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“Poor old resellers without many connections to speak of?” – Part Two.

(Editor’s note: This update is late because Frontline Lamb’s hands couldn’t be pried away from his mouse due to an acute addiction to Diablo II.)

Since I last wrote on the difficulties of being an Apple dealer, some changes in the retail landscape have caused me to push back until now the second part of this column on where we do make money.

First off is Apple’s announcement to their dealers that they have found yet another way to compete with us, the dealers on the frontline. Apple is going to start a “Business” version of the Apple store. This new web store will offer all Mac products to registered business customers at a discount off of Apple’s published Minimum Advertised Price (MAP) levels. A field salesforce will back up this site.

Oh joy. Apple is, in effect, lowering the street price in what is already a slim-margin business. What business customer of ours will be happy paying MAP pricing when they can get it at a lower price directly from the manufacturer? So, to keep our customers happy, we may have to discount even further.

Now Apple is trying to give us in the dealer channel a positive spin to this. They are assuring us that they won’t be dropping prices lower than what we can sell the Apple product for to our customers. Furthermore, they claim that if an existing customer has a good relationship with their dealer, Apple’s sales force will not try and take those customers direct.

Let’s take this spin apart. OK – it’s good that they won’t sell below our cost. And discounting hardware is common for volume business customers. But what is the definition of “discount”? If you, the customer, expect a discount, what price are you expecting a discount from? Suggested Retail Price (SRP)? Nope – no one uses SRP anymore. MAP? Well, up to now, that was the target price. But if the manufacturer were setting a lower price point, wouldn’t you expect a discount off the manufacturer’s price? Be honest now.

What – or more importantly, who – defines a “good relationship”? Do we trust Apple to make that call? How exactly this process is going to work is still up in the air, but it does make us nervous when we look at the volume that some of our best customers bring in. We can all envision a time when an Apple field salesperson needs more sales to make his numbers and convinces a volume customer that it is in their best interest to go direct.

A brick-and-mortar Apple dealer lives and dies by the “Value Add” that they bring to the customer. Their product knowledge, their ability to bring together a solution, the services they can offer a customer are what make a customer choose a dealer over going to mail-order or the Web. Apple finding another avenue to sell to our customers won’t change that, but it adds one more obstacle in our path to a profit.

Remember last time, when I discussed Apple’s low margins on iMacs? Well, those gravy days are gone with the new low-end iMacs. The new $799 iMac has a whole three-percent margin. Let’s see – distributors mark up Apple product to us three to four percent. Credit cards charge us another one to two percent. That leaves us how much profit? Hey, we can always make it up in volume.

I understand the reasoning for the $799 iMac – Apple is trying to reach a new customer base. At $799 you can get a complete system with printer and scanner for under a grand. This will attract a different customer base than Apple has traditionally attracted. Add in one of those awful ISP rebates and you hit $699. That will tempt a lot of JSPs who have been sitting on the fence on “this whole Internet thingie”. But it doesn’t leave a lot of profit on the table. That’s about $60 profit on a $1000 sale. Yikes!

If that’s all a customer walks out with, we aren’t going to stay in business for long. Fortunately, our salespeople are better than that. A service contract makes sense for this system; Apple trails the industry with a one-year warranty, yet a typical customer is going to keep their system for three years. You will want more RAM with that iMac, as 64 megabytes is simply not enough anymore. You’ll also want some more software; the iMac’s software bundle has shrunk again. Here’s an encyclopedia and a copy of The Sims. You should also have a surge suppressor to protect that iMac, and perhaps some paper and an extra set of ink cartridges for that printer. You get the idea.

Our place in the Apple selling universe is to add a value to the customer. We are a place to sit down in front of the Mac, see all the third party add-ons, look at the latest game, and admire the 22" Cinema Display. You get to talk with a real live Mac salesperson. You get to try out a professional video editing system. You can get your tough technical questions answered. You can send your mother to our iMac beginner’s class so you don’t have teach her to point and click. A web store or a giant company like Apple can’t do that.

FLL

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