"Secrets" about the consumer audio business you may find interesting

[Doodski]

I worked on a lot of car commercials in the 1980s. Budgets were lavish. A guy from Honda told me that a thousand dollars out of each new car's sticker was spent on advertising it.

That's mind boggling in some way. Honda was the cat's meow in the 1980's and all the cool people drove a Honda or a Acura.

 

[Mowz]

more than 500 million Chinese have a standard of living equivalent to ours.
What do you think they do with their money?

Not sure where you live but I live in the USA and spent 7 years in Shanghai and very few people came anywhere close to our standard of living.

 

[Head_Unit]

Soundstream TC-308 to be the best cassette head unit of all the cassette head units I ever serviced in and out of warranty. It had adjustable play trim at the front pane

Yeah baby! That was a cool feature, too bad others never did that. Expensive I suppose?

 

[Doodski]

Yeah baby! That was a cool feature, too bad others never did that. Expensive I suppose?

I don't know what the expense range is for play trim. It sure does work well though.

 

[Descartes]

What gets me is that if Dealer margins range from 60 - 40 points off MSRP why are not manufacturers selling direct like the Arendal of the world!
This is the age of the internet and the younger generations are all about value and convenience rather than status.

 

[just1n]

Overhead, logistics, carrier agreements, brand recognition, e-commerce costs, marketing, returns, etc..

The list goes on and on. There is a very economical reason retailers and distributors exist and not all manufactures sell direct, for better or worse.

 

[kemmler3D]

What gets me is that if Dealer margins range from 60 - 40 points off MSRP why are not manufacturers selling direct like the Arendal of the world!
This is the age of the internet and the younger generations are all about value and convenience rather than status.

Many manufacturers do this, but the reason for going with a dealer / retailer is that they typically have many times more customers than the manufacturer would be able to get on their own. The cost of marketing, to reach enough people, to replace the audience that the dealer / retailer has, outstrips the ~50% margin the retailer takes.

Example: Amazon takes a 15-20% commission on each sale, plus more if you buy ads on Amazon, which you almost need to. However, almost 50% of US consumers START their shopping searches on Amazon. Meaning they are unlikely to buy elsewhere, let alone find out about your products, if they're not on Amazon. So by not selling on Amazon, you save 15% margin but give up 50% or more of your unit sales.

It's similar for deals big box retailers, etc.

It is difficult for the consumer-direct manufacturers to reach a large scale, because they can't sell enough units without going through dealers. So really, at any level of the audio business except the peak of mainstream consumer products, or stratospheric niche direct-to-consumer sales, the economics are pretty tough.

 

[Descartes]

Many manufacturers do this, but the reason for going with a dealer / retailer is that they typically have many times more customers than the manufacturer would be able to get on their own. The cost of marketing, to reach enough people, to replace the audience that the dealer / retailer has, outstrips the ~50% margin the retailer takes.

Example: Amazon takes a 15-20% commission on each sale, plus more if you buy ads on Amazon, which you almost need to. However, almost 50% of US consumers START their shopping searches on Amazon. Meaning they are unlikely to buy elsewhere, let alone find out about your products, if they're not on Amazon. So by not selling on Amazon, you save 15% margin but give up 50% or more of your unit sales.

It's similar for deals big box retailers, etc.

It is difficult for the consumer-direct manufacturers to reach a large scale, because they can't sell enough units without going through dealers. So really, at any level of the audio business except the peak of mainstream consumer products, or stratospheric niche direct-to-consumer sales, the economics are pretty tough.

I disagree with that statement, look at DELL, APPLE, and others.
The value added from dealers today are very low as a customer I would rather buy from Amazon of directly from the manufacturers if I could get better pricing! There is a reason why brick & mortar business models are disappearing!

 

[kemmler3D]

I disagree with that statement, look at DELL, APPLE, and others.

I'm not sure what part of this explanation you disagree with, but I am happy to elaborate if you give me a bit more detail.

My point is basically that if you are not an extremely well known brand (Apple and Dell are examples of EXTREMELY well-known brands) then you need some way to get customers to pay attention to your product. This can be more expensive to do yourself than paying a retailer to do it, which is a major reason that not all brands exclusively sell direct-to-consumer.

 

[Descartes]

I'm not sure what part of this explanation you disagree with, but I am happy to elaborate if you give me a bit more detail.

My point is basically that if you are not an extremely well known brand (Apple and Dell are examples of EXTREMELY well-known brands) then you need some way to get customers to pay attention to your product. This can be more expensive to do yourself than paying a retailer to do it, which is a major reason that not all brands exclusively sell direct-to-consumer.

Agreed, t but companies like Sound United who own Denon, Marantz and many other brands could sell direct and bypass the dealers! Customer would get much better pricing.

 

[kemmler3D]

companies like Sound United who own Denon, Marantz and many other brands could sell direct and bypass the dealers! Customer would get much better pricing.

In theory, yes.

However, because they've been doing business this way for so long, most or all of their revenue probably comes through dealers. This also means they don't have the internal capabilities to market and ship all of those units.

"Going direct" would be a big shift in business model, and dealers would retaliate as soon as they realized that they were shifting the business model. This makes it a risky move. You can't do both - dealers won't tolerate being undercut by the manufacturer.

The challenge becomes replacing all of your revenue by winning all of your customers away from your retailers faster than the retailers can drop you, meanwhile you have to invest heavily in marketing, customer service, and logistics. I'm actually not aware of this having been done successfully.

Lastly, you might not get better pricing. If Denon can sell 5000 AVRs to a dealer for $300 apiece, who then sells them to you for $1100 apiece, why would Denon sell one amp to you for $300? If you're lucky, they'll price it at $995.99, if you're not lucky, 1095.99.

 

[Axo1989]

I disagree with that statement, look at DELL, APPLE, and others.
The value added from dealers today are very low as a customer I would rather buy from Amazon of directly from the manufacturers if I could get better pricing! There is a reason why brick & mortar business models are disappearing!

Apple run a global chain of their own retail stores, which add considerable value for many users, including me (which you pay for, via their semi-luxury pricing) and they aren't disappearing. Other retailers sell Apple gear also, of course: I don't know what arrangements are re discounting. I used Amazon briefly but their data aggregation and retail practices aren't ok. Buying direct from say Buchardt or Schiit (for example, or more likely for me from Sigberg or via B&H) is straightforward enough. Not getting hands-on is a limitation sometimes.

 

[Rottmannash]

I was so accustomed to buy electronics online I was shocked at how much less I paid for a pair of F208's at our local dealer vs Crutchfield. Almost half off so there is clearly something about that business model that works for both partieis.

 

[tktran303]

Well during the pandemic, I went to a several audio salons in the biggest cities in Australia, and listened to the B&W 801 D4, and KEF Blade 2 (non Meta), Revel F328Be, Dutch and Dutch 8C, KEF LS60, ProAc K6, B&W 702 S3. I also went looking for the Salon 2 (NLA) and the Vivid Audio Giya G1 Spirit. I almost bought the 801 D4, but in a moment of (in)sanity, I asked for a business card instead of handing over my credit card. Then I declared that I will start saving, and I'll be in touch!

All in well setup acoustically treated rooms, massive power amplifiers. Listen to any music I wanted (as long as it was on Tidal or Roon and controlled by their iPad tablets). For over an hour at a time. No sales pressure. Chat, laugh, shoot the breeze. I'm not saying it's perfect, but until the online marketplace allows me to test TOTL speakers in my living for 30 days, this is what I need to continue to do.

If you think a few graphs on ASR tells you all that you need to know? Well, it's a good to talk to about about sound and buy and trade. But that's like talking about food, or wine or dancing... it's just a hobby. Go yonder and experience it!

 

[jcr159]

Agreed, t but companies like Sound United who own Denon, Marantz and many other brands could sell direct and bypass the dealers! Customer would get much better pricing.

why would customers get better pricing?

If anything, Sound United would pocket a lot more profit... The argument you are making is that brands that are established and can afford to effectively "stop advertising", can then move to a direct model based on current name recognition.

Allowing that condition to be true, you have to consider the market conditions for AV receivers...

I'd argue that it isn't an elastic market, in fact, it's probably rather inelastic. Meaning that demand isn't driven as much by price. In other words, if Sound United could save all those costs, not advertise, and sell the same number of units, why would they lower the price? they are leaving money on the table. Look at car sales in the pandemic. surplus fees were added...

The argument would be that lowering price would drive additional demand. I'd argue that's where the AV market isn't elastic. I have a Marantz 6014, and an Outlaw 5000x. If Sound United dropped prices by 50%, I wouldn't buy new gear. Mine works just fine in its current application. It's like the car analogy. Even if cars were 50% cheaper, I wouldn't be buying... my car is paid off, runs fine, and has a lot of life/reliability left.

Will some people buy that wouldn't have? Sure. Enough to justify "losing" some of the profit on sales they would have made anyway? Probably not. But, that's why companies hire analysts and actuaries to calculate a lot of that out for them to optimize all those parameters. Trust me, companies that are fairly sizable have put way more thought, analysis, and data science into these things than you give them credit for.

I work for an insurance company. probably 1-2% of our gross income is spend on properly pricing our products. that sounds like nothing to most, but think of it this way... roughly 90% of what is taken in is planned to be paid out in claims. 10-20% of what's leftover is used to price things correctly... that's a lot... and in $$$, that works out to ~$250 million for a $25B company... and if you pay analyst/actuaries $200k/year in salary.... you have 1250 on staff... full time... thinking about how to do this right..

So does your theory have merit? Sure.

Do people way smarter than us already know these answers... Yep....

Is there an illuminati? Maybe, but they aren't secretly controlling the AV industry, lol

 

[anmpr1]

What gets me is that if Dealer margins range from 60 - 40 points off MSRP why are not manufacturers selling direct like the Arendal of the world!
This is the age of the internet and the younger generations are all about value and convenience rather than status.

Dealer direct is an entirely new and different game, one that large manufacturers (or very small ones) might not want to play. First, you need a staff that can handle orders. If you are selling a lot of product, that is not a trivial thing to set up. Staff must be trained to be friendly and helpful. Have procedures set up for shipping and returns. Complaints.

From my experience, the last thing a consumer wants to deal with is a large organization. Harman has direct sales, but their customer service is (maybe it's changed), horrible. Can you imagine having to deal with an outfit like Sony, on any kind of personal basis?

The Full of Schiit guys, PS, and even a highly regarded operation like Benchmark are set up for direct, and can provide first class service. But they are relatively small. Sony would probably outsource to a call center in a place you can't find on the map. That certainly doesn't help the consumer. And the cottage guy making three or four twenty thousand dollar tube amps a month probably doesn't have time for direct consumer interaction, and certainly doesn't have the resources for direct sales (most likely)--I guess the wife could answer the phone, and teenager could be responsible for packing up and taking it to UPS.

I suspect that most large manufacturers would rather forgo the hassle of up close and personal interaction with customers, and instead, share the spread with an outfit like Crutchfield (or in the pro/music arena, Sweetwater). They are already set up for Internet sales, and have been for years. Sweetwater and CF assign the customer a dedicated 'rep', making the process much easier. And they take back whatever you don't like, no questions asked. Easier for a large manufacturer to deal with one customer (the retailer) than a thousand customers, with a thousand different needs.

 

[Bjorn]

But I MUCH prefer an in-store trial and the advice of a knowledgeable salesman, and I will pay a small premium for this. I really hope retail stores are not disintermediated by the web stores. My local headphone shop sells a lot on the web, but still maintains a store with equipment for demos.

Knowledgeable salesman of audio? Does that exist anywhere? It certainly doesn't here in Norway. They are sellers with very little knowledge and many of them will also sell you snakeoil.

If one wants to learn about audio and objectivism, using a local salesperson would be about the last place I would start.

 

[MattHooper]

Apple run a global chain of their own retail stores, which add considerable value for many users, including me (which you pay for, via their semi-luxury pricing) and they aren't disappearing.

I spent half the day yesterday just trying to speak to someone - anyone! - at two different large companies so I could figure out a wrong charge. No luck at all making contact. There are many articles of course on why companies are making it ever harder to contact them, or provide any customer service. In the end, it pays more for them to provide crappy customer care, so the customer gives up and they don't have to deal with them.

It reminded me of how much I've come to appreciate Apple's customer service. I never fail to get a human being on the line, pretty quickly, and they have always happily worked with me as long as required to solve a problem. Even with apple gear well out of warranty. So I'm happy with the value added paying for that eco system at this point.

 

[Purité Audio]

Knowledgeable salesman of audio? Does that exist anywhere? It certainly doesn't here in Norway. They are sellers with very little knowledge and many of them will also sell you snakeoil.

If one wants to learn about audio and objectivism, using a local salesperson would be about the last place I would start.

Exactly the same here they are salesmen, Leopards and spots, secondly they have no wish to learn anything that might prejudice sales.
No-one in this industry is ever going to be a proponent of unsighted comparison, they just want the status quo to remain and continue to sell to the gullible.
Keith

 

[Bjorn]

I spent half the day yesterday just trying to speak to someone - anyone! - at two different large companies so I could figure out a wrong charge. No luck at all making contact. There are many articles of course on why companies are making it ever harder to contact them, or provide any customer service. In the end, it pays more for them to provide crappy customer care, so the customer gives up and they don't have to deal with them.

Very true. I used to sell JBL monitors. Even for me, it was almost impossible to contact JBL, and I could generally not get polar meausurements or data I was looking for.