With a cut in VAT seemingly on the cards - reducing the current rate of 17.5% to 15% - can we expect B&O dealers to reduce prices accordingly?

For example, Beolab 5's are currently £9787.23 exc VAT = £11500 RRP.  If we apply VAT at 15% to the base figure of £9787.23 then = £11255.32, so it is a saving of almost £250 without any haggling!

Beovision 9 at £14500 RRP would therefore be reduced to  £14191.49  (14500/1.175) x 1.15

Must follow that god ol' Brown has made the Beosound 5 cheaper too, though not cheap enough for me!

 

Problem is I read this morning that the retailers will probably keep prices 'as is' because of the value of the pound. This may apply to B&O UK who may choose not to reduce their prices by 2.5% simply as it's costing them more to purchase goods from Europe.

I wanted to buy a prosumer espresso maker for the office. We were going to spend decent money on this machine and it retails in the UK for £1159. However, as it's 'imported' from Italy, and the pound is doing so badly against the Euro, they are putting up the price to £1300 next week.

Even if this price comes down by 2.5% - incorporating the VAT decrease - it's hardly going to affect this new price increase :(

 

On a sidenote though, if I was going to purchase BL5's for nearly £12000, a 'saving' of 2.5% isn't going to convince me to make the purchase. However, if you look at Lifestyle and others, you can often buy mint 2007 BL5's for under £8000. That would convince me and has, recently :)

I agree. This reduction won't reduce prices, it will just be additional profit for the retails who will justify this like Moxxey says against the pound, or rising staff costs, etc. It is similar to the morgage rates - Only after intense pressure did the banks reduce their rates after the base rate changed. We (the public) hardley ever win - Whatever the government does it won't create a difference as we never get the benefit.

Ian

Well I have to agree with you both, but if they want to sell products in this economic environment they will have to be a bit less forthcoming with the excuses and a bit more eager to cut prices.  As you say it probably won't happen.

Well I don't know about the UK, but here in Finland it's possible to get atleast 10% off new B&O.

 Just have to bargain a little :) 

In the UK, despite the current climate, dealers seem more determined to source as much income as possible. ie. no discount. Worse, I've heard that some UK dealers have changed their policy on installation costs and some of the prices do not include installation.

moxxey:

In the UK, despite the current climate, dealers seem more determined to source as much income as possible. ie. no discount. Worse, I've heard that some UK dealers have changed their policy on installation costs and some of the prices do not include installation.

 

Well perhaps these dealers should take sales-men course 101.   

I don't think you generate more income by keeping your prices high. You lure more buyers by giving them a little slack.

Snobs?   

bayerische:

moxxey:

In the UK, despite the current climate, dealers seem more determined to source as much income as possible. ie. no discount. Worse, I've heard that some UK dealers have changed their policy on installation costs and some of the prices do not include installation.

 

Well perhaps these dealers should take sales-men course 101.   

I don't think you generate more income by keeping your prices high. You lure more buyers by giving them a little slack.

Snobs?   

I'm very interested in this business model. Can you please hang some figures on it.  I'm especially interested in what your model says you  do when pretty much your entire market has gone home, locked the door and decided that they won't spend ANY money.

I cannot see price reductions getting to the consumer. I think it will result in a little extra margin to the retailers. B&O have been absorbing the differential between the euro and sterling and a  2.5% reduction is highly unlikely to  stimulate much extra growth in sales, although I suspect those buyers already in process may seek a discount. The dealers will use the extra margin to keep them afloat. The change in VAT will keep prices stable.

Oh, I don't have any material to a marketing model, however, you don't think cutting prices result in higher sales?

 -Jees, wonder why there is a thing like "sale" then?

 So the Recession has hit Britain so hard then that no-one buy anything anymore?  

Cut-down prices do stimulate consumers eager to consume more. Even to the extent that we buy things we don't really need.

Of course  Beo isn't one of the brands selling the stock off cheap. Tax reliefs tend to transform into higher mark-up. 

 

As usuall the conversation of price and discounts portray the dealers as the 'bad guy's' i don't know about the rest of the world but the UK franchises have very small margins.  In fact when speaking to a retailer some years ago they showed me the business model for Bang & olufsen retailers, it showed a net profit of 5-8% and the consumers want a 10% discount and free installation.  It does not follow that the more something costs the more profit and the bigger the margins are.

Sales generally come about to clear out old stock and i don't think B&O are any different, from my experience they will reduce ex-demonstration stock which has to be considered a sale?

I'm affraid that I do not share the point of view that installatioin should be for free after all the installation guys need to earn a wage aswell and on such low margins it can't be coverd by sales alone, I like a bargain as much as the next person but to what extent, another dealer closed.  I am not suggesting that the whole reason for the recent dealer closures is due to discounting and free install but I am sure it would'nt have helped.

As for the VAT reduction, I am not sure if it will be passed on or not but I think that it raises some interesting questions, if retailers reduce costs accordingly now, to great joy from consumers, when the government raise the VAT by 2.5% at some point in the future to reclaim the loss, will the consumer be equally happy to have the prices increased?

Just my thoughts!

meandmyshadow:

As usuall the conversation of price and discounts portray the dealers as the 'bad guy's' i don't know about the rest of the world but the UK franchises have very small margins.  In fact when speaking to a retailer some years ago they showed me the business model for Bang & olufsen retailers, it showed a net profit of 5-8%

I'm affraid that I do not share the point of view that installatioin should be for free after all the installation guys need to earn a wage aswell and on such low margins it can't be coverd by sales alone

Please do not try and make me feel sorry for a dealer who is selling me a £9000 BV7. If they can't throw in an hours worth of installation, for around £35, then they are very much in the wrong business. Even the local Sony centre will install a TV for free when pushed - and those TVs are around £500 or less.

If a dealer only makes 5% - and that's not what I've been told - then they are very much in the wrong business. Every franchisee is aware of the business model before they take on their retail unit. If they believe they can offer a) an excellent service and b) make a profit, then they are mistaken.

A dealer will ONLY make 5% when they take off every other cost associated with selling the product - staff wages, cost of renting their unit, heating, lighting, delivery and so on. 5% isn't the margin they make from purchasing the TV from B&O.

To increase this margin, the dealer will have to sell more products. To sell more products, they have to make them more compelling. Catch-22.

moxxey:

meandmyshadow:

As usuall the conversation of price and discounts portray the dealers as the 'bad guy's' i don't know about the rest of the world but the UK franchises have very small margins.  In fact when speaking to a retailer some years ago they showed me the business model for Bang & olufsen retailers, it showed a net profit of 5-8%I'm affraid that I do not share the point of view that installatioin should be for free after all the installation guys need to earn a wage aswell and on such low margins it can't be coverd by sales alone

Please do not try and make me feel sorry for a dealer who is selling me a £9000 BV7. If they can't throw in an hours worth of installation, for around £35, then they are very much in the wrong business. Even the local Sony centre will install a TV for free when pushed - and those TVs are around £500 or less.If a dealer only makes 5% - and that's not what I've been told - then they are very much in the wrong business. Every franchisee is aware of the business model before they take on their retail unit. If they believe they can offer a) an excellent service and b) make a profit, then they are mistaken.A dealer will ONLY make 5% when they take off every other cost associated with selling the product - staff wages, cost of renting their unit, heating, lighting, delivery and so on. 5% isn't the margin they make from purchasing the TV from B&O.To increase this margin, the dealer will have to sell more products. To sell more products, they have to make them more compelling. Catch-22.

First of all comparing B&O to a Sony centre is no where near the same, the margins are much higher in a Sony Centre for a start.  And at no point was I asking for sympathy for a B&O dealer.  I was mearly pointing out the costs of running a business model like the B&O franchise.  And as for your rant about a dealer only making 5% after costs, please read my post again and in particular the bit where i wrote "NET profit".As for your BV7 £9000 scenario, I am sure you would get 1 hours worth of install free but what sort of install would that be for a TV that costs that amount of money and if it is only costing you £35 then i think your getting a bargain.  lots of dealers are charging £60-£80 per hour.And finally more sales does not equal more margin, the margin remains constant regardless of sales.  End of year profit would however be increased, but how this is acheived is a different matter.  You can't simply cut your margins to increase sales, there has to be a minimum that enables you to run the business.  Many retail models have very high margins which allow them to discount heavely and still make reasonable profits.  Put simply you can not associate overall retail prices with profit there are no set guidelines.The point I am making is that the dealer is a business and as such needs to make a profit and regardless of the cost of the TV the money is spoken for in running that business. 

meandmyshadow:

I am sure you would get 1 hours worth of install free but what sort of install would that be for a TV that costs that amount of money and if it is only costing you £35 then i think your getting a bargain.

It costs the *dealer* £35/hour for them to employ the external engineer. I'm not talking about them marking this up and charging me extra.

You can have your opinion. That's your right. I don't share it though - I don't have any emotions at all about the B&O retail business model, including my own (if I factored in every business cost my 'margins' would probably only be 5-10%). If you want to make it work, make it work. If not, get out. I'll still get a good deal though or I'll source from elsewhere. You know where, too.

moxxey, why are you taking this so personally?  My reply was to show a balance and to offer an alternative point of view about discounts and freebies.  Presumably you must be factoring all your running costs in to your business, how else would you present your balance sheets to your accountant and if you are preducing a net profit of 5-10% then well done.  But you also have to look at it this way, if you are making 10% net profit and you offer 5% discount off your front end...that's 50% off your net result!   And i wish you well in always getting a good deal, as i said from the start I like a bargain the same as anyone.

buy a sony , then

 

:) 

meandmyshadow:

moxxey, why are you taking this so personally?

I'm not taking it personally at all. If my response appears that I have taken it personally, then I apologise.

However, your theory can apply to any business. Margins are not calculated based on factoring in every business expense. Margins are based on the difference between your retail price and the price you purchase from your supplier. That's why you can't say a B&O dealer only makes 5% or so. Jewellers often make 40% margin on their watches, but then if you factor every business expense you'd find that this 'margin' becomes a 20% profit.

My original discussion came about because I argued that dealers are seeking to increase their profits (nor margins) by now excluding the cost of installation. I can understand this if you walk in to a Sony store and pay £499 for a TV - you'd expect to pay for the install. However, walk in to B&O and pay substantially more and you'd expect someone to hand deliver with at least an hours worth of installation. That's the B&O service experience that we all expect.