Panel Discussion On Dealer/Customer Interface
BAS Volume 3 Issue 3, Published March 1974

  Steve Goldstein (a former salesman in several local audio stores), Nick Anagnostis (former salesman and store manager at the now-defunct Audio Lab), Sandy Ruby (co-founder of Tech Hi-Fi), Rich Malesweski (co-founder of Suffolk Audio), and Peter Mitchell participated in a 3.5 -hour panel discussion.

The panelists began by placing audio retailing in perspective, starting with the late 1950's. (In the early 50's there were a few audio "salons" which offered custom equipment selection, installation, and servicing, at elevated prices, but technically sophisticated audio hobbyists put together their own systems — even buying wire by the foot to make their own cables — dealing with an electronics supplier like the original Radio Shack who sold at "audiophile net" prices. There was little competition at the retail level.) In 1957 Dan Boynton founded Audio Lab in Cambridge, offering assembled systems and full service at "net" prices, and it rapidly grew to a $2-million/year business.

But during the 1960's the audio market underwent a basic change in nature and exploded in size. The advent of widely available acoustic suspension loudspeakers and Japanese solid-state integrated stereo receivers made complete audio systems higher in performance, lower in cost, and easier to install and use than ever before. This, combined with the post-Beatles growth of the popular record business, created a huge market for hi-fi equipment, especially at the high-school and college levels.

Sandy Ruby at M.I.T., and other students, started selling audio equipment at discount prices from their dormitory rooms; these operations grew into the audio chains of today (Tech, Atlantis, Team, Pacific, CMC, etc.). Since these outlets sell to a "youth" market, and since today's components are easier to install and more reliable than formerly (so that there is less apparent need for dealer installation and routine servicing), today's stores are less service-oriented and more price-competitive than before.

Steve Goldstein and Sandy Ruby discussed the difficulties of a salesperson in such a store. His goal must be to sell what is in the stockroom. Even though a chain store may be franchised for 50 brands, it will rarely have all 50 brands in stock at one time. For example, if manufacturer A offers dealers a special discount (in order to unload excess factory inventory and keep factory and staff at full production during the slow-selling spring and summer months), the dealer may buy a lot of brand A; he may then be unable to pay his bills for manufacturer B, who proceeds to impose a credit limit and stop shipping goods, resulting in brand B being out of stock. If a customer is interested in brand B, the salesperson (forced to sell his "quota") has to convince him to buy brand A instead. Similarly, when there are 10 brands of $300 receivers on the market, all of similar overall quality, the salesperson nevertheless must convince the customer that the brand in stock is the best choice among the 10- Salesmen often will manage to convince themselves that their products really are better than the competition's. Sandy Ruby suggested that it actually isn't important that a customer gets talked into buying a Kenwood receiver rather than a Pioneer or vice versa, since these receivers are of comparable quality anyway.

There are direct financial factors also operating to bias dealers and salespeople. For example, co-op advertising where the manufacturer pays the dealer half the cost of local radio or newspaper ads featuring the manufacturer's product. (It is not surprising, then, that some brands turn up more often than others in dealer ads and featured "systems.")

"Spiffs" are another example, prizes or cash kickbacks given to the individual salesman for pushing a manufacturer's product; so salespeople are encouraged to sell you the product that is spiffed rather than the one which best fits your needs. Nearly all manufacturers offer spiffs at one time or another, which may tend to reduce this bias. But salespeople still value spiffs as added income; in principle an attentive salesperson could augment his income by 10 to 20 percent with spiffs.

What is important, as Steve Goldstein suggested, is the impact of these influences on sales ethics. Salespeople grow accustomed to trading upon product differentiations which are in fact trivial, false, or nonexistent; and under intense competitive pressure, they may degenerate further, using practices which are downright dirty. Steve described cases of speakers (not favored by the store) with blown tweeters that were left on display and used for A-B comparisons to convince customers to buy the store's favored brand. Rich Malesweski, who worked as a salesman before founding this own store, confirmed that such practices are common in some stores. A-B comparisons are also rigged by maladjusting midrange/tweeter level controls, placing speakers badly with respect to room acoustics, and mismatching impedances or levels- Sandy Ruby added that because of heavy use, even the best speaker switching systems stores use tend to become unreliable and may affect the sound without the salespeople realizing it.

Steve also mentioned a case of a Sony receiver with a damaged tuner section that was kept on display, used to induce customers to buy the Kenwood receiver which the store stocked. He said that while he was employed as a salesman at the Harvard Square Tech Hi-Fi store he complained about such situations to the store manager, without result.

Evidently, at least in intensely competitive areas such as Harvard Square and midtown Manhatten, store managers acquiesce in unethical sales practices. Steve concluded that the dealer/customer relationship is an adversary one in which consumers must beware, and that some customer paranoia probably is justified.

Nick Anagnostis recalled that in the old days at Audio Lab one of the store rules was that a salesperson must not bad-mouth a competitor's product unless its deficiencies were documented. When asked about competing gear, one was supposed to reply, "Brand B is a reputable product but we carry only brand A, and we think it's a better choice because it has these distinctions ..." In contrast, one often hears today's salespeople describe competing brands as "junk," "unreliable," "only a fool would buy that," citing myths, rumors, or half-truths to support these criticisms.

Nick noted that one of the principal difficulties in hi-fi selling is the customer's fear of the salesman. If an unsophisticated music-lover ventures into a hi-fi store with $300 and is met with arrogance, technical jargon, and contemptuous claims that "brand B is vastly better than unreliable brand A," when he has just been convinced down the street that "only a fool would buy brand B because it's junk," he is likely to lose confidence in salesmen's judgment and in his own ability to choose and may retreat to Radio Shack, Sears Roebuck, or Magnavox- Thus the hi-fi industry loses a customer and the music-lover loses the chance to get really satisfying reproduction at a decent price.

Sandy Ruby willingly admitted that among all the Tech Hi-Fi stores, the ones in which he finds it hardest to keep salespeople honest and considerate are the Harvard Square (Cambridge) and 45th Street (New York) branches- He outlined some of the reasons why salespeople get to be the way they are:

1.   The usual pay for salespeople is about 6 percent of sales volume, either in commissions or salary. (This is an industry-wide average according to an Advent Corporation study.) In a typical month with gross volume of $15,000, this is a comfortable income for a beginning salesman, especially for a college student/audiophile who wants to be a salesman because it looks interesting, will give him an opportunity to do lots of equipment comparisons, and will let him obtain his own gear at cost or less. But after a few years this income is unsatisfactory, particularly for a salesman whose technical knowledge is extensive, and who can get a job at much higher pay. So technically skilled salespeople leave and the ones who remain look for ways to boost their sales volume in order to raise their pay.

2.   The amount of advice giving and product comparing that the salesperson must do for each successive customer is almost unique to the audio industry. In most retailing, salespeople provide only incidental assistance and ring up the sale- As Steve Goldstein noted, people who go into McDonald's don't ask the clerk to convince them that McDonald's uses better hamburger than Burger King does. In hi-fi, people not only are looking for the lowest price, but also for comparative technical advice, interpretation of specifications, and the reassurance that they are making the ideal choice from among the enormous and confusing variety of products on display in the various stores. This not only makes shopping traumatic for the consumer, it also may mean that the salesperson has to do a high-power selling job to close the sale.

3.   In suburban areas with little competition, a relatively high proportion of the people who enter an audio store actually buy something, making for a pleasant customer/dealer relationship-But in competitive areas, price-shopping consumers may tour a dozen stores before buying, so when you walk in, the frustrated or depressed salesman knows he has only one chance in twenty of getting any income from you. If after a few minutes he senses that you aren't a buying customer, or if you expect him to explain the technical differences among all of the tape formulations on the market so you can then mailorder the best brand from Dixie, or if you yourself are a knowledgeable audiophile and try to debate his claims of the superiority of his favored brands, then he may decide that the pain of being honest and courteous isn't worth the effort. It's easier just to set up dramatic (if rigged) demonstrations, bad-mouth the competition, and intimidate customers with a hard-selling sales pitch. Salespeople `burn out" within a year or two because of the intense pressure and lack of personal reward.

It is widely agreed that when Tech Hi-Fi was only one or two stores and Sandy Ruby was personally in charge, a more attractive atmosphere was maintained. As Steve suggested, in a large chain the sales attitude in each store reflects the convictions of the store or area manager, and so the atmosphere varies from store to store within a chain. When a manager reminds his salespeople that customers pay their salaries and that they should help the customers make satisfying choices, an attractive atmosphere results. When a manager tells his salespeople to "go out and wring some money out of those assholes" (reportedly a direct quote), a hostile atmosphere results.

Evidently the grim situation in some of the urban chain outlets is in part attributable to the dealers, who gather in lucrative markets like Harvard Square and thus stimulate cut-throat competitive pressures. But part of the blame also lies with the customers. On one hand we expect stereo dealers to provide a level of consultation and services that an engineer or lawyer would charge $20 and hour for, plus lavish opportunities for precise and time-consuming comparisons, free borrowing for home trials, and instant free repairs of small malfunctions.

But at the same time we demand the sharpest discounts. We can't have it both ways for long. Ruby suggested that he could solve the problem of surly salesmen and provide attractive discounts by replacing his stores with a supermarket-style warehouse operation; you would simply pick out your items and pay for them (no advice, no information, no comparisons, no servicing, no salespeople, just high-school students operating the cash registers). This might work for the few audiophiles who know exactly what they want to buy, but for most people it would be a hopeless situation. At another extreme is the Radio Shack type of operation: all house brands and no choice — equally unsatisfactory.

Speaking of servicing, in the last two years Tech has had its own in-house service shop. Over 60 percent of its work has been warranty repair, resulting in a severe deficit. Manufacturers reimburse service shops poorly for warranty work (for instance BSR and Garrard allow about $3 for repair of a $50 turntable). Consequently a defective product becomes a headache for the customer and dealer, while the manufacturer gets off easy- Ruby noted that in general, manufacturers make much higher profits than dealers do.

In a discussion of house-brand or private-label speakers, Sandy Ruby denied the widespread report that Tech Hi-Fi owns or controls Ohm Acoustics. Nick Anagnostis suggested that a. house-brand speaker can be a fair deal for the consumer if it is honestly represented, citing the Audio Lab LSD-29 as an example. Sandy defended the general concept of house-brand products, citing Heathkit's audio and television lines and Sears Roebuck's steel-radial tires and Diehard batteries as the equal of any national brands- He suggested that if a dealer becomes big enough to bypass the middleman and deal directly with the manufacturer, he can get a better buy for the consumer-As an example of such a middleman he cited United Audio who import Dual turntables for the American market, adding a sizable markup in the process. And to mollify the skepticism of BAS members who feel that house-brand speakers such as Tech's TDC line are always poor, he offered to let a BAS listening panel evaluate alternative candidates for selection as his next house-brand speaker.

Returning to the primary topic, it became evident that there is no easy solution to the buyer/ seller interface problem as it exists in audio retailing. Sandy mentioned that with audio having become a billion-dollar market, more profit-oriented businessmen are entering the field and driving out the audio-hobbyist retailers. With stiff competition from Radio Shack and other national chains, with the pressure of many stores competing near one another in urban areas, with rapid turnover among salespeople (each of whom must sell the equivalent of 50 $300 systems a month), there will not be a relaxed atmosphere in the store, and undesirable sales practices can flourish.

In addition, as a retail chain grows larger, the control of top management over the selling practices of each store becomes looser until, finally, an area manager's only criterion for the performance of a store is its sales versus cost statistics. Of course a store manager will not report to the chain's owner deceptive tricks his salespeople may be using. In this situation, Sandy suggested, knowledgeable audiophiles such as those in the BAS can perform a service to hi-fi consumers by reporting improper sales practices to higher management. The BAS can establish a feedback loop to the owners of various stores and chains for the correction of abuses. If we mean our complaints to be taken seriously, this is a constructive challenge which we should accept.

The panel discussion was wide-ranging, sometimes chaotic, occasionally bluntly worded, and often good-humored. Members of both the audience and the panel conveyed to Sandy Ruby the extent of their distress at some of the practices at urban branches of Tech, practices which also are common at Atlantis and other stores. Sandy, Steve, Nick, and Rich, in turn, provided a clear, valuable, and extraordinarily frank insight into the influences which affect dealers and salespeople, for better or worse. In sum, it was one of the most absorbing BAS meetings to date. And the opportunity of seeing some of the concerned human beings behind the storefront facades gave hope that perhaps the dealer/customer interface need not be an adversary relationship after all. —  Peter Mitchell and Keith North.

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