2019 Partner Update

May 15, 2019
Bill Crutchfield

One of the most important reasons for Crutchfield's success over the past 45 years is our faithful adherence to our core values. We call them our Basic Beliefs. One pertains to our customers. It reads, "Exceed our customers' expectations by providing a truly exceptional level of integrity, courtesy, service, and helpful information." Faithfully adhering to this value explains why Crutchfield is recognized in the Consumer Reports 2019 Buying Guide as the nation's number one online retailer of consumer electronics. Another of our core values pertains to our employees. It reads, "Respect each of our co-workers and provide a work environment that promotes dignity, team harmony, and personal satisfaction." Our faithful adherence to this value explains why Virginia Business magazine has named Crutchfield as one of the best places to work in our state. And, we have a core value that pertains to you, our business partners. It reads, "Respect our business partners and maintain mutually rewarding relationships with vendors who demonstrate high professional standards."

Crutchfield has demonstrated this by treating your people with the utmost respect, honoring your marketing policies, never being adversarial and meeting our financial obligation when due. However, I have decided to take our strong relationships to an even higher level. I want it to be even more beneficial to you. In turn, it should be highly beneficial to our industry which is under an increasingly high level of stress.

When I speak with some of you, two consistent messages come up. They are:

  1. Brand destruction. There are a diminishing number of retailers that can provide "discovery" for first time buyers of our products and sophisticated support for the early adopters of advanced technology. It is virtually impossible to obtain competent sales and backend technical support from the huge online retailers and through most of the affiliate retailers on their platforms. To make this situation even worse, some platform providers restrict its specialty affiliate merchants from promoting these services on their platforms. For the few products (mainly closeouts) that Crutchfield sells through a platform, we are restricted from promoting some of our most important competitive advantages—our sophisticated sales and technical support services as well as our vast informational content. Without traditional high-touch retailers being able to provide one-on-one personal shopping, installation and troubleshooting assistance, manufacturers' brands will be weakened as product quality and technology become secondary to price. This could result in further commoditization of our products. In time, the consumer electronics industry as we know it today may be very different.
  2. Inability to obtain shopper data. Manufacturers often complain about their difficulty in obtaining powerful data on their end users. Other than warranty card registrations and newsletter subscriptions, manufacturers have very little direct contact with their end consumers. Without transacting sales on their website, manufacturers have virtually no information pertaining to important shopping data. Although the sophisticated retailers have this information, few are willing to share it. In this data-driven world, it is critical to obtain and intelligently analyze customer data in order to provide them with the best experience and service—for both current and future products. Having this capability is a true 21st century competitive advantage for both manufacturers and retailers. Amazon proves this point every day.

We all agree that brand destruction caused by commoditization and diminishing differentiation could be catastrophic for both premier CE manufacturers and specialty retailers. The surviving manufacturers may be those which invest the least in innovation and produce their products in countries with the lowest labor costs. Furthermore, there may soon be few surviving specialty retailers. Retailers that win the price game will not have the margins necessary to provide quality support services. Without innovative new products, quality manufacturing and highly competent support services, the magic of consumer electronics could be lost.

It is theoretically possible for manufacturers to replace the diminishing number of specialty retailers by selling to end consumers on their own websites and attempting to provide the necessary support services. This approach has been tried in the past with limited success. Premier manufacturers are the most successful doing what they do best—innovating new technologies, manufacturing quality products and managing their distribution channels. It takes years to develop sophisticated content, sales, technical, customer service and fulfillment support for actual end users. These roles are best left to experienced specialty retailers.

As a way to greatly enhance our partnership with our premier manufacturer-partners, Crutchfield has developed a 21st century business model which addresses these problems. I started working on this complex undertaking last July. Since then, I have involved some of Crutchfield's brightest people in the initiative. Here it is.

Support by CrutchfieldSM

For those vendors who sell directly through their own websites and/or the online platforms, we will offer them full one-on-one support services. That includes telephone, chat and email support along with the sale of Crutchfield's proprietary products (e.g., car installation kits, etc.). Additionally, we can offer access to our vast online content consisting of thousands of printed articles and videos.

The mechanics of this program are quite simple. If a manufacturer offers products for sale over its own website, those orders could be redirected to a special section of Crutchfield's website. We would handle the sales, fulfillment and support functions for the manufacturer-partner. If a manufacturer offers products for sale on a platform, the phrase "Support by CrutchfieldSM" would be prominently listed as a major benefit of the product. Ideally, it would be a hyperlink that would take the shopper to an explanation of this service. However, if a platform provider would not allow this link or an explanation of this important benefit, we have registered www.supportbycrutchfield.com. If the shopper searches for "Support by Crutchfield," they would be taken to our specialized site that lists our partners, our support services, and the ways to obtain them. Currently, this site is under development.

Each vendor will be assigned dedicated telephone numbers along with individual chat, email and content routing codes. Our advisors would be able to determine from which partner sites the inquiries are originating. If it is in the best interest of the shopper to offer a complimentary product from a competitor to complete a system, we will have the option to do that. An example of this situation is occasionally seen when a particular manufacturer has a suitable head unit but does not offer speakers that fit the customer's car. To complete the system, we must offer components from different manufacturers. Then, there are situations where a customer is purchasing an A/V receiver but wants in-wall and/or in-ceiling speakers. Few of our A/V component manufacturers make these types of speakers. Also, Crutchfield would offer its proprietary products (car installation kits, A/V hardware accessories, cables, tools, etc.) when necessary. Our goal is to provide the end user with the best possible shopping experience.

We have a new internal initiative known as "Match Maker." We are beginning to dedicate sales and technical advisors to specific sub-categories of our product lines. It is built on the model of our Audio/Video Design Group which specializes in high-end home audio/video systems. The new teams are now receiving advanced training in other sub-specialties. We are doing the same with Support by CrutchfieldSM. Dedicated sales and technical advisors have been assigned to each of our participating partners.

The financial model

For orders redirected to our website from our manufacturer-partners' sites, there would generally be no fee. This assumes that the products are premium and carry the margins typically associated with the specialty retail channel. For products that have commodity-like margins, we will either restrict their sale or ask the manufacturer for financial assistance. Otherwise, one of two scenarios would occur. First, it would be very unprofitable for us to sell products at prices established by non-specialists such as general merchandise retailers, warehouse clubs and unauthorized retailers. Second, our sales would be very weak if we offered these products at prices higher than non-specialty retailers. Crutchfield is a high-touch, specialty retailer that needs respectable margins to provide our level of quality service.

For orders taken by the platform providers, the arrangement may be more complex. If Support by CrutchfieldSM is listed as a product feature by the manufacturer, a special registration card could be inserted into the package. Referencing the unique code would allow the end-user to benefit from all of our support services. Naturally, there will be a reasonable fee for the manufacturer. It will be based on the level of support which each product category has historically required. Obviously, some categories require much more support than others.

A win win win

Support by CrutchfieldSM could be a win win win for all parties. For our manufacturers, it ensures that they provide end-users of their products with quality one-on-one support services. This could enhance the manufacturers' brand by demonstrating that it is committed to providing true specialist support. Doing so would clearly separate them from their competitors who are not offering this enhanced level of service. Furthermore, it should prove to be considerably less expensive and distracting for the manufacturer than trying to develop their complex support infrastructure.

Another major benefit of Support by CrutchfieldSM will be information sharing. Crutchfield will provide reports to our participating partners about all design and manufacturing issues that are creating problems for the end users. Furthermore, we are expanding our data analytics team to provide our Support by CrutchfieldSM partners with the most sophisticated marketing data obtained through this service. Where possible, we will provide data on end-user behavior that our partners need. However, it would not be ethical for us to provide direct comparisons with our other partners. That data will remain confidential. Also, all data sharing will be consistent with state and federal data privacy laws. Our objective is to provide our manufacturer-partners with the most powerful and ethically-obtained data possible, so that our partners can in turn provide the best products and experiences for their customers. Again, this would provide our manufacturer-partners with a 21st century competitive advantage.

For Crutchfield, it would provide the additional scale which would allow us to develop even better consumer experiences for both our manufacturer-partners and our own customers. We could continue to invent, develop and provide services that support sophisticated consumer electronics products which are sold online.

Finally, Support by CrutchfieldSM would be a win for the consumer electronics industry. We would provide this service to premier manufacturers who provide quality products and practice responsible management of their distribution. If non-compliant manufacturers want to take part, they would first have to address their quality and distribution problems. Support by CrutchfieldSM would create a 21st century solution to the 21st century problem of brand destruction caused by commoditization and diminishing differentiation. And, it could provide an incentive for some manufacturers to elevate their standards. Improving consumer perceptions of our industry is an example of "a rising tide lifts all boats."

The politics

Crutchfield is so well respected in the industry that no other retailer should fault a manufacturer for teaming up with us for these important support services. Virtually all of them realize that Crutchfield is the industry leader at providing support services. Therefore, it is completely logical that, if a manufacturer were to team up with a specialty retailer, it would be Crutchfield.

To mitigate any political issues, we have prepared a document titled "Why Crutchfield." It is at the end of this paper.

The launch of Support by CrutchfieldSM

I am very proud to announce that Support by CrutchfieldSM has just launched with two partners, Alpine and Sony. You are probably curious why these two manufacturers are our initial partners. The answer is simple. They both reached out to us independently seeking our solutions to the threats facing our industry. Being an entrepreneur, I responded with the concept of Support by CrutchfieldSM. Some of our talented people responded brilliantly with the necessary tactical work.

With Alpine, we are supporting its entire line of mobile electronics products. When shoppers see products on Alpine's website, Crutchfield will be the featured online retailer. When clicking the "Buy Now" button, they will be redirected to Alpine-Crutchfield pages hosted on our site. Crutchfield will then provide all of our legendary front-end and back-end customer support service. This includes a team of Alpine sales advisors who have already been specially trained by us.

With Sony, we recently launched our Support by CrutchfieldSM partnership with two large email campaigns. Very soon we will initiate a pilot program where shoppers on Sony's website will be referred to Crutchfield. Initially, it will be for mobile electronics and headphone products. In time, we hope to expand this service to Sony's other product categories. Like with Alpine, visitors to Sony's website who want to purchase those products will be redirected to Sony-Crutchfield pages hosted on our site. Crutchfield will then provide all of our legendary front-end and back-end customer support service. This includes a team of Sony sales advisors who have already been specially trained by us.

Future partners

We plan to offer Support by CrutchfieldSM to some of our other premier manufacturers. However, we will not do so immediately. We first want to work very hard to provide the finest possible service for our launch partners. Our customer-facing support services are proven. We have refined them over the past 45 years. However, there will be some fascinating new challenges. Aspects of data collection, data sharing under the framework of new privacy regulations and sophisticated data analytics are rapidly evolving 21st century approaches to business decision-making. By working together on these complex issues, we will discover new and more efficient ways to attract and serve 21st century buyers of consumer electronics products.

I am writing you before you hear about this exciting initiative from other, less informed sources. Naturally, I would welcome any suggestions that you may have for making Support by CrutchfieldSM even more beneficial to our industry.

Thank you for your ongoing partnership. As you see, we are working hard to make it even better.

Appendix follows


Appendix

Why Crutchfield?

  • Brand — For the past 45 years, millions of shoppers have regarded Crutchfield as the premier specialty online and catalog retailer of consumer electronics products. Its reputation is confirmed by Consumer Reports 2019 Buying Guide ranking Crutchfield as the nation's top online retailer of consumer electronics. Crutchfield is the only online retailer out of 4,700 surveyed that has earned Biz Rate's Platinum Circle of Excellence award for 19 consecutive years.
  • Expertise — Crutchfield is known for providing deep knowledge about the products it sells, both before and after purchase. Its in-house editorial staff has produced thousands of articles and videos on a wide variety of consumer electronics topics. All of its U.S.-based sales advisors undergo 400 hours of initial training over a three month period. It is followed by ongoing recurrent training throughout their careers. And, there will be additional training for the products of Support by CrutchfieldSM partners. Crutchfield's technical support advisors have extensive in-depth knowledge gained by years of hands-on experience. This support is provided to customers for the lifetime of their purchases. Crutchfield's product databases are compiled by a dedicated team of research technicians who delve into and document virtually every detail of Crutchfield's 14,000 SKUs. Crutchfield has developed an online vehicle fit tool which applies to approximately 25,000 makes, models and years of vehicles. It involved technicians taking apart and reassembling over 6,000 vehicles.
  • Innovation — Crutchfield has been a pioneer in retail innovation. Its spring 1975 catalog was the first of any type to offer extensive educational content. And, Crutchfield was a pioneer in online retail. Its website went live in September 1995, only one month after Amazon's. Crutchfield has developed custom-made wiring harnesses (ReadyHarnesstm), and patented in-home acoustic simulation of car and home speakers (SpeakerComparetm). Its proprietary Connect ID technology allows advisors to send web pages, images and carts in real time to customers shopping at Crutchfield.com. Additionally, Crutchfield's many unique and innovative processes drive the company's operational excellence.
  • Culture — Crutchfield has always been known for its rich organizational culture. It is centered on maintaining the utmost respect for its customers, employees and business partners. Over its 45 year history, the company has never had an employee layoff. Virginia Business magazine has repeatedly rated Crutchfield as one of the state's best places to work. And, it has always complied with the commitments made to its business partners.
  • Sustainability — Since its founding in 1974, Crutchfield has successfully adapted to the many challenges that our industry has faced. The company maintained profitability during each of the six economic recessions over its 45 year history. And, being debt-free, Crutchfield is in a very strong financial position.