Is it Time for a Change? A View from Nigel Payne.

We believe so...

The audio/visual industry has grown up to be a multi-billion dollar business around the globe with many manufacturers touting that they have a "no-nonsense" and "without compromise" approach to designing and launching new products. This has led to spiralling costs for consumers to, often, eye-watering prices for products that seem to offer small gains over the components that they are replacing.

What we see is an industry that has now left many in the eco-system wondering whether it is time for a change. In particular, we have met many disillusioned enthusiasts who are looking for more with their hard-earned cash and dealers that are becoming increasingly pressurised to make sales to keep their businesses going. It is our experience, in fact, that dealers are being forced to offer discounts because of the pervasive nature of the Internet and buyer awareness of multiple retailers offering the same product. Our own retailers have shared their experiences of performing product demos to lose the sale to another retailer prepared to offer a discount. Although this may be perceived as beneficial to you, it is actually very damaging for the industry as a whole and restrictive manufacturers' ability to innovate.

In our analysis, we have learned that the value chain has become laden with services and taxes that add little value to the actual product that has been developed. For example, take a component with a hefty $18,000 retail price and ask yourself where all the money is spent. Typically, in European countries, around 20-25% of that is VAT. So we get to a net price of around $15,000 excluding sales taxes.

OK, so now we have to ask ourselves "where else is the money spent?". Often manufacturers rely on distributors to get the goods from plant to country and, ultimately, the retailer. This can be as high as 40%. Then there is the retailer too. Typically, traditional retailer markups are around 40-45% so we end up with a released-from-factory price of approximately $5,000. So, for a product that retails at $18,000, you are spending all this money that only delivers $5000 to the designers, makers and testers of the product.

Let's think about that for a few minutes. The manufacturer needs to spend weeks, months or even years developing the product and then to determine the manufacturing processes, procure the raw materials, set up the tooling and then make. After this, they need to get the product through certification for all global markets, testing each unit before it is packaged and sent to the destination country. This is in addition to the sales and marketing that the manufacturer spends in order to promote their products.

For the remaining $13,000 or 72% of the final retail price, you are paying for people assuming risk, setting up expensive demonstration facilities and, quite candidly, sales and taxes. When you have more than 70% of a retail price in sales and taxes, you often end up with the inevitable when there is a cashflow problem in the chain. This is why we often see bargains on eBay or other so-called after-market dealer sites. I use the word bargains with some degree of cynicism here.What seems like a bargain is actually a realistic price and I would be very surprised whether they are considered a bargain but, more accurately, a correct perceived value.

So the next time you are considering making a purchase of a high-end component whether it is $2,000 or $50,000, ask yourself "how is this getting to me?". You could even build yourself a simple spreadsheet to calculate how much of your hard-earned cash is going into the design and production of the product itself.

At Quiescent it is our belief that the current demonstration and sales approach is flawed and prevents real value being delivered to our customers. This is why we have adopted an approach that is designed to allow our Sales Consultants to provide demonstration equipment owned by us and that you get to listen to a product that, intrinsically, has more value built into the product itself. It is also why we have decided to add the Vertex Classic range to Quiescent allowing you to benefit from saving in excess of 22% over previous retails prices.


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