February 2019

Come To The Party!
Roger Skoff writes about spreading the fun and saving money in the process.
Article By Roger Skoff

  Did you ever wonder how it could be that the Mid-Fi companies are able to sell a multi-channel, multi-function receiver for so much less than our High-End manufacturers seem to be able to sell almost anything at all?

Think about it: a Tuner (separate cost in the hundreds of dollars, if you can even find one to buy); a preamp with full features – even tone and loudness controls and a phono stage (certainly available, but for a separate cost of at least several hundred dollars, all by itself); and a multi-channel (could be two, three, five, or seven) power amplifier (also at least hundreds of dollars, if bought by itself) all together in a single, usually remote controllable, compact and attractive unit for as little as just a very few hundred dollars.

How can that be? How can cars be as relatively cheap as they are? It's the same two answers to both of those questions: Mass production and competition. Let's take a look at them, one at a time.

Mass production – the production of goods in large lots, often by automation or with minimally skilled human labor instead of the more hand-crafted approach usually taken by high-End audio manufacturers – makes things cheaper to produce in at least four ways: It reduces labor cost per good; it reduces overhead cost per good; it reduces materials and component costs per good; and it reduces sales and marketing cost per good.

The labor cost reduction happens in two ways: first, if you're going to be selling lots of the same thing, you can build jigs or special tooling to both lessen the amount of required labor and improve the quality of its output, and, with those jigs and special tooling in place, the same quality of product can be produced by less-skilled, cheaper labor. The result? Better goods at lower cost of manufacture.

Overhead, and selling cost are both reduced in the same way: If you are paying "this much" per square foot of production area per year or have a budget of "this much" per year for sales and promotional costs, making and selling a thousand products a year will reduce the per-product cost of both of those things by 90% as compared to making and selling just a hundred products in that same period. If you doubt me, consider this: if the factory overhead is just (obviously for example purposes, only) $10,000 per year and you divide that by 1,000 products made and sold, your overhead cost will be just $10 per product, whereas, if you only have 100 products to divide that same $10,000 by, the cost per product will be $100 – fully 10 times as much! It's the same thing exactly with fixed-budget promotional and selling costs: 1,000 products sold for $10,000 spent makes for a cost-per-product-sold of only $10, while spending the same amount and selling just 100 products will push the per-product cost all the way up to $100. BIG difference!

The per-product supplies and components cost works slightly differently, but the result is the same: Large-quantity buyers (like the guys who are going to be making and selling that 1,000 products) get lower prices for what they buy than do buyers (the, generally, the High-End audio industry) of the same things, but in smaller quantities. (That's a competition issue, too, but let's save it for later) You've seen the same thing, yourself, every time you go to the grocery store – Milk costs less, per quart, if you buy a gallon instead of just one quart. Or other things may be at a cheaper price per item if you buy some specified number instead of just a single one. Whatever it is, it makes a difference, and the High-End audio industry, because of its smaller volume of units sold, as compared to the Mid-Fi guys, always winds-up paying a higher price for what it buys.

Competition is another thing that keeps the price of Mid-Fi down, but that – as we've all complained about over time – seems to do little to bring down the retail pricing of our own High-End audio gear. It's not that competition isn't a factor – certainly, it is. But when High-End factories are selling less than a lot of product every year, at comparatively very high costs of production and sale, they simply don't have the same ability as the Mid-Fi boys do, with their lower costs and tens or hundreds of thousands of unit sales every year, to engage in manufacturer-level price competition. That's one reason why High-End prices stay high.

All of these things come together to form a "vicious circle" (actually, a vicious "loop-de-loop"): High–End manufacturers only sell a small (as compared to the Mid-Fi giants) volume of goods. Therefore, their labor costs are high, their overhead costs are high and their component, promotion, and selling costs are high. This, because they must recover their costs before they can ever hope to see a profit, makes their goods expensive. Being expensive means that they have to look expensive in order to justify their price and get people to buy them. The things they must do to make them look more costly are more costly, especially in small volume, which increases their cost of manufacture; which necessarily increases their "for-sale" price (both at wholesale and retail); which lowers the number of goods they can sell; which increases their necessary price; which starts the whole thing around and around again.

I and other writers have been talking about how to bring new people into our hobby, or even just how to get more people to enjoy music, and to enhance their enjoyment with good quality sound. It's fun, we've said. Or, (NEVER apologize for our toys and goodies!) it's actually a prestige item that will gain newcomers social standing and be one more way to conspicuously display their wealth (Or, if they're not wealthy, to look like they are). Well, here's another reason to drag as many newbies in as you can to come to the High End party and share our fun: If we do it well enough, it can make the things we buy cheaper!

It's true; the more is not only the merrier, but it's the less expensive! So brag about your system! Drag friends and family, people at work, and even people off the street, if you have to, in to hear your system and to learn what music can really sound like! Make them want it! And if they ask what it costs, be as proud in telling them as you would in telling about any other impressive and enviable purchase you've made (or they might have wanted to)! If they shy away at first, be surprised and sorry that they're not doing well (Some gentle "in-group/out-group" shaming can work wonders here) and then let them know that there are plenty of great-sounding systems that anyone of even reasonable means can afford and that only a piker or a nekulturny would do without. Bring 'em to the party. Get them to join in the celebration and get them to get their friends to come, too!

If we can all do that, and can do it well enough, the High End will enjoy a new renaissance; our industry will boom; economies of scale and competitive factors will force system prices down; more people will be able to have more toys and goodies, and we and all the fine new people we've brought in to our hobby will...

Enjoy the music!

-- Roger Skoff