Pricing focus grouping - my thoughts and your views needed

dougk

b00b
Hey MWF,

So last friday I spent the day with Bob Taylor which was just a tremendous experience over all. You can actually read a brief synopsis here. It's an impressive place and I know Taylor tone can be decisive amongst acoustic diehards but I have a 710CE I worked 2 summers to buy as a teenager and it's still the only "expensive" guitar I own.

The thing is, you can't really fault Taylor as a company even if they aren't your favorite. They've done nothing but continue to build a better and better product since day 1.

BUT- in the discussions the GS Mini came up A LOT. It's Taylor's best seller (much to their surprise actually) and they crank out a bunch of them in their plant in Mexico. The thing is, for my end of the business everyone complains about price. I get it, I feel guilty sometimes charging what we do but then I remind myself that my annual 'income' is less than 10k a year. (seriously.) It's not like I'm driving a ferrari to work. I'm not complaining (lets not turn it into that) but it just breaks down to a simple formula:

* our guitars are expensive because while I do have a large shop with a fair amount of automation compared to most companies my size, we use expensive parts, finishes, cases, have STEEP overhead (thanks California) and our biggest restriction to production is labor and working capital. (and sales) *

But Ben, my assembly guy has been hammering on how do we build a "guitar for the masses" priced between 999-1400. We've been chasing this thought experiment down for the last few months and my time at Taylor opened my eyes to a few things.

For starters, they didn't have a "cheap" guitar for a long time. It takes a lot of working capital and human capital to truly mass produce something. We don't have human capital right now and there is certainly a tipping point where every employee I add means more payroll, taxes, unemployment and insurance I have to cover. It's very hard to add these to build only a slight bump in production. (chicken and the egg dilemma). Also, you have to be at a certain point in your company's life to offer an entry level guitar without shooting yourself in the foot. ("Why would I pay 3850 for a Starliner when I get something sorta resembling one for 999?")

So let us pursue the typical avenues of approaching a truly mass produced "cheap" guitar:

1. You go overseas. This is obviously the normal response to this situation. The upside is the guitars are CHEAP. The downside, the guitars are CHEAP. Not always but we know what a chinese guitar is quality wise.

So you do the reverend model and you go Korean but setup in America. This works well but you have to shell out for a bunch of volume, find the sales to go with it and you're locked into fairly rigid what you can make (ie: if you have to buy 1000 or 5000 of them at a time, it's hard to be flexible in design)

Also, you get into being a 1000 dollar Korean version of what you already make, it's very hard to sell it (see: Suhr's attempt at this)

2. You hire up a ton of staff and automate. Upside: I have the space to do this and my CNC really does quickly out pace me. The downside: It's very expensive, you need dedicated staff to teach, run, train ect. You can easily eat into the time you have for your expensive / mainstay brand. (why GS Mini / 1 series / Baby Taylors are made in Mexico, not the US). For me, we can crank out flat top, bolt on bodies on the CNC quickly but gluing up material, grading it, storing it ect is very time consuming.

3. You sub out. Right now besides pickups and hardware, every Kauer is made in house. I'm there from initial wood selection for all the pieces, did all the machine programming, painting, right thru assembly. There's only 3 of us, we're all involved in the entire process to some extent. This is both part of Kauer's expense and it's production limitation. (see option 2).

BUT- we could take on production right now by subbing out a portion of a new model. Arcturus is a prime example. We can build an Arcturus in about 50-75% of the time of the most basic set neck model. Frankly, the body for Arcturus or a Daylighter Express both run in about the same amount of time, pretty quick. It's the neck that gets you. There are lots of steps involved (Arcturus being about half- but still 3-6 hours of hands on work) and it's the most time consuming part of the process (besides paint).

So if we subbed our necks out for a new budget model, this would probably work very well for us as a stop gap. Eventually we'd like to be at option 2 (all in house) but it's something that for a reasonably mild expense we gain a lot of our time back per / guitar. (If it takes us 5-6 hours to build an Arcturus neck, at a shop rate of 125 an hour, buying a US made mass production neck for ~150 dollars makes a lot of sense).

Same goes for bodies. Maybe it's worth subbing that out too. I mean, to actually machine the body only takes 8-15 minutes (if we design it to be very simple, all 1 side only routing: think telecaster). But the blank glue ups requiring grading, rough plane, straight line, edge plain, glue up, final plane / thickness sand. This is why I stopped selling S/T bodies years ago, there is just way too much time in the work to get a piece of wood READY to be a body, then making the body itself for the money. Again, maybe subbing out our design and letting another US company crank these out at 150 bucks a body is worth it.

edit: I'm not new to subbing out. A company I owned for a while was 100% subbed out for building, painting and assembling. It's a viable system.

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So that's a look at this challenge from the production end. Now lets look at it from the other end, hardware.

On a budget model (again, budget for us is a US made guitar that's anywhere from 999-1400) we just can't do the best hardware, case, pickups ect. Pickups and a Mono case alone make up 50% of the total hardware expense on anything we make (or more). So we're not going to see Lollars or TV Jones on this model or a Mono bag.

That doesn't mean GFS either though. I'm stubborn, we're trying to see if we can do something in the lower end Duncan or Duncan Designed line that would work. Hardware would be Gotoh where we can and still hopefully CTS pots and a quality switch. No Sperzel locking tuners, electrosockets ect.

Finish will be satin finish body, oil finish neck. No way we can even remotely touch a gloss finish in that price range, even if we sub it out. I don't think we could do gloss (subbed out) for less than a 1600 dollar guitar. Colors will be limited to 2-3 colors per year and you can't custom order, if we do this we're only going to build them and put them on the website for sale. There might be 2 or 3 different pick up layouts but again, it's strictly limited to whats available on the website right that moment.

You're not going to have "options": Besides not taking custom orders, it'll have the same neck carve, same body, same wood, same bridge, mostly same (if not same) pickups ect. Again, this is a lot of the expensive of Kauer (I can't even tell you how many 70 dollar cans of paint we have to paint ONE customers request). We probably won't even build the bodies in Alder / Spanish Cedar but likely Basswood.

But then we boil it down, is a 1200 dollar, american made (but not entirely in house) guitar that is satin finished and assembled by the same people who build Kauer's something appealing? Is it too expensive to be a "affordable" guitar, or too cheap to be a appealing guitar. What are you willing to trade off for a guitar at that price point? Pickups, case, hardware, ect. Do you even care if it's a US made guitar?

Because believe me, we've been trying to come at this from every angle for years. I'm genuinely curious what people think.

fake edit:// amendment: if we do this it will not be based on anything we currently make. It may have some contributions from our current Kauer line up but it will be it's own shape and will not be available as a Kauer (or vice versa). It'll probably be under it's own brand name too (something something guitars "built by Kauer Guitars" or whatever)
 
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Doug, this discussion is right in my wheelhouse. I'm looking to buy something next year, after I sell a bunch of stuff to pay for it. It'll be my 25th anniversary of playing guitar, and I'd like to get something. But I just can't afford a Kauer or Suhr like I want. Instead, I've been looking at the PRS S2 Singlecut and Godin Core CT.

I finally got to play the Godin yesterday, and it's everything I'm looking for. I don't care that it only comes in two colors. I dig the black top and don't like figured maple anyway. The body is Spanish Cedar and the neck is mahogany. Back and neck are satin, like many Godins. The top is gloss. I think it plays great, but the pickups were meh. So I build in the cost of pickups to a new guitar, and I'll probably get Dimarzio PAFs. All told, if I buy new (and make some minor plastic & switching changes), I'm looking at up to $1100.

If you can compete with the Godin, I think you've got a chance. I've played a bunch of guitars in the $500 - $1500 range while looking. Most I can't believe they're asking so much for. Most imports were awful. The S2's have felt good, but I've not been a fan of the hardware or pickups (I can live with a pickup change, hardware & pickups is a bit much for me). The Godin really seems to be it for a North American guitar under $1000, in the world outside of Gibson & Fender. Above $1000, there's also G&L.

I think the main problem here is that a small shop just can't compete without the major distribution networks those brands have. John Suhr found that out a few years ago with the Rasmus line. Fortunately, it didn't put him under. He was also a larger shop than you.

So my question is, in a shrinking market with tightening distribution lines requiring significantly more output than you can stand; is this the avenue you want to go down? Because if you do, you have my full support. And if you can compete with that Godin, you've got my dollars.
 
I think the main problem here is that a small shop just can't compete without the major distribution networks those brands have. John Suhr found that out a few years ago with the Rasmus line. Fortunately, it didn't put him under. He was also a larger shop than you.

So my question is, in a shrinking market with tightening distribution lines requiring significantly more output than you can stand; is this the avenue you want to go down? Because if you do, you have my full support. And if you can compete with that Godin, you've got my dollars.

Godin is a hell of an example. They are building immensely great guitars for way to cheap IMO. Their main problem is they didn't capture the high end market first maybe.

But you're right, Suhr's problem IMO is two fold:

1. They brought in an import version of a guitar they already make, in a market that is already filled with inexpensive super strats that wasn't substantially cheaper than what they make in the US.
2. Because they went overseas, they locked into a rigid, inflexible volume. They had to buy a LOT of guitars that turned out, no one really wanted.

I agree, this is something you think you'll need dealers for but I'm not entirely convinced that dealer networks isn't a dying medium somewhat. Not that I'm throwing dealers under the bus here, we'd love to be in a position where we were selling to dealers but I think a 1200 dollar "kauer" is something people will be reasonably willing to roll the dice on a direct purchase. They already buy 3850 dollar Kauer's sight unseen.
 
I can tell you right now, if you offered a guitar in that price range, I would buy one. I love all the guitars you make, but with 2 kids getting close to middle school and living in the DC area, there is no way I could buy one of your guitars in the near future. Around 1k, I could do.
 
Godin is a hell of an example. They are building immensely great guitars for way to cheap IMO. Their main problem is they didn't capture the high end market first maybe.

But you're right, Suhr's problem IMO is two fold:

1. They brought in an import version of a guitar they already make, in a market that is already filled with inexpensive super strats that wasn't substantially cheaper than what they make in the US.
2. Because they went overseas, they locked into a rigid, inflexible volume. They had to buy a LOT of guitars that turned out, no one really wanted.

I agree, this is something you think you'll need dealers for but I'm not entirely convinced that dealer networks isn't a dying medium somewhat. Not that I'm throwing dealers under the bus here, we'd love to be in a position where we were selling to dealers but I think a 1200 dollar "kauer" is something people will be reasonably willing to roll the dice on a direct purchase. They already buy 3850 dollar Kauer's sight unseen.

Something else to ponder, and you've said this before, so I know you know this.

I have $1000 to spend. I'm going to squeeze every last bit of quality out of those dollars. And I'm going to be a PITA buyer. The guy spending $4000 sight unseen is a much easier sale. He'll spend that on a whim and when his taste changes, sell on TGP for $1500 (slowly marking down, but still).

So now you're competing against yourself. If I can be patient and double my budget, even if that takes an extra year, I can buy a used, real handmade Kauer for $1500 - $2000. Or, I can wait until somebody takes the chance on your $1000 - $1500 guitar and buy it for $500 used because nobody knows what it is. That won't matter to Godin when I do it to them, but it'll matter to you, because you're a much smaller operation.

Personally, I think you need to get your wonderful instruments into the high profile dealers TGP favors. But if you build a budget line, Chad and I will save for it.
 
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How about a combo of 1 and 3. Think Reverend w/o the distributors?

Sub out to Korea for necks that can be bought in bulk and maybe a new shape for finished bodies as their own model. 2-3 colors only.
Also, bring on DiMarzio/Duncan pickups on pickguard mounts with Gotoh hardware.
Keep the swimming pool route and keep the direct sales model. I agree that distributors are going away.

Then do assembly and set up in CA as orders come in.
No hand sanding in the US on this model, necks and bodies are finished in Korea.
Pickguards are wired in Korea, you just mount them?
 
Something else to ponder, and you've said this before, so I know you know this.

I have $1000 to spend. I'm going to squeeze every last bit of quality out of those dollars. And I'm going to be a PITA buyer. The guy spending $4000 sight unseen is a much easier sale. He'll spend that on a whim and when his taste changes, sell on TGP for $1500 (slowly marking down, but still).

So now you're competing against yourself. If I can be patient and double my budget, even if that takes an extra year, I can buy a used, real handmade Kauer for $1500 - $2000. Or, I can wait until somebody takes the chance on your $1000 - $1500 guitar and buy it for $500 used because nobody knows what it is. That won't matter to Godin when I do it to them, but it'll matter to you, because you're a much smaller operation.

Personally, I think you need to get your wonderful instruments into the high profile dealers TGP favors. But if you build a budget line, Chad and I will save for it.

That's absolutely true. It's why IF we go down this road, it'll be a shape and model you can not get from Kauer. I did have this problem with Daylighter JR at 1950. We sold a bunch of them, they were supposed to be satin finish, no grain filler ect ect. They all became gloss finish. We lost money on each one. Eventually they started popping up used for 900 bucks and it basically killed Kauer for a while. It's 99% of why we discontinued it.

But at the same time, it could potentially be a good stepping stone into Kauer. Also, we have a LOT more presence now than when I did the JR's years ago so maybe it might work now.

Course, then we are squarely in the same market as low priced US or MIM fenders. That's tough place to be.

How about a combo of 1 and 3. Think Reverend w/o the distributors?

Sub out to Korea for necks that can be bought in bulk and maybe a new shape for finished bodies as their own model. 2-3 colors only.
Also, bring on DiMarzio/Duncan pickups on pickguard mounts with Gotoh hardware.
Keep the swimming pool route and keep the direct sales model. I agree that distributors are going away.

Then do assembly and set up in CA as orders come in.
No hand sanding in the US on this model, necks and bodies are finished in Korea.
Pickguards are wired in Korea, you just mount them?

This is kind of the idea except when you go the Korean route you are married to LOTs (thousands potentially) of bodies and necks. This is why I'd rather keep it in the US so we can keep it fairly lean and adaptable. I'm totally ok with if there isn't any inventory for 2-4 weeks at a time sometimes. I'd rather error to the side of demand outpacing production than having a fortune tied up in inventory I can't change or dump.

So I guess the real question is would a:

*Kauer Designed original model made in the US and assembled by Kauer Guitars
*Loaded with lower end Duncans (or comparable)
*Ships in a Gator bag
*Priced around 1200
*2-3 colors, 2-3 pickup layouts over a bathtub rout (we will probably offer loaded pickguards as an option)

be of interest?

(again, this is more just my own mental gymnastics. I'm not sure if this is something I'm ever going to do but it's a fun exercise to see if I can).
 
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So I guess the real question is would a:
*Kauer Designed original model made in the US and assembled by Kauer Guitars
*Loaded with lower end Duncans (or comparable)
*Ships in a Gator bag
*Priced around 1200
*2-3 colors, 2-3 pickup layouts over a bathtub rout (we will probably offer loaded pickguards as an option)

be of interest?

In theory, yes. But I would want actual Duncans or Dimarzios, not import stuff. I can get them in EBMM, Ibanez, Jackson, LTD, Yamaha, and other guitars at that price. I would expect them in anything "unknown" as well.
 
In theory, yes. But I would want actual Duncans or Dimarzios, not import stuff. I can get them in EBMM, Ibanez, Jackson, LTD, Yamaha, and other guitars at that price. I would expect them in anything "unknown" as well.

Except they can get everything at a much lower price than I can. So then it becomes the battle of is another 50-100 on the price ok if the pickups are actual Duncan's. Who knows it may not be an issue at all.
 
Except they can get everything at a much lower price than I can. So then it becomes the battle of is another 50-100 on the price ok if the pickups are actual Duncan's. Who knows it may not be an issue at all.

Yes, they can. But that's why it's a competitive market.
 
Doug, is it feasible to sub out the making of the body blank? Even at full retail, a glued up planed mahogany, alder, or ash blank can be found in the 60-90 range which is less than 1 hour of labor at your shop. If you partnered up with someone like USA customs or Warmoth, I'm sure you could get a dozen blanks at a nice price and they'd be ready to go.

Quite honestly, a satin finished Arcturus with an oil neck in the $1600 range would be right in my (and many other gigging musician's) wheelhouse.
 
Personally, I think the smarter move would be up market and not down.

I agree with EG. Go downmarket and you end up competing with all the used gear on Reverb. And the supply of used guitars is never going to run out, not even if Matt Bellamy goes solo. To me it makes more sense to go after the luxury market, because people who are just spending for the sake of spending probably don’t even look at the used market. Your high-end guitars look just as good as anything Gil Yaron, PRS, and Alembic are selling—you just need to convince the blues laywers.
 
Doug, is it feasible to sub out the making of the body blank? Even at full retail, a glued up planed mahogany, alder, or ash blank can be found in the 60-90 range which is less than 1 hour of labor at your shop. If you partnered up with someone like USA customs or Warmoth, I'm sure you could get a dozen blanks at a nice price and they'd be ready to go.

Quite honestly, a satin finished Arcturus with an oil neck in the $1600 range would be right in my (and many other gigging musician's) wheelhouse.

Absolutely, I've been thinking the same thing. If I could get blanks ready to rock on the CNC for 30-50 bucks I'd be more than happy to go that way.

Just to be clear, it wouldn't be Arcturus. I'd be a new bolt on model.

Personally, I think the smarter move would be up market and not down.

Agreed, Kauer will only go up market. This would be a different brand, something that if at the worst fails, we just shut it down. (Hence the main reason I don't want to go oversea's. If we only sell 20, we sell 20. If we sell 200 and it peters out that's fine too.)
 
Frankly at that price point I'd rather buy the Reverend for $300-500 less. It's a cool idea, but if you're staying a smaller shop and by your own admission offering options will be unrealistic, if not impossible, I really don't see the point of diluting what Kauer does. If you could go back to the Dayligher Jr. or Arcturus idea of having an entry level model (maybe even completely slab style, no contour) in whichever colour is cheapest to produce and an option of maple or rosewood boards, that would be cool and something slightly more tempting to someone like me. But like you and I have discussed before, I'm not spending a lot on electric instruments period, no matter how much I love your guitars (and trust me, I really do.)
 
Frankly at that price point I'd rather buy the Reverend for $300-500 less. It's a cool idea, but if you're staying a smaller shop and by your own admission offering options will be unrealistic, if not impossible, I really don't see the point of diluting what Kauer does. If you could go back to the Dayligher Jr. or Arcturus idea of having an entry level model (maybe even completely slab style, no contour) in whichever colour is cheapest to produce and an option of maple or rosewood boards, that would be cool and something slightly more tempting to someone like me. But like you and I have discussed before, I'm not spending a lot on electric instruments period, no matter how much I love your guitars (and trust me, I really do.)

This will never be available from me for less than 2500 if even that. Right now Arcturus starts at 2500 but everyone orders the Mastery version so really the cheapest guitar we sell is 2900.

But Reverend doesn't really offer options either. Just a variety of models in set finishes and pickup choices.
 
Agreed, Kauer will only go up market. This would be a different brand, something that if at the worst fails, we just shut it down. (Hence the main reason I don't want to go oversea's. If we only sell 20, we sell 20. If we sell 200 and it peters out that's fine too.)

That makes sense.

Have you looked into PLEK finishing to save money? It might be less expensive than manual work if you can find a shop that will give you a break for doing twenty guitars at once instead of spending $250,000 on a PLEK machine. If you can work it into a reasonably priced guitar that could be a good selling point, assuming those clods in Nashville haven’t killed PLEK’s reputation.
 
So I guess the real question is would a:

*Kauer Designed original model made in the US and assembled by Kauer Guitars
Maybe...but at this point it sound like you're removing everything of what makes a Kauer an aspirational guitar except you have something to do with it. I'd echo Howie's point in that you're going against quite a bit competition in this price range and you're going to compete dollar for dollar on how good it stacks up.

*Loaded with lower end Duncans (or comparable)
No Dice

*Ships in a Gator bag
Fine by me

*Priced around 1200
*2-3 colors, 2-3 pickup layouts over a bathtub rout (we will probably offer loaded pickguards as an option)
Depends on the colors/finishes available.

be of interest?
Because you seem like a really nice guy and I'd like to support you, yes.
Otherwise, not so certain. New guitars in this range; Gibson, F Am Stds, PRS S2, Godin, Rev, etc. aren't as limited in models, finishes &, electronics as what you're proposing. I'm going to have to order your guitar on faith since I can't pop down to my local shop and play one. Awareness of the product will probably be from a guitar forum and it seems like it might only appeal to a very limited market of people who really like the Kauer brand or want to support this kind of venture. Are there enough budget Kauer-ites to make this worthwhile?
 
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