WHERE DO YOU BUY YOUR groceries? Do you buy produce at the farmer's market, meat from the butcher shop, and dry goods at the wholesale warehouse? Maybe you shop at a large grocery store that has everything in one place, but also shop at the specialty shops for important occasions. If you buy groceries at all, you have something important in common with your audio-visual rental and staging customers. You evaluate your grocer choices based on your perceptions of their ability to meet your needs. Granted, groceries are not audio-visual services. The grocery markets are defined by product quality and customer service. While these are important criteria for any business, the audio-visual business has something more to sell. As purveyors of technology we need to understand how innovation and complexity work together to define our markets and how our customers use that information to decide if we are a good fit or not.
Grocers come in all shapes and sizes. You can find meat and dairy vendors (think concert sound and lighting companies). There are fresh produce shops (think video suppliers). There are warehouse stores like Sam's Wholesale and Costco (think box rental houses). Then there are full-service grocery stores like Safeway and Albertson's that have everything under one roof (think staging companies). Recently, we have seen the advent of very high-end grocery chains (Central Market is one) that incorporate the quality and service of boutique butchers, bakeries, dairies, and produce markets into one location. Full-service grocery stores tried to do this first by adding expanded delicatessens and in-store bakeries in order to meet the needs of more discerning customers. Regular customers appreciated the better service but rejected the prime beef and organic produce as unnecessary and overpriced. The target customers on the other hand recognized this for what it was, dabbling in a new arena. As soon as the quality of the product or the service wavered, they knew that the grocer had not really reached the new service threshold because the old experience was still present.
A threshold is the point where a new experience begins. For the grocer example, it meant establishing a position in an intended market. The full-service grocers have failed to capture the high-end customer because they cannot reproduce the experience of boutique shopping. A technology threshold for an audio-visual rental and staging vendor is the point where you are firmly established from both a service and hardware perspective as a definitive resource for that market. In other words, it is clear to both you and the customer what you are consistently good at. When trying to establish their position in the market, many businesses seek to provide a level of service that starts to look like their goal, as did the full-service grocers trying to win the high-end business. Inconsistent service quickly reveals that the business doesn't truly understand what it takes to meet the needs of that market. One reason companies fail at positioning is that they are gauging the wrong decision criteria. We will look at the qualities of complexity and innovation as decision criteria for audio-visual customers. So as an AV business, does your vision of your target market match your customer's perceptions and expectations?
Here are some signs that your company may not have found its technology threshold:
Inventory is mismatched across product classes. For instance, you have three types of 5,000 lumen LCD projectors.
Systems are not scalable. You have a high-end PA system to support a name act concert in an arena but not in a small ballroom.
You never run out of anything. Sub-rentals average below 1 or 2 percent.
You run out of everything. Annual sub-rental or equipment outsourcing percentage to revenue consistently exceeds capital budget percentage to revenue. For instance, you can only budget 8 percent of total rental revenue for capital purchases but your sub-rentals average 12 percent.
New products sit idle until someone knows how to sell them and/or someone else knows how to use them.
New products sit idle because you didn't order the right configuration or the necessary accessories.
Technology threshold is not just about what equipment you have. Your people and services are equally important in defining your position. What comes closest to defining your true threshold is the “fit and finish” of your products (people and equipment). Do they complement each other and do they convey the message that you understand the needs of your target project?
To help visualize what I mean, take a look at Threshold Grid A. One side of the grid tracks the level of complexity in a project. The other side tracks the innovation needs of a project. The degrees of complexity and innovation required determine where a project fits onto the grid. A complex project may require lots of detailed coordination or the integration of many pieces of hardware. An innovative project may utilize engineering expertise or the application of cutting-edge technology. A project can be very simple and require little originality or quite complex and call for lots of innovation in order to succeed. Of course there are familiar projects that can be found in every quadrant on the grid. How many of these project points are you trying to service right now?
Projects have specific requirements, but companies have to meet the needs of a variety of jobs. Threshold Grid B (p.34) shows some possible placements of different types of audio-visual rental and staging companies. If you built your operation to handle highly complex and innovative events then you would be in the upper right quadrant. This would suggest that a customer might consider you suited to handle corporate theatre and complex exhibits. They probably won't look to you for a concert. The threshold of a corporate AV staging company is clearly different from that of a concert sound and lighting company. Are you a company that tries to do both?
The benefit of zeroing in on your technology threshold is the potential for profits by allowing your sales force, operations, and inventory to share the same focus. Your sales force knows what range of solutions they can sell, your operation knows how to fulfill and at what level, and your marketing efforts can focus on the right customer for your products. Looking deeper you will find that labor, repair, training, sub-rentals, supplies, and logistics all run smoother and cost less. In terms of capital expenditures, knowing where your threshold is will help you make better use of available funds. For instance, you will know what your long-term return on investment is for a mainline product and can measure that against a short-term strategic purchase. It should make it clear that you need to fulfill demand in existing products before risking capital in new markets.
Your initial reaction might be that you want to reach all of these kinds of projects. While that is possible, there are two big obstacles you will need to consider. Pursuing more than one quadrant may increase the risk that a potential customer will assign you the wrong position on the grid and hence, away from their project. For instance, if you eagerly pursue a customer's portable projector rentals, will that help you win their national sales meeting? More than likely it will just identify you as a rental company and not the staging company they are looking for. Another concern in servicing multiple quadrants is the cost involved. In order to do high-end corporate theatre, you will need expensive, top-flight show engineers involved in the planning and execution of the project. There is also the cost of owning and maintaining higher-end equipment. Without sufficient business for these tools, your overall margins will be lower. It works the other way as well. If you have built an operation as a staging company, can you afford to also cater to box rental customers? There is no right or wrong spot to be in and there are many successful companies that have taken on more than one quadrant.
In the evolution of an audio-visual rental and staging company, there comes a point in time when the technology solutions you employ take on a life of their own. What you already own influences what you buy next more so than market trends. This indicates that you have established your technology threshold. From this point on you will generally work within the constraints of your existing inventory while meeting the needs of a particular customer class.
When you need additional equipment you look first at buying more of the same model, second at buying the next generation, and third at a new class of product that supplants existing inventory. Your clients and existing inventory are making your decisions for you. When it comes to picking your position in the market, there are two clear choices. One is to specialize on one quadrant by employing the right people for that kind of project and buying only the gear necessary to service it. The second is to go for the middle ground. Choose a position that reaches out to as many points as you can while surrendering the corners furthest from your position. Either path has its unique implications for your operation. By consciously choosing one over another, you can be better prepared for the challenges. Ultimately, the quality of your product and your potential for profit is largely dictated by your ability to be consistently good at a target threshold.
Tom Stimson is director of sales and operations at Alford Media Services in Dallas, Texas, and has over twenty-five years experience in corporate theatre.