Security Industry Manufacturers Reevaluate Traditional Market Channels

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How Will This Affect Your Business Model?

The dominant business model for most manufacturers of the software and hardware that make up the electronic security industry has always been the dealer network or value added reseller (VAR) archetype. Manufacturers lived and died by the quality of their dealer network which could consist of the smallest two man installation company to the huge multi-national systems integrator and everything in between. Although some manufacturers offer their products through distribution outlets, this has been successful mostly for providers of peripheral devices such as locks, power supplies, door contacts, and the like. The training required to install, program, and commission today’s software based systems often precludes the effective use of the typical distribution channel.

The manufacturer-dealer relationship has historically been held together by the glue of loyalty between the two parties. This loyalty was maintained largely out of necessity as both parties needed each other. Manufacturers depended on dealers to get their products installed and operating correctly and therefore treated them with the regard afforded a valued partner. Dealers relied on the good name of the manufacturers they represented to create and maintain their identity in the market place. A dealer would often be known first and foremost in their community as the provider for a certain brand of equipment. To be sure there has been a sometimes precarious balancing act required to maintain a harmonious relationship between a manufacturer and the various dealers that make up their all important network, but in the main it has provided an effective market channel.

Today there is an observable paradigm shift happening in the way manufacturers and dealers view each other. Product delivery concepts that were once only flirted with are now being incorporated into business plans and models of main stream providers. The loyal dealer network, once the mainstay of the industry, is quickly becoming a thing of the past. From our current vantage point, it is foolhardy to predict the demise of the traditional manufacturer-dealer relationship, but certainly the relationship is changing and is likely to continue on the current trend.

Of the component parts that make up the manufacturer-dealer relationship the two that are most obviously changing are the manufacturers willingness or ability to depend on the dealer for adequate sales in the dealers assigned territory and the dealers willingness to be satisfied with the amount of business made available by access to the lines they have historically been associated with. A significant ingredient in the adhesive that has held these relationships together has been a relatively limited number of manufacturers. A limited supply source for quality products provides an incentive for the dealer network to display not only loyalty but an aggressive sales growth initiative. In the days of yesteryear a manufacturer could capture and then depend on a loyal network of dealers that were eager to assist in the growth of their product sales and market penetration. In the electronic security industry, like many other industries, there has been a proliferation of product providers. Many of today’s electronic security system providers are solely software manufacturers. As technology has advanced in this industry much of the advancement has come in the form of software capabilities. Nearly all electronic security systems have both a hardware and a software component, but the hardware manufacturers have increasing become OEM providers for various systems manufacturers that develop and produce software only. This phenomena has significantly increased the number of manufacturers vying for the valuable dealer network. In turn the increased availability of quality products from more manufacturers has manifest itself in a dealer network that has replaced loyalty to any one manufacturer with an insatiable desire to add more and more lines of equipment. Many of today’s dealers offer their access to a ever increasing number of product lines as a desirable selling point to their customers, the end user.

As the proliferation of manufacturers of electronic security systems has diminished the dealer loyalty component of the supply chain many manufacturers are reevaluating their “go to market” business model. As they reevaluate this model they are in many cases taking another look at what was once the inconceivable prospect of selling directly to the end user. At the very core of the manufacturer-dealer relationship is the mutually agreed upon fact that manufacturers need dealers to install their products and therefore can not even appear to be eyeing the end user’s purchase order directly. But as manufacturers have seen their market share erode and have heard the disapproval of their investors their eyes have begun to wander. Manufacturers are not interest in selling directly to the end user as much as they are interested in controlling the outcome of the end users purchase. They acknowledge their dependence on the dealer network to get their products installed and operating, but control of the sales process and a greater influence on the end users buying decision is being seen by many as a necessary part of doing business. Reaching around the dealer to touch the end user and help them make a decision favorable to that manufacturer and then pulling through the dealer to get the product installed is an increasingly common sales strategy. At least one manufacturer of electronic security systems has, in the last few months, actually started to sell their products directly to end users and have formed their own installation division to directly complete the deal. This business model has been tried unsuccessfully in the past, but what was once being done out of greed is now being considered out of necessity and may very well have a different outcome than the previous attempts. The shape of the time tested manufacturer-dealer relationship is likely to change and it behooves us all to position ourselves to be successful in this changing world.