I was at a press conference earlier this year that was held to announce that a brand popular in the UK had become available in Australia for the first time. When it came time for the question and answer session, one of the journalists present took the opportunity to castigate the distributor for not making the brand’s products available for sale over the Internet, though the distributor’s own website. The distributor’s representative pointed out firstly that his company did not have an e-commerce site, and secondly that it had no intention of opening such a business, as this would be in direct competition with its retailers. The journalist then suggested that the distributor was intending to prevent those retailers from selling the new product on their own websites. The representative replied that this was not true, and that his company was happy for retailers to sell the product any way they saw fit: in their own store, or via the store’s website… if they had one. As all this to-and-fro was taking place, I have to admit that I couldn’t see where this journalist was going with this line of questioning, because the launch was for an audio product, and who in their right mind would purchase any hi-fi component without first listening to it and getting a feel for its ‘fit ‘n finish?
Unfortunately, when I finally got back to the office and started making some phone calls, my investigations showed that I was wrong in my assumption that Australians would not purchase audio products on-line. It seems that Australians are indeed buying audio products over the Internet, and in increasing numbers… but—and it’s a big BUT—only after first visiting a retailer to learn more about the product, listen to it carefully, and compare it against other, similar, products. So why don’t they buy it from the retailer while they’re there? The sole reason, it would seem, is that they can get it cheaper on the internet. But why should this be? There are many reasons. Many (I’d hesitate that it’s actually not ‘many’, but ‘most’) Internet retailers operate from their own homes, so there’s no ‘bricks and mortar’ overhead to be paid for. Yes, they’re renting or paying off a mortgage on their home, but they’d be doing that anyway, just to have somewhere to live, so it’s not a real ‘overhead’ at all. Indeed, thanks to the ATO, it’s even better than this, as they can actually claim a proportion of the rent as a cost of doing business, and deduct it from their assessable income. The same goes for lighting, heating and internet usage… all of which are also probably shared with a home, so the real costs are very low. You’re not paying expensive insurance on a commercial premises either, so yet another saving. There are several other taxes and costs that can be avoided, such as wages, superannuation guarantee payments, payroll tax, and so on, because most internet operations are one-man bands, and so have no staff: No salespeople, no receptionists, no accountants, no store people, no service staff for parts and repairs. And speaking of service, internet operations usually don’t offer this either. And if they do offer backup service, it’s usually farmed-out. Most internet operations don’t even have spare parts on hand, because it would be too expensive and complicated to maintain stock and an inventory. So if a part from a product is required, it will be ordered from overseas, despite the fact that this will involve a lengthy delay for the person waiting for a repair under warranty.
But there’s another, quite insidious, method by which internet retailers cut costs. It’s simply that they do not advertise or otherwise promote the products they sell! They instead rely on the official importer to do the job for them, or the manufacturer itself. I can give you a first-hand example of this, straight off the cuff. Not only have I never ever been invited to a press function held by an internet-only retailer, I have never received a single press release from an internet-only operation either. Why is this important? Simply because it is only through actively promoting a product, either by sending out press releases, holding media events, or by paying for advertising, that consumers can be made aware that a particular product or service exists. Herein lies an interesting Catch-22. Internet retailers rely on ‘bricks ‘n mortar’ operations to advertise and promote their products for them, yet their own operations are currently reducing the profitability of those ‘bricks ‘n mortar’ operations so significantly that many are closing their doors. And of course when this happens, their advertising and promotional activities will stop. It is at that point that Internet retailers will suddenly find they can’t sell their products any more, because no-one will know those products exist. And even if someone discovers they are selling a product in which they might be interested, most consumers will be unlikely to want to risk their money without first having seen and heard that product in the flesh. ‘But you can just search for the product on the Internet,’ I hear several readers scoffing. Um, sorry, but you can’t search on the internet for a product whose name you don’t know, and of whose existence you are unaware. What words, exactly, do you intend on typing into your search engine? How about: ‘Hi-fi amplifier, low distortion, wide bandwidth, good looks, excellent reputation, reliable operation, good spare parts availability, reliable warranty protection, excellent trade-in resale value.’ I did exactly this and got 18,902 hits, of which the first was a link to a 30-year-old ME amp for sale by Decibel Hi-Fi in Queensland, the second was a link to a 40-year-old McIntosh catalogue and the third a link to a Subaru car dealership in Branford, Connecticut. I then clicked through the next 20 pages of results, and did not run across a single amplifier brand that was not being sold in a ‘bricks and mortar’ store. The moral is that the old adage that ‘it pays to advertise’ will remain as true in the future as it has ever been, and the fact that it costs time and money to advertise (in any medium) is just a fact of life!