Generally speaking, more expensive gear does cost more to build. Better quality components are used, more care in assembly and test, etc..From what I understand in talking to several specialty audio customers of mine (I sell semiconductors for a living) the retail price is normally 5 times the actual manufacturing cost. Part of what you're paying for is the research and development time, often years of effort, before the product ever appears on the market. Limited production volumes mean there's rarely economy of scale in specialty audio, and of course a need for the designer (and distributor, and retailer) to make living means this stuff ain't cheap. If you're looking for the biggest bang for the buck, drop down a model or two in the manufacturer's line up and benefit from the trickle-down effect. Jeff
Refinement, better drivers, Better bracing, less resonance,
better sound dispersion, better cabinet construction, nicer finish, in some cases more R&D so you have better driver matching and better coherence. I would say refinement is the most common benefit. The cost vs value is not exponential.
Like cars.. most will get you there.. but some make it exciting and fun along the way..
One note, I am not submitting this question as a novice, I have a decent system IMO. There are a lot of people on here with much more knowledge than I, not to mention those on the "inside", such as Jeff who mentioned that he supplies parts.
I was curious if the percentage of price increase is do to more expensive parts, R&D etc. I know that they generally are using more expensive parts, BUT, is all the cost reflected in that? Or, do they tack on extra, well, just because it's "better"?
Jeff's post is excellent. One thing I'll add, based on the experience of friends of mine who build speakers, is that the cabinets are a huge portion of the cost of speakers, both the enclosure itself and the veneers. As you get into speakers with superior bass response and non-resonant enclosures, the size of the enclosures and the bracing, etc. grow, and the price shoots up dramatically as a consequence. I think that less goes into internal parts than you'd think, unless the speaker manufacturer is willing to go a cost-no-object route.
I'm sure there is plenty tacked on in most cases, but cost does go up to some extent. Some of the ScanSpeak drivers cost $800-$1000 per pair. If they use decent tweeters and woofers, they could easily be spending $800-$1500 on drivers alone. THe nicer cabinets may be handmade and require expensive craftsmen, etc.
Image and advertising budget.
Its a combination of a lot of factors as mentioned already, R&D, better quality drivers, hand crafted cabinets, nice materials and time intensive finishing methods. After all of that though there is still the value compared to others in the market and the manufacturers trying to set up price points throughout their various lines in order to attract customers with different budgets.
I've often wondered about this myself for the extremely expensive products, like the Dynaudio Evidence for example. Since Dynaudio makes their own drivers, they have to be saving some money there, and the enclosure isn't anything too terribly difficult to make so there is no way it costs $85,000 or even a fifth of that but they designed that as their flagship model to attract attention to their brand. Some people with enough money will decide that they can afford the Evidence, but more importantly for the company, they get magazine reviews from it and people recognize the name. Then when someone buys from the Contour line they feel they are buying into a name brand that is high end. That's the same thing that Dodge does with the Viper. They don't expect to make a ton of money overall from Viper sales with the limited production etc, but it is a flagship product that gives them brand recognition.
Setting aside the flagship models, each manufacturer tries to match up similarily performing models against other models. In a way with so many models and so many manufacturers, its hard to get above the noise level to get your product recognized. So if a manufacturer took one of their $10000 top of the line models and decided to lower the price to $4000, I don't think they could make the same profit even though they would sell more. The problem is that 1) people may think less of the speaker because it costs $4000, it may be considered in a lower league, 2) Because there are so many models to choose from at the lower price point, it would get lost in the other models in a similar price range - how would this $4000 speaker stand out from others? 3) As part of that, if it cost $2000 to make, and they made $8000 profit selling at $10,000 and sold 10,000 speakers, they would have to sell 40,000 at $4000 to make the same profit, and they may not be able to get a 4x increase in sales because there are so many models in that price range.
It may not cost too much more for some of the improvements made between different models or speaker lines, but imagine if they only charged the small difference between the models. If a manufacturer offered 6 different speakers in a line with a difference between each one of only $100, almost nobody would purchase the models in the middle, or maybe the low end. If the lowest one cost $800, and the top of the line $1300 I suppose most people would just go for the $1300 to get the top of the line. So the manufacturer has to exploit the percieved value of the models rather than base it on a pure cost structure.
Often things work in reverse. The manufacturer decides to offer a speaker at a given price point, and then designs a speaker that it can sell profitably at that price point (or points, if it's designing a whole line of speakers). The price is, as the saying goes, "what the market will bear," and that depends on such factors as what the competition is offering. And, since many consumers (present company excepted) use price as a signal of quality, prices are sometimes set to impress those consumers. This may be less true for speakers and electronics than for other high-end products.
Jeff's post is excellent. Speakers are the highest margin items in this industry. For a manufacturer to maintain R&D, marketing, sales and distribution they must make 50% gross margin, but most will make more. Many speaker lines carry 60% margin to the dealers. That means for a speaker that costs $500 to build it will sell to the dealer for at least $1000 and then to the consumer for $2200. Now if you increase your parts cost by $200 (or manufacturing cost), then it sells to the dealer for $1400 and to the consumer upwards of $3400. Electronics don't have these kinds of margins for the dealers, mostly due to their expense in parts and manufacturing and competition --as Jostler says: "What the market will bear".
I disagree with Abstract7 only in that, in my view, cables are the highest margin items in the industry (phono cartridges too, but they're an art in the labor, so I'll live with that).
The cosmetics of most high end audio contributes a lot to the high costs . I look for value, for example I have a used pair of Aerial 10t s that I think slam many other speakers costing much more! Michael Kelly at Aerial is a great person to talk to for more information as he is the president & designer/engineer of the company. The cost vs value of the super high end stuff gets very slim . I also like the Utopia line of speakers (Focal Drivers). Big used speakers tend to offer excelent value if you can pick them up . People dont want to ship 200 # speakers across the country. Listen with your ears not with you nose up in the air. NHT makes some great very musical speakers that are almost cheap enough for circut city ! And dont let the exotic wood finishes spend your money !
I agree with Rcprince--I was only considering speakers and main electronics (not power conditioning--which might also be in the margin stratosphere).
I actually had my hands on a "dealer price" list from NHT a few years back. At that time, I purchased a pair of 3.3's from a (different) authorized dealer. The markup was unbelievable! Needless to say, the pair I purchased were dealer demo's, and I couldn't be happier. I paid less than dealer cost. Cabinets, drivers, crossover components, and finish are all part of the formula. The 3.3's driver compliment are factory matched (l/r) to within a given performance range (+/- .3 dB, if I recall) of each other, and accurate records are kept on each speaker. In the unlikely event of driver failure, the manufacturer can look up your particular speaker by the serial number, then get the correct drivers (matched pairs, in this case). Because of the extra efforts, warranty issues, etc., some of the "extra" costs can be justified. But retail is for people with too much money. Or no brains. Or both.