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

[tuga]

I thought that this thread was going to be about infidelities and espionage. How disappointing...

 

[OWC]

Picture the costs of Lars Risbo tinkering with woofer designs and different materials, measuring equipment, electronics...

Well, I said this as a semi sarcastic joke, but there is also some seriousness behind the question.

How much a product costs, also highly depends how well and efficient a company works.
Not only from a production point of view, but also materials as well as knowledge (R&D).

So a certain product could be very expensive, just (only) because one or more of these things are lacking.
Or in other words, the same product could be a lot cheaper if the company would work a lot more efficient.

Some companies spend (waste) a lot of time in R&D.
That could be all kinds of reasons, lack of knowledge, wrong mentality (to much of a perfectionist), bad planning, poor location etc
Good or bad, in the end it will be part of the total product price.
Although very often that price is determined by the market and niche you're in.

But to give you another idea, in general what I usually have spend on ACTUAL R&D is often 30-40% of the time.
The rest is all ordering parts, fixing mistakes/repairs, looking after interns, calling suppliers/manufacturers, paperwork, planning, looking after my other co-workers, replying emails etc etc etc.

Also don't forget that most R&D is definitely not as glamorous as it seems.
Very often than not it's like replacing obsolete parts, or stock shortages (oh boy, the last 2 years )
Which is like doing the same dog trick again, but with just a slightly different flavor.

On average, most companies roll out a new product every 3-5 years or so.
Which is mostly an adaptation of previous products.
Obviously depending on company size.
Although a lot of big companies recycle a lot of ideas.

 

[dtaylo1066]

Margins are not that bad you should see the pharma and beer industry.

Beer industry margins are not as you indicate. Please provide factual data.

 

[OWC]

Beer industry margins are not as you indicate. Please provide factual data.

Stop yelling "proof" ! It's not constructive.
It takes two to tango, so either showing data comes from both ways, or dive in deeper as well.

Because the implication on the idea that the information isn't factual can't be made at this point.
It's undetermined.

 

[Kevinfc]

"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.

A BMW does seem and feel better when you first drive it, to argue otherwise is foolish. The Toyota will last longer for one reason, the ratio of cost to repair against it’s depreciated value. The BMW’s level of sophistication adds more costly problems as the car ages and depreciates. The much simpler Toyota has fewer advanced / cutting edge systems, instead it uses the less costly tried and true . They both have their places in the automotive landscape.

 

[OWC]

A BMW does seem and feel better when you first drive it, to argue otherwise is foolish. The Toyota will last longer for one reason, the ratio of cost to repair against it’s depreciated value. The BMW’s level of sophistication adds more costly problems as the car ages and depreciates. The much simpler Toyota has fewer advanced / cutting edge systems, instead it uses the less costly tried and true . They both have their places in the automotive landscape.

Beautiful how the psychological part of marketing is described here live as we speak.
(see the book referrals earlier)

Not saying what you're saying is wrong, but keep those ideas in mind what a car is actually is made for.

 

[dtaylo1066]

That goes both ways. Those were the first headphones I ever bought (MDR-V6). I thought they sounded pretty good so I thought the next logical step would be the Byer DT-770 and I was kinda underwhelmed. That said the Byers were 10x more com, feel like their 2x better made, and are built in Germany. I ended up selling the Byers because I wasn't really happy with either of them (or any headphone I've tried but thats another story) so the higher quality of the Byers wasn't worth it to me. If it was something I was goign to use a lot I'd say the extra price of Byers would be easy to justify however.

As a non audio example where I drop why more expendable income in, mountain bikes. A equally speced bike from a small company like Ibis will likely cost more than a Trek or Giant but because they are smaller company and they don't need to make 100,000 of model they iterate quicker and take more risks when designing a product. If feel like its the same with all hobbies, the subjectiveness of audio just makes it a bit trickier.

Margins in bikes are typically terrible. Most of the smaller bike companies are passion driven, just as smaller audio companies. They are producing a frame and perhaps a few other parts of the bike but sourcing components from the large suppliers, and they cannot get the QDs that the larger bike makers get. It's the same for a number of what I would call passion driven consumer goods or industries: bikes, audio, fly rods, skies, etc.

No one sets out to build a local high-end washing machine, as no one has a personal passion for washing machines. And it's a utilitarian thing. But a guy who loves audio is tempted to start an audio company.

 

[dtaylo1066]

Beautiful how the psychological part of marketing is described here live as we speak.
(see the book referrals earlier)

Not saying what you're saying is wrong, but keep those ideas in mind what a car is actually is made for.

A car is made for transportation, but that does not mean people do not want or desire other atrributes or performance from their car. Audio is made to listen to music. One could argue that a $50 FM radio sounds just fine and provides a pleasureable listening experience.

 

[OWC]

A car is made for transportation, but that does not mean people do not want or desire other atrributes or performance from their car. Audio is made to listen to music. One could argue that a $50 FM radio sounds just fine and provides a pleasureable listening experience.

Or pay a lot of money just for "the feel" or "the idea".
Quite literally how the sound of a closing door sounds.
In fact, I have known someone who did a PhD on that.

Loudspeakers are no different.
It could use a super fancy finish to look very slick.
Doesn't improve the sound quality though.

Did I mention marketing already?
There are plenty of Toyota's that are very comfortable as well.
More than enough to bring you from A to B on a daily basis in bad weather.
Yet people still think the BMW is more comfortable

 

[Kevinfc]

Beautiful how the psychological part of marketing is described here live as we speak.
(see the book referrals earlier)

Not saying what you're saying is wrong, but keep those ideas in mind what a car is actually is made for.

I have no delusions as to what status brings to a brand (automobile), but there are many people who are also interested in the underlying feats of engineering that the vehicles offer. I would imagine that they skew older and are much like the people here.

For younger buyers, status occupies a larger part of the decision to buy a premium brand. Later, they are increasingly made based on brand loyalty, as well as an appreciation for the vehicle’s engineering.

Both are at play.

 

[Timcognito]

I think that audio electronics are in a late phase and careening towards a commodity market. Like phones, mass production, integration with cameras and computers/internet as well as competition makes them more functional and for many brands less expensive for all that they do. I think we are reaching a day of reckoning for many small audio companies as the digital age and computer modeling has removed and exposed much of black arts of the 60's. Things like switching supplies have be around for a long time and have just gotten much cleaner due too some very creative thinking. More simply put audio high end isn't so mysterious and rare. It is commonplace and often comes from large companies.

As for the Chinese, my last medical device company of which I am a co-founder was recently sold to a Chinese conglomerate and my recent and first experience with their expertise, technology and quality is that they are way behind in anything other than manufacturing and even that lacks western equipment and knowledge. In the medical field there is very little R&D, invention or clinical expertise. The Chinese need to import technology from the west so that government sponsored manufacturing can sell inexpensive devices to their own population and the rest of the world. Mature technologies like audio and communications are ideal for them. We see very few computers, autos, drugs, medical devices and hardware and technical patents from mainland China because the educational structure and capital markets do not support early stage development. With the exception of Taiwan China struggles to invent anything and prefers to exploit low cost labor, the environment and lack of free enterprise. The government there gave tens of thousands of square feet in brand new building outside of Shanghai to my former start up and the parent corporation is in the hunt to acquire more fledgling medical companies. High end medicine does not exist there but commodity electronics do.

 

[Kevinfc]

Or pay a lot of money just for "the feel" or "the idea".
Quite literally how the sound of a closing door sounds.
In fact, I have known someone who did a PhD on that.

Loudspeakers are no different.
It could use a super fancy finish to look very slick.
Doesn't improve the sound quality though.

Did I mention marketing already?
There are plenty of Toyota's that are very comfortable as well.
More than enough to bring you from A to B on a daily basis in bad weather.
Yet people still think the BMW is more comfortable

I‘ve had both, BMW’s as a brand are more comfortable and more pleasurable to drive than Toyota’s. To argue that it’s entirely marketing is foolish. To argue that the differential is not worthy of the incremental cost is entirely a different matter.

 

[DMill]

I can only speak for marketing as an ad agency guy for 25+ years. The way a door closes, the finish of the paint, the way a volume knob feels or a power switch clicks into place matters when talking about premium goods. I really hate the car analogy thing we do in audio, but I’ll go with it in this thread. A KIA and a BMW will both get you to work. Let’s say we hope the 3x cost of the BMW means it lasts longer too. If you can afford it, Which would you rather drive?

 

[OWC]

I‘ve had both, BMW’s as a brand are more comfortable and more pleasurable to drive than Toyota’s. To argue that it’s entirely marketing is foolish. To argue that the differential is not worthy of the incremental cost is entirely a different matter.

Well first of, I would like to see an objective test about comfort levels.
Second, I would like to see a comfort level that is good enough vs "more comfortable"
Third, I would like to see the same test were an higher level of comfort level is placed inside a crappy looking car (but still fine working) vs a meh comfort level inside a slick looking car.

If people can show me those results, I am happy to agree.
Otherwise it's subjective anecdotal stories no different than that certain cables "sound different".

 

[OWC]

I can only speak for marketing as an ad agency guy for 25+ years. The way a door closes, the finish of the paint, the way a volume knob feels or a power switch clicks into place matters when talking about premium goods. I really hate the car analogy thing we do in audio, but I’ll go with it in this thread. A KIA and a BMW will both get you to work. Let’s say we hope the 3x cost of the BMW means it lasts longer too. If you can afford it, Which would you rather drive?

It's not about what you can effort, it's about being a "better" car.

And to complement the guys here at ASC, they have shown that "better" from an audio point of view does not always equals higher price.
Yet people still think that higher price MUST be better.

We are not even talking about the amount of percentage something is "better" vs costs.

Or in other words, context is missing but very important, and the majority of people often quickly forget context.

But anyway, we're now derailing into certain details that go to far off-topic for me personally.
That was not the point that was originally made here.

 

[Ismapics]

All retail business are the same today. That is why in critical categories (food, drugs, durable medical devices) you have Government agencies assuring (or trying to) that product dont harm users. Audio has no controls, other than dont burn the place down. I would argue that Marketing will only get you so far. Raycons for example, they spend $$$ in marketing, but I dont know of anyone that has one. Apple on the other hand makes sure that what they sell you performs as expected and then some.

 

[Timcognito]

If people can show me those results, I am happy to agree.
Otherwise it's subjective anecdotal stories no different than that certain cables "sound different".

I too have owned Toyota and Lexus and one BMW M3. The differences in those cars is highly demonstrable and as another poster pointed out readily documented in periodicals like Car and Driver. Unfortunately most audio magazines and websites are unwilling to bite the hand that feeds them. ASR is an exception.

 

[tomchris]

R&D or innovation is hard to quantify and quite often down to a single person having a sudden eureka moment doing something else.

It seems that large teams is a very inefficient way of doing R&D. A few people is all that is needed as most cases have also shown.

 

[dtaylo1066]

Stop yelling "proof" ! It's not constructive.
It takes two to tango, so either showing data comes from both ways, or dive in deeper as well.

Because the implication on the idea that the information isn't factual can't be made at this point.
It's undetermined.

I worked in beer for 30 years. My employer's margins were far below those of other industries. Beer has significant COGS. It is an expensive product to package and ship. It is highly taxed. By law it must be sold to distributors, and not to retail.

Latest Pre-Tax Margins

MicroSoft 42%
Apple 29%
Intel 27%
Anh. Busch InBev 15%
Molson Coors 12%
Boston Beer .03%
Constellation Brands 3.5%
Merk 18%
Pfizer 30%
Sony 11%
Samsung 39%

 

[OWC]

I too have owned Toyota and Lexus and one BMW M3. The differences in those cars is highly demonstrable and as another poster pointed out readily documented in periodicals like Car and Driver. Unfortunately most audio magazines and websites are unwilling to bite the hand that feeds them. ASR is an exception.

That is still very far from answering all of those three questions before.