Incentive mis-match in retail, what the OEM's can do?

What is the Problem:

As margins of the big-box electronic retailers like Circuit City & Best Buy started shrinking, they tried to enter the services business through initiatives like "Geek Squad". This per se is not a unique idea; OEM's like SUN have long tried use this services business as their prime driver for profit. These services are often sold along with products. However retailers getting into this services business is a relatively recent phenomenon. When a customer is buying a NEW Canon digital camera, he would probably not buy a 2~3 years of maintenance contract unless he/she is convinced that there is a reasonable likelihood that the camera is going to breakdown in the next couple of years. Hence the services are often sold to the customers with the presumption that the product may not be good enough to remain trouble free for a couple of years. This also creates a platform for the large retailers to prepare and enter the market with their own more profitable "private label" when they feel that the consumer electronics has become a commodity. But this is not a very good promotion for Canon Digital Camera or a Sony Plasma TV; products which more or less have an excellent trouble free life at least for the first few years. Retailers instead of promoting the quality and longevity of the products are inadvertently indicating the lack of it. It is a good deal for customers, because if et all their equipment really fails, they are better off taking it to the nearest retailer instead of sending it to some remote repair facilities of the OEM and waiting for a longer uncertain period. So the services provided by the retailers are intuitively attractive to the customers if they have to have a service contract. Hence from a customer perspective, they would rather buy it from a retailer in stead of the manufacturer itself.

All these are pointing towards a win-win situation for both retailers and the customers at the expense of OEM's whose product life and quality to certain extent are being openly questioned. Now what should the OEM do to avoid this trap? It is important to remember here that due to the size and reach, these large retailers have a strong bargaining power and at the same time, electronics major are noticing a steady decline in their margin with a continuing trend in commoditization of products.

I have noticed this problem several years ago and do not have any idea on how this can be solved from an OEM perspective. Any comments on this is most welcome!

Comments are welcome!
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