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**MylesBAstor** · 04-06-2016, 07:00 AM

Originally posted by Johnny Vinyl

I like this post!

Whether a magazine, blog or newspaper article or even some forums diss an entire segment due to price they've lost my interest. This can go in both directions of course.

That would make for an interesting thread as I have my own thoughts on the subject. 😄

**Johnny Vinyl** · 04-06-2016, 09:14 AM

Originally posted by MylesBAstor

That would make for an interesting thread as I have my own thoughts on the subject. 😄

Well, since you broke this off into it's own thread, let's hear it!

**Bill Hart** · 04-06-2016, 09:37 AM

Are we talking 'beer budget' high end or mass market stuff that breaks out of the pack sonically, or don't we care? It seems to me that many of the high end companies are like cottage industries, and while they may have the technical or scientific chops, they aren't in a position to build to scale, nor do they necessarily want to; sure, there are 'budget' phono stages in the $3,000 range, I don't think you are talking about that. It seems that many of the high end companies start (until, possibly they are bought up by a larger holding company after a period of time, e.g. Levinson, ARC) and are driven by a single person (WZJohnson) or a couple of guys (C-J) who are passionate and want to make statement products. I suspect those are not only more interesting for them to design and build- the cost economies of mass market price reduction in parts and production just don't make sense. I guess when Quad and Sonus Faber went to China their products are still OK, just as when ARC (and I suppose Levinson, though I don't know many people who are into newer Levinson products) got bought up by big multi-glomerates.
The mass market stuff has certainly improved, though. I had an old Meridian surround processor that cost a fair amount of money when new. It was no longer in use so i put it into place in a small 5.1 set up in our 'den.' I eventually replaced it with a mass market Marantz processor that retails for $1,800, and sounds far better- it has Audyssey, for room correction, a video scaler (remember when Faroujda used to charge upwards of 15k for the black box- it's now a chip that is licensed for installation in stuff like this).
I don't have a holistic theory on where innovation comes from- it could be the big corporations or the shade tree shops. But, as far as the economics of manufacture, production and marketing are concerned, it seems like the high end companies would be hard-pressed to reach the size of market needed to deliver consumer products cheaply.

**MylesBAstor** · 04-06-2016, 09:38 AM

I thought John brought up an interesting topic vis a vis dealing with all the price point segments in high-end audio. This topic that the price of high-end audio equipment is getting out of control seems to be a repeating theme among a percentage of audiophiles. I submit that direction of the industry is directed by market forces, not necessarily by conscious decisions. For instance, the reason that there's a "hole" between $5000 and $10,000 in speakers is that no one buys in that territory. Some companies' experiences are someone buying a $7000 speaker will lay out the additional cash for a $10K speaker. Right or wrong, this is what they observe and they can't make a product in search of a market.

Now after allowing for a business model where a manufacturer has to make a profit to pay salaries, rent, insurance, shipping, maintaining overhead, R&D costs, maintaining and paying interest on a credit line, making a profit to reinvest into new product lines and the company in general, advertising costs, show costs, warranty repair costs....well you get the idea. There's a lot of factors that go unnoticed into pricing of products.

So is it really possible for a high-end audio company to be competitive at the entry or affordable level or is that area better served by other, larger companies? After all, low priced products like we are used to buying are really driven by economy of scale. When you make millions of something, you can afford to make pennies on the dollar. Or in many cases, losing money to gain market share or to push sales of their better products. This is sort of opposite to the high-end audio model where the R&D costs are written off against the best product; otherwise, the prices on the products would have to much greater. But that sort of scale just doesn't exist in high-end audio where a best seller might be considered selling 1500 units of a given product? Take preamplifier sales for instance. The best selling preamplifier of all time was Dynaco, then Marantz and then Audible Illusions. We are roughly talking at best 100K products sold for the number one and over 20K (last time I spoke to Art Ferris years ago) for number three. Not even close to a million units. It wouldn't come close to 500,000 much less a million pieces even if you added up all preamplifier sales by all high-end audio companies,

Even look at the gross sales figures of high-end companies. Years ago the two biggest grossing companies were Krell and Mark Levinson. Reportedly, Krell's gross revenue was around 50 million dollars and at it's height, employed over 300 people. But that's the exception to the rule, not the rule. A "big" high-end company makes several million dollars and their staff is lean and mean.

Obviously one can go off shore and bring prices down. But every manufacturer who has gone that route has had nothing but issues including but not necessarily limited to issues with getting them to understand about quality, Q/C and even counterfeiting of parts. But what about those companies that are committed to keeping jobs in American for instance? What options do they have? Especially when we are talking about hand, not assembly line built, electronics products where maybe 50 of a piece are built at a time. Sure the price on parts could go down if they made even in the thousands but then you have the issue then of overhead costs. And we know one of the things to come out of the last two recessions is that companies are reducing overhead. In the case of high-end audio products, purchasers may have to put down a deposit on an order and then wait for their new piece of equipment to be built.

And I think one thing that audiophiles don't appreciate is that the quality of today's entry level high-end gear in many cases surpasses the performance of gear that was considered state-of-the art just several years ago. Digital is a good example of these market forces at work.

Anyway, I think that it's an interesting topic and there needs to be more transparency and laying out and consideration of the business hurdles that audio companies face. I remember a great quote that high-end audio is one of the last area of American entrepreneurship!

**Bill Hart** · 04-06-2016, 10:03 AM

It is certainly one of the few industries where someone can not only start but manufacture and distribute from little more than a garage or basement. (Yeah, I know tech companies 'start up' in mom's basement but by the time they are monetized and pushed to market they usually have private equity money behind them). Did you know at the time the Wright Bros were working on their plane that more patents came from Dayton Ohio than any other place in the nation? (BTW, the recent book about them is a fascinating look at early inventor ship by guys who did it in a bicycle machine shop, and did their science by studying the flight of birds. There was no solid science on flight physics at the time).

**Rob** · 04-06-2016, 12:37 PM

Originally posted by Johnny Vinyl

I like this post!

Whether a magazine, blog or newspaper article or even some forums diss an entire segment due to price they've lost my interest. This can go in both directions of course.

that's why choices exist for message boards as well, so far this one is more analog centric (by far) if I was digital only I wouldn't relate or agree with much that's posted here and would find other like-minded 'philes elsewhere. I posed a question on another site asking about the "the cost so far..." in other words, what people have actually spent on their systems: http://www.whatsbestforum.com/showth...highlight=cost

It was an unscientific poll with 58 respondents, over half or 56% of them said their 2-ch systems cost more that $85,000, almost 20% of all respondents said their systems were closer to $450,000 or more! Again, not sure if the poll was slanted by those with an agenda but it was anonymous. I was firmly in the bottom third, but it still didn't discourage me from participating and learning from others.

**Johnny Vinyl** · 04-06-2016, 01:04 PM

Originally posted by Rob

that's why choices exist for message boards as well, so far this one is more analog centric (by far) if I was digital only I wouldn't relate or agree with much that's posted here and would find other like-minded 'philes elsewhere. I posed a question on another site asking about the "the cost so far..." in other words, what people have actually spent on their systems: http://www.whatsbestforum.com/showth...highlight=cost

It was an unscientific poll with 58 respondents, over half or 56% of them said their 2-ch systems cost more that $85,000, almost 20% of all respondents said their systems were closer to $450,000 or more! Again, not sure if the poll was slanted by those with an agenda but it was anonymous. I was firmly in the bottom third, but it still didn't discourage me from participating and learning from others.

This was an interesting thread to say the least, but the results didn't surprise me.

**GaryB** · 04-06-2016, 01:08 PM

Originally posted by MylesBAstor

I thought John brought up an interesting topic vis a vis dealing with all the price point segments in high-end audio. This topic that the price of high-end audio equipment is getting out of control seems to be a repeating theme among a percentage of audiophiles. I submit that direction of the industry is directed by market forces . . .

So is it really possible for a high-end audio company to be competitive at the entry or affordable level or is that area better served by other, larger companies? . . . Take preamplifier sales for instance. The best selling preamplifier of all time was Dynaco, then Marantz and then Audible Illusions. We are roughly talking at best 100K products sold for the number one and over 20K (last time I spoke to Art Ferris years ago) for number three. Not even close to a million units . . .

Anyway, I think that it's an interesting topic and there needs to be more transparency and laying out and consideration of the business hurdles that audio companies face. I remember a great quote that high-end audio is one of the last area of American entrepreneurship!

Originally posted by Bill Hart

It is certainly one of the few industries where someone can not only start but manufacture and distribute from little more than a garage or basement. (Yeah, I know tech companies 'start up' in mom's basement but by the time they are monetized and pushed to market they usually have private equity money behind them).

I agree that's an interesting topic. It would be great if we could get a bit more data to understand how the high end market has changed over time. I don't know if it's available, but a simple metric is the cost of materials of a product vs. the selling price. If you look at the recently announced iPhone SE, the teardown reports say it costs at least $160 to manufacture and the cheapest one sells for $399. So that's a ratio of 2.5:1. But Apple sells high end phones so I'm sure there are many consumer electronic products that sell for much less than 2x the cost of materials. In the old days, I seem to recall that a ratio of price:cost of 5:1 was considered normal for lower volume consumer electronics. I wonder what this metric would look like for most high end products these days.

As Myles pointed out, all of this is driven by market dynamics and there are clearly external forces that seem to be driving high end towards more of a luxury goods pricing model, which means that the price:cost ratio is even higher, often much higher. This isn't a bad thing if one can afford luxury goods. Often one gets value for one's money. But if one doesn't have the money to play, then it can be very frustrating. Among the things that I see happening are the following:

1) the aging of the audiophile community means that on average audiophiles have more money to spend since things like kid expenses and housing expenses are behind the mature audiophile.

2) the change in income distribution means that people who can afford high end equipment (the 1%ers) have more money than they did 10 or 20 years ago.

3) the ease of entry for new companies in the high end space, means that average sales volume per company is probably dropping. So fixed costs need to be amortized over fewer units. Again, this drives up the price:cost ratio.

I would also point out that there are a few counter examples of small companies selling really cost effective products. One that comes to mind is Schiit. Jason Stoddard, one of the founders, has an interesting blog on the head fi bboard where he documents the trials and tribulations of starting a new company http://www.head-fi.org/t/701900/schi...bable-start-up .

---Gary

**Rust** · 04-06-2016, 07:47 PM

Cost effective gear. I suspect there are as many takes on this as there are people. And "high end companies", what constitutes "high end", price, performance, cachet? A combination of the same?

Here is a list of a few long standing companies I feel are both "high end" and very cost effective: Magnapan; Audio by Van Alstine; VPI, Grado, Soundsmith. They have extensive product lines ranging from very affordable to what I would call the luxury price range. The prices are not inflated. The products are all solid performers. They are sold retail. They are all made in America. They have always made a point of having affordable equipment.

Newcomers include: Odyssey Audio; Tyler Acoustics, Schiit Audio; Tekton Design. Probably a few more that don't immediately come to mind. They have fairly extensive product lines focused on the affordable end of the product range. The products are solid performers. They are sold direct as in todays market place it's about the only way to get into the market at those price points. They are made in America.

Most of the other "high end" makers would find it difficult to get into the cost effective market. Doing so might cause their existing or potential customer base to view it as devaluing the brand. It might receive a negative reaction from the intended cost effective audience who might feel the high prices of their existing products reflected fancy casework and not much else. Their existing business model might not work in that marketplace. And finally they might see no need to even consider the attempt.

But yes, companies do compete against all comers in the value conscious segment of the marketplace with domestically manufactured products. They either never left the segment or targeted that segment from the beginning.

And yes, I consider the market highly segmented. In the most simplistic terms it is the affordable cost effective segment and the luxury goods segment. The definition of either can be considered a sliding scale based on personal perspective. I consider any piece of gear that costs more than what I paid for my house luxury goods, or for that matter more than my car.

Speaking of things high end price wise. I read that the owner of Kharma developed his new $240,000 statement speaker because other competing brands had exceeded the price of his existing statement speaker. And over the years various makers have admitted that pricing was high because the customer base was more likely to buy at the higher price because of perceived value. Well, can't really blame the makers for that. But a customer base apparently ignoring value? And some makers stating that all the fancy eye candy casework (which can increase price by up to 50%) makes for more sales than the actual performance of the product. Who would have ever thought that a high price was a selling point and performance was secondary to looks.

This is not to say I think all high priced components are bad. It's an example of where such perceptions come from, some of it justified.

And as I've stated before, given my rather limited disposable income, every component I buy has to not simply justify it's price, but be the best available at that price. For many years, decades, the selection available in my price wheelhouse became smaller and smaller. The last couple of years that trend has reversed much to my delight.

**MylesBAstor** · 04-06-2016, 08:00 PM

Originally posted by Rust

Cost effective gear. I suspect there are as many takes on this as there are people. And "high end companies", what constitutes "high end", price, performance, cachet? A combination of the same?

Here is a list of a few long standing companies I feel are both "high end" and very cost effective: Magnapan; Audio by Van Alstine; VPI, Grado, Soundsmith. They have extensive product lines ranging from very affordable to what I would call the luxury price range. The prices are not inflated. The products are all solid performers. They are sold retail. They are all made in America. They have always made a point of having affordable equipment.

Newcomers include: Odyssey Audio; Tyler Acoustics, Schiit Audio; Tekton Design. Probably a few more that don't immediately come to mind. They have fairly extensive product lines focused on the affordable end of the product range. The products are solid performers. They are sold direct as in todays market place it's about the only way to get into the market at those price points. They are made in America.

Most of the other "high end" makers would find it difficult to get into the cost effective market. Doing so might cause their existing or potential customer base to view it as devaluing the brand. It might receive a negative reaction from the intended cost effective audience who might feel the high prices of their existing products reflected fancy casework and not much else. Their existing business model might not work in that marketplace. And finally they might see no need to even consider the attempt.

But yes, companies do compete against all comers in the value conscious segment of the marketplace with domestically manufactured products. They either never left the segment or targeted that segment from the beginning.

And yes, I consider the market highly segmented. In the most simplistic terms it is the affordable cost effective segment and the luxury goods segment. The definition of either can be considered a sliding scale based on personal perspective. I consider any piece of gear that costs more than what I paid for my house luxury goods, or for that matter more than my car.

Speaking of things high end price wise. I read that the owner of Kharma developed his new $240,000 statement speaker because other competing brands had exceeded the price of his existing statement speaker. And over the years various makers have admitted that pricing was high because the customer base was more likely to buy at the higher price because of perceived value. Well, can't really blame the makers for that. But a customer base apparently ignoring value? And some makers stating that all the fancy eye candy casework (which can increase price by up to 50%) makes for more sales than the actual performance of the product. Who would have ever thought that a high price was a selling point and performance was secondary to looks.

This is not to say I think all high priced components are bad. It's an example of where such perceptions come from, some of it justified.

And as I've stated before, given my rather limited disposable income, every component I buy has to not simply justify it's price, but be the best available at that price. For many years, decades, the selection available in my price wheelhouse became smaller and smaller. The last couple of years that trend has reversed much to my delight.

Correct me if I'm wrong but most of the new comers you listed sell direct? Magnepan did direct for their $500 speaker and van Alstine does direct.

That is another problem in the market: getting products into a dealers showroom. Direct isn't a bad model but you have to expect returns simply due to the nature of the audience. Then what happens because of course the product can't be sold as new?

**Rust** · 04-06-2016, 09:00 PM

Correct me if I'm wrong but most of the new comers you listed sell direct?

Nope, all of the companies listed as newcomers sell direct.

Magnepan did direct for their $500 speaker and van Alstine does direct.

This is true, but they never undercut their pricing of products available retail.

That is another problem in the market: getting products into a dealers showroom. Direct isn't a bad model but you have to expect returns simply due to the nature of the audience. Then what happens because of course the product can't be sold as new?

The newcomers so far are not interested in getting into showrooms, with a couple openly stating their business model is not based on going retail. Getting into retail distribution is a high cost endeavor which could double or triple the price of a product resulting in a much smaller potential customer base.

Restocks are simply tested and sold at a reduced price, just like a demo or a B-stock. The cost of returns is built in to the business model if the company has any sense at all. The bigger danger is to overproduce and be sitting on a ton of old stock that can't be moved. While smaller production runs are a bit more expensive up front, it lessens the possibility of too much cash tied up in inventory which can kill a company.

**Rust** · 04-07-2016, 01:31 AM

Bill - The Apple universe, it isn't about the product, it's about owning the product. There is no other way to explain the massive buzz surrounding each and every new iPhone release and the "status" of waiting in line to be one of the very first early buyers. Or paying someone else to stand in line.

Quality, well let's look at basic quality. Does it just plain work, not needing advanced knowledge and constant tending to keep a kludged piece of crap operating. Is it reliable and not broke a week after purchase. Is it convenient. Is it so rapidly obsoleted that it's rendered useless in a short time frame.

Advanced quality. Does it do what it is intended to do well, does it sound clearly and obviously better.

The audio market. My inept, confusing, incomplete and disjointed analysis.

The majority of new customers are not going to be reached by traditional means, they are not going to be walking in to a typical bricks and mortar store and be other than shocked by four, five and six figure price tags. That's for people who are already into it. And can afford it. What could you afford when you were eighteen or nineteen. What can they afford in a depressed economy. It is a bottom up market.

The current market expansion is going something like this. The convergence of digital devices allows for a portable entertainment device or a desktop based entertainment device, a multimedia entertainment devices. So IEMs, headphones and desktop speakers are sought out. Celebrities add a higher profile to those things making them more desirable status wise. A portion that market seeks out better but still inexpensive gear. Plug in DACS start to make an appearance. A portion of that market seeks better gear and reach into the price range where new and/or nimble upscale manufacturers can operate. Better desktop speakers, better headphones, inexpensive headphone amp/DAC combos. Higher resolution files than MP3, ripping CDs and digitizing analog.

Some existing companies see the emerging market and move into it, most do not. Improving technologies insure the price points will stay low. Because it is so price sensitive direct marketing is the primary vehicle for higher quality yet still relatively inexpensive gear. It will not bear the price increases that going retail would incur.

A year, two years, maybe more down the road there may be enough upward migration to change this, there may not be. As long as the economy remains stagnant the market will not move much further upstream.

**Leif S** · 04-09-2016, 02:21 PM

Wow this is a good topic

**Leif S** · 04-09-2016, 02:54 PM

For me to build speakers here in the U.S. is very expensive and impossible to compete in the price category of speakers made off shore. Although, IMHO I think we have them beat sonically and in build quality. For me, trying to produce a high end 3 way loudspeaker that meets all the requirements for my personal taste put me at an $8,000 retail. I wanted to be much lower than this but it was impossible. And as Myles stated earlier all the problems associated with having your products made offshore was exactly what I witnessed with another U.S. company that did this and it almost put them out of business. But once they went 100% manufactured in the U.S. they made fantastic recovery. Offshore is simply not an option and I'm a huge fan of made in the U.S. But that's just me.

Over the last few years the market for us has changed quite a bit. Say 4 years ago we had tremendous sales in the under $20k range and less in the $20k and above. This has changed. Now the sales in the $50k and up are dominating with the sales of $10k and under still hanging in there. There seems to be a huge gap between 10k and 50k and I don't believe it has anything to do with the product line. I talked to a few manufacturer friends of mine and they said they are experiencing the same thing. This just seems to be the price ranges people are spending in. Well with us at least. With so many companies selling factory direct now it's making it difficult for manufacturers that are dealer based. And even more difficult for a new company to get into the dealers when so many are saturated with so many different products in the same category.

It will be interesting to see what happens over the next few years

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Cost Effective Gear: Can High End Companies Be Competitive?

Cost Effective Gear: Can High End Companies Be Competitive?

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