Price, Value, Worth and COGS

Alan Sircom

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Continuing from the 'Who is the best reviewer' thread before that finally self-destructs...

Disagree. All three products i highlighted were the new "elite echelon" products of yesteryear and 50% higher than there competitors at that respective time (the CJ was in HP's "best sound period" at the HE NYC show years ago). The elite echelon has gotten even more ridiculous, for what can't be argued as the same performance increase from a California to an Enzo

What's happened is manufacturers would rather sell one pair of 200k speakers than invest in 10k speakers. VAC doesn't offer a single product under 10k now---a single one!

The other thing is every other "technology" has decreased in price over the past decade, but for some reason high end audio has multiplied in price---see 70k DAC example in this thread. Name the last quantum technology leap in SS amps over the past decade---there isn't one (i'm excluding digital, which i don't consider SS).

KeithR

ps the CJ ET5 doesn't have near the appearance/build quality of an ARC Ref2 a decade ago. its an ugly duckling as well, but i digress.

Yes, you are correct that the 'elite' category has shot into the stratosphere. As it has with most things that appeal to luxury buyers in far-away places. The normal values of COGS vs End User Price tend to go a bit haywire when you start using the word 'luxury'. I guess the difficulty is that if the rich just keep getting richer, the toys they get to play with just keep getting more out of reach for us mortals. This is why it's not only about Ferrari Californians, but that suddenly there are a lot more Enzos. And Veyrons. And Maybachs, Koeneiggseggs, Lambos, etc, etc.

At the same time as the rich got richer, the squeezed middle has wiped out a lot of the traditional market. If a manufacturer is faced with designing and building a $1,000, a $10,000 and a $100,000 loudspeaker, there's an expectation that they will end up selling a lot of the cheaper ones, some of the expensive ones and a few of the really expensive ones. That isn't necessarily happening now. Especially when you take the BRIC markets into account. Now, you might get two stores in Beijing and Guangzhou selling more boxes than all of North America, Canada and Europe put together and if those stores keep asking you for more and more expensive loudspeakers for their big hitter clients, if you don't make them, someone else will. If you have finite resources in R&D, are you going to divert time and energy on making a $10,000 product that might not sell anymore, or a $100,000 model that already has an full order book? Intellectually, you should be concentrating on all sides of the market, because if and when those excluded middle market people come back, they'll need products that cater for their tastes. In reality though, you'll cross that bridge when the time comes.

As to the technology issue... Class ADH, Class XD, Tripath/'Class T'. All of these are very new and significant leaps forward. All (bar ADH) are designed for value-driven products. The difficulty in effect is that they either don't figure on most high-ender's radar screens or are moving in directions where there are people prepared to buy stuff. And this too opens up the bandwidth of audio pricing; a Trends Audio TA-10 amp may be low powered, but it delivers excellent performance for less than $150. I know you didn't want to bring digital into the equation, but something like a HRT Streamer II+ offers excellent performance without breaching the $500 barrier. How good? Use it with a powered USB hub and it is on a par with anything digital. Yes, things from traditional audio manufacturers are getting expensive, because audio is a very mature market, and because we want things locally grown, and because the people who should be buying in numbers large enough to make economies of scale work are buying headphone systems.
 

Alan Sircom

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It seems strange to me that so many reviewers almost refuse to admit the fact that the rise of price in High End Audio is an application of Marketing, it has no bearing to the Cost of Good Sold ... Reviewers know it, yet sidestep it often reverting to "research and development" aspect of the product. Many audiophiles would lke to think that the High End Audio scene is all nice and populated by ethical people in its entirety ... Such views is for the least naive, very far form the truth.
I will leave it at that .. Politeness runs strong in this forum, although some nonsenses should be exposed once in a while I am on the side of keeping it civil but would have like some to be less fanboy of the high price tactics of High End Audio but rather to lean toward truthfulness. I would have liked the fanboys to also find better explanations than those they have so far presented. These are as close to disingenuous as it is possible.
Frantz

The rise in price in high-end audio is there because there is a market for high-high-high end audio. And at the moment, that is doing better than the traditional high-end. Is this down to marketing? No, because the high-end audio industry is absolutely hopeless at marketing. Too many company marketing strategies revolve around 'get a review, then people will beat a path to your door.' When that doesn't happen for whatever reason, the company founders. The move on high is predicated on reacting to changes in the market, more than trying to change a market.

R&D costs are still a factor, and it is a factor that increases as sales numbers decrease. If it takes you a man-year to make a thing, that cost needs paying whether you sell one product or 100,000. And if you used to sell 10,000 units and now only sell 1,000, those R&D costs per unit increase dramatically. If it's a major part of the out-of-the-factory-door price however, and you aren't Adobe, you are doing something seriously wrong.
 

KeithR

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Thanks Alan for starting the new thread---and a well thought out response!

I think the other thing is that the high end has gone to a boutique model with small manufacturers and often local distributors who don't take on inventory. I recently purchased an amp from my dealer---but the distributor is basically just a local dealer who wanted to import the line :)

What concerns me is when i read Stereophile talking about the Magnepan 3.7 and dealers wanted it priced at 10k, not 5.5k. That there isn't greatness at lower price points----i think magazines compound this issue by not evaluating price/performance. Car magazines--to keep our analogy going-- quite often do (large scale comparos).
 

MylesBAstor

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Alan,

I think we need to bear in mind is that a "best" selling product in high-end audio product might sell 1000-2000 units; that's a pittance compared to Sony! Sony wins out in being able to reduce costs when building in large quantities.

Years ago remember Art Ferris telling me that the three best selling preamps in high-end audio history were Dyanco (80K or so?), Marantz 7 (can't remember the figure but want to say in the 20,000s), and Audible Illusions (then around 17,000 units).

And then we get to the ultra-high end where products are built almost on one off basis--or limited quantities such as some products from cj, ARC and Goldmund. Manufacturing costs then become astronomical. Look at the machining that went into a product like the Rockport tt :)
 

FrantzM

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Hi

I would like to sound less cynical. It remains that the high subjectivity factor in High End Audio helps the push toward higher prices. The Industry has its own pundits and they quasi-systematically go toward the higher priced products. The reviewers are or have become in fact part of the marketing circuits. They also are, for the most part (there are some interesting and refreshing exception as we may have seen on the previous thread) on the side of the manufacturers.
We are thus caught in a loop. Those who would and could denounce the high cost of equipment could be said to be profiting from that state of affair. Audiophiles are very lenient and tend to accept a lot before they revolt...
Interesting Market.. those manufacturers that have captured the audiophile public imagination will certainly make some serious profit ..I doubt the Industry at large is growing... or will grow with such a disregard to its core constituency.
 

amirm

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There is clearly a point after which, price/performance has no value. I heard the IMF guy who is accused of attacking the hotel maid is staying at a townhouse that costs $50,000/month. Yes, I said per month! A cool $600K/year. Should this person have a wish for audio equipment, would $20K or $50K really matter? Think of whether you would spend your monthly mortgage payment on audio equipment.

So I don't see the point of constantly worrying about why something is so expensive. For a class of customers, there is no such thing in the numbers we are talking about.
 

FrantzM

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Alan,

I think we need to bear in mind is that a "best" selling product in high-end audio product might sell 1000-2000 units; that's a pittance compared to Sony! Sony wins out in being able to reduce costs when building in large quantities.

Years ago remember Art Ferris telling me that the three best selling preamps in high-end audio history were Dyanco (80K or so?), Marantz 7 (can't remember the figure but want to say in the 20,000s), and Audible Illusions (then around 17,000 units).

And then we get to the ultra-high end where products are built almost on one off basis--or limited quantities such as some products from cj, ARC and Goldmund. Manufacturing costs then become astronomical. Look at the machining that went into a product like the Rockport tt :)

Myles

Being certainly more in the lop than most of us could you please tell me how high the manufacturing cost would be for an amp? This piece of argument is often brandished but what would be the cost of a preamp such as the top of the line ARC or Balaboo or Technical Braiin or the Lamm, this last one being just a black box with knobs ...? Please do tell .. I will adddress some other part of your post later.. I simply want to add that Audiophiles routinely dismiss the offering from consumer giants.. Denon did try some units.. I am not sure they were well received..More later
 

Phelonious Ponk

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Great thread, Alan, and good stuff, but here....

The rise in price in high-end audio is there because there is a market for high-high-high end audio. And at the moment, that is doing better than the traditional high-end. Is this down to marketing? No, because the high-end audio industry is absolutely hopeless at marketing. Too many company marketing strategies revolve around 'get a review, then people will beat a path to your door.' When that doesn't happen for whatever reason, the company founders. The move on high is predicated on reacting to changes in the market, more than trying to change a market.

...I think you're confusing marketing with advertising. Marketing is responding to the demands of the market. Marketing is industrial design. Marketing is pricing strategies. Marketing is business modeling, whether it's done formally by armies of young MBAs or by the seat of the pants of a guy who understands that the market will buy more $50,000 speakers that look the part than $2,000 speakers that deliver 98% of the TOTL model's performance. I'm a marketing guy, and I think the most famous "high-end" manufacturers are brilliant, intuitive marketers.

Tim
 

FrantzM

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Hi
Guys I have to break for lunch but you keep on submitting interesting posts...

@AmirThe problem is not what a person can or cannot afford. it is the rationale behind the product... No Luxury watch would dare claim it is more precise than a Seiko! Not one ! On the Audiophile side there is an implication that the better products are the more expensive ones. One perpetrated by countles (not all) reviewers. The better cable is AUTOMATICALLy the more expesnive and that works for the amps to and for speakers and these days more and more for DACs ;) ... I don't have any qualm with a person buying a watch for $350,000, that's not a problem but the second that there is a claim of superiority over anything, it must be substantiated ...
 

Phelonious Ponk

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Hi
Guys I have to break for lunch but you keep on submitting interesting posts...

@AmirThe problem is not what a person can or cannot afford. it is the rationale behind the product... No Luxury watch would dare claim it is more precise than a Seiko! Not one ! On the Audiophile side there is an implication that the better products are the more expensive ones. One perpetrated by countles (not all) reviewers. The better cable is AUTOMATICALLy the more expesnive and that works for the amps to and for speakers and these days more and more for DACs ;) ... I don't have any qualm with a person buying a watch for $350,000, that's not a problem but the second that there is a claim of superiority over anything, it must be substantiated ...

Yep. Nobody questions that the clock in my iPod is more accurate than the $350,000 watch. But the opamp is cleaner than a ****? The DAC is more accurate than a ****?

I won't say it. We don't need the stress. :)

Tim
 

amirm

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@AmirThe problem is not what a person can or cannot afford. it is the rationale behind the product... No Luxury watch would dare claim it is more precise than a Seiko! Not one ! On the Audiophile side there is an implication that the better products are the more expensive ones.
In many cases they are "better." An audiophile amp that puts out over 1000 watts is better than a mass market one that struggles to do 200. The former also has far better components. I think you are arguing that audibly it may not be better but even there, we can show that in many instances. Take Revel Salon 2. I doubt that you could make that speaker for $500 or $1000. The curve cabinet to get rid of diffraction alone can cost that much to make and the benefits of that is demonstrable.

The better cable is AUTOMATICALLy the more expesnive and that works for the amps to and for speakers and these days more and more for DACs ;) ... I don't have any qualm with a person buying a watch for $350,000, that's not a problem but the second that there is a claim of superiority over anything, it must be substantiated ...
I can argue the superiority of all of those other than cables based on the watch metric above. It is not like anyone of us care if a clock is .1second more accurate a month. By the same token, then if a $5K DAC has less jitter than a $500 one, then it is able to pass that test. Whether I can hear the audible difference is the same as whether my life will change if my watch is 0.1 second slower :).
 

Ron Party

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I don't think anyone (here at WBF, at least) is arguing COGS is not and/or should not be a factor in setting MSRP.

Some questions come to mind in reading this and the related thread.

The first, which is directly related to Amir's last point: Do we not have to question whether there is any audible difference in the higher COGS product? If it is not, can we conclude the product is overbuilt? And even if it is audible, it still may be overbuilt, no? Moreover, do we also not have to question whether that audible difference is *better* than the lower COGS products?
 

Alan Sircom

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Alan,

Years ago remember Art Ferris telling me that the three best selling preamps in high-end audio history were Dyanco (80K or so?), Marantz 7 (can't remember the figure but want to say in the 20,000s), and Audible Illusions (then around 17,000 units).

Quad is reputed to have sold 100,000 405-2 amps and Linn has sold almost the same number of LP12s, but they are the exceptions rather than the rule.
 

jazdoc

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"Price is what you pay, value is what you get" -- Warren Buffett

Value then, is subjective and unique to each individual. Certainly a component of value is the cost relative to income and/or net worth. Certainly I could afford a more expensive car, but I would rather spend the money on records and the occasional piece of audio equipment. Most of my friends would opt for the newer, more expensive car. Nothing wrong with either approach presuming you can still fulfill your other financial and ethical obligations.

IMO, in audio, as in all things, price doesn't always correspond to value. However, it is a logic error to conclude that price never corresponds to value. The best audio components I have heard have been expensive by anyone's standards. Is the added value from less expensive (albeit very good) equipment? Presuming you have the requisite resources, this is an individual value judgment.
 

Phelonious Ponk

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IMO, in audio, as in all things, price doesn't always correspond to value. However, it is a logic error to conclude that price never corresponds to value.

That would be an illogical conclusion. It is, nevertheless, the core of the old audiophile argument. I think the reasons for that are pretty simple, though nearly as hotly contested:

1) In the very high end, price very rarely corresponds to value.

2) Often (mostly?) the audible value of high end vs midfi or entry-level high end is neither measurable nor verifiable. It is opinion only.

3) The hobby is such a hotbed of hyperbole: Someone online or in a magazine or shop says that compared to his lowly former $2,000 DAC, his new Goldleaf Diamond Contatta 2 (GDC2) sounds like music vs horrid, thin, digital bits and bytes. I Google, find a review of the GDC2 with pretty comprehensive measurements, and one of his former $2,000 DAC and find absolutely nothing to support his claim. Later that week, I swing by my local high end shop and they have a GDC2. Eight grand. I give it a good listen, and it sounds great. Like a good, well-engineered DAC doing its job, but not magical. Later that year, The Partypooper Audio Engineering Society of Greater Cleveland runs some blind listening tests on DACs. The $2,000 DAC and the GDC2 are included. No one, not the golden-eared audiophiles, not the half-dozen pro recording engineers, not the 13-year-old daughter of the club's president, can even consistently differentiate between them. Audiophiles all over the nation rush to discredit the findings.

Rinse and repeat since about 1980.

Do the skeptics go too far? No doubt we sometimes do. It's improvisational. It's jazz. We're just swinging to the extremes with you high-end cats. Tell me something totally unquantifiable is the difference between data and music, I might tell you the difference doesn't exist at all, just to keep balance in the force. :)

Tim
 
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microstrip

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(...) Years ago remember Art Ferris telling me that the three best selling preamps in high-end audio history were Dyanco (80K or so?), Marantz 7 (can't remember the figure but want to say in the 20,000s), and Audible Illusions (then around 17,000 units).

Myles,
You are forgetting Quad - they produced around 50 000 units of their famous Quad 33 preamplifier between 1967 and 1982.
 

MylesBAstor

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Myles,
You are forgetting Quad - they produced around 50 000 units of their famous Quad 33 preamplifier between 1967 and 1982.

Thanks for the correction. Maybe Art was referring to only the US market.
 

microstrip

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We can write many long posts, but facts are facts.

I have never listened to an optimized usd 10000 system that sounds better than an optimized usd 100000 one. For me this means that this 10 times fold must have an equivalent in sound quality.

Audio equipment is an engineering subject, but high-end has a subjective characteristic and its existence is due to the subjective side - according to some people, such as F. Toole, the whole industry, including artists and recording engineers participate in this process. To make this point clear. F. Toole also explains how a few objective rules can lead to higher success in these subjective tasks, although a lot of research is still needed.

Surely when all the details and rules are known (and then audio becomes more scientific) perhaps the quality to cost ratio will increase and perhaps following engineering rules, normalize. But while hi-end is empirical in many aspects we must pay for the low efficiency research and development and the implicit high manufacturing costs of the state of the art equipment.
 

FrantzM

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Let's not trivialize the argument. I understand that an assault to the SOTA will likely be more expensive than one run-of-the-mill product . The 300 watts amplifier High End amplifier is likely better than the equivalent mass produced one which sole attribute is to produce that wattage. So we are in agreement that a SOTA product will cost more but what does explain the flight toward those inane prices? Why top preamps went from 15 K to now approaching 100K!? Why for example the Wilson MAXX3 cost $35,000 more than the MAXX2? And I repeat the question : What are the "massive cost" in manufacturing a preamp? Have these cost increased threefold since 2000? COGS? Research? Research???
 

MylesBAstor

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Hi

Let's not trivialize the argument. I understand that an assault to the SOTA will likely be more expensive than one run-of-the-mill product . The 300 watts amplifier High End amplifier is likely better than the equivalent mass produced one which sole attribute is to produce that wattage. So we are in agreement that a SOTA product will cost more but what does explain the flight toward those inane prices? Why top preamps went from 15 K to now approaching 100K!? Why for example the Wilson MAXX3 cost $35,000 more than the MAXX2? And I repeat the question : What are the "massive cost" in manufacturing a preamp? Have these cost increased threefold since 2000? COGS? Research? Research???

And into what load will that amplifier produce 300 wpc? And does that amp double down as the impedance drops like a D'Agostino Class A design (no way a 300 watt Sony will do 1200 watts into 2 ohms; as a matter of fact, had a distributor recently bring over their highly touted integrated amp and the first thing it did when confronted with the Summit-X's load was blow a fuse)?

Actually a lot of costs have increased:

Shipping costs have risen greatly.
Many parts and circuit board prices have gone up because of oil prices
Teflon caps are what 5-10X more than a polyprope cap? Remember, polystyrene are no longer made :( So a large value teflon cap runs in the $300 range and multiply that times 20-30 pieces for something say like the 20K cj GAT preamplifier.
While on the topic of caps, check out the price of the Dueland caps (be sure that you're sitting down) that Vandersteen uses in the xover of the Model 7.
Metalwork and machining costs have increased.
The dollars weakness in the foreign market eg. an arm lift from Japan that cost $5 a couple of years ago is now $15 to 20. This is just an example and sure this holds true for other imports say transports too.
Rent and electricity costs have risen markedly.
I'm sure there's a lot more that haven't considered.
It all adds up.
 

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