Many businesses have short lives - restaurants, bars, shops, manufacturers…. According to the Commerce Institute <35% of all businesses last 10 years. So it’s no surprise that some manufacturers of very expensive audio gear have gone out of business. And as others have stated, there is a spectrum of business models from high-volume/low margin up to low-volume/high margin. If you want to get into the audio equipment business, the boutique segment is probably the easiest place to start, as opposed to mass production. To me, “high end” means “best sound quality.” I would hope that the ultra-expensive brands deliver some of the best sound quality. But I think you can still get the best sound quality without buying ultra-expensive equipment. Especially considering that sound quality is subjective.
Why did high end audio manufacturers take the wrong path in manufacturing gear?
We all know that high end audio manufacturers took the route of "my gear is the most expensive with only a few made, so it must be the best and the best value" and we wonder why so many high end manufacturers are having financial trouble. Does Classe, Auralic, MBL, darTZeel, and others come to mind? If we would apply this same manufacturing process to computers and cars (build low volume items so the price is high), your computer would cost you tens of thousands of $$ and your Toyota Corolla would cost you $100,000.
If you compare audio equipment to say a car, the audio gear doesn't have that many pieces that would justify the high cost. For example: How many pieces are in a speaker? 100? 200? The Koenigsegg carbon wheel (it is hand made, takes 3 days to make each wheel) is comprised of 350 pieces (for each wheel,) and 4 of these wheels cost $65k. That's 12 man days of labor, Caron fiber is expensive, and over 1200 pieces of material. Compare that to say 1 of the high end brand $700,000 speakers. Probably take less many hours to make a speaker, with less parts.
I know, I know, some of the high end manufacturers will say they have R&D costs to make their widget, but doesn't everybody have these same costs? How many designers does a car manufacturer hire? How many clay models do they produce? How many cars are made, tested, tweaked, then destroyed for safety reasons during development? It's public knowledge that it cost Toyota $500M to $1B to develop a new car. How much does it cost the high end speaker company to develop a new speaker? Peanuts compared to what it costs a car manufacturer. So if Toyota has this much upfront cost, plus the cost of all of their thousands and thousands of employees, plant costs/maintenance, how can they charge only $20k for a Corolla? Remember, there are many tasks to build a car that are hand made: engines, transmissions, etc. IMO, if you would apply the Toyota development process to high end audio, you wouldn't have any piece of gear that would cost more than $10k, maybe even $5k.
Now, if you agree with me that high end is way overpriced for what goes into each piece, answer me this: Would you buy a new home or a stock knowing that the value would drop 50% tomorrow? So why do people buy high end equipment knowing that it is a commodity that will be worth 50% less the day after you bought it? PLUS: you have people buying audio equipment on credit, maybe paying 10% interest. So not only are you underwater paying cash, you will drown by buying audio gear on credit. IMO, the only people that should be buying high end audio equipment are those that have true financial freedom. But even then, why would I buy a $700k speaker, even if I have financial freedom, when I can invest that money and double it within a few months? Since early last year, I have increased my stock investments value by 100-300%.
I know what people are going to say: my car value goes down when it leaves the showroom and I'm underwater if I take a loan out for the car. 90% of the time this is correct, that's why you always pay cash for a car. Let me talk about the other 10%: if I would have purchased the Porsche 918 Spyder back in 2015 for the same price that the high end speakers cost, around $750k, you would be able to sell the Porsche today for $3.5M. Too rich, if you would have purchased the 2019 Porsche Speedster for $500k, you would be able to sell it today for $750k or more. How much would a 5 or 10 year old $700k speaker sell for today?
I love audio, love listening to a very nice systems, but I think most manufacturers took/take the wrong approach on the manufacturing process.
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It’s expensive becasue it can be. Manufacturers know they can price their stuff how they wish as long as there are several buzzwords in the description, the equipment is attractive (audio jewelry), and they make it seem exclusive. Plus, there’s the knowledge that most people erroneously believe you get what you pay for so that megabuck CH-Precision "reference" (their word) component must be really good, if not the best. Also, I can brag to my friends when I have one. |
I worked in capital equipment manufacturing and R&D was a separate cost center, you didn’t just dump development costs onto the customer. Products were priced on materials, production, and sane margins, not “we spent a lot designing this so now it’s $xx. When a $10k moving-coil cartridge has its price justified by hand-building and R&D…. that’s not engineering economics anymore, that’s mostly just prestige pricing. Even a Rolex has a lot more going into it than a cartridge! I think part of the costing process for some manufacturers is ‘ours sounds better than product x, and product x costs $x, so we can get away with $x + 20%. |
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First, thank you @sfgak for the link regarding Veblen Good. I had not heard of this term before but I absolutely agree with Veblen's work. It is a key factor in understanding the nose-bleed end of the audio market. Over the last 20 years or so we have seen an enormous expansion of wealthy people in the US. There are currently over 900,000 people with a net worth of over $10 million and 10,000 people with a net worth of $100+ million. This creates a market for luxury goods that's hard to comprehend. I don't believe that ultra high end audio manufacturers have taken the "wrong path." They are simply serving the ultra luxury market where buying decisions are made using different criteria than you or I would use. Their products are highly engineered and generally of exceptional quality. But as noted by @hilde45 , it's not just the product, but the entire buying experience. Catering to the ultra wealthy is a completely different business model than selling to the mass market. I think the car market is a good example. There are literally dozens of car models that cost over $1 million. If you want to buy a new Ferrari you have to prove to the dealer that you are a worthy customer because they have a waiting list for their cars. BTW, I'm pretty sure nobody borrows money to buy $200,000 amplifiers or million dollar cars. Even though I can't afford a pair of six-figure speakers I'm glad they exist. Rich people have to spend their money on something and if they want to buy an expensive product made in the US, Europe, or Japan that supports highly skilled, well paid craftsmen, then good for them. I certainly don't blame the entrepreneurs who design and build products to serve this market. |
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