Collapsing The Channel
Industry analysts love to predict the ?collapse of the channel.? The next big thing is always the one that’s going to be the final straw.
Industry analysts love to predict the “collapse of the channel.” The next big thing is always the one that’s going to be the final straw. In the trade media, we’re equally guilty — predicting an industry’s doom makes provocative copy. So while I don’t want to overemphasize this topic, I do think there are people in the industry avoiding discussion of the trend toward single-source AV suppliers.
Often manufacturers seem to reach a strategic crossroad where growth depends on either specializing in the core strength that made the company great in the first place, or integrating horizontally and acquiring or developing competencies in related product/market categories. Many notable manufacturers have taken this first step and now dominate that single category. Others have chosen the second fork, and are determined to offer a “total solution.” Sound familiar? I’ve seen traces of this logic evolve at nearly every company I’ve been associated with.
Yet very few companies take the time to consider the customer — defined in our case as both the systems integrator and the end-user. Manufacturers need to ask what’s best for them. Yes, sometimes dealing with a single source offers convenience and cost savings for the customer. But this needs to be weighed against the risks. What if, for example, that supplier experiences a natural disaster, financial instability, or an inability to deliver? Better to be missing one piece of equipment on a job than an entire system.
There’s also the question of corporate fit. Few companies consider whether branching into new products and markets really makes sense for their own internal core competencies and culture. Just because a company is good at manufacturing in one product category doesn’t necessarily mean it’ll be good in others. Corporate acquisitions are a convenient way to horizontally integrate, but even this strategy is risky. Achieving the desired synergy often takes years, if it develops at all. Some studies cite a success rate of less than 50 percent. In the interim, while the new conglomerate is busy patching its corporate family together, customers are left wondering if it will ever work, and their eyes can wander. What’s at risk is the brand loyalty that made the company successful in the first place.
Corporate consolidation happens across all industries, so it’s no surprise we’re seeing it in pro AV. It’s another stage of the industrial lifecycle that effectively shrinks the distribution channel from the end-user’s perspective. Where it becomes threatening is when the supplier loses sight of the value added by the distribution channel.