[Russell Dawkins]

This is a pretty amazing resource:
http://www.europeanwatch.com/index.htm

I tried to add this link to the previous post, but could not - the reply system was not co-operating.

Those watches can be found under "Complications" and "Chronograph" on that page.

[Letitroll98]

These are some tenuously related posts from the last few pages, perhaps I can weave a naritive out of them.

Nobody (that I have seen in this thread, anyway) has mentioned the "price to market" concept.  In other words, the selling price is not (merely) a function of what it costs to make a product, plus a "reasonable" markup.  Among other things, what is "reasonable"?

Perceived value is a big consideration in setting a market price.  Whether this is "fair", a "ripoff", etc. is another matter, but it IS basic economics.  And the elements of perceived value are many.

The concept is more generally referred to as "pricing to market" while an individual company may "price to market".  It's not really to do with perceived value, but more an explanation of the disparity in relative pricing in different world markets.  It's rather math heavy using vector equations that relate earning power, productivity, allocation of resources, trade costs, etc. to explain why the same watch costs so much more to manufacture and bring to market in the USA than in China, and why the same watch sells for higher prices in the USA, in relative terms.

As it related to audio gear, one has to consider the market sector you place the product in.  That's were you get the perceived value and relative demand generators.  Thus your statement is essentially correct in that the consumer price based exchange rates are more of a factor in high end audio than any producer based rates.  And the reason why we see $20k audio cables, there is no real connection to production price factors.

I don't know anything about what goes into making the specific cables everyone is fixated on, or if they are a rip off or not,  but I also know that you can't just look at the parts and calculate what it would cost to produce the product. You really are oversimplifying things. I understand what you are getting at, but you are making it sound easier than it is, in general.

Yes, you are correct QE, it's a vast oversimplification.  I was hoping TONE or someone else would fill in the blanks (I think I put "etc." in there somewhere, not sure).  I could go on and on about my guesses, being in business for 40 years I can make pretty educated ones on the manufacturing and trade costs bringing a cable to market, but we wouldn't learn anything.  I'm going to see Sean Casey from Zu audio this weekend.  Perhaps he could shed some light, but I can guess what his answer might be.   

I've spent 35 years in the manufacturing world. I was also trained to be a designer in the manufacturing world. When someone produces a "cost no object" product, it is the perfect example of engineering failure.

Great post Wayne!  That's why your company produces such high value products.  We don't always see eye to eye, but you nailed it on this one.


Lastly, thanks to all of those who have kept a possibly contentious topic going with respect and humor.  For those who have strayed, take a lesson from those with more restraint.  So here's a shout out to frank111, sorry man, I shouldn't have jumped on you.  Happy Fourth everyone!

[TONEPUB]

We have discussed this before, but to review the cost structure:

Most of the mfrs that I've talked to over the years have a pretty simple formula.  They mark up what it costs them to make the box by a factor of somewhere between 3 and 6.  That's what they pay their overhead with and if there's profit at the end of the year, that's where it comes from.  They usually sell it to a dealer that marks things up anywhere from 25 - 50 percent.  Markups on cable are higher for the most part, I'm talking about actual equipment here.  I have never really talked to the cable guys about what they make.

So, that 10,000 preamp you're looking at probably has a hard cost of about 2500 - 3500 bucks.  But again, everyone needs to earn a living.  ARC, CJ and ModWright (etc etc) all need to keep their doors open, maintain inventory for build and repair, spend a few bucks on advertising and spend a few bucks on trade shows.  Not to mention the stuff they all fix for you even when it's out of warranty for nothing, which makes you all tell your friends what great guys they are.

The same goes with the dealer.  Almost no one pays retail for anything anymore, so chances are your local dealer, if you still have one, makes about 25 percent on a sale, maybe 30.  That pays for the staff, the overhead, advertising and eating the mistakes.  Again, often times when you've got a product that's a year out of warranty and it fails, your dealer more often than not gets on the phone to the mfr and between the two of them work something out so your box is taken care of.  Add to that the amount of gear they get that ends up becoming B-Stock, because it's been lent out a few times and gotten nicked along the way, which now sells for 10 percent above cost if their lucky and you can see where the money goes pretty quickly.

So, your average hifi shop with a couple of employees has to move a few million bucks worth of gear a year to keep the lights on and pay everyone a modest salary.  The guy selling hifi out of his living room not quite as much.  And remember, PayPal and credit card processors hit you for 2-3 % of sale domestically (a little more if you have amex or discover) and twice that on international sales.  Chances are if your dealer carries a brand that has to be sent back to the UK or Europe for repair, they are eating the shipping cost to get it there, about half of the mfrs. only pay shipping one way.

The other variation on the theme is when a mfr has an importer in the middle.  These guys usually take about 10-15% out of the middle, with both mfr and dealer forgoing a bit of their profits to have an additional layer of service, which the best importers do provide.  They help underwrite advertising, trade show attendance and dealer events.

So that's the hifi biz broken down FOR THE MOST PART.  No big mystery.

There are variations on this theme, but most of them work this way with this cost structure.  Again, precious few of these mfrs are just making goods with arbitrary price structures, just so they "Can get away with it."

When you go to a company like Meridian, Nagra, Audio Research or McIntosh, they have huge facilities, with lots of inventory, tons of parts and repair inventory (all of these companies probably each have a million or two in parts/sheetmetal inventory for legacy gear, just in case your 28 year old preamp takes a dump) and 30-60 employees.  To the best of my knowledge the four I mentioned all pay their people decent wages and provide health insurance.

[JohnR]

Now, if I had the budget to spend $200k or $500k on a system, you bet I would consider also buying the expensive cable some of you are bashing.  Why?  Because I could.  What is wrong with that?

Well, because you are spending money only on the replay half of the chain. None of that money improves the recording half of the chain. If you're spending money because you like "beautiful things" then I'd suggest that hifi equipment is not - with few exceptions - a very good candidate. What is beautiful is what comes out of it, and that is limited by the very process that it's part of.

[Letitroll98]

We have discussed this before, but to review the cost structure:

Thanks again for the reply Tone.  And you're right, we have gone thru this before, I was paying attention and remember your post, so I apologize in advance in saying that's not what I was looking for.  I understand variable and fixed costs in production, and I understand supply chain price structures, and I understand the retail marketplace.  With the vast majority of audio products the numbers add up for me and make sense.  And I apologize if you're put in the role of defending the greater audio industry, this is not my intent.

My focus was on the uber expensive, boutique market products priced beyond comprehension, an example mentioned was the Odin line from Nordost.  You've had some experience with these so I pointed my questions at you and narrowed the focus to that product, but it could be one of many products, and not just cables, and anyone with an answer is welcome to chime in. 

My feeling is that the retail price on these products bears no relationship to actual production costs (plus markups) and is more to do with marketing and product positioning, regardless that it's a very nice sounding piece.  e.g. If Company X has a product worth $50k, $20k, whatever, then the $1500 jobby from that company I'm buying today must have a lot of that stuff in it, boy is it great.  If the top product is priced at a more reasonable level, the rest of the line suffers in prestige, and therefore in perceived value.  Additionally, I would note that you're insightful statement bears repeating, not many wealthy people are paying retail for these products, they get "preferred customer" discounts after spending $X at that retailer, so the 10-20% discount must be factored in to the net.  I was wondering if anyone could prove me wrong by detailing the production costs of say, Odin speaker cables, from which we could deduce a normal supply chain markup.  Absent that, they remain my nomination for biggest high end audio ripoff.

I really appreciate your contribution so I hope you'll accept that I'm taping your knowledge base and not trying to paint you in a corner, you bring a lot to AC and I look forward to your future posts.             

[Wayner]

One huge manufacturing cost for smaller companies are the piece parts themselves that make the chassis, cover, faceplate and circuit boards. There is always CNC programming to be done and small quantities of parts are the usual order. These parts are also like jewels, so there is always special handling. "FILL IN BLANK HERE"employs the double anodizing for all faceplate graphics and that can make a faceplate'c cost increase significantly. Besides building the units, there is testing involved and if a guarantee is offered, there needs to be costs in the unit price for this. Even special carton designs can add up to some interesting costs that all have to be cover by unit costs.

Large corporations need to sell many units per day to keep their assembly lines going. They make their money on units shipped per day which usually means hundreds or thousands of units per day. In a retracting economy, you can see what has happened to the big guys. The survivors are the small companies that can still build quality production units at affordable prices.

Wayner

[jtwrace]

What does this thread have to do with AVA?   

In any event, 10% of $100 is better then 100% of 0.   

[TONEPUB]

Thanks again for the reply Tone.  And you're right, we have gone thru this before, I was paying attention and remember your post, so I apologize in advance in saying that's not what I was looking for.  I understand variable and fixed costs in production, and I understand supply chain price structures, and I understand the retail marketplace.  With the vast majority of audio products the numbers add up for me and make sense.  And I apologize if you're put in the role of defending the greater audio industry, this is not my intent.

My focus was on the uber expensive, boutique market products priced beyond comprehension, an example mentioned was the Odin line from Nordost.  You've had some experience with these so I pointed my questions at you and narrowed the focus to that product, but it could be one of many products, and not just cables, and anyone with an answer is welcome to chime in. 

My feeling is that the retail price on these products bears no relationship to actual production costs (plus markups) and is more to do with marketing and product positioning, regardless that it's a very nice sounding piece.  e.g. If Company X has a product worth $50k, $20k, whatever, then the $1500 jobby from that company I'm buying today must have a lot of that stuff in it, boy is it great.  If the top product is priced at a more reasonable level, the rest of the line suffers in prestige, and therefore in perceived value.  Additionally, I would note that you're insightful statement bears repeating, not many wealthy people are paying retail for these products, they get "preferred customer" discounts after spending $X at that retailer, so the 10-20% discount must be factored in to the net.  I was wondering if anyone could prove me wrong by detailing the production costs of say, Odin speaker cables, from which we could deduce a normal supply chain markup.  Absent that, they remain my nomination for biggest high end audio ripoff.

I really appreciate your contribution so I hope you'll accept that I'm taping your knowledge base and not trying to paint you in a corner, you bring a lot to AC and I look forward to your future posts.             

The Über cable thing is a mystery to me as well from a manufacturing standpoint.  The folks at Nordost are nice people, but I got some serious grouchy looks when after being explained to about all the "technology" in a pair of ODIN speaker cables which actually had a retail of about $45k for a pair, I explained that I could go to the BMW dealer and buy a nicely equipped 3 series for the same amount of money for the same price and that there was no way there was more technology in a piece of wire than in a CAR.

A couple of points Wayner brought up about casework and packaging are interesting.

Most of the majors have figured a way to minimize casework costs.  McIntosh makes everything themselves, from cutting the glass front panels on their own water jet machine, and amortizing that over thousands of units produced, now contributes a minimal cost to the actual piece of gear anymore.  Same with someone like Simaudio, who own their five axis CNC machine.  Yet others like AVID turntables, job out a bit of their CNC shop to other industries, again allowing them the ability to build and prototype their own stuff without making the casework an overly high proportion of unit costs.  Many US mfrs that don't have their own CNC capability are using one or two shops to get this done (I can't remember the name of the company) and again the cost isn't crazy if you are buying in any quantity.  So as much as many have commented that 20-50% of the cost in these high dollar components is the casework, this is not the case for any of the majors.

As to the boxes, I know more than one mfr has joked (especially speaker mfrs) that they often do as much engineering on the packaging to keep the product safe as they do on the product.  Other companies like Audio Research, do the tried and true two large heavy boxes, separated by 2" foam.  Highly effective, not terribly expensive.  That's probably a good reason why ARC components only come in about three different sizes - I'm sure buying thousands of boxes the same size really keeps the cost down there.

Some of the uber expensive products other than cable, never make any money for the manufacturer, they are often done as a technology exercise and a platform for where to take the next, lower priced models.  My GamuT S9's are a perfect example of this.  While GamuT has only sold 20 examples of their $150,000 flagship speaker, the amount of research and prototyping that went into the speaker will never be recovered, as the market for $150,000 speakers is pretty small.  However, the techniques they developed in cabinet design and the changes made to crossover networks in that series, extends all the way down to their $3000 speakers, which are the companies bread and butter.

It really is a case by case situation.  I have another good friend that lives in hong kong who's friends loved his Vandersteen 5A's a few years ago when he brought one of the first pairs into the country, yet when they found out that they were ONLY $17k a pair, lost interest, so I can see where the temptation for some is to price things higher than prudence suggests.

At the end of the day, I think the people making solid products with a reasonable cost/markup structure have stood the test of time and the ones pricing things arbitrarily not as much.

[ltr317]

Since I've started wearing an additional audio hat, going from an audiophile to reviewer in the past year, I now tend to agree generally with Tonepub regarding cost structure.  Before I started reviewing, I often wondered why some components retail for tens of thousands and sometimes hundreds of thousands of dollars more than other high-end components.  Certainly the fixed and variable costs of the top product(s) of a manufacturer's audio line compared to the company's less expensive models shouldn't be an increase in multiples of ten or more.  Now I realize that statement with some exceptions is true.  A manufacturer's "statement" or "signature" product(s) does (do) cost somewhat more to make but not proportionally more than their lesser products.  Some exceptions are concept or experimental products.  The manufacturer is not trying to rip off the potential buyer of this market segment.  A buyer in this segment generally wants the "cachet" of owning the best or most expensive, not necessarily the best sounding which is subjective anyway.  These products are specifically targeted for the ultra high end market where price is not a factor.  As other posters on this thread have already stated, it's only a rip-off if it is perceived as such.   Manufacturers do not expect or want the average audio buyer to purchase their uber expensive products, but want them to purchase the company's less expensive product line to get a "significant taste of the best" because selling in volume normally generates greater profit. 

[medium jim]

Thanks again for the reply Tone.  And you're right, we have gone thru this before, I was paying attention and remember your post, so I apologize in advance in saying that's not what I was looking for.  I understand variable and fixed costs in production, and I understand supply chain price structures, and I understand the retail marketplace.  With the vast majority of audio products the numbers add up for me and make sense.  And I apologize if you're put in the role of defending the greater audio industry, this is not my intent.

My focus was on the uber expensive, boutique market products priced beyond comprehension, an example mentioned was the Odin line from Nordost.  You've had some experience with these so I pointed my questions at you and narrowed the focus to that product, but it could be one of many products, and not just cables, and anyone with an answer is welcome to chime in. 

My feeling is that the retail price on these products bears no relationship to actual production costs (plus markups) and is more to do with marketing and product positioning, regardless that it's a very nice sounding piece.  e.g. If Company X has a product worth $50k, $20k, whatever, then the $1500 jobby from that company I'm buying today must have a lot of that stuff in it, boy is it great.  If the top product is priced at a more reasonable level, the rest of the line suffers in prestige, and therefore in perceived value.  Additionally, I would note that you're insightful statement bears repeating, not many wealthy people are paying retail for these products, they get "preferred customer" discounts after spending $X at that retailer, so the 10-20% discount must be factored in to the net.  I was wondering if anyone could prove me wrong by detailing the production costs of say, Odin speaker cables, from which we could deduce a normal supply chain markup.  Absent that, they remain my nomination for biggest high end audio ripoff.

I really appreciate your contribution so I hope you'll accept that I'm taping your knowledge base and not trying to paint you in a corner, you bring a lot to AC and I look forward to your future posts.             

If that was the case, why then was this thread started in the "Cheap & Cheerful" Circle?

Jim

[Wayner]

Audio manufacturers that decide to make in-house products realize large investments in not only machines, but tooling for the machines, programmers and maintenance for the machines. These are all hidden costs that are captured thru product pricing. I guess if you can keep the machine busy 24/7/365, the investment will probably be justified, but idle multimillion dollar machines destroys a company from within. It's the hidden costs of manufacturing that can destroy a well meaning company. McIntosh may make parts for other companies (who knows) to keep the cost of owning/renting the machine from raising havoc on their own unit prices.

As far as sky-high priced audio products, that usually means low volume (or even ultra-low) which drives  the cost of parts (whether made in house or farmed out) very high. So in reality, the cost of the high priced unit is by it's own nature, directly related to units produced.

Wayner 

[Quiet Earth]

, why then was this thread started in the "Cheap & Cheerful" Circle?

I was wondering that too, but where would be a better place to start it.

There have been a couple of "general idea" threads that I have considered starting, but I could not decide which circle to put them in so I just didn't. There is no general catch all circle, . . . . at least not that I am aware of.

[Diamond Dog]

I was wondering that too, but where would be a better place to start it.

There have been a couple of "general idea" threads that I have considered starting, but I could not decide which circle to put them in so I just didn't. There is no general catch all circle, . . . . at least not that I am aware of.

Excellent points that I'd love to see addressed, Q.E.

As to the appropriateness ( can't believe that is actually a word - and it is! I checked to make sure!  ) of this thread vs. this topic, it's a little late in the game to start questioning the facilitator now, no? The people have spoken, Jim. And spoken...And it's been facinating...

Kudos to Letitroll98 for doing a terrific job riding herd over yo-yo's like me in this epic thead, allowing it to work its way through all kinds of interesting areas with evenhandedness and diplomacy. Nice job!

D.D.

[TONEPUB]

Audio manufacturers that decide to make in-house products realize large investments in not only machines, but tooling for the machines, programmers and maintenance for the machines. These are all hidden costs that are captured thru product pricing. I guess if you can keep the machine busy 24/7/365, the investment will probably be justified, but idle multimillion dollar machines destroys a company from within. It's the hidden costs of manufacturing that can destroy a well meaning company. McIntosh may make parts for other companies (who knows) to keep the cost of owning/renting the machine from raising havoc on their own unit prices.

As far as sky-high priced audio products, that usually means low volume (or even ultra-low) which drives  the cost of parts (whether made in house or farmed out) very high. So in reality, the cost of the high priced unit is by it's own nature, directly related to units produced.

Wayner

Considering that most of these companies are still in business, I'd hardly say they are being "destroyed from within."

And again, your concept of "sky high" pricing is different from everyone else's.  Part of the reason that the better brands are now packaging their stuff in more attractive casework is because not everyone wants an AVA box in their living room.  This is also what makes AVA stuff a good value for someone wanting decent performance, yet doesn't want to pay for any kind of aesthetic value or extra features.

It depends on the customer.  Again, it's like cars.  15 million people a year buy a Camry because a car gets them from A to B, nothing more.  800 people a year seek out a Ferrari because they want a visceral driving experience and have the means to get it.  Some of the highest end audio products are like that and the ones that truly offer world class performance are usually wrapped in a box to match because that's what that customer demands.

The guy that owns Burmester doesn't want AVA gear and the guy that wants AVA usually thinks the Burmester (insert any other high end luxury brand here) stuff is overpriced.  Hopefully, both customers are satisfied with the choices they've made.  I certainly think each point of view is valid.

I just reviewed a great pair of $399 speakers from Definitive Technology that truly amazed me for the price.  There are great products out there at all price levels.

 

[jtwrace]

Considering that most of these companies are still in business, I'd hardly say they are being "destroyed from within."

And again, your concept of "sky high" pricing is different from everyone else's.  Part of the reason that the better brands are now packaging their stuff in more attractive casework is because not everyone wants an AVA box in their living room.  This is also what makes AVA stuff a good value for someone wanting decent performance, yet doesn't want to pay for any kind of aesthetic value or extra features.

It depends on the customer.  Again, it's like cars.  15 million people a year buy a Camry because a car gets them from A to B, nothing more.  800 people a year seek out a Ferrari because they want a visceral driving experience and have the means to get it.  Some of the highest end audio products are like that and the ones that truly offer world class performance are usually wrapped in a box to match because that's what that customer demands.

The guy that owns Burmester doesn't want AVA gear and the guy that wants AVA usually thinks the Burmester (insert any other high end luxury brand here) stuff is overpriced.  Hopefully, both customers are satisfied with the choices they've made.  I certainly think each point of view is valid.

I just reviewed a great pair of $399 speakers from Definitive Technology that truly amazed me for the price.  There are great products out there at all price levels.

Once again, well said.

[Diamond Dog]

Once again, well said.

An enthusiastic +1 !

D.D.

[Devil Doc]

-1

Once again the car analogy doesn't work for me. Blindfolded, I think I'd know whether I was in a Ferrari or a Camry.

Doc

[Wayner]

AVA or any audio manufacturer has nothing to do with my comment. These are known manufacturing gremlins that plague everyone that makes anything.

[Diamond Dog]

Once again the car analogy doesn't work for me. Blindfolded, I think I'd know whether I was in a Ferrari or a Camry.

Doc

Perhaps, but I would venture that either would provide an exciting blindfolded-driving experience with the Ferrari experience probably not lasting quite as long...

D.D.

[werd]

-1

Once again the car analogy doesn't work for me. Blindfolded, I think I'd know whether I was in a Ferrari or a Camry.

Doc

-2 just to cancel yours out and add another positive one to TP's post