The biggest problem facing the dealer channel is its delivery mechanism. Margins have lost any grounding in reality, and so a $500 amplifier needs to be sold for $5000 in order for the manufacturer, the distributor, if any, and the retailer to stay in business. Why? Small volume for the mf, light sales for the retailer, and the need to make big margin at 2 or 3 levels in the delivery-to-market chain. And, as the potential customers for any product diminishes, the people involved in selling that product must derive larger profit margins to sustain the business. it's a vicious circle all right, Because as prices rise, less and less consumers see value and leave the market. It's a death spiral, and it's made high end audio pricing a laughingstock for people who get a glimpse at it from outside the hobby. Try justifying a 2 way loudspeaker priced at 25k to anyone outside the hobby. Especially when the parts cost for said loudspeaker might come in around 2.5k.
How has the industry responded to this condition? They've raised prices, naturally, and they institute price fixing at the dealer level to protect the network. which, of course, offers the same operating conditions no matter if a dealer can get by with a 20% profit margin or needs a 50% markup (And yes, margins for speakers can get at least that high, as well as electronics, with showroom discounts or bulk pricing) to pay his bills. This results in constraining the retailer who tries to bring some sanity to the price of the product and perhaps grow the volume on a product, and protects the retailer who continues to push a business model that has not evolved in, what, 50 years? Forever? This dealer seems to be happier selling one unit at a 50% margin rather than 5 units at a 20% margin. And so a consumer looks for better value, and takes his business online. As it exists currently, the dealer channel is unsupportable.
Is the business salvageable? I think so. Interest in better quality audio gear seems as strong a it ever was. Used gear that's priced well seems to sell very well here and on EBay. There are products that show good value at retail or just below, PSB and Magnepan come to mind.
And, and this is a big one, there's another media migration in the works,:CD to media servers. Sadly,, the industry still doesn't seem to get it if the products on display at the CES are any example. 25k CD players; 7k media servers like the Blue Smoke? Preamps with no DAC, DAC's with no volume control? Fortunately, some companies do get it, like Berkeley Systems and AVI. Maybe high end audio needs a sub-structure of companies that will help bring some value back to the market; and maybe these products need a to be offered at 30 day home trial direct from manufacturer or dealer. Let's face it, a listen at the dealer can not compare to having the product at home in your system for a month. Or, conversely, develop dealers who have other, more mainstream products to sell, such as computer dealers, who salivate at the thought of a 20% profit margin. Let them sell at whatever the market will bear, at some point pricing will self-regulate. Bring products to the awareness of the general public in stores that sell other products; how many average consumers enter high end audio stores? And yet, everyone listens to music.
No one likes to think they have made a bad deal;, we all look for good value when we make a purchase. But when I know 5k of my speaker purchase money is going to support my local dealer when I buy 10k speakers, I don't feel like I'm receiving good value. And, of course, I'm not. I'm really buying a 1k speaker with overhead. Of course it costs money to get a product to market, but when that cost is 10 times what the product's finished goods cost is, the perception of value, which is critical, loses credibility.
How has the industry responded to this condition? They've raised prices, naturally, and they institute price fixing at the dealer level to protect the network. which, of course, offers the same operating conditions no matter if a dealer can get by with a 20% profit margin or needs a 50% markup (And yes, margins for speakers can get at least that high, as well as electronics, with showroom discounts or bulk pricing) to pay his bills. This results in constraining the retailer who tries to bring some sanity to the price of the product and perhaps grow the volume on a product, and protects the retailer who continues to push a business model that has not evolved in, what, 50 years? Forever? This dealer seems to be happier selling one unit at a 50% margin rather than 5 units at a 20% margin. And so a consumer looks for better value, and takes his business online. As it exists currently, the dealer channel is unsupportable.
Is the business salvageable? I think so. Interest in better quality audio gear seems as strong a it ever was. Used gear that's priced well seems to sell very well here and on EBay. There are products that show good value at retail or just below, PSB and Magnepan come to mind.
And, and this is a big one, there's another media migration in the works,:CD to media servers. Sadly,, the industry still doesn't seem to get it if the products on display at the CES are any example. 25k CD players; 7k media servers like the Blue Smoke? Preamps with no DAC, DAC's with no volume control? Fortunately, some companies do get it, like Berkeley Systems and AVI. Maybe high end audio needs a sub-structure of companies that will help bring some value back to the market; and maybe these products need a to be offered at 30 day home trial direct from manufacturer or dealer. Let's face it, a listen at the dealer can not compare to having the product at home in your system for a month. Or, conversely, develop dealers who have other, more mainstream products to sell, such as computer dealers, who salivate at the thought of a 20% profit margin. Let them sell at whatever the market will bear, at some point pricing will self-regulate. Bring products to the awareness of the general public in stores that sell other products; how many average consumers enter high end audio stores? And yet, everyone listens to music.
No one likes to think they have made a bad deal;, we all look for good value when we make a purchase. But when I know 5k of my speaker purchase money is going to support my local dealer when I buy 10k speakers, I don't feel like I'm receiving good value. And, of course, I'm not. I'm really buying a 1k speaker with overhead. Of course it costs money to get a product to market, but when that cost is 10 times what the product's finished goods cost is, the perception of value, which is critical, loses credibility.