advertisement


HiFi: The pricing structure

Alonso1973

Alonso1973

pfm Member
I’ve always been intrigued on how hifi manufacturers come up with the actual MSRP for a given product.

Take loudspeakers for example, cost of components alone is usually a small percentage of the MSRP. Of course, there are overheads and R&D and dealer margins and VAT but I’ve always been curious as to how these figures are set? Nobody seems to be making a killing but still, one wonders how a £40,000 loudspeaker, a loudspeaker not new in design but decades old, can command that price? Are ‘middle man’ margins that great that every one involved wants 50-100% profit margins?

How does it all work?
 
Traditionally 60% discount from the manufacturer , split 40/20 between the retailer and the distributor, that model has been rather superseded of course.
Now manufacturers sell direct, or appoint a number of retailers, margins in the ‘pro’ world were always much smaller, margins vary between components with cables ( as you would imagine) being particularly healthy.
Keith
 
40-50% Mark up is probably pretty normal in retail, if you wait for certain times of year you can always get reductions, this applies particularly to clothes & shoes. Hifi retailers need a chunky margin as they often takes goods in p/x & carry expensive stock for months/years.
 
40% of the retail price is a 66% mark-up (you only paid 60%, and sell for 100%).

TBH, I had always assumed retailer (generally, not just hifi) mark-up to a normal advertised price, was around 100%, 50% of the asking price was the retailers margin, though most certainly not their profit.
 
Many years ago I was involved with developing a prototype small loudspeaker. The design wasn't lavish, but it was rather more than a box with drive unit and a crossover, and we found that by the time it was in a customer's home it would be about five times the component costs, and the speaker itself probably didn't justify it's retail price. That was in the days when HiFi was mainstream, now the margins would have to be higher as volumes are low.
 
With luxury goods, there are high multipliers, as high as 5x. This means if it cost £100 to make, they'll sell it for £500. I've seen some more transparent luxury retailers bucking this trend, and being clear about cost of materials vs. cost of unit i.e. adding a 2x multiplier: £250 to make, £500 to sell. This is very rare.

Luxury dealers tend to add 100% margin, so if they buy a unit for £150, they'll sell it for £300.

So, that £2,500 amp? Could be £1,250 for a distributor to buy, and £250 to make.

What this does not consider is R&D costs. As an example, there isn't much inside a box of LFD gear, but there is several decades of experience with tuning the circuits and components. To a lesser degree, there are licencing costs involved, like with MQA.
 
JemHayward said:
Many years ago I was involved with developing a prototype small loudspeaker. The design wasn't lavish, but it was rather more than a box with drive unit and a crossover, and we found that by the time it was in a customer's home it would be about five times the component costs, and the speaker itself probably didn't justify it's retail price. That was in the days when HiFi was mainstream, now the margins would have to be higher as volumes are low.
Click to expand...

That's very interesting. I have a good friend also involved in the design (and aspiring to manufacture) loudspeakers in the UK... Ive brought up this issue with him and he would agree with your point; but as a consumer, it's sometimes hard to swallow.... I've opened up loudspeakers that I've personally bought (MSRP circa £1500) and I was shocked to find off the shelf driver units that would sell at around £20 when ordered online (as a retail price!) and this was/is an 'award winning' loudspeaker in the UK
 
Yomanze said:
With luxury goods, there are high multipliers, as high as 5x. This means if it cost £100 to make, they'll sell it for £500. I've seen some more transparent luxury retailers bucking this trend, and being clear about cost of materials vs. cost of unit i.e. adding a 2x multiplier: £250 to make, £500 to sell. This is very rare.

Luxury dealers tend to add 100% margin, so if they buy a unit for £150, they'll sell it for £300.

So, that £2,500 amp? Could be £1,250 for a distributor to buy, and £250 to make.

What this does not consider is R&D costs. As an example, there isn't much inside a box of LFD gear, but there is several decades of experience with tuning the circuits and components. To a lesser degree, there are licencing costs involved, like with MQA.
Click to expand...

Fascinating.

I brought up the example of the £40K loudspeaker because I know for a fact that it's a decades-old design, so R&D costs are long gone (I don't have the accounting term) but yes... I know about x5 margins, especially in fashion... and in way, people are aware that they're paying for the name and not for the fabric, but I do struggle with the 3x 4x 5x when it comes to hardware such as hifi.... Knowing that my 'high end' amp that I paid £2500 costs £250 to make... sort of hurts.. haha
 
Alonso1973 said:
I’ve always been intrigued on how hifi manufacturers come up with the actual MSRP for a given product.

Take loudspeakers for example, cost of components alone is usually a small percentage of the MSRP. Of course, there are overheads and R&D and dealer margins and VAT but I’ve always been curious as to how these figures are set? Nobody seems to be making a killing but still, one wonders how a £40,000 loudspeaker, a loudspeaker not new in design but decades old, can command that price? Are ‘middle man’ margins that great that every one involved wants 50-100% profit margins?

How does it all work?
Click to expand...
The pricing of expensive, tiny volume, luxury goods probably tracks the strength of the brand more than anything. If the brand has a range of products then many costs will be shared across the range. This means the tiny volumes of, for example, a top of the range product doesn't necessarily have to payback it's own R&D and similar costs if it raises the strength of the brand (and hence the MSRP) for higher volume products.

This is the case for the larger established manufacturers producing expensive but high technical performance products rather than the producers of boutique audiophile products where technical performance is less relevant. The pricing for the latter can be strange but without knowing how many if any are sold and at what price it can difficult to conclude much. My suspicion is that a fair number of the 1 man boutique audiophile enterprises with very high priced products don't actually sell any products at all. Would be very interested if anyone has hard numbers on this sort of thing.
 
COG to retail for manufacturer, distros retailer chain is usually 10x in hifi electronics for mass market stuff. But thetes more exceptions than examples. Expected sales volume, product lifespan, marketing all weighs heavily.
 
The costs of parts is only a small bit of running a business, there are huge overhead costs that have to be paid for, the largest is staff usually.
HiFi is such a niche product that you need to make a larger margin as you're only selling small quantities
I agree that value doesn't seem to be there these days and with the view point that if you remover marketing bullsh*t, there's nothing new under the sun.
Better off looking at the second hand and DIY side for value and avoiding the shock of being told how much your prized kit is valued at on trade in.
 
How much does a pint of beer cost to produce? Or a £2000 tv? It’s the same across the board.

If you want a truly high end amp (for example) you’re way better buying something with a view to upgrading the parts, as the parts cost is so low...
 
I don’t think the mark up on Hifi is as much as it is on clothing, shoes, trendy trainers or handbags, especially the designer label gear.
As for the “those components aren’t that expensive, I could knock up something that good for a fraction of the rrp of the big Name brands in my shed” view...............
I’d say go on then. Design it, make it, employ staff to do the stuff you don’t have time to do yourself, pay for testing, marketing, advertising, packaging, shipping, & then scale up to take multiple orders from several dealers who all want it tomorrow.
I very much doubt it’s that easy.
 
At present the traditional audio market is a decreasing, ageing and predominantly wealthy demographic. I feel pricing was a far lot less absurd back in the 50s, 60s and ‘70s, which personally I view as the golden age of audio, even if that era was before I had any real spending power myself (or was even born in the case of the ‘50s and early-60s!). Obviously it was a far bigger market, so economies of scale applied. No hi-fi manufacture on the planet right now could hope to sell as many of a given item as say a Garrard 301, SME 3009 or Quad 303 clocked up. I suspect many things that end up in Stereophile these days won’t even get into three figures. The headphone market is in many ways rather more interesting as there is a far younger customer base driving it.

I really hope conventional audio gets its shit together as I’m pretty sure what we are seeing is a death-spiral with fewer and fewer manufacturers trying to sell ever more expensive variations of the same things to the same people again and again. In most respects I bailed out about two decades ago as I could see the pattern even then. Digital sources aside my interest is almost exclusively in vintage kit now.

PS Exactly the same with the guitar market, its us middle-aged and old guys who are dropping £4k or whatever on Custom Shop Strats, or far more on real vintage examples. The folk actually creating new and exciting music are often playing cheap Mexican Fenders!
 
You must log in or register to reply here.


advertisement


Back
Top