Death of a Sales Model, my latest article on The High Fidelity Report

[Lee]

I figured some here might like this new article. In it I examine using real world data why the new crowd funding models are doing so well and why they can help the high end audio business.

I hope you enjoy it.

http://thehighfidelityreport.com/death-of-a-salesman-lh-geek-out-campaigns/

 

[Johnny Vinyl]

Thanks Lee for the link. I enjoyed the article and as a "funder" in the Geek Pulse project I'm excited to receive what I think will be a wonderful product at a great price. They do (LH that is) need to work on their communication outside of the website. I paid the initial $100 + shipping and was told that I would receive 2 more invoices a month apart. I am still waiting on the first invoice. I had to check to make sure they didn't lose my file or anything as I have received no answers to date, after posting twice in their comment section.

 

[HedgeHog]

I see no problems with crowd-funding if everything works out for both parties involved. The only issue is that given the time period a product comes to the consensus specification and the final shipping, things may have changed and the funders are stuck with it. My POV is selfish since I did the Indiegogo thing with the Olive One. I paid out in Dec 2012 and they are finally shipping it. However, I no longer am interested in it but if I want to get a refund, I'll incur fees that were charged to the vendor by the crowd-funding site (Indiegogo), and the payment site (PayPal). While not a huge a amount, still sucks that one loses on without getting anything.

My 2 cents.

-Hedwig

 

[esldude]

Nicely done thoughtful article.

In my opinion anything ridding us of dealers is a plus. I have heard tales differently, but have never gotten good service, benefit or value from any high end dealers. So good riddance.

Reviews by actual purchasers of equipment you are considering is so very valuable. Some reviewers are good, some may have bias due to economics etc. But no one can give as good a feedback as actual buyers of said item. No one can provide more pertinent info about actual use of an item than actual long term owners. Just for instance, a reviewer of much equipment in all honesty and experience can't usually give a great account of say entry level gear. It just isn't the same sensibilities as a person really in the market for entry level and who buys and uses that equipment in that way. The reviewer may in a sense know too much. What he finds great may not be what the actual people needing such an item are looking for. He may provide second hand experience in the customer learning what really fine gear does that is making it fine, but he may not. And through no fault or lack of effort on the reviewer's part.

It also is true there are simply so many pieces of equipment available. No one person can actually experience them all or even a minor representative fraction. In some areas they are changing too fast for that to work. So I don't say good riddance to reviewers like I do dealers, but I think their role will be diminished and changed in the future as you suggest.

 

[Lee]

Thanks everyone. I like dealers but question them on less expensive items. As a Customer I prefer on less expensive items to save money by buying direct where possible.

 

[Lee]

I see no problems with crowd-funding if everything works out for both parties involved. The only issue is that given the time period a product comes to the consensus specification and the final shipping, things may have changed and the funders are stuck with it. My POV is selfish since I did the Indiegogo thing with the Olive One. I paid out in Dec 2012 and they are finally shipping it. However, I no longer am interested in it but if I want to get a refund, I'll incur fees that were charged to the vendor by the crowd-funding site (Indiegogo), and the payment site (PayPal). While not a huge a amount, still sucks that one loses on without getting anything.

My 2 cents.

-Hedwig

This is an excellent point. The manufacturer must come through and provide a good product.

 

[ddk]

I figured some here might like this new article. In it I examine using real world data why the new crowd funding models are doing so well and why they can help the high end audio business.

I hope you enjoy it.

http://thehighfidelityreport.com/death-of-a-salesman-lh-geek-out-campaigns/

Too many assumptions backed by limited facts to prove a POV!

To begin with, IMO in your model the reviewer becomes even more important and by no means obsolete. The manufacturer can bypass distributors and retailers but then they need to come up with all the expenses involved in sales and marketing of high end audio gear on their own along with same inventory risks taken by distributors and retail agents, plus the cost of full time and part time staff. There are many working models of manufacturer owned luxury outlets out there, try negotiating with one or price shopping exclusive products! Crowd funding little chuchkas is one thing, doing for high end products with limited appeal is a very different animal. The future of crowd funding isn't defined yet but the current model has limited long term appeal. The whole concept of paying upfront for something that doesn't exist, to someone that you know nothing about, just for little discount on a chuchka that might never be, is only for fools!

david

 

[Don Hills]

... The whole concept of paying upfront for something that doesn't exist, to someone that you know nothing about, just for little discount on a chuchka that might never be, is only for fools! ...

It's not about the money. In most cases, it's about getting something (usually useful) that you didn't realise you wanted, that wasn't available anywhere before and may not be again.

 

[ddk]

It's not about the money. In most cases, it's about getting something (usually useful) that you didn't realise you wanted, that wasn't available anywhere before and may not be again.

If it ever materializes!

 

[esldude]

Too many assumptions backed by limited facts to prove a POV!

To begin with, IMO in your model the reviewer becomes even more important and by no means obsolete. The manufacturer can bypass distributors and retailers but then they need to come up with all the expenses involved in sales and marketing of high end audio gear on their own along with same inventory risks taken by distributors and retail agents, plus the cost of full time and part time staff. There are many working models of manufacturer owned luxury outlets out there, try negotiating with one or price shopping exclusive products! Crowd funding little chuchkas is one thing, doing for high end products with limited appeal is a very different animal. The future of crowd funding isn't defined yet but the current model has limited long term appeal. The whole concept of paying upfront for something that doesn't exist, to someone that you know nothing about, just for little discount on a chuchka that might never be, is only for fools!

david

Many manufacturer direct companies offer a 30 day free return guarantee. If you aren't happy send it back. If you can audition the gear in your home, with your system in your room what a reviewer says isn't as convincing as hands on experience. The time spent visiting a couple dealers or reading very many reviews can instead be spent acquiring (and possibly returning) the actual equipment to try out yourself.

You also have so many products in more categories that overlap than in the past. No few reviewers can sample a significant portion of the offerings. The sticky part is knowing both for reviewer and customer which products are worth investigating. Currently, though they may be able to filter some worthy candidates professional reviewers still mainly get experience with what happened to come their way. It isn't like with any confidence they can be sure a better product for the same money or an equal product for less isn't out there. Which again reduces the value of a professional review. It isn't zero value, but not the level of value it may have been in the past.

Review by actual customers or owners of the gear in aggregate can be the most useful if one takes time to look through them. Sometimes people do near professional level review, and while most don't reach that level you get a breadth of looks not possible with any one reviewer. Golden are times when someone tells of similar gear they replaced other gear with and why it was an improvement.

So things are changing, some value will be lost, some has been gained (direct value for money for one), a different way of dealing with it will and is evolving.

 

[JackD201]

That's all fine if you only buy local in this global economy.

 

[Don Hills]

If it ever materializes!

There is that. You have to keep in mind that you're actually being a "venture capitalist" rather than just a customer. I did see an article comparing "fail to ship" for crowd-funded products versus "traditional" small startups, the conclusion was that it doesn't seem to be a problem so far.

 

[ddk]

There is that. You have to keep in mind that you're actually being a "venture capitalist" rather than just a customer. I did see an article comparing "fail to ship" for crowd-funded products versus "traditional" small startups, the conclusion was that it doesn't seem to be a problem so far.

People should be allowed to do what they want with their money. When a venture capitalist invests he/she takes a position in the company and owns part of the stock, they don't give away money. I have nothing against the concept and people should be allowed to do what they want with their money.

 

[ddk]

Many manufacturer direct companies offer a 30 day free return guarantee. If you aren't happy send it back. If you can audition the gear in your home, with your system in your room what a reviewer says isn't as convincing as hands on experience. The time spent visiting a couple dealers or reading very many reviews can instead be spent acquiring (and possibly returning) the actual equipment to try out yourself.

There might be some but personally I don't know of any high end audio manufacturers who can even afford to this locally. As Jack pointed no one can do it internationally even with the money. In many places like the Philippines the importer and the retailer are one and the same. I can see that model happening more and more today even here in the US, and that makes sense, otherwise I don't see high end audio manufacturers doing it alone for now. Right now I'm trying to get my money back from one of these manufacturers offering their products on trial, they simply don't have the cash. I'm waiting 6 weeks for less than 3k and they can't come up with it. Most of these manufacturers are barely surviving and many would be out of business if not for distributors and importers buying in some quantities and paying in advance.

david

 

[Al M.]

For me the dealer is still essential, as explained in my post on this thread:

http://www.whatsbestforum.com/showthread.php?13710-A-Routine-Day-at-your-Local-Hi-FI-Shop

Nothing beats being able to audition gear at home before buying. I also have found that in general I cannot trust reviews (except my own of course ;-)).

 

[Whatmore]

There might be some but personally I don't know of any high end audio manufacturers who can even afford to this locally. As Jack pointed no one can do it internationally even with the money. In many places like the Philippines the importer and the retailer are one and the same. I can see that model happening more and more today even here in the US, and that makes sense, otherwise I don't see high end audio manufacturers doing it alone for now. Right now I'm trying to get my money back from one of these manufacturers offering their products on trial, they simply don't have the cash. I'm waiting 6 weeks for less than 3k and they can't come up with it. Most of these manufacturers are barely surviving and many would be out of business if not for distributors and importers buying in some quantities and paying in advance.

david

Sanders Sound does it internationally and will pay postage both ways

 

[vess]

Hi, it kind of makes logic for cheap low end products to sell directly.

But, being a distributor, the calculations in the article are very wrong and perception, base on those claculations is very misleading.

There is no margin of 70% for distributors, never ! In most cases 50% nowadays. So, the true calculations are:

Manufacturer cost is $ 2.50. Distributor pays $5.00. Dealer price $6.50 - 7.00. Retail price $ 10.00.

The customer always asks for discount, so pays $ 8.00 to 9.00.

In " cusomer is the king " model, the latter pays probably $ 6 to 6.50 in direct sale.

Thus, " dealer is the king " model compares to " cusotmer is the king " model like $ 6.50 to $ 8.50.

This is way too far from 10.00 copmared to 4.00.

As they say the devil is in the details. Hence the misinterpretation based on wrong numbers.

Articles like this make people believe that they pay several times the value of the product, and this is simply not the truth.

When real values are compared, one is free to choose between "saving" 25% and go for direct sale without demonstration.

And the demonstration is not only about sound, but how the product actually feels in your hands, behaves, easy or not to use, etc. Potential problems can be revealed during the demo, etc.

Finally, I firmly believe the dealers main role is setting up great systems, not selling components only. Mix and match is the big deal ! And result could be very rewarding.

Vess

 

[Al M.]

Finally, I firmly believe the dealers main role is setting up great systems, not selling components only. Mix and match is the big deal ! And result could be very rewarding.

Vess

I agree. I would never have found the golden match of my amps with my speakers if not for the dealer in The Netherlands where I bought them 23 (!) years ago and am still (!) happy with the combo. Yes, especially the amps have been heavily modified and augmented with external power supplies (a sensational upgrade), but in essence it is still that same golden amp/speaker match. While other combos are better than mine in some areas, I have never heard any other amp/speaker combo that satisfies me personally as much in all parameters combined that are important to me. This year I will not buy new speakers, but replacement midrange driver units for the rare ones that I have, in case my current ones ever die (I am not sure if refoaming, done once in the past, will be available again when I need it in the future).

And again, without dealers, going just off recommendations from reviews (a majority, also in Stereophile and TAS, are worthless I found out) or opinions of fellow audiophiles on internet fora, I would have made costly mistakes.

 

[Lee]

Too many assumptions backed by limited facts to prove a POV!

To begin with, IMO in your model the reviewer becomes even more important and by no means obsolete. The manufacturer can bypass distributors and retailers but then they need to come up with all the expenses involved in sales and marketing of high end audio gear on their own along with same inventory risks taken by distributors and retail agents, plus the cost of full time and part time staff. There are many working models of manufacturer owned luxury outlets out there, try negotiating with one or price shopping exclusive products! Crowd funding little chuchkas is one thing, doing for high end products with limited appeal is a very different animal. The future of crowd funding isn't defined yet but the current model has limited long term appeal. The whole concept of paying upfront for something that doesn't exist, to someone that you know nothing about, just for little discount on a chuchka that might never be, is only for fools!

david

Okay, interesting perspective so let's address these point by point...

First off, we used real numbers from participants in the industry. So the value chain analysis is on target. Since the article has run, the comments I am getting are that the numbers are accurate. But as we said in the article, this is a composite and pricing/cost data varies by brand and type of component.

Second, we made a big point in the article of carving out expensive components. As we say, we want to test drive that Porsche. But a $500 or even one day a $1,000 DAC? No dealer needed, no distributor needed.

Third, I agree with you that crowd funding needs to be proven by successful product delivery. Geek started shipping out the Geek Out last week. So they are on track.

Fourth, we know these guys. Geek is Light Harmonic which makes the $20-30K Da Vinci DACs, one of the best sounding DACs I have heard.

Fifth, it's not a little discount. It's buying it at WHOLESALE. It's a HUGE discount. The Pulse with my selected options will be well over $600, maybe even $800. I only have a little over $300 into it.

Why pay the dealer and distributor that difference if they are adding no value or no perceived value?

Sixth, we added in the extra expenses in the value chain analysis. In the digital world that doesn't add a how lot for things like customer acquisition and shipping.

 

[Lee]

Hi, it kind of makes logic for cheap low end products to sell directly.

But, being a distributor, the calculations in the article are very wrong and perception, base on those claculations is very misleading.

There is no margin of 70% for distributors, never ! In most cases 50% nowadays. So, the true calculations are:

Manufacturer cost is $ 2.50. Distributor pays $5.00. Dealer price $6.50 - 7.00. Retail price $ 10.00.

The customer always asks for discount, so pays $ 8.00 to 9.00.

In " cusomer is the king " model, the latter pays probably $ 6 to 6.50 in direct sale.

Thus, " dealer is the king " model compares to " cusotmer is the king " model like $ 6.50 to $ 8.50.

This is way too far from 10.00 copmared to 4.00.

As they say the devil is in the details. Hence the misinterpretation based on wrong numbers.

Articles like this make people believe that they pay several times the value of the product, and this is simply not the truth.

When real values are compared, one is free to choose between "saving" 25% and go for direct sale without demonstration.

And the demonstration is not only about sound, but how the product actually feels in your hands, behaves, easy or not to use, etc. Potential problems can be revealed during the demo, etc.

Finally, I firmly believe the dealers main role is setting up great systems, not selling components only. Mix and match is the big deal ! And result could be very rewarding.

Vess

Vess,

Thank you for your comments. We used real world numbers from mfrs and distributors that are valid if different from yours. It depends on gear and brand. But even in your calculation it is off since the manufacturer cost we start with is $3.00. If we add 50% for the distributor then that's another $1.50 so cost to dealer (from distro) is $4.50. At a 50% (very common, we checked, sometimes goes as high as 60%, sometimes low as 40%) then the cost to consumer is $9.00. That's still 2.25X greater than the Customer is King model at $4.00. The main point holds. Even at 40% dealer margin we are still looking at around 2X.

So at 2X, we are talking HALF the cost on the newer business model. That's quite different than 25% off.

But we recognized the value of the distributor and dealer in the article and went to great pains to talk about the value adds.

But let's be honest here. In the digital age with the Customer armed with real time data, pricing, opinions, and "wholesale" pricing option like a Geek kickstarter, do they need that dealer for a $300 DAC? A $500 DAC? A $1,000 DAC?

Nope.

But here is the BIG silver lining for the distributor and dealer...That DAC is now $300, not $600 and change at the dealer.

Think of all the new customers you can have at the lower price point!