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Incredible Technologies Begins Direct Sales; Move Provokes Defection Among Key Distributors

Posted On: 7/11/2004

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ARLINGTON HEIGHTS, IL - Incredible Technologies on June 3 announced a new distribution policy, effective immediately, whereby operators who are members of the Amusement and Music Operators Association may purchase equipment from IT on the same tiered pricing basis as distributors. Service, parts and eventually financing will also be offered by IT, said officials.

CEO Elaine Hodgson stated: "It's going to be painful, but there needs to be more efficient representation of our products and greater profitability."

Also on June 3, Betson Enterprises announced that it no longer represents IT's product line. This defection by America's largest distribution chain was quickly followed over the next several days by other regional powerhouses including Brady Distributing, Mountain Coin and Shaffer Distributing. Additional leading distributors were said to be considering a similar move.

Hodgson and other executives emphasized  that IT will not sell direct to locations. IT officials explained its new policy by saying that while some distributors are doing a good job, others are failing to sell enough IT goods, provide adequate service, or educate the marketplace fully about IT products, services and opportunities.

"We feel there are places we can do a better job," said Hodgson. "There are territories that don't have distribution at hand or just don't get contacted by distributors very much."

Executive vice-president Richard Ditton added: "We found direct communication to operators much more efficient in getting word out to our final customers. That was more our driving reason than anything else. Our products have become very complex and difficult to understand."

The five-tiered price structure offers IT products at no discount to those buyers who purchase $29,000 or less annually; a 2% discount for those buying $30,000 to $99,999 worth per year; a 4% discount for those making annual purchases from $100,000 to $249,000; a 7.5% discount for those buying $250,000 to $499,000 each year; and a 10% discount for those buying $500,000 worth and up.

Operators qualify for initial discount purchase levels under the new plan according to the volume of their recent purchases. As operators buy more units, they can obtain better pricing. Small discounts are offered for payment by credit card or cashier's check. Interest rates will depend on credit rating and history, IT officials said.

The methods or entities used for financing are  yet to be determined, said Hodgson. The company has added two sales representatives who will contact smaller customers six times a year or more to explain new products, services and promotions. Additional service, parts and warehouse staff will also be added at company headquarters.

IT officials said they had dropped Betson from the company's distributor network due to a conflict of interest on Betson's part. The nation's largest distributor, which also manufactures a small but growing line of its own product, favors its own products at the expense of IT equipment, charged Hodgson. "They have clearly promoted their products over our products and those of other manufacturers," she noted. "That is natural; but they are at cross purposes with the other products they represent."

IT sales vice-president Don Pescione stated: "We severed ties to Betson prior to any other decision regarding our distribution channels." He also added that IT's overall direct sales policy is necessary because many operators "are not getting those services [of adequate financing, parts, service and inventory support] and feel distributors push products that are most profitable for them, even if it's not best for the operator's  route. They have been burned by that in the past. A bad recommendation will hurt them."

Echoing Hodgson's critique that many distributors have failed to communicate to the market, Pescione said: "It was amazing' how many locations [at the March, 2004 edition of the Nightclub & Bar Show] did not know we had a new 'Golden Tee Golf' update available. They didn't know 'Big Buck Hunter' was online or supported by tournaments. A lot of information does not get from us to the end user' The message of how to use our product and make more money with it is not getting out to our lower tier and smaller customers."

Disaffected distributors sharply criticized IT in return, saying the manufacturer would be hard-pressed to provide financing and service. More than one former IT distributor asserted , not for attribution , that IT's next step would be to eliminate operators and sell direct to locations.

IT pointed to its success in direct operator sales of "Golden Tee" software updates and said it has increased staff and "streamlined" communications in order to take on the full distribution function, nationwide. The company said its enhanced sales force successfully handled an initial rush of orders for the new "Silver Strike" video conversion kit.

Executives from Betson Distributing and its parent company H. Betti Industries deplored the IT policy of direct operator sales as one that "essentially eliminates the distributor" from the market chain.

"Our philosophy is that we don't support companies that sell direct," said president Rick Kirby. And HBI CEO Bob Geschine added: "We decided weeks ago that if Incredible Technologies was going to invalidate the role, integrity and value of the distributor, then we could no longer support that product. We believe the integrity of the distributor, and tomorrow possibly that of the operator, is in question right now. We want the traditional structure of the industry to survive.

"I believe today IT basically dropped all distribution," Geschine added. He called it "a sad day for the industry," saying he was "pleased" to sever the IT-Betson relationship based on IT's new philosophy. Geschine and Kirby stressed that Betson would "never" revert to distribution of IT products in the future under any circumstances.

Brady echoed Betson's sentiments that IT's policy was not just displeasing to distribution, but potentially harmful to the industry as a whole.

"With great sadness, we have made a decision to no longer handle the Incredible Technologies line of equipment," vice-president Jon W. Brady advised VT. He continued: "We hate to have made this decision, but feel that our hand was forced on the issue. We don't agree with the current IT philosophy and don't believe this model is in the best interests of our customers, our company, and the industry. We wish IT and all their future endeavors well, and do appreciate all that they have done for us and the industry in the years past. We will move forward with our decision and make the best of the issue."

By mid-June, Mountain Coin Distributors and Shaffer Distributing reported they also would no longer represent the Incredible Technologies line.

The president of one exiting distributorship said IT's new policy of selling direct to operators and distributors at the same prices effectively captures the high-volume customers as well as mid-level operators who join buying consortiums. Distributors, he said, are accordingly relegated to servicing smaller operators at "unacceptably low margins." The distributor called IT's policy "profoundly destructive to the industry" and predicted that at least two or three additional major dealerships will join the IT exodus.

IT officials said the decision to launch a direct sales policy followed extensive consultations with operators. Distributors said the decision was a surprise to them. "We weren't consulted," said one dealer who subsequently dropped the IT line.

Hodgson sought to minimize the degree to which IT's new policy represents a shift from current industry practice. "I think the lines have been blurred for a long time," she said. "A lot of distributors are large operators; that is not new. A lot of manufacturers sell direct to operators, but it doesn't hit the radar screen as much as when someone like us does it. We are definitely following a trend but because we're high profile, everybody gets more up in arms."

Hodgson also portrayed IT's policy as a natural outgrowth of industry consolidation. "I think great distributors will be rewarded and do well [under the new policy, while] lesser companies will not be able to compete." She also predicted: "I think we'll see more [distributor] consolidation. The operator is the powerful entity out there."

AMOA TAKE: The president of the Amusement and Music Operators Association in late June issued a statement addressing Incredible Technologies' new distribution policy. Chris Warren, Capital Music (Helena, MT), noted that the policy makes operator and distributor members of AMOA eligible to purchase products directly from IT's factory. "During my recent travels and in conversations with fellow members," Warren said, "there seems to exist a misperception that AMOA was either involved in IT's decision or has endorsed this policy. I want to clarify that this was a business decision solely made by IT and NOT through any collaboration with AMOA." Warren continued: "As a national trade association, AMOA will not , and cannot , promote, endorse, oppose, or otherwise get involved in the way individual companies (members and nonmembers alike) choose to do business or go to market. AMOA has not taken any position on IT's policy and has no plans to do so."