Add value or die!

This message has been preached within the auto ID market for a longtime now, but, with the recent decline in margin across the hardware sector, this message is finally becoming a reality.

Historically, the traditionalauto ID company has a reseller agreement with one or more hardware manufacturers and consequently has supplied product onto its customers at a workable margin, without fear that the customer would be able to get a better deal within the general market place. This situation is now a thing of the past. The power of the internet and the twotier distribution channel has  followed the "one man reseller" to set up what appears to be a much larger business. Buying from the two-tier channel and using search engine optimisation, these small companies can offer product at very low single figure margins. With tiny overheads and little commitment to supporting the products sold, these internet only resellers could make a living. However the larger, more established business couldnt if it was to continue to provide the high levels of pre- and post-sales support offered in the past, while operating on declining margins.

With the advent of the internet this level of margin suppression for commodity products in the Auto ID market was inevitable, as it was in the PC market. This is I feel only the beginning of a decline in the street price of Auto ID products and we can expect much more margin erosion in the coming years.

Competition is on the increase. Rarely do we have exclusivity on a deal right through to closure.

The current policy employed by the large manufacturers to sell more and more through two tier channels is a significant factor in this margin decline. The price that a two tier reseller buys at and the margin it is prepared to operate on allows anyone who wants to resell barcode products to buy them at the same price as an organisation that has a history of selling a huge quantity of product through a direct relationship with the manufacturer.

One important question to consider is:
Will the channel policy of certain manufacturers return to haunt them?

Competition is on the increase. Rarely do we have exclusivity on a deal right through to closure. More commonly we spent a lot of time educating the customer on the most suitable product and persuading them that the one we are offering is better than any of the others they are looking at. This includes site visits, demonstrations and detailed specification proposals, all of which require costly resource. Then, just when we get to the quote stage we suddenly find that there are two or three other resellers trying to gatecrash the party at the final hour. This results in a battle over margin which drives down the price of the product both for this deal and in the marketplace.

One important question to consider is: Will the channel policy of certain manufacturers return to haunt them? The policy of stack it high, sell it cheap works as long as the manufacturer creates pull in the market for its products. In the past this role has very much been carried out by the reseller channel that has contributed to the success of many manufacturers in a variety of vertical markets. The problem comes when the established loyal reseller becomes disgruntled with the internet reseller plundering its business at the eleventh hour, based solely on price. Will this result in the large traditional safe reseller base that always created the pull for the product moving to less well-known brands so it can feel secure in the fact that it will not fall prey to the low cost competition?

Evolution, revolution
The internet reseller needs the customer to know exactly what they want but somebody has to promote that brand in the first place and educate the customer! If the product is no longer being as widely marketed by the channel will the manufacturer begin to suffer? The arrogant manufacturer may think not, we shall see in the fullness of time!

This is however not the end of the world and, as in nature, the strong will survive whilst the dinosaur will become extinct. The established business must evolve to be successful in this new era. It must offer its customer a solution to a problem by adding value to the hardware element with professional services, software solutions and continued technical support. At Kelgray, we saw this situation coming some years ago and as a result we have evolved our business to supply complete solutions such as fully automated in-line printing systems, warehouse management solutions and mobility solutions utilising the latest GPRS technology. Complete solutions help to differentiate a business from the hardware only reseller. They also lock-in customers and provide an on-going revenue stream through support contracts, hardware upgrades and additional licenses.

Don't ignore the writing on the wall
However, the move towards a more solutions focused business takes time and money. Investment must be made researching the market, finding suitable solutions, developing the software or negotiating contracts with existing software suppliers and then taking these new solutions to market.

We saw this as a no brain decision but many others still dont seem to have spotted the change in the industry. If the PC industry is anything to go by, the writings on the wall. Times are changing-auto ID companies need to decide now whether to evolve or face a near certain death.

Darren Wildman is Sales & Marketing Director for Kelgray Products Ltd. The company was established over 31 years ago and has been at the forefront of the bar coding and labelling industry ever since. The products and solutions supplied utilise the very latest auto ID equipment from the Worlds leading manufacturers. Kelgray is also a leading supplier of thermal labels, tags and synthetics with its own inhouse converting.

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