The business model

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We've been spending a lot of time posting about the state of high-end retailers. I want to let this subject rest for a while and percolate through everyone's minds. I will leave you with this thought and model.

I hope I am not speaking out of school when I tell you that a portion of what you pay for a piece of high-end equipment goes to the manufacturer who designs, builds and markets that equipment - the other portion goes to the folks that get the products into your hands. The percentages vary from company to company and from industry to industry.

The point is that whatever percentage of every dollar spent at retail, over what the manufacturer makes, is what is called the cost of accessing the customer. So, for example, if a retailer sells an item to a customer for $200 and buys it from the manufacturer for $100, the manufacturer just spent $100 to access that customer.

Now, this is a very simplified view because dealers do a lot more than just provide access to customers. They educate, they advise, they setup, they build relationships and so on. Certainly I am not suggesting they don't provide a great service but, at the end of the proverbial day and from a manufacturer's viewpoint, it's access to customer's we're looking for.

So if a lot of money is being spent accessing customers and the people providing that access aren't doing well - and the people they are trying to access aren't getting good access - it's time for a change. Big time.

Our industry will survive, of that I have every confidence. But it will take new thinking on all our parts.

As manufacturers we have to think long and hard at what price we and our end users are paying to gain access to the marketplace and how effective it is.

As end users, we have to think long and hard about what's the best way for us to get our hands and hearts around the products and services we're interested in.

This whole rethinking process has me very excited.

But then I get excited easily.

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Paul McGowan

Founder & CEO

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