Sonos & Costco

I'm seriously looking to get a Sonos, and I am a Costco customer, but I certainly don't want to do anything that is bad for Sonos....

I think it would be safe to assume that there is some complicity on Sonos' part in getting these units distributed through Costco.

This kind of arrangment can (will) be difficult for the producer of the product, but they made their bed, so to speak, not you. Just understand what sort of support you can expect from each party and decide what's best for you.

greg

This is completely a wild guess on my part and I have no direct knowledge to backup my claim.

Sonos is neither the manufacturer nor the distributor. That is mainly due to the capital cost and resources required to do so. Sonos has an arrangement with the manufacture (in China I believe) to get some sort of cut per sale or sales. The distributor (maybe Ingram) has an exclusive deal to distribute and sell Sonos in the US, for say, they pay Sonos $x.00 for each controller sold and $y.00 for each ZP.

All sales of Sonos in the US go through this distributor, even the Sonos Web sales. Say when one orders a ZP on the Sonos Web site and pays $499.00, Sonos in turn sends an order to the distributor and pays them $399.00 to “drop ship” the ZP.

In this type of arrangement Sonos probably has limited if any control of sales, maybe with the exception of first rights to inventory. Meaning Sonos gets their orders filled before others. The distributor obviously wants to sell as many units as they can, as they make more money. That means if a Costco, which most likely is a very good customer selling many items this distributor sells, wants to buy Sonos, they are going to sell to Costco.

Sonos’s control of sales comes in the form of authorizing resellers. If one becomes an authorized reseller, Sonos will back you up with warranty and technical services. This way Sonos can ensure reputable dealers are selling their product. At the same time, help protect the dealer’s investment in a storefront, advertising, etc. from some guy selling Sonos out of the back of his van on the corner by not supporting him with warranty or technical services.

Sonos is making (or should be) money from every sale, whether from an authorized dealer or not, however they very much want the sales to happen through authorized dealers for many reasons. A couple are to make sure their product is represented properly and to “reward” the dealer for being loyal. A company like Costco will only jump on the bandwagon it they thought they could sell a bunch and in turn make a bunch of money. The moment sales didn’t meet Costco expectations they would drop Sonos, i.e. no loyalty.

My impression of Sonos is they are a company that very much cares about quality and users experience. That is evident by how well they support their product and not releasing a product or feature until it is ready. Sonos is a small privately held company that has the luxury of not feeling the external pressure from stockholders about “numbers” being right. The flip side of being small is they have to make some sort of arrangements for manufacturing and distribution because their resources are limited.

Again this is totally a wild guess about Sonos. That means I very well could be completely wrong.

The end result: due to the nature of the product, I think it would be very wise to buy it from Sonos directly or through an authorized dealer. In my experience, Sonos customer service and support is second to none. It is well worth any “premium” one might have to pay over a Costco price by far.

UR

Additionally, products purchased from an unauthorized reseller are not assured of receiving:

warranty repair service
technical support
future upgrades

thanks, chris

That's an interesting statement. Is Sonos referring to future (software) upgrades? If and when a software upgrade should come out... would the Costco purchased systems not be able to take advantage of "online software updates"^1? Hypothetically, I don't know who I'd be madder at: Costco for selling non-upgradeable Sonos systems without stating it or Sonos for crippling non-authorized (yet legally purchased) Sonos systems' upgrade paths.

I could be jumping to the wrong conclusion, but I just don't see how "future upgrades" could refer to anything but software.

Thoughts?
MrP

^1 ZonePlayer: Software

That's an interesting statement. Is Sonos referring to future (software) upgrades? If and when a software upgrade should come out... would the Costco purchased systems not be able to take advantage of "online software updates"^1? Hypothetically, I don't know who I'd be madder at: Costco for selling non-upgradeable Sonos systems without stating it or Sonos for crippling non-authorized (yet legally purchased) Sonos systems' upgrade paths.

I could be jumping to the wrong conclusion, but I just don't see how "future upgrades" could refer to anything but software.



What if there was a recall of some sort? (You may remember a power recent power cord issure for another manufacturer's product.) SONOS might want to service the gray market units in order to protect it's brand name, but would that fair to SONOS?

Even if it was software only issue, SONOS would spend the money to develop the update and prepare their web servers for a certain number of hits based on it's sales, however, SONOS could be swamped by an unknown number of gray market customers. Everyone would be upset and SONOS might need to add additional servers.

Another possibility could be the last minute discovery of a software glitch causing the update servers to crash. Fortunately, units shipped by SONOS could be patched before shipment, unfortunately the unpatched gray market units would still crash the servers and cause pain for everyone.

Along this thread, presumably Sonos owns and controls the software, both handheld and desktop. The desktop software requires a ZP to setup. If they wanted to prevent this type of Costco purchases, Sonos could easily limit the desktop software to work with authorized units only. Further, the firmware on the HH's could be thinner and download the full client software from Sonos.com and reflash itself at setup, thus controlling the handheld software.

John/Mike/Sean/Graham/anybody (from Sonos), how about ending the speculation and filling us in?

I believe everybody here wants to see the company succeed, and we don't mind paying a fair price, but we also wouldn't mind saving a $100 if it's essentially the same product. If you truly own and control the product, I don't see how Costco or anybody could (legally) get inventory without your authorization. Now maybe you are authorizing these sales under the condition that warranty, tech support, and future (hardware?) upgrades will not be provided, and if that's indeed the case, I won't mind spending the extra $100 (and most others here would likely agree), but why keep us guessing?

How about some clarification?

Thx,
Frank

If some of those "Grey" market sites can send the product to Europe. You guys(Sonos) are gonna loose a bunch of customers. I know for sure, that when i see a site that sends outside the U.S, regardless of it being this official site or another, i am ordering it.

I know you are working hard on the distribution to the rest of the world, but i dont think people care from what store they buy it.

Just my thoughts.

I just wanted to note that when you buy at costco, you will be charged sales tax, which will essentially eat up the $100 savings. At an 8% sales tax, $1099 becomes $1186.92.

Costco operates in nearly all 50 states, so you will most likely have to pay this sales tax. However, Sonos operates in only two states, MA and CA, and sales tax is only added if you live there. Now, for those of you in CA, Costco might be an option if you are willing to foreit the warranty service.

Actual wording, no warrantee

'This item is covered by Costco's guarantee to refund your purchase price if you are not completely satisfied. Costco's guarantee applies, even though this item may not be covered by the manufacturer's warranty, because Costco is not an "authorized" dealer of the merchandise.'

I think it would be safe to assume that there is some complicity on Sonos' part in getting these units distributed through Costco.

[ ... ]

greg

As I said earlier, the gray market is disruptive.

I don't know exactly what is happening in the SONOS and Costco situation, but in past situations I've seen various explainations.

1): The national account wants to be a "one stop, we can get anything cheap" shopping destination and they will cultivate dealers who will "transship" units. Initially the national account will not make much money, but they may eventually approach the manufacturer with "evidence" -- see how much we could sell if we were a dealer?!! Even if they don't sell many units they'll inexpensively boost their own reputation.

2): A small dealer is in trouble and sells its inventory to a national account in an effort to raise cash. For reason 1) the national account will love it and may be able to purchase the units at or below the small dealer's cost.

3): A small dealer wants to pump up it's volume. There are many incentives to do this, mostly economies of scale. If a dealer is selling large numbers of units they may be able to save money on shipping, approach the manufacturer to negotiate lower pricing, or receiving special advertising funds (another way of increasing the dealer's profit).

4): The manufacturer and/or distributor feel that a certain fraction of the population needs an extra bargin before they will buy. These customers won't buy if they can't get "the deal". Unofficially turning your back on a few gray market sales will pump up the volume, reach these hard core bargan hunters, and allow more economies of scale at the manufacturing level.

5): The distrubutor or manufacturer needs some fast cash. A large national account can purchase the whole inventory in one quick transaction. It's much easier than aproaching hundreds of small dealers for a few units each.

6): A distributor in another market (Often Hong Kong) "leaks" units in order to pump up their volume. I've always felt that manufacturers could control this if they wanted to, but they often claim they can't. Possibly because of 4):.

7): The units are some sort of copy. I once discovered some "Maxwell" cassette tapes in a seedy street vendor's bin. The cassette shells were a very good copy, and one could easily miss the "w" in the name. One could go after the seller and importing company, but it is expensive, and takes time. Small companies may not have the resources to protect themselves from this sort of abuse. (If you've been watching your spam lately you know that ROLEX has a problem.)