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

[Operandi]

Fair point, if you already know anything about how product design and manufacturing work. Audio isn't special, it works the same as anything else that is mass-producible.

I wouldn't say that covers the majority of people though. Especially if you work in (say) a service industry or the software world, you may not get exposed to even rudimentary cost structures for physical goods. There was a time in my life when I didn't know these basic facts either.

I feel like this would be common anyone reading reviews at a level that is going to visit a site like this.

More specifically though and as sort of a follow on to my first comment there really isn't any actionable information here. Who actually builds and manufactures the product really doesn't matter. Nor does it really matter to the extent it was engineered and designed by company selling it. Products are designed and built to meet a set of goals, how they achieve them (or don't) isn't really important to the average end user / consumer.

Of course the more involved in any hobby the more important the details start to matter to you but thats all very individual. If you care that an amp or DAC is basically white box implantation of a chipset from Icepower or ESS then you care. If you care that your product was designed and built in US instead of overseas like Schiit or Zu Audio then you care. Point being knowing a products orgins is interesting and useful to some but in of itself dosn't really tell you how its general performance.

 

[Operandi]

Silence implies complicity.

Complicity in what though?

I'm just not clear on what anyone is supposed to take away from this post. Just because several brands get their products made in the same factory, doesn't make them equlavilent to each other. Or if several amp manufactures use the same basic amp module from the same OE dosn't mean the end resulting final product is going to be the same. There is usually more to the nuance and detail of product design than can be known by simply knowing the cursory information about how it was made.

 

[xnor]

Well, tbh, capitalist free markets all fail in the real world for a plethora of reasons.
In audio, one that's especially important is the (lack of) rationality of buyers and lack of information again on the consumer side.

It clearly is a naive economist's failed pipe dream from which only few gain at the cost of the rest of the planet, literally.

 

[Billy Budapest]

The markup for hi-fi audio is typically 5x b.o.m., as for the “ultra high end,” it is often 10x b.o.m. For these ultra-Veblen goods, higher prices often result in greater sales because price=exclusivity.

 

[Frgirard]

Why do you assume that clients do not care about technical or quality issues? Why do you assume that customers are technically incompetent?

I presume that salesmen may be proficient in the business of sales, because - obviously - that is their job. However, if you rely on salesmen to be technically knowledgeable or rely on vendors to be trustworthy, I am afraid that you are likely to be taken advantage of, to put it mildly.

Ask yourself this, what are the revelations of this thread, or even what has this site revealed about numerous products?

BTW, you wouldn't possibly be interested in buying a bridge?

Simple and multiple observations. I don't think you know the Audiophile market and the people.

An honest trader should only sell speakers. With a limited choice of electronics and a single source, a single dac...

 

[eddantes]

Also companies buy reviews and awards. Most magazines aren't independent at all. I see this in the car industry too where magazine titles will quite obviously favour certain brands.

And especially in the ultra "high end", the customer willingly pays the absurdly inflated cost partly because that's how they buy all goods, and if high-end product A is discounted by 50% then they assume there's clearly something wrong with it and won't buy it. Genuine quality or independent reviews don't really come into it.

At the ultra "high end" the value is not in the objective or even subjective qualities, the value is in exclusivity. If your play group can afford anything they want, the way to stand out is to have what they can't have.

 

[tomchris]

Complicity in what though?

I'm just not clear on what anyone is supposed to take away from this post. Just because several brands get their products made in the same factory, doesn't make them equlavilent to each other. Or if several amp manufactures use the same basic amp module from the same OE dosn't mean the end resulting final product is going to be the same. There is usually more to the nuance and detail of product design than can be known by simply knowing the cursory information about how it was made.

Why, complicit in knowing, of course. Something most of us are guilty of some way or another. I agree with you. People share cursory information, as you state.
However, when it comes to actionable information, not so much. People leave other people to their own devices. You know, the "I am more knowledgeable than you"-schtick.

Here is an example:

Simple and multiple observations. I don't think you know the Audiophile market and the people.

An honest trader should only sell speakers. With a limited choice of electronics and a single source, a single dac...

@Frgirard, did I mention or refer to the audiophile-market and the people? No, I did not. I merely mentioned people in general.
What did I say or mean? "Do not trust salesmen, they are only interested in maximizing profit at any cost." - Does this come as a surprise?

So, you assume, that I do not know audiophile market and the people. Well, you know what they say about assumptions?
- To assume is to make an enemy of exactitude

 

[Mnyb]

The markup for hi-fi audio is typically 5x b.o.m., as for the “ultra high end,” it is often 10x b.o.m. For these ultra-Veblen goods, higher prices often result in greater sales because price=exclusivity.

I thought BOM always was <10% on anything at all ? A car for example?

 

[kemmler3D]

I thought BOM always was <10% on anything at all ? A car for example?

BOM (Bill of Materials) is a significant fraction of COGS (Usually BOM is just parts cost, not manufacturing/assembly, probably doesn't include packaging) and so a 5-10x BOM:Retail would be pretty normal. I don't think it's always 10% or less though.

 

[krabapple]

• 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.

Highlighting this. It also makes possible the cheap propagation of incredible technologies like room correction software. Despite this, 'audiophiles' turn their phoolish noses up at 'mass market' hardware. Their loss.

 

[kemmler3D]

I feel like this would be common anyone reading reviews at a level that is going to visit a site like this.

More specifically though and as sort of a follow on to my first comment there really isn't any actionable information here. Who actually builds and manufactures the product really doesn't matter. Nor does it really matter to the extent it was engineered and designed by company selling it. Products are designed and built to meet a set of goals, how they achieve them (or don't) isn't really important to the average end user / consumer.

Of course the more involved in any hobby the more important the details start to matter to you but thats all very individual. If you care that an amp or DAC is basically white box implantation of a chipset from Icepower or ESS then you care. If you care that your product was designed and built in US instead of overseas like Schiit or Zu Audio then you care. Point being knowing a products orgins is interesting and useful to some but in of itself dosn't really tell you how its general performance.

I don't really disagree with you here. I shared this because people seem to be interested in why products are price or designed the way they are. Ultimately there may not be anything you can do with that information, but people like discussing it all the same.

I do think knowing about economies of scale is actionable though. For example, the Sony MDR-7506 arguably punches above its weight (and so do a few Sony headphones) because Sony's manufacturing & parts cost is absurdly low compared to niche brands. An uninformed shopper might assume all mass-produced items are bad and all smaller, niche products are good, due to a misguided hipster mentality. The truth is a little more complex and it helps to know about it.

 

[Waxx]

You see it very well when you diy. A speaker, the Sibelius SG that is sold for 4500€ i made for someone (before this speaker was relaased) for about 1500€n that is including labour, but a one occasion build (no company, just an individual). It's a single fullrange driver TWQT type of speaker using the Mark Audio Alpair 10 metal cone fullrange driver (in it's section, it's one of, if not the best arround).

The drivers costed 220€ for a pair, the other parts but the wood maybe 30€ and the wood (18mm bich ply of BB+quality) and cnc cutting costed about 300€. I pay off course more for parts than a company as they don't pay VAT and get cheaper prices because of the number of pieces they order. But i spend 550€ in parts, and the rest in labour and profit and i still could sell it at 1/3th of the price because i did not have to do marketing or pay a reseller/dealer and don't have the company costs a real bussiness has. A bit later i saw this commercial speaker, that uses more fancy wood (very well dried and treated oak of very high quality) but for the rest is almost exact the same as what i did build...

 

[anmpr1]

SUPPORT YOUR LOCAL RETAILERS!

The small premium price you may pay in a retail store with knowledgeable salesmen is worth it.
An audition is MUCH better than relying solely on magazine / on-line reviews.

In the heyday of hi-fi, the hobby was usually pretty expensive for the consumer. Certainly once you got to mid tier and beyond. Dynaco and McIntosh tended to be outliers, avoiding some of the dealer/franchise problems that cropped up--Dyna selling low-ball but decent quality DIY kits, with factory support if you screwed up your build, and Mac, with a loyal dealer network catering to an upscale customer base.

The rest was a wild and wooly battlefield. With literally a dealer on every corner, things got weird quickly in the competition department. Mail order was a big game changer.

Probably the largest hi-fi manufacturer, Pioneer, allowed mail-order outfits to sell direct, undercutting whatever local retailers could offer. Places like Warehouse Sound Co. (in San Luis Obispo) didn't have the overhead of local hi-fi storefronts-- a warranty shop, loaners if you needed it, and trade-ins for you old gear. Not to mention offering a place where you could demo a variety of items. Importantly, mail order operations drew from a national customer base, so their buying volume was higher. There was no Internet, so an expense was publishing and mailing out catalogs every month or so. You'd often find a minimalist add in Stereo Review advising readers to call toll free for a quote.

What made matters worse (for dealers) was that local stores selling Pioneer (I'm not singling Pioneer out--but they were the largest of the bunch) had customers come in, spend an hour fooling with the gear, and request a price quote. Then they'd show the store owner what the mail order outfit was quoting, and demand a price match. If the store couldn't (or wouldn't) match that, the customer walked out and bought through the mail.

It was to the point that dealers in my area dropped the Pioneer line. A negative consequence (for the consumer) was that this situation facilitated 'boutique' products--often of questionable quality, but offering the dealer limited competition, well defined franchise territories, and set pricing. Consumers generally paid more, often for less. The 'underground' magazines colluded by telling their readers that these 'esoteric' components with funny names sounded much better than anything coming out of Japan, which were always characterized as harsh sounding with brittle highs, two-dimensional soundstage, grainy on the top, undefined lows... etc. etc. etc.

Getting back to McIntosh, they refused to send gear to reviewers, and you couldn't buy them through the mail at a discount. There was no upside to the company to have the undergrounds review them, because of all the subjective nonsense. Nor was there any benefit for the company to have mainstream mags review their gear, since Mac couldn't compete with Pioneer on a 'spec per dollar' basis. McIntosh value (if it had value) was derived from a customer's 'dealer experience'. Now that dealers are becoming scarce, I don't know how it affects them.

Dynaco was a bit different. You had outfits like Jensen's Stereo Shoppe (Frank van Alstine), and Paoli Audio Consultants selling 'modified' Dyna amps for a premium. I think Bill Johnson of ARC began his life modding Dynas.

Mac has now embraced the tweako Stereophile crowd, something I never thought would happen. And the faithful are still modding dusty and musty Dynacos. Something I also thought would never continue to happen. LOL

 

[Roland68]

Add the elephant on the room: governments taxation and exoticism on dealers. I have joked several times over here that I should get a container full of used McIntosh gear from the US just to resell it over here. To give you a comparison, an MI347 in the US is around 5 grand (dollar), over here it's more than 7 grand (euro).

I guess you guys have similar issues over there with brands such as Primare or Genelec.

You seem to be comparing apples to oranges.
The prices you quote are not comparable, as they are given without taxes in the USA and include approx. 20% VAT in the EU.
The approx. € 600 additional costs in the EU for the handling costs, transport, provision of support in the EU etc. seem very fair to me.

If you import the devices from the USA, you pay about 20% import sales tax, regardless of customs.

 

[anmpr1]

I have joked several times over here that I should get a container full of used McIntosh gear from the US just to resell it over here.

I'll tell you a funny story. In my younger days I'd slum around, in search of unusual stuff. I was always looking for odd ball hi-fi items. Sometimes pawn shops were a place to find gear on the cheap. Once I was in a pawn store, and they had a pallet of mid to top tier gear getting ready to be boxed up. A lot of it was Japanese gear. I was looking it over, and the owner walked over telling me none of it was for sale. I asked him where he was sending it all? He said it was going to a guy in California who packs it up and sends it back to the Orient. I think he might have said Hong Kong, but I don't remember exactly. I thought that was pretty funny.

 

[Multicore]

You don't need a degree in anything to start an audio brand.

And having one doesn't make you good at designing audio gear, running a business or selling.

Apart from this being a rather obvious truism, I can speak from experience. I have a degree and I know and have worked with some very good engineers and business people and I can attest to the difference between me and them.

 

[Multicore]

Pricing relative to costs is only one perspective, albeit an important one. Relative to the value to users is also important. And relative to competing products offering similar value to users is also important. And maybe the buyer's notion of value takes into account if a manufacturer uses union labor in a certain geography or if the manufacturer has costly waste and pollution mitigation processes. The value of things is, ultimately, a topic of philosophy.

 

[sergeauckland]

Pricing relative to costs is only one perspective, albeit an important one. Relative to the value to users is also important. And relative to competing products offering similar value to users is also important. And maybe the buyer's notion of value takes into account if a manufacturer uses union labor in a certain geography or if the manufacturer has costly waste and pollution mitigation processes. The value of things is, ultimately, a topic of philosophy.

I was taught that a manufacturer has control of their costs, their competitors control the price.

S

 

[kemmler3D]

Pricing relative to costs is only one perspective, albeit an important one. Relative to the value to users is also important. And relative to competing products offering similar value to users is also important. And maybe the buyer's notion of value takes into account if a manufacturer uses union labor in a certain geography or if the manufacturer has costly waste and pollution mitigation processes. The value of things is, ultimately, a topic of philosophy.

Indeed. If all you want is an ugly box with good specs, and don't care what happens if it fails, you can minimize cost/performance at the expense of all else. If you want a helpful, positive in-person retail experience, with a good warranty, good industrial design and so on, your prices tend to go up and your options are narrower, but your "experience per dollar" might be a lot higher.

There might also be business practices you refuse or seek to support via your purchase. And I think that's also a good approach.

I was taught that a manufacturer has control of their costs, their competitors control the price.

S

This is not a bad heuristic.

 

[phoenixdogfan]

"Retail price is free to deviate upward from COGS in an unlimited fashion." Hardly surprising. For example, when you buy a BMW, you're paying far more for that bag of parts, than you'd pay for a comparable bag of parts sold by Toyota. And the Toyota parts will be of higher quality, will be put together with more care and precision, and, consequently, a Toyota will almost always last longer, cost less to service, and retain a higher resale value. Nevertheless, many people will buy (or more likely lease) the BMW anyway, because it's reputation for performance and luxury trump value and longevity considerations for certain status seeking consumers.

Same, holds true for audio, only more so. High end audio has any number of brands whose retail pricing bears no rational relation to the cost of the parts employed, the quality of the design, product aesthetics/fit and finish, or (most especially) objective performance. Many of these products are pure snake oil that do not in any way fulfill the claims of their marketers; others are simply rip offs which do the same job (very often at lower levels of performance) than other value priced products. And often these snake oil/rip offs are purchased by people with more money than discernment because they have the cachet of being Veblen goods--which is all those individuals were looking for in the first place.

If someone is a smart shopper, this is actually wonderful news. It means that some of the best, if not the very best products are available at prices far lower than would be initially surmised from listening to the marketing hype. It is really the best and the worst of times. The worst of times if you don't know what you're doing, because you stand the very good possibility of being ripped off on one or more of your purchases, but the best of times if you undertand how to shop for quality gear because unprecedented levels of performance can be obtained at most price points, including true high end performance at prices levels heretofore never thought possible.