General Forum

Re: VAT at 15%?

moxxey — Mon, 24 Nov 2008 07:26:40 GMT

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.

Re: VAT at 15%?

Flappo The Grate — Mon, 24 Nov 2008 06:11:02 GMT

buy a sony , then

Re: VAT at 15%?

meandmyshadow — Mon, 24 Nov 2008 05:58:14 GMT

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.

Re: VAT at 15%?

moxxey — Mon, 24 Nov 2008 05:17:22 GMT

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.

Re: VAT at 15%?

meandmyshadow — Mon, 24 Nov 2008 03:35:44 GMT

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.

Re: VAT at 15%?

moxxey — Mon, 24 Nov 2008 03:11:26 GMT

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.

Re: VAT at 15%?

meandmyshadow — Mon, 24 Nov 2008 02:58:49 GMT

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!

Re: VAT at 15%?

bayerische — Mon, 24 Nov 2008 01:48:40 GMT

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.

Re: VAT at 15%?

propaganda — Sun, 23 Nov 2008 19:04:46 GMT

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.

Re: VAT at 15%?

joeyboygolf — Sun, 23 Nov 2008 18:33:45 GMT

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.

Re: VAT at 15%?

bayerische — Sun, 23 Nov 2008 17:46:56 GMT

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?

Re: VAT at 15%?

moxxey — Sun, 23 Nov 2008 16:23:20 GMT

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.

Re: VAT at 15%?

bayerische — Sun, 23 Nov 2008 12:45:27 GMT

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 :)

Re: VAT at 15%?

KingOfSnake — Sun, 23 Nov 2008 11:55:13 GMT

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.

Re: VAT at 15%?

Ian — Sun, 23 Nov 2008 10:49:41 GMT

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