Weekly television digest (Jan-Dec 1963)

8-TELEVISION DIGEST JULY 8, 1963 between retailer & consumer to a responsibility taken over by manufacturer, but with involvement of retailer and repair station as well. "The principal danger in this 'warranty war' is its effect on the consumer. Unfortunately, advertising is often used to lead the public to expect too much from the promised guarantee; much more than either the manufacturer or the retailer can deliver," soys "Grey Matter". "This danger must be avoided if the guarantee is to maintain its value as a builder of faith in a brand and as an added buying incentive. "There is a danger, too, of increasing fear among retailers that the consumer will hold them responsible for failure to make good on guarantees advertised by the brand manufacturer. Recent court decisions also hove been placing more of the onus of warranties on the manufacturer's shoulders . . . "The trend has been for courts to regard labels, printed matter & advertising as express & impUed warranties of quality by the manufacturer. Advertisers must keep this clearly in mind when planning to use the guarantee as a selling tool." Virtues of guarantee as marketing & advertising tool ore acknowledged: Strengthening of brand image, stimulant to sales. But Grey warns of these pitfalls: Competitive edge is often temporary, "for it becomes dulled when competitors come up with stronger & longer guarantees." When strong competition forces company to stretch guarantee "to point of disbelief, or lace it with evasions & loopholes, it may tarnish the brand name to a degree that no amount of advertising con overcome." We print these views because of their potential applicability to practices in consumer electronics industry. We'd like to hear other views & comments on subject, and will give them "equal space." SHALLOW SEES DISTRIBUTION UPHEAVAL; '"The day of the independent distributor was through 3 to 5 years ago and a radical change in distribution will evolve over the next 5," in the opinion of James J. Shallow, former Magnavox (Vol. 3:25 pll), Columbia Phonographs & Philco executive, who has re-established himself as a management & marketing consultant "Big problem in our industry today is that each of 20 different companies is trying to do 15% of the business," he told us at his suburban Philadelphia home & hq (125 Farwood Rd., Phila. 51.). "This wild fight for business puts tremendous pressure on distributors, and the mortality rote of independent distributors in the past 5 years has been appalling." Emphasizing that "we are now in the era of the large group buyer," Shallow amplified: "Some 10% of the retailers today account for 70-75% of total volume. As a result, the average distributor in big markets now acts pretty much like a broker for the manufacturer, with a 2-5% override on sales. The average distributor today isn't showing much better than a 2% net profit. He'd do better putting his money in bonds. Why should he risk capital for that kind of return?" With cost of sales & distribution rising sharply, and the bulk buys by group buyers increasing, trend among manufacturers has been to trim independent distributors in favor of more branches or direct relationship with dealers. Philco, for example, has been pruning distributors and in recent weeks has replaced independents with branches in N.Y., Philadelphia & Newark Qohn M. Otter Companies) and Pittsburgh Q. E. Miller Co.). Sylvania has been dropping branches for franchised dealers (Vol. 2:24 pi 2), now retails upwards of 40% of volume via direct-to-dealer outlets (VoL 3:24 plO). "The consumer electronics industry today is in the some phase that automobile manufacturers were in the 1930s," Shallow told us. "Only the strong will survive. Today's TV-radio-phono-hi-fi business is a S3 billion retail volume — but produces only a 1.5-2% net profit. This provides no base whatever for profit, growth and expansion for all participants. There's going to be a shakeout. A big question is how con manufacturers afford distributors. Another question is how con distributors stay in business. The only independent distributors making money these days are those with companies able to demand a profit margin for dealers." Shallow believes that Magnavox's approach of direct relationship with dealers is answer to industry's distribution problems. "All dealers want to give in to the temptation to cut prices," he said, "but you've got to be able to force them to make a profit." Shallow believes that "salvation at the retail level lies in Fair Trade." He added: "It takes courage for a manufacturer to Fair Trade today. Many ore trying to ride 2 horses — the