From bruce@ashbysolutions.com Wed Mar 13 14:38:12 2002
Subject:Re: Prices falling on clones

All,

>> The secret to getting these kind of deals is that they are not always
>> published, or they appear one time in a "blowout" mailer. There are
>> many music dealers that will beat many prices as long as there is a
>> reputable source. So when you hear about Guitar Center selling VK7s
>> for $999 on blowout, take that price to a competitor and ask them to
>> beat it. They usually will.
>
>Guitar Center and other chains have HUGE buying power. When they offer
>"Blowout" prices, it usually means that they have purchased the remaining
>stock of a particular item that has been discontinued by a manufacturer.
>This purchase is usually hundreds of pieces. The manufacturer gives them a
>deep, deep discount or some form of co-op credit on these buys. The
>independent dealers do not have this sort of buying power available to them,
>so when you go to these independents and say that GC is blowing out X
>product for $999.99, or whatever, there is no way in hell that they can come
>close.
>
>{snip}

Let me add my $.02 to what Mark said: The current situation in the music industry, coupled with the release of several new clone products, is good news for all of us -- at least, those of us who have cash in hand and are looking to add gear to our arsenals. However, there are certain "rules of the road" that have to be understood.

The object of business is to make money, even in tough economic times. There are two ways to get there -- 1) sell products at a higher price, and offer service and support for the products before and after the sale (the "mom and pop" method); or 2) sell products at a very low markup to the masses, with minimal customer interaction (the "supermarket," or Guitar Center, method). These are extremes; there are obviously sellers who lie somewhere in between. In addition to this rule, Mark Z. correctly states the "volume business" rule: If you sell a tremendous amount of volume, you have leverage to convince a manufacturer to sell you goods at a lower piece price. I recently entered the musical retail market, and I have occasionally seen large retailers like Musicians' Friend and Guitar Center selling products for LESS than my dealer cost! Obviously, these merchants aren't suicidal; they must be getting better deals from their sources, due to their larger volumes. These same type
s of deals also apply to things like "free" stands and even "free" shipping. (UPS won't publish it, but there are definitely at least two tiers to shipping costs.)

It's possible to use the "Type 2" price from a large retailer to coerce a "Type 1" store into selling an item for less, but you won't always find them willing to meet or beat the low price. Type 1 stores cannot reach GC volumes overnight, so playing the price-only game is extremely risky. Continually doing so will either cause the Type 1 store to go out of business, or to drastically lower their service and support to cut their costs. If you are a tech-savvy customer who knows exactly what you want, perhaps the latter doesn't seem like a bad thing. There are downsides to this strategy, however.

I bought my CX-3 for $1950 (US) at a time when all of the major retailers were advertising $2099. How did I do it? I have been purchasing the bulk of my gear from one store for more than five years, and I used this fact to negotiate a better deal. No Type 2 store was willing to touch that price, not on a hot new item. I got my deal because the dealer recognized me as a valuable part of his livelihood.

Now, all of the sudden the Type 2 stores have dropped their prices by 10-20%, and can probably beat almost any Type 1 deal around. At the time, if I wanted to be merciless, I probably could have spent another hour with the dealer and wrung another $50-75 out of him, but I chose not to do so because:

- It's handy to have a dealer watching out for my interests, which I feel GC/Musician's Friend/etc. do not do. In order to keep the local dealer in business long-term, he/she has to eat, too. Failure to make money leads to music dealers seeking another way of earning a living.

- If I have a problem with a piece of equipment, a dealer is more likely to help if she/he has actually MADE SOME MONEY on my deal, rather than passed it on at his/her costs (product + overhead). This is purely human nature.

This second part of the unwritten agreement came up sooner than I expected: I had some problems with my early CX-3, and wanted to get it corrected or replaced. Could I have done so without the dealer's help? Sure, but it was nice to have him working behind the scenes in conjunction with my calls to Korg Support, rather than sitting idly by, so that I got it corrected quickly, and didn't lose my gear for even one day. I can't speak for other areas of the country, but in New England, this kind of support rarely appears at GC, Mars Music, or even the local giant, Daddy's.

Bottom line: You have to decide what the dealer's help is worth to you, and use that as part of the background when negotiating cost. Cost is not always just the sticker price.

Just food for thought ...

Regards,

-BW

--
Bruce Wahler
Ashby Solutions™ http://music.ashbysolutions.com
CloneWheel Support Group moderator
978.386.7389 voice/fax
bruce@ashbysolutions.com