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How are Hig-End Speakers Priced?

I recently (early Feb 2012) purchased a pair of Model 61 Human Speakers, intending to build a small office system with them. I've been listening to them through my main system for a few days now, while breaking them in. These were purchased directly from the builder/designer; my cost was only $675, delivered to my door.

I am so very impressed with the build quality of these small speakers and the quality of the music emanating from them (even though they are not yet fully broken in). I'm honestly surprised they are as inexpensive as they are, and have begun wondering how high-end speakers are priced.

The speakers are manufactured in the Northeast US, and (so far as I know) the builder/designer doesn't advertise and doesn't attend trade shows. The speakers are built with only one pair of binding terminals, two hand-built drivers, and a very simple 1st-order crossover using a design I believe is refined from an 1970's-era design. I'm not sure how much the designer is actively pursuing R&D currently.

I'm wondering if there is a formula that speaker manufacturers generally use when designing/pricing their products. For example, does a manufacturer target a price point, and then decide to follow an "industry-standard" formula like (say) 15% for R&D, 15% for materials, 15% for manufacturing/assembly, 15% for marketing, 15% for distribution, 15% for manufacturer's profit, and balance for seller's profit? Certainly, eliminating (or reducing) one or more of the above categories could yield a speaker that is much less expensive than the price point it was designed for.

Any thoughts?
rx7audio
jmcgrogan2's avatar
jmcgrogan2
6,346 posts
 
I don't think 4-5 times the manufacturing cost is unrealistic, I think it's a pretty standard number. Sure, some items like cables, bottled water or sneakers return 20 times the manufacturing costs, but they are in the minority...I hope. Keep in mind that we are talking about the big name mainstream manufactuers here, not manufacturers who can sell direct to the customer, which pretty much knocks 40% off the cost right up front.

Remember, there is a lot of money being spent on trade shows and free samples to help market products. I know a turntable manufacturer who has dozens of very expensive cartridges given to him as gifts. He also has given out gifts, I'm talking in the $10K+ per unit range. That's serious marketing!! So I still say that 60% of the cost goes to the manufacturer and is equally split between R&D, Manufacturing (including parts) and Marketing (including advertising). 40% is dealer mark up.

On another note, I also know more than a couple manufacturers who have come out with more expensive products because their dealers have told them that the market demands it. Just look around at all of the manufacturers whose top of the line product today is double the price or more than their top of the line product 5 years ago. There is a LOT of people with a LOT of money out there....I wish I was one. ;)
inna
7,132 posts
 
I wish not. If I were I could do many stupid things, one of them spending half a million dollars on stereo.
david12
1,454 posts
 
I had the manufacturer of my US speakers over to visit a year ago, to try and develop some interest here in the UK, at a show. He gave the example of an $80000 speaker, he thought would have a material content below $20000, similar to the range mentioned above. Most of the rest of the cost is marketing, dealer and distributor cost. The answer, is to go for a small direct sale manufacturer like him. I won't give his name, the conversation was in confidence.

Interestingly, I could get no interest in the speaker, partly because the dealers felt it was too cheap. Their margin would make it too expensive over the direct sale cost, even though the manufacturer would only have sold through the dealer in the Uk.
eldartford
4,262 posts
 
A grandson runs an import business... sales by internet. He had some small speakers priced at about $40. Few sales.

He reintroduced the same speakers priced at $200. Sold many.

Go figure.
jmcgrogan2's avatar
jmcgrogan2
6,346 posts
 
A grandson runs an import business... sales by internet. He had some small speakers priced at about $40. Few sales.

He reintroduced the same speakers priced at $200. Sold many.

Go figure.

I've heard similar stories before, sometimes even from a manufacturer. Hey, it's hard to knock them. They are simply along for the ride, the market drives them. A LOT of people just want to spend a LOT of money. This isn't quarantined to the audio industry either. You can find this in many luxury entertainment markets.
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