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

diaolodoro

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I honestly can't think of any consumer business (especially electronics) that don't follow those principles.
For me, it gets interesting in the hi-end audio where prices are a bit arbitrary, and people can't easily judge objectively an audio product. Often many businesses are based on hyped products, but the audio industry excels on snake oil as well.
 

PeteL

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I worked for a consumer audio business for several years, from 2012-2015 and 2017-2020. It was a tin
  • Audio companies are not all as sophisticated as you'd like to think.
    • You don't need a degree in anything to start an audio brand. Many companies don't even employ any engineers or design their own products. Many audio execs would be totally lost reading threads here, and have the critical listening skills of a shriveled potato. They're in the role for business, not functional reasons.

      If you find yourself wondering "Did they even measure XYZ before shipping this" the answer could actually be "no".

      This is far from all companies, and I do think it speaks to the sophistication of ASR and DIYaudio and similar forums, than it speaks to laziness or malfeasance on the part of manufacturers. Although, that is a factor too.

      The people who do actually design and build speakers tend to be quite sophisticated and skilled. You don't drop $100K on an injection mold on a hunch. The people making decisions about speakers, what to sell, how to price them, etc - often have less knowledge than a serious hobbyist. They may or may not follow the advice of knowledgeable people. They may just ask their golf buddy what they think of the sound. So, I'm here to confirm that your thoughts of "I could surely do better" are sometimes correct.
Does it really matter tough? Whether a company is engineering focused (there are many) Or product management focused and outsource the development, In the end to make a great product you need great engineering, you need great quality control, and yes you need measurments and performance metrics. The greatest product ideas don't have to come from engineers, in fact it's often better if it don't, it's a different skill, a different mindset.
 

Tangband

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I worked for a consumer audio business for several years, from 2012-2015 and 2017-2020. It was a tiny company and we aimed directly for the middle of the market, say $100-300, which for our target customer, was expensive. Mainstream. (I won't say which one but you can probably figure it out if you're good with Google.) So much of what I say won't apply to bigger companies, or higher-end ones.

However, it might be good to know a little bit of what goes on behind the scenes. I see some assumptions about the biz that are not quite on the mark here and there, so maybe my experience can "lift some veils".

None of this is actually secret (it would be common knowledge for anyone employed in the industry) but isn't well-known outside of it. This audience has a lot of professionals in it so a lot of this might not be news to you. Also, I only worked at small volumes. Our company was a startup and about 10 people. My view of the industry would pale in comparison to someone who worked for Bose, Logitech, UE, etc. But these were some of my observations.

  • The cost of building a consumer audio product is generally no more than 30% of retail. 30% COGS (cost of goods sold) is virtually a maximum for items sold at mainstream retailers.
    • Our company's COGS were higher than this, which was a problem. It didn't allow for us to recoup our costs, make enough money to pay our expenses (like salary, electric bill), and also leave something for the retailer. The rule of thumb for us in the US was retailers will ask for half of the retail price, or more. That leaves us to make our cut from the remaining half.
  • Retail price is free to deviate upward from COGS in an unlimited fashion.
    • We all know Beats headphones. Undoubtedly they don't cost more in parts than an MPOW or Anker set. But people will pay more, so they charge more. What people will pay is much more important than how much something costs.
  • Except for outlier brands, marketing expenses don't have a lot to do with COGS / product quality.
    • It's common to attribute high cost / low performance equipment to "too much spent on marketing, not enough on R&D". This is only true for the absolutely massive brands that can afford to saturate the airwaves. You can name all of them because there aren't very many, and their advertising works.

      When a small brand (sub-$100M in revenue at the lowest) spends money on marketing, they generally intend to (need to) make the money back in short order. They can't make the sale on name recognition alone. (I can go further into the math on this, but the numbers don't work unless you can shovel money at your audience for years at a stretch before making the sale.) Unless you can outspend Sony or Apple for 2+ years without going under... forget this strategy.

      Smaller brands have to compete on actual product features, reviews, and quality in general - which means that taking significant budget out of COGS to buy ads is often self-defeating. These brands do spend a good deal on marketing, but it tends to come out of profit margins, not COGS.
  • Very few audio brands operate their own factories.
    • You can probably name most of them. Even big reputable names do not manufacture all of their own parts. Almost all consumer brands are simply re-selling or contracting out to overseas factories.
  • Most Chinese factories and engineers are perfectly capable of producing high-end equipment... but their customers don't ask for it.
    • Would you rather make $50 per unit on 100 units, or $5 per unit on 100,000 units? Yes, so would they. Niche applications are not of interest to most manufacturers, especially in China, because marketing to high end audiences isn't (at least a few years ago, it wasn't) as easy for them. They mostly operate on a B2B model focused on high volume orders. A major reason for that is switching production lines from product to product is costly. They much prefer to make 10,000 of something mainstream and fast-moving than 10 runs of 1,000 that might (or might not) sell for a high price. Many can do either, but prefer a few large contracts over many small ones.

      The factor that drives "Chinese (or insert the country of your choosing here) audio is low quality" attitudes is actually the customer. I will never forget the man who walked up to a booth attendant in Hong Kong on a sourcing trip. He skipped the formalities and brusquely said to the woman: "Show me your biggest speaker. Biggest and cheapest. I want, BIG, CHEAP and LOUD." This was actually at a booth that had some items approaching hi-fi. Too bad. But they make what they can sell.

      In truth, this man did understand the mainstream western consumer pretty well, but it's not nice to say it out loud. :)
  • Economies of scale are really important.
    • Speaking of factories. Factories that are willing to do small runs are often less established, working with new suppliers themselves, and therefore can run into QC issues. This combined with low quantities pushes up the price of small-run products even more. Niche products are more expensive in large part because the cost per unit goes way up when you fall below 50K or 10K units per run.
  • Audio companies are not all as sophisticated as you'd like to think.
    • You don't need a degree in anything to start an audio brand. Many companies don't even employ any engineers or design their own products. Many audio execs would be totally lost reading threads here, and have the critical listening skills of a shriveled potato. They're in the role for business, not functional reasons.

      If you find yourself wondering "Did they even measure XYZ before shipping this" the answer could actually be "no".

      This is far from all companies, and I do think it speaks to the sophistication of ASR and DIYaudio and similar forums, than it speaks to laziness or malfeasance on the part of manufacturers. Although, that is a factor too.

      The people who do actually design and build speakers tend to be quite sophisticated and skilled. You don't drop $100K on an injection mold on a hunch. The people making decisions about speakers, what to sell, how to price them, etc - often have less knowledge than a serious hobbyist. They may or may not follow the advice of knowledgeable people. They may just ask their golf buddy what they think of the sound. So, I'm here to confirm that your thoughts of "I could surely do better" are sometimes correct.
  • Shipping costs are a huge factor.
    • This won't surprise anyone, but keep in mind that the manufacturer has to ship all the big / heavy parts of a speaker at least once or twice before they ship it to you. This adds up and there is a disproportionate incentive to keep the size and weight of a mainstream speaker down. Really everyone knows that heavier parts tend to work better (housings, magnets, etc.) but the cost explodes due to logistics costs, not just quality / tolerances.
  • Packaging costs are probably a bigger factor than you think.
    • There are undoubtedly mid-low-end IEMs where the package costs more than the IEM. In fact it's not even hard to do this. You can source a low-end IEM for $2 and put it in a $3 box without going out of your way. It goes on Amazon for $20 and oddly enough everyone seems happy.

      However, it's possible to spend a significant fraction of COGS on packaging even at the higher end. $10 worth of box (printing, foam, nice manual, etc.) is not hard to do. When the COGS of that product are around $100 you're actually ultimately paying nearly $30 or $40 for the box. Best to keep it for resale value, then... ;)
This is all true and not a surprise at all for people who have been in the business before .

Lets talk about the highend industry:

Another thing is the supercorrupt hifipress were good reviews often combines with commersial marketing for the products tested. Its exactly the same as reading car magazines , where BMW always get good reviews ( everyone knows the buildquality is really bad and much worse than Toyota ) and does lots of commersial marketing feeding the paper owner. People also want to believe in cheap lies and the status that surrounds some expensive products.

Without the online hifimagazines the highend industy is nothing.

Studio gear are often cheaper than similar hifiproducts. One example is the Genelec 8030c compared to Genelec G3 - essentially the same speaker, but the price is very different and much higher for the hifi model G3 ( + 25 to 30% )

There are also examples of rebadging a rasberry pi ( 30 dollars ) , add some components and a nice box and there you have it - a Bryston streamer for 3000 dollars. Knowing this - the quality can ofcourse be very good regardless If a rasberry streamer would cost 200 dollars from audiophonics or 3000 dollars in the hifistore.

Still people believe more in a known brand like Bryston or BMW and they can charge what the customers wants to pay.
 
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MacCali

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Just like everything else, you really want to support your local audio stores. Prices as stated are way up there vs manufacturing.

But look at Amazon and eBay, at first things were way cheaper online. I used to wonder why anyone would shop anywhere else. Clearly they don’t have a store to pay for and warehousing costs are far lower than retail. Now that stores are starting to close and they gained dominance in the market the prices are now the same as the store.

Wait until the stores are gone and it’s going to be a real S Show.
 

MarcosCh

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Most of post #1 is not only logical but applies to other industries as well.
The only thing that does not fit with my experience (in a completely different industry) and that i see often mentioned is that of shipping costs. I don't believe that one.
Shipping costs for something with such value per kg/vol as any audio product needs to be completely irrelevant. Even in my industry with products worth 5eur/kg is. Even sometimes in urgent cases raw materials are freighted by plane...
Then from the shop to the customer could be a different story and i have no idea, but if today you can buy a bottle of shower gel shiped to you for a couple of euros, i also doubt that shipping a dac ads tremendously to the overall cost.
 

Vacceo

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I wonder how expensive are premium components relative to final price. Seems like speaker motors with neodimium magnets (such as Kef Blades) or berillium tweeters are not cheap, but the final price for the whole speaker is, often time, outrageous.
 

tomchris

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The funny thing, though, is that people still go around believing all kinds of marketing bs of every other product, even though the tacit knowledge of their own profession should have made them more cynical and question things.

Unfortunately, most people blindly follow groupthink, have conditioned beliefs and do not question authority. Independent thinking is often frowned upon when it questions the status quo.
 

Brianc

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One of the things I've learned on this site is that "high end" products have a better chance of being bad (or at least terribly overpriced) because they're made by small companies without resources for proper testing, QC, etc.
 

Peafowl

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Most of post #1 is not only logical but applies to other industries as well.
The only thing that does not fit with my experience (in a completely different industry) and that i see often mentioned is that of shipping costs. I don't believe that one.
Shipping costs for something with such value per kg/vol as any audio product needs to be completely irrelevant. Even in my industry with products worth 5eur/kg is. Even sometimes in urgent cases raw materials are freighted by plane...
Then from the shop to the customer could be a different story and i have no idea, but if today you can buy a bottle of shower gel shiped to you for a couple of euros, i also doubt that shipping a dac ads tremendously to the overall cost.
What matters most is weight and size. How much can I put in a container before it's full? weight or volume.
The cost of a euro liner to pass through the Suez Canal is $1kk per ship which is spread across all freight.
Transport costs to Europe are almost $0 because the container is booked, whether it is full or not, the ship or plane is on its way.

That's why you can order small electronics from Asia for 0.50 cents shipping, even if a 20 g letter costs 0.85 cents in Germany.
 

anmpr1

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  • Very few audio brands operate their own factories.
    • You can probably name most of them. Even big reputable names do not manufacture all of their own parts. Almost all consumer brands are simply re-selling or contracting out to overseas factories.
  • Most Chinese factories and engineers are perfectly capable of producing high-end equipment... but their customers don't ask for it.
  • Shipping costs are a huge factor.
  • Packaging costs are probably a bigger factor than you think.

Nice overview. Thanks.

1) The idea of local factories? Not a factor as long as I can remember. And the few companies that do 'manufacture' locally (I mean here in the US) are getting their components from overseas.

2) Most folks likely have a very parochial view of the Far East, have never been there, and don't very well understand the sheer scale of both manufacturing sophistication and consumer penetration of high tech 'gadgets' that are available to locals. When I was a kid, Japanese electronics were considered 'junk'. Imports were mostly cheap products, not built to last. Those cheap imports eventually destroyed local production. A low 'quality factor' was, however, not intrinsic to the country of origin. Probably the first Japanese consumer oriented manufacturer that turned American heads around was Toyota.

I will not link to it, however if you want to get an idea of a labor intensive, yet machine driven manufacturing operation, take twenty minutes to watch the PT Cort factory tour on YT-- Cort's dedicated factory responsible for making PRS SE guitars in Indonesia. Here, quantity is necessarily limited because of the hands on skilled labor required, but efficiency remains. Then imagine a less labor intensive production operation stamping out circuit boards 24/7. Think about the quantity available and the machine repeatable quality derived from the automated process. Here, the limiting QC factor is parts selected in OEM specs--which is often not too high, as you point out.

3) Shipping is always a major factor. When I began the hobby, loudspeakers made on the East coast were more expensive if sold on the West coast. There was always a price differential. I don't think that is the case, anymore. But consider automobiles. Every brand charges a 'destination fee' --a pickup truck (the US equivalent of a luxury automobile) might have a destination fee twice that of a European lux sedan. Why that is I can't say.

Generally, shipping can be considered a 'one shot deal'-- unless you require a return. This is my big complaint about much of the stuff sold direct, from the other side of the planet. Now, not only have shipping costs gone through the roof, but shipping times are inconsistent.

4) From another (but related to audio) context, I'm familiar with a 'boutique' guitar pedal maker. Hand builds them. He has product, but can't ship anything because he can't get shipping boxes. They are backordered, probably listing in a container on a ship out in the ocean, somewhere. Think about that next time you throw away your shipping box! :)
 

alex-z

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  • Shipping costs are a huge factor.
    • This won't surprise anyone, but keep in mind that the manufacturer has to ship all the big / heavy parts of a speaker at least once or twice before they ship it to you. This adds up and there is a disproportionate incentive to keep the size and weight of a mainstream speaker down. Really everyone knows that heavier parts tend to work better (housings, magnets, etc.) but the cost explodes due to logistics costs, not just quality / tolerances.
When compared to the DIY market, this shipping cost is largely offset by the bulk buying power these companies have. Buying a single woofer (Dayton DC130 for example) you might pay $27, buying 10 woofers you might pay $24 each. Scale that up to 1000 woofers, you might only pay $18. If you reach the scale of a company like Pioneer/Klipsch/Bose, perhaps only $12-15.

Same with crossover components and PCB's. Iron core inductors and electrolytic caps are priced like pocket lint if you want a truck of them.

It is actually pretty tough to outperform some of the better budget designs like a Neumi BS5, I tried once and realized I was blown through the budget before the ports and veneer were in place.
 

MacCali

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This is all true and not a surprise at all for people who have been in the business before .

Lets talk about the highend industry:

Another thing is the supercorrupt hifipress were good reviews often combines with commersial marketing for the products tested. Its exactly the same as reading car magazines , where BMW always get good reviews ( everyone knows the buildquality is really bad and much worse than Toyota ) and does lots of commersial marketing feeding the paper owner. People also want to believe in cheap lies and the status that surrounds some expensive products.

Without the online hifimagazines the highend industy is nothing.

Studio gear are often cheaper than similar hifiproducts. One example is the Genelec 8030c compared to Genelec G3 - essentially the same speaker, but the price is very different and much higher for the hifi model G3 ( + 25 to 30% )

There are also examples of rebadging a rasberry pi ( 30 dollars ) , add some components and a nice box and there you have it - a Bryston streamer for 3000 dollars. Knowing this - the quality can ofcourse be very good regardless If a rasberry streamer would cost 200 dollars from audiophonics or 3000 dollars in the hifistore.

Still people believe more in a known brand like Bryston or BMW and they can charge what the customers wants to pay.
I think cars are a different topic, to a certain extent. Society is programmed to be focused on vanity. Where I live[city] we have people that drive Ferrari’s but live in a 2 bedroom apartment.

You must realize, and I don’t like to get into politics, that this vanity is direct from competition and competition stems from capitalism ideology. Furthermore individualism, part of the divide and conquer strategy, further increases competition.

I say this is different from high end audio in the sense that if you told your friend who knows nothing about audio you got this and that and it’s worth a 100 grand they would be like ok. It would mean nothing to them, but I am sure on here or any knowledgeable audio community do try and continue the drama in regular society.

The good news here is most of us would think they are morons, to where if you own a bmw or Mercedes they think you are financially well off lol.

Certain companies like audioquest are trying to get filthy rich and embark on products with high profit margins and deceptive marketing. I think a lot of companies follow in suit because it works and why not, it’s either that or die.

Also they take it much further with pricing bias. They maybe able to get away with selling a product with an msrp of 1000, but if it’s not a lot of money it must not be good so let’s just make it 3000 so they know it’s good. Every product suffers from this and this is an issue we create and they hone in on

Companies like benchmark zmf etc started a business to make a nice living selling something that they created or engineered so a lot of these things don’t apply to them. The business schematics discussed does apply, but if a corporation bought that business you would see prices get hiked way higher. They won’t do it overnight but slowly and if it’s not that start to cut corners and compromise quality to keep the prices the same.

There’s a lot going on and it’s all bad for everyone. Prices are going up on everything yet for a very high majority of us or incomes will not change.

I say consistently if you don’t appreciate the measurements or anything Amir does the reality of his work and publications is so we the consumer do not get ripped off. Hypothetically speaking I don’t give a damn if a chord Dave is 30% better than the best topping dac when it’s 2000% cheaper lol

You be your own judge. If you got the money and don’t care you do you we ain’t mad at you just don’t tell us we are wrong for believing something backed by evidence.
 

tktran303

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There is a need to believe. That in our mostly mundane jobs, if we have toiled and flogged ourselves, we “deserve” something nice as a reward after all that.

If it costs more it must be better. If it looks nice it must be better.

What other metric have we got? We can’t be all experts at everything..,
 

DudleyDuoflush

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Brilliant post that rings true for a large part of the electronics industry. One thing that can make a HUGE difference is having your own Chinese factory (a wholly owned foreign entity or WOFE). Doesn't have to be massive and can leaverage the local supply chain.

Allows you to do smaller runs at much lower cost and you can control the quality. Not sure if any hifi companies run this model?

We'd manufacture the more complex equipment in the UK and use our China factory for simpler stuff that benefitted from cheaper parts. At the high end electronic components are virtually the same worldwide.
 

anmpr1

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Another thing is the supercorrupt hifipress were good reviews often combines with commersial marketing for the products tested. Its exactly the same as reading car magazines...where BMW always get good reviews
The same, but not exactly the same. Both the audio magazines and the car rags operate in symbiotic conjunction with the industry. Differences? There's a lot of editorial opinion variability within car mags; not so much in the hi-fi press.

The hi-fi press will just lie, making up stuff. Maybe you can say they are not, strictly speaking, lying, but rather are deluded true believers.

The car press is much more objective. Take Car and Driver as an example. While the magazine has gone south in writing quality over the past six years or so (their new Ed is, however, a sign that thing could be going back to a better product), they generally provide useful and reliable information for the enthusiast. Sure, they'll tell you about a car's 'fun factor'. That's subjective. But they will also provide objective measures to back up their opinions.

Anent the product from Bavaria-- C/D has a love-hate relationship with the company. From David E Davis' initial 1968 review of the 2002, up through the latest and greatest M iterations, C/D has roundly criticized them for quite a few of their subpar offerings. And it's not just them. Queen Mary's company (or is she a General?) has probably taken more upper cuts and low blows from C/D than any car company, editorially. This, in spite of strong advertising inflow. I don't think Stuttgart does much advertising at all, but they always get good marks. So to say or imply that C/D is 'on the take' because of ads is wrong.

I wish the hi-fi press was as honest as Car and Driver. And I wish they had writers who could write as interestingly as the C/D stable. It's appalling how horrible the writing style of hi-fi 'journalists' is.
 
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anmpr1

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One thing that can make a HUGE difference is having your own Chinese factory (a wholly owned foreign entity or WOFE). Doesn't have to be massive and can leaverage the local supply chain.
I suspect that any time you have your own QC on premises, things will be better. It's a point that Jack Higgenbotham made in the Cort/PRS video. Cort is responsible for manufacturing, but the plant is separate (i.e., from Cort's other 'generic' facility), exclusive to PRS product. With PRS QC at point of production.

Gibson, probably the most horrible company in the guitar world when it comes to consistent QC, built their own plant in Qingdao. Over the past couple of years, instruments coming out of their China Epiphone factory have been first rate, given the volume. At a price point three to five times less than the USA product. Certainly much better unit to unit consistency than their American product.
 

james57

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I suspect that any time you have your own QC on premises, things will be better. It's a point that Jack Higgenbotham made in the Cort/PRS video. Cort is responsible for manufacturing, but the plant is separate (i.e., from Cort's other 'generic' facility), exclusive to PRS product. With PRS QC at point of production.

Gibson, probably the most horrible company in the guitar world when it comes to consistent QC, built their own plant in Qingdao. Over the past couple of years, instruments coming out of their China Epiphone factory have been first rate, given the volume. At a price point three to five times less than the USA product. Certainly much better unit to unit consistency than their American product.
QC and the US is a funky story, although they have been very poor in the past lets never forget of the learning of Deming that were implemented in Japan. Different story now but still.
 

Ajax

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It is important to remember that not all companies rip off. Some incur a lot of upfront costs in design development and tooling, without any guarantee of a return. I'm referring to those companies with excellent in-house engineering design and implementation such as Benchmark Media and Hypex.

There are also those that blatantly take the micky.

Our job as customers is to know whose who, which is why ASR is such an invaluable tool.
 

anmpr1

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QC and the US is a funky story, although they have been very poor in the past lets never forget of the learning of Deming that were implemented in Japan. Different story now but still.
QC flows downstream. People will generally work to a level of expectation, and not much more. Anytime you find garbage quality, you can probably find garbage management. And it's certainly not industry specific, for sure. And it's not country specific, either.

Edit--I must qualify what I just wrote. If OEM specs are garbage, the actual product might be built to exacting specifications, but using substandard parts, it will be of overall poor quality. That's not an OEM management problem, but rather the problem of the original buyer who spec'd the item. The OP made that clear.
 
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