Hello,
This may be a real naive question which answer is better protected than family jewels, but I’ll take a chance at being scoffed at…
I’ve designed a high end armchair and would like to have a ballpark figure of how many I should have manufactured in a year for the US market.
I realize there are many parameters affecting this answer but the one I’m most interested in is retail price. i.e At X$ retail price I should consider making Y chairs.
Would anyone know where I might find this type of information? Thanks for your feedback.
Replies
Sorry, I don't know where you could get exactly that information, but I strongly suspect that the answer is going depend on a number of variables that you haven't mentioned. Chief amongst these is 'will it be sold direct to customers, or through furniture stores?'
Whether people buy an item depends not only on the price but on many other factors, whole books have been written about this
John
I can tell you that as X goes up, Y goes down in direct proportion, Y=(f)X. The answer to your question however has to do a lot with style, consumer insights, marketing techniques, distribution methods and retailer skills. Have you thought about the furniture show in High Point NC in the spring? That's where all the new furniture lines are shown to retailers.
Good luck,
Kell
I think the idea that as X goes up so Y goes down in direct proprtion only happens in what economists refer to as a 'perfect market'. There are many instances where products have sold better at a high price than they have at a lower. This is because price is just part of the factors that influence people to buy or not buy. Put a chair at a high price in a store frequented by middle income earners and it might not sell at all. Put it in a fashionable designer store at twice the price and it might do well. Price is one of the pieces of information that people use to assess the worth of a product. Few high-end furniture buyers are skilled enough to value an item just by looking at it, they need the reassurance of a high price. The problem for makers is to get their products into stores like that, especially as although the customers might be idiots, the people who run the stores will be looking to buy at the lowest possible price, and will frequently do most of their buying in the third world
John
john,
I agree with your assessment of a perfect market, hence my quick thumbnail about marketing, consumer insights and the retailer chosen to show the goods. Y is a factor of X or the output is a factor of the input. In this case, there are many inputs that all contribute.
Your contention that "customers might be idiots" I have a hard time with. Retailers treating them like idiots has gotten us to where we are today. Customers are very smart and their behavior has been driven by their intelligence not stupidity. I've been a student and member of the retail community for nearly 30 years. Customers vote with their feet, often because of price (high or low), frequently because of availability and less frequently because of service. Some are willing to trade these off against each other.
If you want to see an example of effective marketing to customers (i.e. treating them as if they are intelligent and reaping the rewards) look at Thomas Moser. They produce a top quality product, charge top dollar and provide equivalent service levels. Who doesn't win in that exchange? If customers are idiots, none of us could ever sell a piece for what we believe it's worth and yet it happens, frequently.
One last thing. I also think there are furniture retailers out there that recognize the customer who wants quality and is willing to pay for it. I think that's who the initial poster was looking for. Are they looking for the best possible price? Sure, they're running a business, too. Will they go overseas to get it? Maybe but maybe not because some of their customers prefer American made products. Again, it's driven by what the customer will demand not the retailer.
Here in Richmond VA we have such a store called La Difference. If Richmond has a store like that, there must be hundreds across the country and the Furniture Show that I recommended is the best place to see them in one spot. They carry international lines, too, but much of the stuff on their floor is domestic.
Kell
Edited 6/26/2003 11:57:59 AM ET by Kell
Kell
"Your contention that "customers might be idiots" I have a hard time with"
I was referring only to the customers of the type of store that caters for people with more money than sense, and I did say "might be"
John
Can you give me an example of a store that caters to people with more money than sense? I'm unfamiliar with the concept. If by that you mean that there are people that overpay and that there are stores that prey on those people, I respectfully must disagree. A store such as that won't remain in business, customers are far too smart for that.
In order for a retailer to remain in business, it must sell products for more than they paid minus the cost of the business, salaries, rent, etc. In order to shop there, customers must find things to their liking, price, selection, service, knowledgeable and / or friendly staff, etc. Some customers will trade off several of these for price (see Wal-Mart or any warehouse club). Some customers will not trade off these and are willing to pay for those others, in other words they trade off rock bottom prices. Does that mean they have more money than brains? I think it means they believe in paying fairly for a particular level of services rendered. These are the people who buy the stuff that many of us make. May they always be around!
Kell
Kell
You are not moving in the right circles! I've spent the last 12 years working for various rich people, and I can tell you that it is amazing just how much c**p these people buy, and the number of shops ready and willing to sell it to them.
Maybe this doesn't happen in the US, it sure as hell happens over here
John
The Sharper Image. High price, trendy useless items.
I disagree. While many of their products seem overpriced to me, I have purchased some that I've found nowhere else. They have worked well except for one and they were quick to take care of me when it was deemed defective. The Sharper Image, IMHO, is an example of finding a niche that consumers want and filling it. Does it fit everyone? Obviously not. But if everyone only liked vanilla ice cream it would be a very bland world.
Kell - likes chocolate very much and is addicted Ben & Jerry's Phish Food and Cherry Garcia flavors.
P.S. Is Ben & Jerry's worth the price? It is to me, no one else makes those flavors.
I stand corrected.
Examples of stores that cater to those with more money than sense........
1. Most of the more expensive fashion stores in the high-priced malls and other high-rent districts. (Never been there, but I'm betting that the shops on Rodeo Drive top this list.) Really -- does anyone believe that an Armani suit is worth THAT much more than the ones from S&K? (Ten to fifteen times the price?)
2. Most of the "outlet" stores in "outlet malls", which are nothing more than brand-specific versions of the high priced stores in the mall. (My favorite example here has got to be Nike -- charging way more than a hundred bucks for anything that masquerades as an athletic shoe; which was probably manufactured in someplace where you and I would not feel safe, and where the workers were paid a few dollars per day.)
3. Many of the designer shops that sell home decor items, even if they are not located in the high priced mall. As mentioned by a previous poster, if the shop owner is well versed in true quality, then the merchandise is probably OK. But if the management is more oriented to the decorator/designer than to the craftsperson, then the stuff is quite likely to be good-looking junk.
4. Wine merchants who pump up the price of a particular bottle, just because it got a favorable review in a magazine. (Recent reports on one wine caused the price to go from the "normal" range to about a thousand dollars a bottle. And the reports clearly stated that the wine would probably not be all that good unless it aged for another ten years.)
5. McDonald's -- although this one had been around long enough, supplying us with food, and might actually be a cause rather than a symptom.
6. Just about any of the big-name "home improvement centers". To a great extent, these businesses brow-beat their suppliers into offering cheaper versions of their normal products, just so that they can be offered at a lower price "exclusively" from either the orange box or the blue box store. Careful when you're buying brand-name merchandise from one of these -- they are probably inferior to the one down the street that is just a few dollars more. But they look the same, and have similar modle numbers. (Go ahead -- ask if the Kohler or Moen faucets are exactly the same as those sold at a plumbing suply house. Do the same with some of the tools.)
7. The developers who are building huge "gated communities" full of tract-style McMansions. These are selling for HUGE prices, but have no higher quality in their design or build than a three-bedroom colonial that sells for $180,000.
Ask those that have made millions by selling 'stuff'. They'll tell you that you don't need a good product or service -- you only need a good image. And if you sell the image, then you (in my opinion) have catered to those with more money than brains.
Vast projects should not be founded on half vast ideas.
Really -- does anyone believe that an Armani suit is worth THAT much more than the ones from S&K?
Obviously some do as they are paying those prices. Just because someone won't doesn't make them smarter it simply means they see value as something else.
McDonald's
Been in business almost 50 years, served over 100 billion burgers and have 30,000+ restaurants world wide. Based on this we all have more money than brains. They sold convenience before we knew we wanted it. Now we realize the trade off is food that is bad for us. And they're having to re-evaluate their business to survive because some customers are voting with their feet. Did you ever think you'd see a salad at Mickey Ds?
Wine merchants who pump up the price of a particular bottle, just because it got a favorable review in a magazine.
This, along with several of your examples, points to capitalism and the notion of pricing to whatever the market will bear. If demand goes up and supply remains static, then price follows demand. If you designed a piece of furniture that everyone wanted, would you lower the price? I sure wouldn't!
..ask if the Kohler or Moen faucets are exactly the same as those sold at a plumbing suply house. Do the same with some of the tools.
I'm familiar with the concept of slightly different versions of products that the customer can buy for a lower price. Again, attempting to sway a customer who is more concerned with price. You always have, and always will, get what you pay for. When I've bought the cheaper and found it lacking I learned not to do it again. If it worked well for me, it was a sound decision.
The rest of your examples, to me, seem biased against the main stream. If gated mansion communities are for people with more money than brains, then the population is overburdened with that demographic because that is the vast majority of what I see built, at least around here. I tend to think it's because of consumer demand and if a person doesn't like it they should buy a home somewhere else. The builder isn't doing it unless people want it; they don't take those kinds of chances cause they can't afford to.
As far as selling image, I have to agree with you provided it's a one time sell. But let's take a look at an example of "Seen on TV marketing." The George Foreman Grill, when I first saw it seemed like an prime example of BS. They've now sold something like 50 million of them. And I've never heard a single person that bought one say it was a piece of garbage. I would suggest it's ability to stay in the market that long is driven by a quality product that consumers didn't know they wanted until the image was produced through the pitchman. How does one differentiate? Unfortunately through trial and error. Caveat emptor as always.
Just my 2 cents. This has been a fun discussion, thanks for joining in!
Kell
"If gated mansion communities are for people with more money than brains, then the population is overburdened with that demographic ........"
Bingo
Vast projects should not be founded on half vast ideas.
Thank you all for your insight. I see I also touched a nerve on the reasons for making purchases...sorry, didn't mean to do that!
I understand the points you've made and I am considering them all. However, I'm not so concerned about my potential market, which I've researched and figured there is one. But recognizing that I have 3 million potential buyers in the US does help me much with my production planning.
My inquiry is from a production stand point. I have a chair which production cost is high, so I know that its wholesale and retail price will be high. What I don't know if if I should manufacture 100, 500, 1000, etc. chairs per year which obviously will affect investment/production cost and trickle down to wholesale and retail price.
Until recently my projection had been based on the minimum income I would like to derive from this activity. I considered a flat profit amount per chair and mutliplied it to reach my minimum yearly income. Well, that was fine when I was designing. But now that I'm about to get a prototype out, I figured it was time to refine my projection.
I imagine that large or small established high end manufacturers/distributors have over the years been able to determine volume targets based on retail price point, give or take a % due to unforseen circumstances (a communist revolution, an ugly chair, a paradigm shift, etc...). A $3000 chair will most likely not sell as many as a $1000 chair.
To conclude, I think what I'm looking for is a high end manufacturer or wholesale buyer's take on the US market who can suggest a ballpark volume. Because to me, making 100 chairs or 500 chairs already makes a big difference!
Thank you
Vic,
Your thinking on the subject is starting to evolve in the correct way. There are a number of issues ( many you have identified) that needs to be factored in, however, the only issue you have knowledge of is the production model. You can project a breakeven price point at various outputs....and after a cashflow analysis...determine what pirce you need to get to cover costs and contribute to profits.
Market channeling is its own discipline with numerous sub-disciplines. You need to listen to their value proposition and determine if a meeting of he minds can be achieved.
What you can't do is become expert in all the disciplines. It was Adam Smith who recognized that specialization was the cornerstone to capitalization.....you have yours, rely on others for theirs...
I agree with the person that said it would be well worth your time to go to the High Point show....or the big furniture show in New York. I'd also point out that you are approaching this completely in the opposite direction than the production furniture industry works (not necessarily wrong, but worth thinking about). They start with a price point, decide what the item is going to be and basically how it will look, figure out the distribution chain....THEN they go the manufacturer who will do the engineering to bring it in at that price point. I know at least two companies in my region (in Canada) that keep a High Point designer on retainer.....the designer provides them with a couple of basic pictures and a price point (the assumption is he knows what will sell), then it's up to them to figure out the engineering and distribution. One of those companies I mentioned at least, the owner is trained in design...but doesn't do any. They trust the designer.
All I'm saying is that it would be well worth your time to dig down and learn how the industry works at that level, if you want to be a part of it. And it may be the best money you could spend to hire an experienced consultant who knows the ropes to give you some guidance and make some connections....a lot of people throw money away exhibiting at the wrong shows, and things like that. As far as hard data on the furniture industry, here's a website with a good collection of reports (some very pricy though), and books on the industry etc. including a section on marketing. This compny can also offer engineering and consulting services if you want to go that way (http://www.aktrin.com). Very professional.
Bottom line is, if you're trying to go from small to big, there are new ropes to learn. Good luck.cabinetmaker/college instructor. Cape Breton, N.SWAY too conservative to be merely right wing
I considered a flat profit amount per chair and mutliplied it to reach my minimum yearly income.
Income and profit are not the same thing. Profit is what is left over after you have paid yourself (and the overhead, materials, etc).
Multimillion dollar companies with huge marketing departments guess wrong about the demand for a brand new product probably as often as they guess right. And that's after surveys of potential customers, analysis of endless data on the current sales of similar or related products, etc. The marketers responsible for the Barney TV show very nearly canceled it before it hit the air because they didn't think anyone would go for it. And on the flipside, how many movies get made with predictions of huge box office draws, then end up going straight to video. What you are trying to do here is incredibly difficult.
Here's my $0.02, for what it's worth. Whatever capital investments you make, be sure you invest with an eye towards flexibility. Don't buy single-purpose machines that couldn't be converted to making another product if this one tanks. If you buy or build a plant, make sure there is room to expand the factory if this product takes off. And remember, there is an opportunity cost associated with stock outages if you underestimate the market, but there is a real cash flow cost if you overestimate the market and end up paying to build chairs that sit in warehouses not selling. The point is, you're estimates are going to be off, so make sure they are off to the low side. You can always add equipment and ramp-up production next year if you find out that you could have sold more than you made this year. And if you are careful about building flexibility into all of your systems, the cost to expand capacity will be minimized.
Good luck!
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