Wall Street Journal: What Start Ups Can Learn From Audiophiles

[Andre Marc]

http://blogs.wsj.com/accelerators/2013/04/09/ed-zimmerman-what-startups-can-learn-from-audiophiles/?KEYWORDS=audioquest

"Pricing in a new market segment differs from pricing for an existing market. This mini case study examines what AudioQuest — a high-end audio business — can teach startups about pricing in new market segments.

AudioQuest identified an unmet need in the market for digital-audio converters, or DACs, which enhance the sound of digital music files. DACs are pricey, cumbersome and generally owned by stereo nerds, of which I am one. Recently, AudioQuest created a portable DAC called DragonFly. The name hints at the product’s tiny size (it looks like a USB thumb drive) and remarkable weight (¾ ounce), both of which have become category-defining."

 

[Groucho]

Sean also says that startups should consider their desired market position when thinking about price: “Pricing sends a signal of quality – high and low, real or perceived.”

I think that's the nub of it. In a market such as audiophilia, price is a marketing tool, not directly linked to quality, nor is it a reflection of the cost of materials and production. Even when the market for a new type of product becomes established, the normal rules of competition do not apply as people are merely looking for products that are "reassuringly expensive". I saw an irony in a forum concerning a supposedly expensive cable that had been dismantled to reveal commodity components (no one seemed bothered by the crude construction) and one poster stated that in light of this, cable manufacturers should be forced to show the innards of their cables, as though the fact that it wasn't made of bits you could buy from Radio Shack would be some sort of justification for the price. As though if the manufacturer wraps a few $100 bills into the sleeving, it becomes reasonable to spend $1000 on a piece of wire, regardless of the effect on its performance as a piece of wire.

I can't say I'll be buying an Audioquest Dragonfly. My laptop already has a DAC and headphone socket built in.

 

[Andre Marc]

I think that's the nub of it. In a market such as audiophilia, price is a marketing tool, not directly linked to quality, nor is it a reflection of the cost of materials and production. Even when the market for a new type of product becomes established, the normal rules of competition do not apply as people are merely looking for products that are "reassuringly expensive". I saw an irony in a forum concerning a supposedly expensive cable that had been dismantled to reveal commodity components (no one seemed bothered by the crude construction) and one poster stated that in light of this, cable manufacturers should be forced to show the innards of their cables, as though the fact that it wasn't made of bits you could buy from Radio Shack would be some sort of justification for the price. As though if the manufacturer wraps a few $100 bills into the sleeving, it becomes reasonable to spend $1000 on a piece of wire, regardless of the effect on its performance as a piece of wire.

I can't say I'll be buying an Audioquest Dragonfly. My laptop already has a DAC and headphone socket built in.

Groucho:

Spot on. Very lucid and keen commentary.

In the end Audiophiles are nice plump sheep to be led to slaughter in many cases.

It is quite interesting to note that the products in this hobby that DO reflect accurately materials and labor in their pricing mark up tend to
stick around for years and years and years.

 

[caesar]

http://blogs.wsj.com/accelerators/2013/04/09/ed-zimmerman-what-startups-can-learn-from-audiophiles/?KEYWORDS=audioquest

"Pricing in a new market segment differs from pricing for an existing market. This mini case study examines what AudioQuest — a high-end audio business — can teach startups about pricing in new market segments.

AudioQuest identified an unmet need in the market for digital-audio converters, or DACs, which enhance the sound of digital music files. DACs are pricey, cumbersome and generally owned by stereo nerds, of which I am one. Recently, AudioQuest created a portable DAC called DragonFly. The name hints at the product’s tiny size (it looks like a USB thumb drive) and remarkable weight (¾ ounce), both of which have become category-defining."

Andre, thanks for the link. Interesting article that gets at the inexact science of pricing. There are a lot of assumptions made about the product - about whether headphone listeners will value it for $300 when a lot of headphone listening is multitasking background noise, whether the "gateway drug" comment is just wishful thinking, and if it is a "gateway drug" whether the better drug will be the "pedestrian" audioquest brand or the more prestigious cable such as Transparent, etc.

Pricing-wise, once the R&D is done by the company, it is a sunk cost (which mentally is a hard thing to let go of). Then the company needs to understand its incremental costs of production (which will be step functions based on volume). And finally, and the article mentions this, is that the company needs to test the pricing. My guess is that $300 is too much. It's just a gut feel based on the fact that $300 is a lot of money for a normal person on the street, except those of us who have developed a re-calibrated set of mental accounts based on the higher prices we are used to seeing and paying for the value we perceive and get. But until we have data, everyone is just guessing.

Best of luck to them and I hope their extremely optimistic assumptions are exceeded beyond their wildest dreams and they are richly rewarded.

 

[Andre Marc]

caesar:

Good observations!

The key is your statement below..

"..those of us who have developed a re-calibrated set of mental accounts based on the higher prices we are used to seeing and paying for the value we perceive and get."

One thing came to mind...is that if we eliminate the luxurious, overbuilt case work from many luxury audio products, how much would prices come down, since
those are a huge expense center. Do audiophiles really demand this? I don't know I am just asking out loud.

I have looked under the hood of very expensive DACs that come in massive, stunning looking casework, only to find inside
amazingly little circuitry...literally 4/5th of the interior is air.

If they put the Dragonfly in a full size chassis "built out of a solid billet of aluminum" as reviewers like to brag, could they charge
$4500 instead of $250?

 

[mep]

One thing came to mind...is that if we eliminate the luxurious, overbuilt case work from many luxury audio products, how much would prices come down, since
those are a huge expense center. Do audiophiles really demand this? I don't know I am just asking out loud.

Funny you mention the "luxurious, overbuilt case work" since this was just mentioned on the AF-1 thread. Some people apparently feel that over a certain dollar threshold that the manufacture should no longer use cardboard boxes no matter how strong and well designed (can you say Audio Research?). If we were going to give out awards for the most beautiful looking packing case, my nod goes to Durand. Never mind his tonearms, the wooden box is much better looking. That box has to add at least $1K to the cost of the tonearm if it adds a penny. The funny thing with shipping boxes is that you can't listen to them. They just sit around and take up space. Now if I had a Durand tonearm box, I would have to put it in a display case with a light shining on it.

 

[Andre Marc]

Funny you mention the "luxurious, overbuilt case work" since this was just mentioned on the AF-1 thread. Some people apparently feel that over a certain dollar threshold that the manufacture should no longer use cardboard boxes no matter how strong and well designed (can you say Audio Research?). If we were going to give out awards for the most beautiful looking packing case, my nod goes to Durand. Never mind his tonearms, the wooden box is much better looking. That box has to add at least $1K to the cost of the tonearm if it adds a penny. The funny thing with shipping boxes is that you can't listen to them. They just sit around and take up space. Now if I had a Durand tonearm box, I would have to put it in a display case with a light shining on it.

I have received review samples in wooden crates, road cases, and military grade shipping containers!

Some, like Thiel, bypass UPS and Fed Ex and use private shippers. Cost a fortune..but no claims to file.

 

[andromedaaudio]

I think high end designers should make what they want , and also make the best they can make , there is plenty of mediocre gear around .
Pricing is indeed a marketing toole , not with my gear though , i like the practical approach
Magazines deciding whats the best gear ,..... been there done that , take the german besten liste for example , no boulder no zanden ,...Could the reason be no magazine adds no bestenliste
I think the aluminium cases of YG are pretty cool , halcro also has flightcases .
Zanden is the best amp i had ,however it comes in a double carton box .
Boulder came in a wooden crate.

 

[DaveyF]

I think a lot of the pricing that we see today in this hobby is simply because of this saying....'because we can!'

 

[LL21]

I think a lot of the pricing that we see today in this hobby is simply because of this saying....'because we can!'

Agree. How much should we charge? "As much as we can." If the market still pays, then that is the market price.

 

[andromedaaudio]

I certainly look at the cost of the product , the estimated cost to build and build quality itself , do they take the buyer serious ??
They sure can try to fool me , but i am not biting , i could spend a lot more on hifi if i wanted but .... i am satisfied

I made some expensive mistakes, no thank you

 

[still-one]

I certainly look at the cost of the product , the estimated cost to build and build quality itself , do they take the buyer serious ??
They sure can try to fool me , but i am not biting , i could spend a lot more on hifi if i wanted but .... i am satisfied

I made some expensive mistakes, no thank you

And many of us have made the mistake of purchasing less expensive solutions and found ourselves upgrading rather quickly.

 

[andromedaaudio]

I look also a lot at the brandsphilosophy , usercomments , the magazine i like the best is soundstage magazine , i think they make pretty decent reviews , second place stereophile.

A lot of audiophiles i met swap equipment faster then i can say , SWAP , i dont think that is the way to go , and i am talking expensive gear also

 

[caesar]

caesar:

Good observations!

The key is your statement below..

"..those of us who have developed a re-calibrated set of mental accounts based on the higher prices we are used to seeing and paying for the value we perceive and get."

One thing came to mind...is that if we eliminate the luxurious, overbuilt case work from many luxury audio products, how much would prices come down, since
those are a huge expense center. Do audiophiles really demand this? I don't know I am just asking out loud.

I have looked under the hood of very expensive DACs that come in massive, stunning looking casework, only to find inside
amazingly little circuitry...literally 4/5th of the interior is air.

If they put the Dragonfly in a full size chassis "built out of a solid billet of aluminum" as reviewers like to brag, could they charge
$4500 instead of $250?

I think it is an interesting question. Would Apple be the same if it had a crappy user experience? I think for the brands that "get it", the design is baked in with product quality from the beginning. And they charge for the whole experience. But on the other hand if you are trying to hit a certain price point you will not invest in fancy casework.

As for the Dragonfly in an aluminum case going for $4500, do you think that people would not figure it out? I have been in a great mood before where a saltine cracker tasted better to me than a warm, buttery croissant in a Paris bakery. But a few hours later the saltine tasted like a saltine...

 

[caesar]

I think a lot of the pricing that we see today in this hobby is simply because of this saying....'because we can!'

DaveyF, without actual numbers, we don't really know how many units these guys sell, if any. Sellers can price things at whatever point they want, but buyers will spend money for it only if they find value. That is a very basic economic fact, but most people do not get it. That's why we have these long winded threads every month on "high prices in high end audio" with more emotion than a 1,000 person boarding school class of 14-16 year girls getting their period on the same day.

 

[caesar]

I have received review samples in wooden crates, road cases, and military grade shipping containers!

Some, like Thiel, bypass UPS and Fed Ex and use private shippers. Cost a fortune..but no claims to file.

Every little thing signals quality, or a lack of. Do you guys think that people are so dumb that the casework is the primary factor? Just like with anything complex, it is one factor of many.

 

[Andre Marc]

DaveyF, without actual numbers, we don't really know how many units these guys sell, if any. Sellers can price things at whatever point they want, but buyers will spend money for it only if they find value. That is a very basic economic fact, but most people do not get it. That's why we have these long winded threads every month on "high prices in high end audio" with more emotion than a 1,000 person boarding school class of 14-16 year girls getting their period on the same day.

Um, you are really forgetting one thing. There are a whole class of buyers, in decent numbers who DON"T KNOW THE FIRST THING ABOUT HIGH END AUDIO.

They walk into a shop, or they hire someone else, (yes there ARE guys who do this for a living) to buy them the "best" system they can stick into one of their multiple luxury homes because they see them in houses photographed for the Robb Report or other high end luxury magazines.

They people are not qualified to assign a value to what they are purchasing, they just hand over a credit card.

It is no different when athletes or actors with very modest backgrounds and little education make a boatload of money and
go and buy Rolls Royces, because "that is what you are supposed to do when you get rich", regardless of the fact that a Rolls is
an overpriced hunk of garbage.

 

[Andre Marc]

"As for the Dragonfly in an aluminum case going for $4500, do you think that people would not figure it out? I have been in a great mood before where a saltine cracker tasted better to me than a warm, buttery croissant in a Paris bakery. But a few hours later the saltine tasted like a saltine..."

No, they would not figure out in many cases. Again, have seen the circuitry in some flagship DACs?

Secondly, I enjoyed your saltine/croissant example, partly because I LOVE those devilish beauties.

If you are trying to say that if a product is all bling and ok sonics people will tire of it quickly...tell
me why we so many posts, even on this board, of people who buy super expensive, rave reviewed products,
like Shunyata cables, and Magico speakers, then dump them on Audigon within a year, or even months.

 

[caesar]

Um, you are really forgetting one thing. There are a whole class of buyers, in decent numbers who DON"T KNOW THE FIRST THING ABOUT HIGH END AUDIO.

They walk into a shop, or they hire someone else, (yes there ARE guys who do this for a living) to buy them the "best" system they can stick into one of their multiple luxury homes because they see them in houses photographed for the Robb Report or other high end luxury magazines.

They people are not qualified to assign a value to what they are purchasing, they just hand over a credit card.

It is no different when athletes or actors with very modest backgrounds and little education make a boatload of money and
go and buy Rolls Royces, because "that is what you are supposed to do when you get rich", regardless of the fact that a Rolls is
an overpriced hunk of garbage.

You maybe right. Without numbers, we will never know. I have a feeling there is less of these guys than we imagine that are interested in audio. When I had some high end cabinets installed from a top tier, high end kitchen company in my home, the installer who had been installing the brand for 20 years told me he never saw a system like mine.

 

[microstrip]

It is funny that how such an interesting article can have such sad, even discouraging interpretations and followups by audiophiles in an audiophile forum.

For me, the main idea of the article is about economics, and explaining that in every product the manufacturer should settle a price zone, and then add features to become competitive and show it clearly in the marketing message.

IMHO, the "negative" aspects being now presented in this thread are the statistical exceptions in the high-end game. Card boxes, crates, jewel like boxes? These are peanuts in our debates. But yes, sometimes I really appreciate peanuts!