|1. Foreword||2. Property||3. Manufacturing||4. Electronics||5. Versioning||6. Marketing||7. Distribution||8. Support|
Distribution is a key domain for any economic activity. It is the critical link between the manufacturer and the customer. You can build the best effects, design the best amps, creat the best guitars: if your products are not available when and where someone wants to buy them, you'd better stay home and just do nothing.
Supply-Chain is also the fastest way to wreck a national economy. If you optimize a transportation scheme, and discover that shipping goods by sea from China to Europe costs less than the labour cost difference between your country and Asia, you will soon decide to close your factory and de-localize your production. In the beginning, you optimize to make more money. In the end, you fight to save your own business and most of all, the jobs of the people who depend on you.
If some of you wonder who I am, I have worked during 15 years in the supply-chain domain (after a few years as an electronics engineer), and I am considered as an international expert of these topics. I have understood now the worldwide consequences of these approaches, and I can tell you that I'm not proud of some of the projects I have led. I have quit this job, and sincerely hope I will never do it again - or at least, not that way.
I will not develop here the complete supply-chain of SR&D - because I have no information about the upper part of it. But there are a few things that can be said, and most of all, a few general information that may help you understand what there is between a gear manufacturer and you - the customer.
There are two main distribution schemes in the guitar gear industry: direct sales to authorized retailers, or sales to wholesalers who in their turn sell to the retailers. The distribution scheme has a huge impact on the final retail price, or, from the manufacturer’s point of view, on the manufacturing costs constraints.
To make it simple, a distribution company (wholesaler or retailer) is obliged to apply a mark-up coefficient. This coefficient being always around 2 (it can be 1.8, it can be 2.3, etc…), on an average basis, the global coefficient between the manufacturer’s price (to a wholesaler) and the final retail price is in the range of 4.
Suppose that you want to build a pedal that has an accepted price of $200. If you want to go into the wholesalers’ scheme, your production cost must not exceed $50.
Remember that $50 must cover the R&D costs, the administrative costs of your company, the marketing and commercial costs, and the taxes that your government will probably ask you to pay. You must also pay your employees, the suppliers who provide you with the materials and components you need, your subcontractors, and you must pay the banks for the money they have lent you when you had machines to buy. You have also some real estate costs: you just cannot work in a public park!
With a little luck, you will get a small $2 margin on each pedal you build: that’s important for your banker, even if the government will grab most if these $2. No, building pedals will never make you rich, unless you sell them by millions.
You can imagine how difficult it is to use the wholesalers system when you are a small company: reducing the global cost of a pedal to $50 is almost impossible. All in all, only the larger manufacturers can really make an extensive use of this distribution network.
A small manufacturer will of course prefer to trade directly with the retailers, knowing it’s of course time consuming to manage commercial relationships with tenths of retailers, as opposed to selling to 4 or 5 wholesalers. But all in all, if he sells directly to the retailers, a small manufacturer can have higher manufacturing costs (let’s say $100) and the final retail price will still be in the market’s accepted price (let’s say $200).
There is today a new fact that causes a lot of troubles to the retailers: imagine a wholesaler that buys your pedals for $50 each, while the retail price is $200. Imagine that this wholesaler creates a web-based sales channel.
On this website, you can reach the end-users and sell the pedals at, let’s say, $110, while the retailers sell them $200. The retailer can of course optimize his costs, offer rebates to his customers and claim loud and clear that he can provide a better service to his customers. Let’s say he can go down to $170: the end-user has now the choice between buying from the web at $110, and buying from his music store at $170.
Fine, you may appreciate this new system where everything is cheaper: buy from the web, manufacture in China, etc… etc…
The problem is that when there were, for example 500 stores in 50 states, these stores employed at least 500 people. A wholesaler can run an e-commerce activity with, let’s say 15 people who can sell worldwide. Out of the 500 initial stores, 100 at least will be obliged to close, thus leaving at least 100 persons without a job. 15 versus 100: what a wonderful world…
Internet. OK, you can decide to sell yourself on the web. But you cannot sell the same item $50 on the web and $50 to a distributor who has to sell it $100! So you must make a choice: either you sell only to distributors, to get more customers. Either you sell only on the web... at your own risk!
Back to SR&D: SR&D certainly used the direct distribution scheme, at least within the US. The export sales were handled by local distributors:
As for the prices: a direct distribution scheme allows retail prices that are, approximately, only the double of the manufacturer’s sales price. On this basis, one can make a coarse estimate of SR&D’s turnover: 1 to 2 millions dollars per year.
The export retail prices were of course higher - the importator is a wholesaler. I have a few comparison points with UK prices, showing that an item that was sold $100 in the US was sold £100 in the UK.
That was only 75% higher, an excellent compromise when you know that the prices could have been doubled. The X100 - sold $350 in the US - was sold only $265 in the UK: that was, after all, cheap.
A carton box is a carton box, isn’t it? Let’s see what we can say about them.
Then the headphone amps were gifted with an elegant black, shiny hard carton box, with colors matching the product: black and blue for the Rockman & X100 series, and also for the Soloist (the box was yet simpler, to match the economic aspect of the product). The box was of course black and gold for the Bass Rockman. The internal flocked plastic shape was designed to hold the headphone amp itself, its battery cover and, of course, the folding headphone set.
The economic Ace series were first sold in a smaller black and blue carton box, with the same look as the other headphone amps. This carton box was later replaced by a transparent plastic blister.
Copyright Rockman.fr 2008