while juggling our needs and the expectations of the manufacturers themselves.  It can take 6-12 months to establish a rapport and decent relationship as a new Rep.

We may be a dying breed, Paul, but I truly believe we serve a giant purpose. Reps can help identify trends and successful business practices among hundreds of dealers in a territory and pass on that knowledge.  We are often the experts, helping consult on sales calls and configurations.  And we take on problem after problem finding the correct solution for a win-win-win scenario.  Lastly we can help dealers find their customers, not the ones who window shop then buy on Amazon, but ones who want the real experience that our industry has to offer. 

We often tell our dealers to be the brand.  And those that are most successful understand this.  They have limited lines, they can provide the experience instead of a line item pricing and they have the discipline to paint a picture and offer outstanding customer service.

As to where are the young fresh breed of new Reps?  When more manufacturers buy into the idea that the Rep force is the right way to go, then there will be greater opportunity.

Posted by John Kern  on  11/30  at  10:26 AM

Lots of good comments here from most of the folks I know.
As to Josephs comments, The 50 plus models are not to make it confusing but to fill the needs of the modern integrator and customer desires. The design and model designations are quite brilliant from us Triadites.
What has damage us is the economy and housing bust. The tide rose for so long that many poor business practices were swept under the table. Now the strong survive.
As to new reps and talent in this industry, well you got to get paid and commissions are a whole new bag of worms right now in this industry!
Enjoyed the article and comments!

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