Reverb article on guitar manufacturing an distribution economics

[fronobulax]

Here. Interview with an unnamed industry insider with costs for a hypothetical electric guitar. My takeways are: that most of the cost is in the labor for any of the hand work; and most of the price charged on the street comes from distribution and shipping and not from the costs of making the instrument. Also has dollar figures for labor in various countries which might explain why we will continue to see overseas production. There is an implied multiplier effect described as well. A couple of bucks increase in production costs will result in a tens of bucks price increase on the street.

It says several things I have claimed, hypothesized or had confirmed elsewhere, and it is probably a good starting point for the next discussion of costs and CMGs marketing and targeting strategy for the various Guild lines.

 

[Neal]

So, if I understand the article correctly, it is the supply chain that accounts for the largest percentage of cost.

Seems to me that the best quality-to-cost ratio would come from a shop you could buy from directly. Pono would be an example.

 

[tjmangum]

Seems to be a huge debate following the article from music shop owners who think the numbers are too generous! However, I believe it is probably not out of line. Most consumer items have a huge markup as compared to their actual cost. I recall reading that in the garment industry the price doubles or triples everytime it changes hands, so that $14 T Shirt probably cost a few bucks to make. Need to keep in mind that retail cost is based upon what people will pay and not necessarily what it cost to make the item.
I am most surprised at him saying costs were much higher in Korea or Indonesia.

 

[fronobulax]

So, if I understand the article correctly, it is the supply chain that accounts for the largest percentage of cost.

Seems to me that the best quality-to-cost ratio would come from a shop you could buy from directly. Pono would be an example.

My thinking as well. If the goal was to get the goods into the consumer's hands at the cheapest cost to the consumer then the factory should sell direct to the consumer and cut out the middleman. Of course for many reasons that is not practical especially for a product like a guitar where there will always be buyers who want to hold the product in their hands before purchasing, cannot or will not make a trip to the factory and don't believe the claims of a free and hassle free return policy.

And a hybrid model won't work because what dealer wants to stock a product if the consumer can bypass the dealer and get the same thing direct? New Hartford was very aware of this. At some of the LMGs you could actually choose a particular guitar at the factory and buy it, but the seller of record was actually a cooperative dealer (Rocky's Street Sounds at least one year, IIRC) and all the paperwork and payment went through them.

 

[fronobulax]

Seems to be a huge debate following the article from music shop owners who think the numbers are too generous! However, I believe it is probably not out of line. Most consumer items have a huge markup as compared to their actual cost. I recall reading that in the garment industry the price doubles or triples everytime it changes hands, so that $14 T Shirt probably cost a few bucks to make. Need to keep in mind that retail cost is based upon what people will pay and not necessarily what it cost to make the item.
I am most surprised at him saying costs were much higher in Korea or Indonesia.

<veer> I am trying to think of things I buy that are primarily priced based upon the cost of production. A local restaurant offers crab cakes at market price and I have seen sea food and prime beef offered at market price. If you told me that the price of gasoline at the pump correlates with the price of a barrel of crude, I would not argue, but neither would I argue with a claim that gas prices were irrational and driven by greedy sellers who charge as much as they can get away with.

I too found the costs for different countries surprising. The whole thing makes me wonder what the strategy would be for a company that wanted to make electrics in the USA and compete with instruments made elsewhere. I can only think of two - direct sales to the consumer from the factory or aim for a higher price point and market the instruments as being of higher quality.