Economics of small speaker manufacturers

Great topic and while I don't have answers, only more questions, I do look forward to reading what the better informed A'goners have to say.

Smaller "boutique" manufacturers emphasize the savings affected by eliminating layers of marketing and distribution. So, is Tyler's Woodmere II or Linbrook II actually better than comparably priced models from Spendor, Proac, B&W, etc?

OTOH, the other camp would point to "economy of scale" and perhaps cheaper production costs overseas. So, is Quad 22L, or LSA and DCM models, actually equal to more expensive boutique products from Tyler, Salk, GMA?

So, we have two competing effects, both real, and I don't knpw how they balance out.

One thing is sure: By going to a boutique, you can get personal attention and customization. People have been able to talk Tyler or Salk into modifying just about anything to accommodate their needs. However, I don't know how price/quality equations compare. Looking forward to the discussion. :)

You sound as if you had already made up your mind that smaller makers have lower overheard and therefore lower prices. There is absolutely no reason to see this as a necessary relationship. The price of one capacitor, for example, may be
$10 but the unit price for 10,000 may be 30 cents each. An expert cabinet maker may get $50 to route a cabinet, where a computer operated machine may be able to do thousands at $1 per. Price is more affected by what the traffic will bear than by the cost of manufacture. It is not unknown that when the price of an item is raised, the sales increase.
cheers,

Manufacters sell to distributors. The distributor marks up over 30%-100% Again dealer marks up 30-40%. So most factory direct loudspeakers would cost at least 3xs as much if purchased from a brick and mortor shop. Many manufacters produce items in large scale,mostly over seas this reduces costs per unit. A small factory direct manufacter has higher manufactering costs per unit than the big guys. The small manufacters do seem to offer more performance per $$ spent. Small manufacters can respond to market changes better than large, small also can provide designs that no large manufacter would dare touch due to hi-costs and limited markets.

Based on the readings so far - it is being assumed that, in this case of reference, Tyler isn't marking their product up the '30% to 100%' that the distributor would make and putting it in their own pockets.......Maybe the example used here, the $4,000 Linbrook should be more in the $2,500 range but is being marketed at $4,000 and Tyler shoves the $1,500 (distributor markup) in their pockets.

O.S.L.I.

Dan
OutSideLookingIn

isn’t the bottom line, what is the actual quality of the product? any piece of audio gear is more than the sum of it’s parts, i’ve heard pieces that had all the best components but did not have the sound. some large companies gear is well worth the price, yet with others you get the impression you are paying more for their marketing etc than for the sound quality. we could make arguments about economies of scale vs low overhead all day long and the bottom line is still how does it sound? i think Aktchi has summed it up pretty well and one of the real benefits of the small maker is the personal attention. this makes me think of guitar builders. i’ve been a boutique amp builder in the pro world for many years as well as a player, hence i personally know a lot of guitar builders and manufacturers. i can say that while the manufacturers do benefit from scale and resources, in general the best guitars are built in small shops and usually for comparable prices. but and here’s the big but, you have to know what you want.

in general the economies of scale and resources are pretty much offset by marketing costs and extra markup. few if any high end speaker companies are churning them out by the tens of thousands and CNC machine time is readily available to small manufacturers. and yes i’m sure some small builders are putting their prices at the same point as larger companies products which you can hear at a brick & motor store while others try to keep their prices as low as possible reflecting the lack of dealer/dist. markup. again bottom line is the actual sound and quality.

this brings up another facet of this issue that i occasionally hear. sometimes people talk about the cost of the parts that go into a unit as if that should be the sole determining factor of the final price. yes it should play a large part but there is also the cost of developing the product and often that entails many years of work and sacrifice. large companies include this as development costs and there is no reason for boutique builders to be expected to work for nothing. sometimes when prices jump that is precisely what has happened, the company had been charging based on costs and overhead and then realized they needed to recoup some of the development costs.

well, back to making sawdust ; )

lou

direct or not, big or small....calculate roughly 20% of the mslp to calculate the cost of goods. though big companies of course buy components for less, they in turn have other expenditures. if a company is spending more, ironically, growing their business could put them out of business.

Some manufacturers sell direct to retailers w/o a distributor. CJ, Gallo come to mind. JM Labs, YBA, Musical Fidelity come through a distributor. Check this: MF Trivista SACD $6495 retail, $4000 wholesale. I got mine as an accommodation from the distributor for $2600. There's room on direct to buyer places like Tyler too. More? Less? The same? Don't know.

ET

If up-front money wasn't an issue and I bought a containerload of speaker enclosures from overseas, by the time they arrived here in beautiful downtown Preston Idaho I'd have saved about 30%. I could probably save a similar amount on drivers and crossover parts by buying in quantity, but couldn't expect any savings on the labor needed for final assembly. So I'm guessing that I could save maybe 25% per speaker, before the additional overhead of needing a storage/assembly facility and maybe one office employee. I don't feel like doing the math to figure out how much overhead would add, so let's say 10%. Let's add another 5% for advertising, as dealers would expect me to spend some money promoting the product. This leaves me able to sell speakers to dealers for about 10% less than what I currently charge end-users under my direct-sales business model.

So in this scenario dealer cost on my currently $4500 a pair (direct sale) speakers would be about $4050 a pair, and retail would be about $7400 (assuming a 45-point margin). Assuming you could talk the dealer into giving you a roughly 15% discount, street price would be about $6300.

Now I don't know how representative my situation is, and I haven't taken everything into account in my little run-through here. It looks like my current business model allows people to purchase my products for about 40% less than a more traditional business model would. The disadvantage is that you can't hear my products at a local dealership; you have to go to some effort to hear them, or be confident enough that they're what you want that you're willing to risk some shipping-cost money.

JohnK and Lou of Daedalus and yours truly aren't trying to take market share away from one another. We're trying to take market share away from B&W. As the number of brick-and-mortar high-end two-channel stores diminishes, our business models (or variations thereon) may become more common. Ty Lashbrook has done quite well selling direct, and more power to him. Apparently Von Schweikert has gone to direct markeing, something Ohm did long ago.

Duke

On the topic of "the sum of the parts should matter less than the end product and how it sounds", while I cannot disagree (we have all auditionned expensive gear made of expensive parts that sound crappy...hello Diamond or Be or Ceramic drivers poorly tuned!), there is a limit, as a consummer and a music lover, to pay $3,000 for a pair of vinyl covered speakers which drivers costs about $50 each (even if there are 4 of them + 2 $20 tweeters per pair). This is where I LOVE Made in China audio: the ability to make very affordable "me-too" products which designs are based on cheap components (Dussun and Aurum Cantus vs. Red Rose Music).

one more side to this is that with all the pressure currently on brick & mortar stores it’s almost impossible for small speaker companies to build a dealer network. the big guys don’t want to see small companies directly competing with them in the same showroom and the store owner doesn’t want to gamble those accounts for a small company with a small advertising budget. B&W, Wilson and companies like that spend hundreds of thousands a year and more on advertising that helps the store sell the product. speakers take a lot of space, cost a fortune for shipping and are the biggest draw in a store, all these are reasons store owners have to go with the big names. the competition is so intense in today’s market that they can’t take a gamble on new, small speaker companies.

i agree with Duke. Ty, JohnK, Duke, myself and others aren’t competing against each other. we all do our own flavor but we all believe we are offering a better value than many of the big names. i know that for my flagship speaker which sells direct at $8800, the dealer retail if i went that way would have to be at least $15,000. is it worth $15,000? well i think so but the real test is does the person buying it think so and if they do then they are getting a great value.

last point ,and i think i can talk for most of the small speaker manufacturers, is that we all want to help create systems that working people like us can afford. silly money systems costing more than a house are fun to hear at a show but that’s just not what we want to do. a big part of this process for us is actually helping people. i get letters from people thanking me because the music is how they find respite from the stresses in their lives. that is what really makes it worthwhile.

thanks,
lou

Interesting thread. I'd be curious to read an analyst's view on the industry and its trends. Reading Duke and Lou's open and honest posts, it sounds like a consumer is definitely benefitting, cost-wise, from purchasing direct from the manufacturer, which certainly feels like it makes sense. The biggest downside is, as identified, that you can't, or can't easily, demo the speakers. But that is already a downside for most models for most of us - unless one has a dealer close by, hearing before buying is difficult at best.

The value proposition of buying from a local dealer is disappearing in many, if not most, cases and with it goes any reason to pay the prices of a dealer-network distribution model. The direct-from-manufacturer model probably doesn't scale to huge heights, but high-end audio gear will likely always be a niche market, so it probably doesn't have to scale that way.

someteimes it is better to compete with fewer manufacturers than many.

there are many designers using "cone" drivers, but very few design dipole speakers.

"small" companies take note: please design panel speakers. there are many cone designs, but so few panel designs.

hi duke, i'm trying to persuade you to design an electrostatic speaker or planar magnetic. i'm looking for one now. you have already gone the cone route. it's time for a change.

one of the advantages of a small company is the ability to sustain a viable company without having to sell as many "units", because there are fewer salries to pay, plus possibly less rent to pay as well.

Beheme, politics aside, the problem with Chinese gear is that you never know what you're getting. Lead paint in toys, dental bridges, and other games that Chinese manufactures play to up their profit margin makes it a crap shoot I'm not about to play. Say that a production lot of transistors doesn't meet QC from a manufacturer, after a random test of a few samples. It's cheaper to sell the whole lot at a 50% to 75% discount than to start testing each one.

Maybe not all the transistors will eventually fail, or are only slightly out of spec's, but I GURANTEE YOU, that the Chinese manufactures will grab them up in a heartbeat.

As scientists discovered long ago, many questions cannot be answered by theoretical pondering alone, even by brilliant thinkers, and we have to go to the real world to see what is actually going on.

In principle, a boutique shop could pass on much of the savings to the customer giving you a "$5000 speaker" for $2500. Or it could decide that you're used to paying $5000 for such sound and charge $4799. Who is doing what?

In principle, a big company could use overseas production to give you the best quality at 1/2 price. Or you could get 1/10th quality for 1/2 price. :) Again, who is doing what?

This is not for theoretical deduction. In the end, we need A'goners who know the best of each kind and can tell us where the best values are.

The answer may well depend on the price range: for example, it is quite possible that for the "best $1000 speaker" you need to go to a big company outsourcing from China, and for the "best $5000 speaker" to boutiques in small town USA (that's an example, not a statement).

In any event it is important to compare best with best. Much review ink is wasted on comparing good product of one kind with mediocre ones of the other.

Fatparrot:...the problem with Chinese gear is that you never know what you're getting.

That's why I won't buy direct from China at this stage. However, with a company like Quad or LSA in the middle, I expect them to take care of QC issues.

As a general life lesson, I have seen many Westerners make a mistake in Asian countries. If something costs $100 back home, we should be glad to get a comparable item for $50. Instead they get busy chasing $19 possibilities in proverbial dark allies. :) So, while made-in-China is cheaper, we don't have to chase absolutely the cheapest that may be out there.

Aktchi, I agree with your statement. The most important factor in Chinese manufacturing is "who is watching the cookie store". Without proper oversight, too many games are played in the manufacturing. This happens at upper level management, unlike America, which had previous problems at the actual blue-collar assembly lines.

Again, I personally try to avoid Chinese products, whenever possible [more difficult every day], due to political reasons...but this is NOT subject of this thread!

Mrtennis, thanks for the vote of confidence but designing and manufacturing an electrostatic element is out of my league. Doing so would call for a level of engineering and financial commitment that is beyond me, and besides at this time I don't see an opportunity for dramatic improvement over what's being done by the electrostatic manufacturers who are already out there. On the other hand, I think there is still substantial room for improvement in cone loudspeakers.

Duke

On the China issue, I have heard manufacturers tell me that China's metalurgy has a far way to go before they can compete with the west.

Meaning the qualities of the raw metal they are using is not up to some people standards.

While I have built a electrostatic. And owned many factory built. I dont feel electrostatics at this time are worth investing in. As Duke said many companys already make good stats I dont find them to be my cup of tea anymore. Stats have problems just like all loudspeakers to me stats just dont move me like a good compression horn loudspeaker..