How do Dixons and Tandy add value to the products that they sell, and, in doing so, what benefits are passed on to the consumer? Do high street consumer electronics stores offer better value for money than their mail-order counterparts?
The raw price figures show that, obviously, the high street stores cost more than the mail-order stores, but are the benefits that the high street stores bring worth the extra price?
I took the prices of five types of products, a large stereo, a portable system, a small television, a video recorder, and a computer. The large stereo was an AIWA NSX-V710, the portable system was a Sanyo MCD 278, the small televisions that I chose were not available in both stores, and so I had to choose similar models. The models I chose were the Matsui 14″ Remote from Tandy and the Nokia 14″ Remote from Dixons. The models were both available from the mail-order supplier, at the same price. The video recorder that I chose to use was an AKAI VSG745, and was in fact available from both stores. The computer was the most difficult part of the system to match, as the Dixons systems came with some added bonuses such as extra multimedia software and Internet capability. I therefore reduced the price of the Dixons machine to account for these differences, by deducting the price that it would cost to upgrade on the Tandy machine. So, to give the Tandy computer Internet capability would cost ?150, so that was deducted, and the multimedia software would have cost ?50, so that was deducted. The computer specification I aimed to have as a common platform was an Intel Pentium 120MHz machine, with 8MB RAM, a 14″ monitor, at least a 1 GB Hard Disk and MPC level 2 capability (i.e. be able to use CD-ROM Multimedia titles). The mail order supplier I chose to match these specifications with was Computer Trading, as they offered a system which was a close match to the Tandy and Dixons ones, while having a low price.
The common factor with all the products is that they are all more expensive than their mail-order price counterparts. This means that the high street stores ‘add value’. Adding value is taking one or more parts or products, combining, changing or adding to them, in such a way that the perceived value of the product is increased by more than the cost of the change. For example you might expect to pay ?150 more than the cost of the parts when buying a hi-fi, but the cost of putting the hi-fi together is much less than ?150. The price, however, must not be too high, as the customer has to perceive the value of the product to be that at which it is priced for a sale to take place. Within any company there will be some several ‘departments’, each adding value in their own particular way.
How much value do Dixons and Tandy add?
The only way in which this question can be answered is by looking at the figures themselves, and how much items cost from Dixons and Tandy as opposed to the mail order companies. The figures that I obtained by looking through the stores and magazines were as follows:
Here we can see that every product is more expensive from the shops than in the mail-order catalogue. You can see that the products cost very much the same from both of the high street stores at roughly 125% of the cost of the mail-order price. This means that the stores make a 25% mark-up on every product that they sell.
The fact that the figures from Tandy and Dixons are very similar show that there is another factor coming into play. This could be one of two things:
The cost of supplying the services to the customer is a high proportion of the added cost, therefore meaning that different margins of profit make little or no difference to the price.
There is competition, and each store is trying to match or beat the other one to attract more custom.
Dixons and Tandy – Adding value in action
The products are available instantly, they can be bought and taken straight out of the shop, as opposed to having to wait for delivery
The products have financing deals available, such as 0% APR (Annual Percentage Rate) on a loan. For example this would mean that you get the product delivered, but pay by monthly instalments over two years.
The products from Tandy, valued at ?299 or over, come with a free Sky satellite system.
You can try a product before you buy it.
You receive sales and after sales support, and advice is not really given over the phone. Also the shop is close to the home, so it is easy to get the product repaired or serviced.
Free gifts are often supplied, or complementary products discounted when a product is purchased.
There is a range of products available because the people who would order from a mail order catalogue are likely to know what they want, whereas those who go into a shop may need advice on which product is best for them.
If we split these perceptions into categories, we can see that each perception is a product of different type of adding value:
Points 1, 5 & 7 are because of the company moving all the products into one place, ready for sale.
This should therefore show where the value is added. In theory, this would show that value was added mainly in marketing, then in relocating the products. Also, shop staff will have to be paid, so some value would be added there.
From the evidence shown, we can state that high street stores, such as Dixons and Tandy add value in two main ways. These two ways are ‘convenience options’ and Marketing. Of these two, Marketing is approximately twice the size of Consolidation. Therefore we can say that Dixons and Tandy add value primarily through ‘convenience options’ and marketing.
Also, in answer to the question ‘are the benefits that the high street stores bring worth the extra price?’ we can say that, apart from quicker delivery and financing options available, all of the services given are pre-sales services. This means in theory you could go into a Dixons or Tandy, receive advice from them, then buy the product from a mail-order company. Thus the answer to this question is probably ‘no’, in most cases.