Guitaronomics

LuttiS

Quite an interesting piece about how much it costs to build a guitar.


https://reverb.com/uk/news/guitaronomics-how-much-does-it-actually-cost-to-build-a-guitar

That but about upgrading pickups!

paulnb57

Interesting stuff, I think I sort of knew this already, but nice to have it comfirmed, makes me wonder what the Squier Bullet Mustang cost to build based on the article, as the mine was £115 mailed!

BRISTOL86

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

digitalscream

Yep...I remember Jaden telling me about how he was approached at NAMM by a guy from a Far East guitar factory, offering to make mass-produced versions of his guitars.

"How much?" asks Jaden.
"However much you want, starting at $75."

Whitecat

BRISTOL86 said:

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

They are. Fender and Gibson both have online stores now that ship direct. 

crunchman

BRISTOL86 said:

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

Because I won't spend 2 grand on a guitar without trying it first.  I'm not the only one.

They are made of wood, and they vary.  You can get two of the same model with the same CNC cut bodies, the same pickups wound by computer controlled machinery, and they will not sound the same.

BRISTOL86

Whitecat said:

BRISTOL86 said:

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

They are. Fender and Gibson both have online stores now that ship direct. 

But presumably at the same cost as going down to PMT who are making 20%+ on cost price? 

BRISTOL86

crunchman said:

BRISTOL86 said:

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

Because I won't spend 2 grand on a guitar without trying it first.  I'm not the only one.

They are made of wood, and they vary.  You can get two of the same model with the same CNC cut bodies, the same pickups wound by computer controlled machinery, and they will not sound the same.

Yea but lots of people obviously will judging by the online guitar market. I wasn’t suggesting it being the only way to buy a guitar, but give consumers the choice.

The article suggests middle man costs are a large part of the high price - so if you can cut that down and get your product out there at a lower price whilst maintaining the same margin, why wouldn’t you? Those who want the ‘middle man’ experience can pay a premium for it.....

impmann

I'd challenge a few of those prices (having been on 'the other side' of things) but its not far wrong. The mark ups quoted are optimistic for the UK market, I'd imagine that a few UK Fender dealers would like to make those kind of points - can't speak for the US.

FWIW, one project I was involved with ended up with a landed cost of a solid body electric guitar (minus electronics - they were EU installed and not boutique made) of less than £18. The quality of the build was similar to that of a Squier Affinity (nb - wasn't a Fender product) and the only real issues we had were poorly seated frets from time to time. Obviously the necks could be *massively* improved by a proper fret dress, rounding of the fret ends and rolling of the boards - which was outside the remit of what we were doing. I smile when I see them for sale today for significantly more than that of an Affinity Strat...

Anyway, as I keep saying... the Far Eastern factories will build to *ANY* price point. WE dictate the market/quality of them. They could build stuff to rival the best of the well known US mass production factories but nobody would buy them.

impmann

crunchman said:

BRISTOL86 said:

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

Because I won't spend 2 grand on a guitar without trying it first.  I'm not the only one.

They are made of wood, and they vary.  You can get two of the same model with the same CNC cut bodies, the same pickups wound by computer controlled machinery, and they will not sound the same.

Yes.... I accept that.

However, thanks to distance selling rules if you ordered one and didn't like it you can always send it back.

I've not bought a guitar unseen so far that didn't sound like a guitar ;-)

crunchman

BRISTOL86 said:

crunchman said:

BRISTOL86 said:

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

Because I won't spend 2 grand on a guitar without trying it first.  I'm not the only one.

They are made of wood, and they vary.  You can get two of the same model with the same CNC cut bodies, the same pickups wound by computer controlled machinery, and they will not sound the same.

Yea but lots of people obviously will judging by the online guitar market. I wasn’t suggesting it being the only way to buy a guitar, but give consumers the choice.

The article suggests middle man costs are a large part of the high price - so if you can cut that down and get your product out there at a lower price whilst maintaining the same margin, why wouldn’t you? Those who want the ‘middle man’ experience can pay a premium for it.....

If they undercut their dealers, there will be no dealers.  Those of us who want to try a guitar first, will go elsewhere.

jpfamps

BRISTOL86 said:

Whitecat said:

BRISTOL86 said:

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

They are. Fender and Gibson both have online stores now that ship direct. 

But presumably at the same cost as going down to PMT who are making 20%+ on cost price? 

If Gibson or Fender started to sell online at trade you would have utter carnage.

Very few dealers would survive.

BRISTOL86

crunchman said:

BRISTOL86 said:

crunchman said:

BRISTOL86 said:

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

Because I won't spend 2 grand on a guitar without trying it first.  I'm not the only one.

They are made of wood, and they vary.  You can get two of the same model with the same CNC cut bodies, the same pickups wound by computer controlled machinery, and they will not sound the same.

Yea but lots of people obviously will judging by the online guitar market. I wasn’t suggesting it being the only way to buy a guitar, but give consumers the choice.

The article suggests middle man costs are a large part of the high price - so if you can cut that down and get your product out there at a lower price whilst maintaining the same margin, why wouldn’t you? Those who want the ‘middle man’ experience can pay a premium for it.....

If they undercut their dealers, there will be no dealers.  Those of us who want to try a guitar first, will go elsewhere.

Not sure that’s true. I mean there’s already places you can buy a £1k guitar for a couple of hundred quid cheaper than a bricks and mortar store. Yet millions of transactions still happen in music stores. Buying direct online is hardly a new trend. 

Can it be called undercutting when it’s your own product? The manufacturer ultimately sets the price in establishing it’s minimum acceptable margin. Shouldn’t it be a manufacturer led strategy rather than worrying about what your dealers might think?! 

To pose the question another way - and ignoring the actual product for a minute - if you can get your product to your consumers (whatever it is) without the aid of a middle man taking a cut...why wouldn’t you? 

If I could buy a Strat from Fender for £800 or PMT for £1,000 then depending on my needs at the time, I may do one or the other. Consumer choice. Fender get the same amount of profit either way. 

BRISTOL86

jpfamps said:

BRISTOL86 said:

Whitecat said:

BRISTOL86 said:

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

They are. Fender and Gibson both have online stores now that ship direct. 

But presumably at the same cost as going down to PMT who are making 20%+ on cost price? 

If Gibson or Fender started to sell online at trade you would have utter carnage.

Very few dealers would survive.

Yea but that’s what I’m saying - is that necessarily a bad thing? (Taking the emotion of the product in question our of the equation) - we could be talking about any product here. 

The good dealers would survive because there will always be people who want the store experience and on demand knowledge that you should get with a specialist dealer. 

Surely all businesses - if they could - would prefer to get their product to market without the aid of a middle man taking a cut?

impmann

BRISTOL86 said:

Surely all businesses - if they could - would prefer to get their product to market without the aid of a middle man taking a cut?

Actually... probably not. Dealing with the customer is a *LOT* more hard work that dealing with a dealer. Dealers know what they want, know what they are taling about (well, most do - there are exceptions) and are (by and large) no hassle transactions.  Its not the same dealing with musicians.... believe me, I've seen both sides of that fence!!! :-)

Plus, when you sell to a dealer/distributor you sell *quantity* for the same (or less) input as selling a single item to an end user. Much better profit vs time.

BRISTOL86

impmann said:

BRISTOL86 said:

Surely all businesses - if they could - would prefer to get their product to market without the aid of a middle man taking a cut?

Actually... probably not. Dealing with the customer is a *LOT* more hard work that dealing with a dealer. Dealers know what they want, know what they are taling about (well, most do - there are exceptions) and are (by and large) no hassle transactions.  Its not the same dealing with musicians.... believe me, I've seen both sides of that fence!!! :-)

Yep that’s a very good point. 

Three-ColourSunburst

That 'comparative build cost' figure is petty misleading, and it is almost as if has been given pride of place in order to justify the high selling costs of US-made guitars. Perhaps it is not totally misleading in relative terms, but I still think that for there to be such a difference between the cost of US and Chinese manufacture other factors would have to be included, such as economies of scale. The intention seems to be that people will just look at that figure and think that it typically costs $1000 to build a guitar in the US, but this would run counter to what the article says elsewhere.

For example, the claim that $100 dollars in added manufacturing cost equates to about $900 on the price at the dealer is about right, being pretty much in line with a generally accepted rule in manufacturing that unit manufacturing costs should be no more than 10% of an items retail price. This means that a $1000 retail US-made guitar should cost no more than $100 to make, not $1000.

Apart from economies of scale another issue that the build cost figure obscures is that, proportionately, manufacturers charge a much greater premium for prestige models and features, with the retail price of many US made guitars been boosted by 'added value' features that actually cost very little in terms of manufacturing cost. Even the 'made in the US' badge is just such an added value feature for many buyers. Some added value features that command a high price actually cost nothing, or not far off. Just look at how much of a premium a 'long necked tenon' can bring - which is a standard feature on a Harley Benton. Similarly, just look how much of a premium is often charged for a guitar with hide glue and slightly different plastics. It's just the same with other products, from cars to washing machines. Hence the difference in manufacturing cost for a basic model washing machine from a given manufacturer will be hardly any different for one of its feature-packed top-of-the-range ones, but the retail price and profit margin will be very different.

Chinese built guitars generally don't benefit from these 'added value' features (the latest one being those highly priced 'relic' finishes) so their manufacturing cost is likely to be a much greater proportion of their retail price than a US-built guitar, especially one that has a lot of 'added value' features, and the more 'added value' features a manufacturer's marketing team can dream up, the bigger the margin will be. Hence if a US-built guitar retails for $1000 and costs $100 to make, then we might expect a $4000 guitar to cost proportionately less to make, perhaps $300, and that $6000 super-duper genuine copy of an original Gibson with 'hide glue and using the same crappy plastic for the pick up surrounds as the original' proportionately less again, perhaps $350.

The comments about differences in labour costs are also rather misleading, given that Gibson especially is notorious for expecting the maximum amount of work for the minimum amount of pay, whilst Chinese labour costs are rising in line with the increased expected standard of living in China.

stickyfiddle

impmann said:

Anyway, as I keep saying... the Far Eastern factories will build to *ANY* price point. WE dictate the market/quality of them. They could build stuff to rival the best of the well known US mass production factories but nobody would buy them.

To be fair, Gretsch manage it, but they also have no real competitors making what they're making. 

I do agree with whoever said Gibson should consider offshoring the sub-1k stuff. Cut all of those prices by 100 quid, increase margins by 50 quid and move the really good instruments further up market, with an expectation to sell fewer at higher margins. 

Whitecat

BRISTOL86 said:

jpfamps said:

BRISTOL86 said:

Whitecat said:

BRISTOL86 said:

In this day and age, why aren’t major manufacturers selling direct to consumers? It’s obvious that a great number of people buy guitars online, unseen. Why aren’t manufacturers trying to cut the middle man out, at least partially? 

They are. Fender and Gibson both have online stores now that ship direct. 

But presumably at the same cost as going down to PMT who are making 20%+ on cost price? 

If Gibson or Fender started to sell online at trade you would have utter carnage.

Very few dealers would survive.

Yea but that’s what I’m saying - is that necessarily a bad thing? (Taking the emotion of the product in question our of the equation) - we could be talking about any product here. 

The good dealers would survive because there will always be people who want the store experience and on demand knowledge that you should get with a specialist dealer. 

Surely all businesses - if they could - would prefer to get their product to market without the aid of a middle man taking a cut?

At the moment there is no way manufacturers are going to undercut dealers. Dealers would slowly dump the brand and nobody would come on board. One thing that kinda works for Gibson is that they dictate inventory levels and thus have far lower warehousing - they make guitars, they send them out to dealers as part of their dealership agreement, dust hands, repeat. They don't have to hold stock because the dealers agree to buy what they are sent.

The other thing is the support network - this is what manufacturers like about having dealers - they handle a lot of pre-sales and after-sales care (in fact, in Europe, only the dealer has any legal obligations to the consumer - a whole level of liability is shifted). The manufacturers presumably will need to up their customer service game and invest in that if they run with this... I'm sure they can do the volume they are doing now but what if that increased tenfold?

In 5, 10 or 20 years? Who knows. Dealers may only exist as "showrooms" where you go try something, then go to the website, order it, tell the manufacturer where you tried it and dealers gets commission based on that. They only have to stock one of every current product, then they can sell them off at half price every year when the new ones land. 

The nukes may land well before than anyway, so nbd...

guitars4you

If you look at the Apple model of effectively selling direct, either in store or via mail order, then their prices are the same as buying the same item from another outlet - ie Apple control the pricing but they don't undercut the trading partners

Granted an in store Apple showroom has far greater overheads - but if Apple sell a  product at £1000 direct to the consumer, then their margin is higher than selling the same item at cost price to a dealer/other retail outlet - Therefore if Fender/Gibson adapted a similar policy then no reason to say prices would fall, the supplier/manufacture just increases their margin

Granted there are a few exceptions (Martin, Mesa Boogie are 2 examples) many major guitar brands/products are now sold into EU/UK via their own distribution outlets - PRS, Gibson, Fender, Boss, Roland, Yamaha etc etc - So other than admin costs of running a unit in the EU/UK, there is no 3rd party costs involved regarding an independent distributor who has to make a profit as well as paying operating costs - ie PRS UK/EU is now the same as PRS USA

impmann

There is a school of thought that goes like this...

• If all the manufacturers sold direct through online sales the stores would revolt and stop selling them.
• HOWEVER, what are they going to replace those guitars with?
• As he-who-can't-be-named in Warwickshire has proved there are other brands that provide similar products but 1) they aren't as desireable because 2) guitarists, by and large, want to buy the guitars played by their heroes and 3) there are concerns about the resale values because of 1 & 2. So its a limited market and its not an easy ride.
• So what happens?
• Consumers vote with their feet.
• Grudgingly they buy direct. They (or their friends) have a reasonable experience with it and pass that experience onto others. Momentum grows.
• Shops struggle. They've invested in these 'other brands' that will play the old-skool game but fewer people are buying these as previously found with the "big US brands".
• The manufacturers realise that they can sell *less* product and make *more* money - if they are very smart they employ 3rd party solutions to fulfill the orders so their only overheads are warehousing and 3rd party costs (which will always be lower than the store's margins... they just are). Plus in the US, they are no longer beholdent to a big chain who dictate pricing, availability and products... meaning they can be more agile and launch product that guitarists/musicians want, rather than twats in suits who know bugger all... (final part is a direct quote from someone within the industry).
• The stores that have over extended themselves will then fold - some *big* scalps there.
• The customer experience is actually *better* as the feedback goes direct to the manufacturer and if this isn't acted on, sales suffer - there's no 'buffer' where the manufacturer can dump stock into stores' warehouses to free up cash flow...

I'm not saying this will definitely happen but we are already seeing the seeds of this being sown.