Purchasing Practices In Pro AV
Exclusive research on the purchase plans and buying behaviors of AV professionals.
How do pro AV professionals purchase products? Exclusive research — presented by Pro AV magazine and conducted by independent research firm Paramount Research — reveals what vertical markets are the hottest, who really makes the purchasing decisions, and which products they plan to purchase in the next 12 months. Find out the most critical factors for selecting products and what factors contribute to the decision to drop a product line. Crafted to provide detailed information on purchasing practices in the pro AV industry, results of this research will help you benchmark your decisions against your peers.
DEMOGRAPHICS
What type of organization do you work for?
The majority of respondents (63 percent) identify their organizations as a contractor, but only one in six or 15 percent describe their organization as a dealer. This is consistent with the well-documented (and much discussed) trend of moving away from “box sales” toward service-oriented integration and installation firms. For our survey, the description “contractor” includes systems integrators and designers/installers of audio, video, and security systems.
What is your primary job function?
Nearly 70 percent of the respondents work in executive management, which includes technology/engineering management and staff. A total of 94 percent of Pro AV readers purchase all or some of the products used in their jobs or recommend products to others. These findings may be related to several basic traits of the typical pro AV firm. Most firms are fairly small — an average of 32 employees. In smaller firms, people wear many hats, and management is likely to have “risen from the trenches” and continues to be involved in day-to-day design and technical work.
How does your business break down?
Overall, the largest percentage (48 percent) of contractors’ business comes from new installs, with another 20 percent contributed by upgrades and retrofits. Only (14 percent) comes from equipment sales and slightly less (13 percent) from equipment rentals. However, business focus varied based on the type of respondent. For example, while contractors generate the largest portion of their business from new installs, dealers (39 percent), distributors (73 percent), and manufacturers/manufacturers’ reps (68 percent), indicated more of their business comes from equipment sales. The largest percentage of business for rental & staging companies comes from equipment rentals (76 percent), indicating that these types of organizations may be the most “single-market” focused among our industry (although this too may be changing).
What is your primary vertical market?
When Pro AV readers list their primary and secondary vertical markets, corporate business ranks highest (74 percent), followed by education (59 percent). What’s more significant is that all respondents selected multiple secondary markets, indicating that there is no such thing as “specialization” in pro AV. Respondents who reported education as their primary vertical market are most likely to indicate corporate (74 percent), government (74 percent), and house of worship (61 percent) as their secondary markets. Those who indicated corporate as their primary market are most likely to also work in education (70 percent) and/or government (60 percent). What is clear from these findings is that with few exceptions, the pro AV industry encompasses multiple market segments.
Purchasing Practices In Pro AV
Exclusive research on the purchase plans and buying behaviors of AV professionals.
How do you purchase your equipment?
What type of jobs are you most active in?
The majority of respondent jobs are design/build (58 percent), while 27 percent are bid on specification. This number conceals the finding that among integrators who do primarily house of worship and home installs, more than 70 percent of their jobs are design/build (72 percent and 79 percent, respectively). This is indicative of the fact that these types of projects are less likely to go out for bid than corporate or education projects.
What was your company’s total revenue in 2003, and what are your projections for 2004?
Most companies (35 percent) fell into the category of $500,000 to $5 million annual revenues, with a survey median for 2003 of $2.7 million. But for 2004, the median revenue is expected to jump about 33 percent to $3.6 million. Respondents whose primary vertical market is either corporate or education reported the highest revenues in 2003. Those respondents who indicated that their primary vertical market is education are likely to have the highest revenue ($4.8 million in 2003). Corporate respondents reported the second highest revenues ($3.3 million in 2003).
How many employees are in your company?
As proof that the pro AV industry is dominated by small firms, our survey found that the average-sized company has 32 employees. However, the largest segment of respondents (43 percent) work for companies with 10 employees or less, and only one in 10 (13 percent) work for organizations with 100 or more employees. Respondents who consider corporate or education as their primary vertical markets generally work for larger companies. The typical company size for those working primarily in the corporate sector is 40. Education respondents average a company size of 39 employees. These larger company sizes may be a result of the fact that both corporate and education customers are likely to have multiple and often geographically dispersed job sites. Those whose primary market is house of worship were among the smallest companies, with an average of 17 employees, about one-half the survey average.
How many jobs does your firm handle per year?
The average number of jobs per year completed by AV integrators is 80, but this varies significantly depending on the “primary market” of each company. Rental & staging respondents are likely to have handled the most jobs in 2004. Those respondents who indicated rental & staging as their primary business focus expect to handle 225 jobs in 2004. Because their work consists primarily of events as opposed to construction-oriented permanent installations, this is not unexpected. The respondents who work mainly in the house of worship sector expected to complete the fewest number of jobs (30) in 2004. This can be explained by the finding that companies whose primary market is house of worship also happen to be among the smallest; two-thirds of these companies have 10 or fewer employees.
Purchasing Practices Findings
Most product purchases are made through manufacturers and distributors (94 percent). The majority of purchases (59 percent) take place directly with the manufacturers, while one-third (35 percent) are handled by the distributor. Only one in 20 (6 percent) are purchased at a retail store, but this varies with company size. Eleven percent of companies with less than $500,000 in annual revenue will buy their equipment through retail channels, perhaps indicating the price and accessibility disadvantages that sometimes restrain small companies. These companies purchase nearly half (46 percent) of their equipment through distributors. Conversely, the large revenue companies (more than $20 million in annual revenue) are less likely to purchase through distributors (only 24 percent of the time) with 73 percent of purchases going direct to the manufacturer. However, the primary vertical market influences the supplier channels used for equipment purchases. Those respondents who consider home theater/automation as their primary vertical market are more likely to purchase through a distributor (45 percent) than are other respondents (the study average is 35 percent). Respondents who work primarily in rental & staging (43 percent) or home theater/automation (45 percent) are more likely to purchase through a distributor than others. Rental & staging respondents are also more likely to use retailers (11 percent) than others.
What products do you plan to purchase in the next year?
On the audio side, eight in 10 AV systems integrators plan to purchase amplifiers and loudspeakers in the next 12 months. More than seven in 10 plan on purchasing microphones (73 percent), mounting and hanging devices for loudspeakers (76 percent), and/or audio signal processing units (75 percent). On the video side, more than 80 percent plan to purchase projectors and screens, flat-panel displays (78 percent), and/or video signal distribution equipment (79 percent) in the next 12 months.
Nearly 90 percent plan to purchase cables and connectors in the next 12 months, which is not surprising given the robust forecast of other equipment categories. Some of the categories listed could be considered components of a larger category, and there is much overlap. Therefore, care must be taken to avoid misinterpretation of these results. For example, while only 36 percent plan to buy “digital signage equipment,” a much higher percentage of respondents will buy flat-panel displays (78 percent) and video signal distribution equipment (79 percent) —two key components of most digital signage systems. The general observation from these purchase intentions is that the majority of pro AV product categories will be purchased over the next 12 months, which indicates a positive outlook.
How many years have you carried your current lines?
The typical respondent has carried his or her current product line for more than eight years. Contractors have carried their lines for the least amount of time (7.7 years), while manufacturer/manufacturers’ reps and dealers have carried their current lines the longest, an average of 9.5 years. These results indicate an interesting level of brand loyalty in pro AV, especially considering how rapidly technology is changing in our industry. In part, this may be explained by considering the primary reasons for choosing or dropping a product line in the first place (see next two sections). For example, only two out of 10 integrators listed “technology became outdated” as a reason for dropping a line. This reinforces the finding that price is not the most important factor. Instead, it’s a matter of quality — both the quality of the product and the quality of the relationship with the supplier. When these two factors are favorable, there is little reason to drop a product, unless either of them diminishes.
What are the three most critical factors in making your equipment purchasing decisions?
The majority of pro AV contractors list product quality (71 percent) as the most critical factor in making equipment purchase decisions. Product quality is by far the most commonly cited factor; price is a distant second at 29 percent. Dealer organizations are less concerned with product quality/reliability/performance and more concerned with price, while also paying more attention to the opportunity for margin (36 percent vs. the study average of 23 percent). This makes sense because a “dealer” organization by definition implies a transaction-oriented business model, as opposed to the service model of today’s successful pro AV systems integrators.
When you’ve dropped a line, what were the three most critical factors in your decision?
Product quality/reliability/performance is the most common reason for dropping a product line. More than half indicated that product quality/reliability/performance was a critical factor in their decision (51 percent). Three in 10 or 29 percent indicated lack of technical support from the manufacturer as another reason for dropping a product line. Those who consider education as their primary vertical market were more likely to choose better overall program from a competitive manufacturer as a reason for dropping a line (37 percent compared to the study average of 20 percent).
METHODOLOGY
Questions were compiled by PRO AV and Paramount Research and were emailed (providing an online link to the actual survey instrument) to 3,076 Pro AV subscribers. A chance in a random drawing for a $100 cash prize was included as an incentive. Responses were returned directly to Paramount Research for tabulation in September 2004. Paramount Research received 419 qualified responses, a 14 percent response rate.
