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MD of Burns Bathrooms, Kitchens, Plumbing and Heating, on internet pricing.

Toby Hoyle, managing director of Burns Bathrooms, Kitchens, Plumbing and Heating Products, Woking on internet pricing.

Mr Hoyle spoke to KBB Review this month about the challenges facing KBB retailers in the midst of online pricing. Here is what he told KBB Review:

I read an article in your July issue by Derek Miller regarding branded product being discounted on the internet and it's a subject I feel passionate about. Showrooms and merchants alike are increasingly refusing to promote and grow business with brands that allow their products to be supplied by Dutch auction and low levels of service. We support those that support us.

I would say Kohler and Daryl have the best internet policy. They seem to have made the bold choice not to allow their products to be openly sold on the internet at all. They realise that for their own success they need their products to be sold and promoted through showrooms.

Roca's policy isn't as clear yet but I know that behind the scene they are taking strong steps to control route to market and over the last few weeks prices shown online have become much more sensible.

The internet and discount outlets are great at supplying low-end product and supplying demand. Manufacturers of brands should now be asking themselves the questions: 1) where does the demand stem from? And 2) what will happen to their long term sales if they lose the support of those that I firmly believe create the demand?

We can all name brands that have been very successful in the discount market. In recent years as us resellers have seen the decline in margin potential with these brands we have moved away from them. As these manufacturers' products date and come to the end of their life cycle will these brands, without showroom and merchants' support, be able to successfully launch new offering into the market place?

We have realised that locally our own company brand and marketing more than checks that of any manufacturer. If a survey was carried out in our town I bet many members of the public would know of us but few would be able to name a single leading brand and I doubt those that were named would command significant consumer loyalty.

The problem for us in the past has been that clients take all our advice, help and support and use the specification as a shopping list banding it to discount outlets and internet stores alike. These companies don't offer the service needed to make a purchasing decision. They offer the much cheaper service of 'supply only' once the decision has been made.

The internet sets the prices, so when a supplier or manufacturer presents to us it's easy to work out the margin we are going to make. It amazes me how many representatives and sales people have no idea of the sort of margin needed to run a company like ours; 10% doesn't even get close. Representatives often try to tell me that our company with its physical presence, displays and high services levels can demand a higher price for products that is readily available on the net - that's ridiculous! We can't - all that does is increase customers perception that we can't compete.

My advice to all merchants and retailers is look closely at your 'profit and loss'. It's easy to work out the margin needed to be successful. Having a relationship with any supplier that doesn't allow you to make a small margin above break even is an unhealthy one, especially when it's those manufacturers that are happy to piggy back off your customer base, sales force and marketing budget only to support outlets that can easily supply the demand you create at a fraction of your costs. Competition is a good thing but it has to be fair.

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Kitchens Kitchens take on the news

It’s a very interesting debate as clearly the internet isn’t going away and as time moves on, the web is only going to become increasingly more important in all industries, including the KBB sector but there could be some room for harmonisation rather than as Toby Hoyle correctly surmises, a Dutch auction pricing structure.

KBB Harmonisation

If we look at the kitchen furniture/cabinetry industry there is harmony between on and off line, as the brands, be they the UK brands of Burbridge and PWS or the German brands of Hacker kitchens and Nobilia, only do trade and whilst consumers can go to the websites of each, to begin the buying process the consumers then get directed to a ‘find a retailer’ page so the brand actually helps the retailers.

This is especially so with PWS in the UK who have, through their SN Collection website, invested heavily in online marketing and in doing so, helped support the retailers and as a direct result have helped their own business through this investment.

Toby Hoyle makes an interesting point in that as part of the kitchen ‘consultation’ people will ask for advice on appliances but as to what extent these ‘window shoppers’ influence the overall market share of appliances isn’t clear. But if the appliance brands thought it was much of a threat to keep small kitchen retailers happier and support them more than perhaps they probably would?

Because there isn’t as much consultation involved in buying kitchen appliances, and the branded products from one retailer to another are the same product, the only variable is then price and consumers will then go for the lowest price understandably. We all do it. As such, we know many kitchen retailers now have accepted that they won’t get any margin on the appliances and if the consumer wants that brand then the only loser is the kitchen retailer at the moment in not being able to apply some margin.

Global Marketing versus Small Retailer?

When you consider that LG Global Electronics for example, earns $50bn a year from operations in 140 countries, and spends about $500m a year in marketing, advertising and sponsorship and is involved with the globally recognised F1 teams of Lotus, Virgin Racing and Cosworth and has previously sponsored everything from Fulham FC, leading Argentinean football club Boca Juniors, Brazil’s Sao Paulo FC, to also sponsoring the world's governing body for cricket, sponsoring the snooker Grand Prix, and London Fashion Week, LG will argue that its own efforts and marketing investment generate more sales and profit than it would if it were to harmonise its pricing structure to benefit smaller retailers.

Unless all the appliance brands followed suit and a universal policy was adopted it would be difficult to see some brands looking to not adopt the policy and in doing so, take advantage of the situation?

You do feel for smaller retailers and some appliance brands are open to price matching online examples for smaller kitchen retailers and giving a bit of room for the retailer to put some margin on but as the KBB interview with Toby Hoyle portrays, this is more of an exception than a rule.