By Stan Walerczyk
This column is about lighting rep agencies and their relationships with distributors, and how that impacts distributors’ relationships with contractors. The business model for other types of reps may be quite different.
If you are not already aware, lighting reps usually have more influence on pricing than manufacturers or distributors.
The key word is ‘overage’.
Lighting manufacturers have recommended pricing, and the rep can get their normal small percentage on that. But lighting reps can quote much higher prices if they want to. For example, if a lighting rep gets the customer to accept a much higher price, let’s say 100% higher, the rep may be able to get 50% of the overage and the manufacturer may get the other 50% of the overage. Sometimes, the rep may be able to get higher than 50% of the overage. For example, the recommended price may be $10,000, and the rep may get $500 on that price. But if the rep can get the price up to $20,000, the rep may make an additional $9500 on that extra $19,000.
As you can see, a distributor often has some tough choices with some lighting products.
- If the distributor says yes to the light rep, the price can be artificially high to the contractor and end-customer.
- If the distributor says no to the light reps, the distributor may lose the sale, not only on a specific project, but also future projects.
- If the distributor contacts the manufacturer, the manufacturer may work with the rep to get the price down, but if the rep learns about this ploy, the rep may work with other distributors.
- If the distributor tries to by-pass the light rep with products from another manufacturer and another rep or with products from a manufacturer, which sells direct to distributors without rep agencies, the one rep agent may work with other distributors.
Don’t get me wrong, there are some very good and ethical lighting reps, but like so many other situations ‘follow the money’ is usually very helpful.
I have experienced lighting reps that tried to get the client to specify lighting fixtures, which have no equivalent, so they can get the sale. But that fixture may have no equivalent, because it has single source and expensive lamps, which is not really good for the end-customer.
A while back, I consulted for a company that has similar facilities across the country. I was amazed the difference in pricing for the exact same manufacturer and model exterior LED fixtures through different rep agencies. There was nearly a 50% price difference between highest and lowest quotes. I contacted the manufacturer about this. Soon after that the high price quotes were drastically reduced.
Most lighting reps do not understand the lighting retrofit market and tend to charge prices that are much too high. On several lighting retrofit projects, I specified suspended indirect/direct lighting fixtures from a specific manufacturer. I contacted the manufacturer and asked them about what contractors would pay distributors. These public sector projects went out to bid, and the prices that contractors got from distributors with the rep agent’s mark-up was about double as what I expected. With those high prices, these fixtures were removed from the project. Then I worked with that fixture manufacturer to set up good pricing from at least one distributor with a reasonable percentage to the rep agent.
For lighting retrofit projects, it is often best for distributors to buy from manufacturers that focus on this industry and to not use reps. This can often be the best value to contractors.
Since pricing on lighting products is complex, it may be good for contractors to discuss it with their distributors.
As mentioned at the end of all of my columns, contractors, please send me feedback and input for new columns. Email me at email@example.com.
Stan Walerczyk, LC, CLEP, HCLCTagged with tED