Is Outlaw More Efficient than the Big Vendors?

Discussion in 'Archived Threads 2001-2004' started by Lorne, Mar 5, 2002.

  1. Lorne

    Lorne Agent

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    I'm beginning to wonder about the cost savings of Outlaw's Internet business model. Sure, they can pass savings along to the consumer because there is no middleman to mark up their selling price, but there's an offsetting factor to be considered -- economies of scale. Now I concede I have no hard data but I imagine that Onkyo, Denon and the rest build on such a big enough scale that they are buying components in far larger quantities than I imagine is Outlaw. Therefore, can't the big firms demand greater discounts on hardware? Because of their large production runs, can't the bigger companies conceivably afford larger and more efficient production lines which might not be feasible for Outlaw. Aren't these savings, not available to Outlaw, passed along to us as well?
    Now I say all this while waiting for my recently ordered "B" stock Outlaw 1050 receiver, purchased in large part, but not totally because of reviews I read here, and I'm pretty excited about getting it and in no way is that enthusiasm curbed by what I just wrote, but I'm just academically curious about whether or not an Internet company with small production runs can really undercut the big vendors on price and exceed them on quality.
    Thoughts?
     
  2. Bob-N

    Bob-N Supporting Actor

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    One item to note regarding the 950 scenario. Outlaw has entered into an agreement with their manufacturer, Eastech, to decrease the manufacturing costs for the 950.

    If you weren't aware, there are two 950 clones to be introduced in the near future, Atlantic Tech and Sherbourn. I can't remember the p/n's but it has been confirmed prior to the "crash" that those clones are pretty much identical to the 950 based on the units seen at CES 2002.

    We also heard that there are going to be other clones to be made with other companies so Eastech is getting a cut of these rebadged/repackaged pre/pros in exchange for lower mfg costs for the 950.

    So IMHO, there is where your cost savings is coming from in the 950's case in lieu of quantity (I guess you could consider that cloning the 950 will increase quantities). Although I do agree with you, generally speaking, that quantity purchasing is the other way to decrease cost when it comes down to big companies like Denon and Onkyo.
     
  3. MatthewJ S

    MatthewJ S Supporting Actor

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    We'll see as soon as there are any out in general use in any real quanity and as soon as the Eastech clones(and others) respond on the scene...direct-to-consumer savings aren't always factoring in the "economy of scale" variable.
     
  4. JackS

    JackS Supporting Actor

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    Who knows? A large company can afford an occasional dud or a product that does not meeet the expectations of consumers and still survive. A smaller company like the Outlaws are are much more dependent on acceptance of a small line of products, and the quality of those products. The advantage of patronizing a small company should be, and no doubt is,a more personal interest in the satisfaction of all their customers, and a more consistant degree of quality. If I had a product and a problem, I'd much rather real with Outlaw than one of the mega-corps.
     
  5. BruceD

    BruceD Screenwriter

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    I think you would be surprised at the cost of doing business in the "channel" or dealer network. I know in the Ethernet network hardware market I've been in for the last 15 years, it was standard practice to sell to the dealer network at 50% off List and still make 42% gross margin on the sale to the dealer network. What the dealer network now charges to the end-user (as high as list) is up to them.

    Both methods, Internet Direct and Channel, have their own financial models and are almost impossible to compare.

    But I also agree that doing business with a smaller, more customer focused manufacturer can actually be more pleasurable. Especially if they can design and produce a product that lives up to it's billing.
     
  6. Bill Turetsky

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    The question about 'costs' is certainly relevant.

    But what may not immediately come to mind is that the Outlaw 'direct' form of marketing allows for an entirrely different kind of freedom and creativity in product design than the 'dealer' model.

    This 'independence' is even more pertinent in the arena where one is after high quality audio reproduction.

    If one is working in the price region where Outlaw is, the types of dealers (both corporate and actual floor people) are very much in the 'button and light' show. (and phony 'power wars' - I love it when the Short-Circuit City salesman claims the receiver is 5 x 100W and the UL sticker on the back shows the unit draws max 125 watts!)

    It would be pretty much commercially impossible to do the Outlaw philosophy and get a place on the order sheets of the usual dealers - it just takes too much work and risk and whatever to get an off-the-street-customer turned to Outlaw based on 'audio quality' - unfortunately that is just not how that world works.

    Sales happen with Sunday full-page specials (so-called), front panel 'espresso' buttons, lights showing the dog needs walking, etc. And dealers in these price ranges WANT these things because they are the easiest types of sales! And they can change 'girlfriends' every month according to who has the 'niftiest' buttons and/or lights.

    So in actual fact it is really not what you pay - but what you get!! If you pay $700 for an Outlaw and want the 'audio first' principle in place, you have a damn good chance that the $700 Outlaw will be a better buy than the $700 Technosuper - note: SAME price.

    If the Outlaw system of cutting out one-margin and direct sale model ALSO creates some dollar savings (the posts here correctly point out that that does not have to be an absolute given), so much the better.

    OK - you say - Outlaw wants to approach a different market - so why not go to the 'salon' dealers. Sorry - no dice - the Outlaw price philosophy just doesn't work with these guys - it may sound crazy but these guys WANT high prices - and it doesn't take you more than a second to work that one out.

    So those that want an 'audio first' approach can understand that the Outlaw direct-sale model is exactly what the doctor ordered.

    As this analysis and thread goes on - please keep in mind WHAT you are buying - and what you are getting an OPPORTUNITY to buy - not only HOW MUCH you are spending.
     
  7. Hank Frankenberg

    Hank Frankenberg Cinematographer

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    Bill: excellent description of the retail Hi-Fi world! What folks should also understand is that a large percentage of electronics manufacturing is "outsourced" to the many (some are HUGE) Contract Electronics Manufacturers, ala the Outlaw/Eastech situation. Those CEM's have the big purchasing power leverage. Many of the components in electronics are the same (resistors, capacitors, inductors, LED's, sockets, connectors, switches, relays, volume controls, jacks, transformers, wires, etc,etc. So those are all bought by the CEM's by the millions of pieces. The few custom, high-dollare IC's and chassis/faceplates are the items that vary in cost according to production volume. So, if you're small and order 5,000 pre/pros in a year, and a "big" guy orders 50,000 of his model and the bill of materials contains about the same mix of parts per unit, the big guy may pay 20% less for his parts. But the parts cost may be $200 for him and $270 for you. [BTW, I'm ignorint the CEM's labor charge difference in this parts cost discussion.] That cost differene is extremely small, compared to the distributor and dealer markups involved in the big guy's supply chain, which will turn the $200 parts cost into an $1000 MSRP selling price off the shelf, whereas the small guy could multiply his parts cost by three and sell internet direct, making a good profit.
     
  8. MatthewJ S

    MatthewJ S Supporting Actor

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    Maybe those #'s are correct but we'll never know for sure...and the labor costs and discounts given to lg quantity orders may further offset the pricing...plus we have to understand that some of the bigger mnfgrs may do much of their own electronic parts purchasing and their own assembly thus iliminating a layer of mark-up in their model! Too many variables to make the (often presumed) assumptions that one way is INHERENTLY less expensive to we the consumer
     
  9. Richard Powers

    Richard Powers Auditioning

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    Another thing to remember is overhead! Outlaw is a small outfit(for now)so its gross margins don't have to cover as much SG&A(Selling,General,& Administrative)as the bigger firms. Companies get bloated as they get bigger which offsets some of the economies of scale they gain on part buys. Lets hope that Outlaw remains a Lean, Mean, FIGHTING MACHINE! (ok, I ripped of Stripes)
     
  10. Rusty J.

    Rusty J. Agent

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  11. Brian Corr

    Brian Corr Supporting Actor

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    I have no doubt that a company like Denon could make a pre/pro to compete with the 950 at the same price point. Who knows their reasoning for not doing it.

    Also, my take is that the 950 is basically being sold at what would be dealer cost if it were sold to retailers.

    Take the AT clone which is going to list at $1699. If a dealer gets 40% off, his cost is $1019.40. Pretty close to the 950.
     
  12. Bill Turetsky

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    Per Brian:

     
  13. BruceD

    BruceD Screenwriter

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    Mathew,

    I must say, having also been part of a Contract Electronics Manufacturer, the following statement is basically false. Many of these same large manufactureres also use the contract manufacturers for their product assembly.

     
  14. Bill Turetsky

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    I would like to remove any implications that B&M dealers and floor people are DELIBERATELY hood-winking anyone.

    It is really more a question of fairly low salaries (though 'commissions' can get significant if used) and thus associated limited knowledge, corporate policies of 'chains' and requisites of particular model turnover.

    And then - the 'factories' - they truly load and deliver container-loads and 'features' have to be ones that 'sell at first sight.'

    All audio people - even semi-serious - know that a lot of time, effort and knowledge needs to go into showing the consumer that equipment is indeed faithful to the original recording (and they should even take the time how good equipment will reveal a POOR recording!). It's clear this is not economically possible at Short-Circuit City or CBA or Better Buy outlets.

    That process needs $$$ to run - and the result is we get prices for 'exclusive' equipment and also a salesperson that at least at first blush seems to know something.

    So there we are - in a buying system that really dictates one or two zero's are added to prices and our 'budgets.' And we unfortunately get a very dangerous situation where too often a high price becomes synonymous with quality - the cart before the horse!

    And I am sure almost all the people in that 'hi-end' area believe they are being objective, fair, ethical etc.

    But we as the consumer have lost the opportunity to put our limited money into excellent sound - not the fast sell.

    Thus the Outlaw approach via the net - and as I've tried to emphasize, it is the KIND of product that this approach gives the light of day to - and NOT just some margin that can possibly be cut out.

    Apologies for any re-hash, but I felt that maybe I had drawn up a case against B&M poeple that was indicting them of some intentional evil.
     
  15. MatthewJ S

    MatthewJ S Supporting Actor

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    ALL GREAT ARGUEMENTS!!!

    VERY INTELLIGENT DISCUSSION.

    I have been writing up a list of internet direct marketer vs. the evil YAMSONYNON big mnfgr. as far as whom we would think had the advantage in the differant pieces of the "who could do the same product for less" puzzle;

    talked to friends in marketing and manufacturing, and WHEW the variables! So many layers ...

    I had a friend who worked for a speaker company (or three)who said that while one company he worked for made a very large # of the components themselves,so as to have better Q.C. and not to pay for another company's profit taking...The second purchased most if not all the components from other companies ,so as not to have to cover the associated costs of operating such a large manufacturing facility...The third never even touched their product, electing to even bid out even the final assembly of others parts to differant cabinet manufacturers, never having to actually touch anything themselves..
     

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