Martin Guitars & The Price We Pay (Part 2)

Smart companies understand their customer. Introducing new products is a very expensive and risky proposition. The more a company knows about it's customers the better the chances are of presenting those customers with something they want and are willing to pay an attractive price for. This is really an area where marketing departments earn their money and potentially annoy people. The likely hood of annoyance often has a lot to do with the product a company is selling. Tobacco companies have been reviled and heavily regulated due to their past efforts in this area for instance. Sometimes though people mistake advertising for marketing. Advertising is a tool of marketing but it isn't marketing any more than a hammer is a carpenter.

When marketing is done poorly though it can lead to all sorts of unpleasant outcomes. Microsoft's recent debacle with the kin cellphone is a pretty good example.

The Martin guitar company on the other hand seems to do a very good job of identifying and understanding their customer. Given the breadth of their product line it isn't surprising that there is some grumbling now and then but few seem willing to abandon ship all together, and by providing so many choice Martin has an option for almost any buyer.

Pricing & The Customer

To be clear, my analysis of Martin's customers is based primarily on observation and has no empirical basis. I'm sure Martin's marketing department has such information but I am not privy to it.

The customer varies somewhat depending on what part of the price spectrum we focus on. In general the target audience is primarily middle aged and older men who played guitars in their youth and were forced to put their passion on the back burner by the demands of career and family. They identify Martin guitars with many of their favorite singers, songwriters and guitar players and are aware of the legendary quality of Martin instruments. Women do buy Martin guitars as well but generally opt for smaller sizes such as 000’s rather than the D sized guitars discussed above.

While they have utility Martin guitars are clearly luxury goods. Even their lowest end instruments are priced at a significant premium over instruments of reasonable quality and arguably superior materials (solid wood rather than laminates) that are currently being made in various Asian countries and elsewhere in the developing world. As such price sensitivity tends to be low, but present.

The following table shows that Martin has maintained an amazingly consistent price point for their D-28 over the past 29 years. This indicates to me that at some point in the fairly distant past they developed a very clear understanding of the value of this product to their customers. Martin went through some very hard times in the 1980’s and still maintained that consistent MSRP. This is not a company that makes big changes one way or the other. They are in it for the long haul and manage their pricing accordingly.

D-28 MSRP, Real MSRP & Number Produced 1980-2009[i]

Year	MSRP	Inflation Factor	Real MSRP (2008 Dollars)	Produced
12/27/1980	$1,150	0.383	$3,003	2316
12/27/1981	$1,380	0.422	$3,270	1484
12/27/1982	$1,380	0.448	$3,080	851
12/27/1983	$1,380	0.463	$2,981	1250
12/26/1984	$1,430	0.483	$2,961	743
12/26/1985	$1,490	0.500	$2,980	916
12/26/1986	$1,490	0.509	$2,927	810
12/26/1987	$1,568	0.528	$2,970	825
12/25/1988	$1,648	0.549	$3,002	990
12/25/1989	$1,714	0.576	$2,976	952
12/25/1990	$1,790	0.607	$2,949	906
12/25/1991	$1,880	0.633	$2,970	1001
12/24/1992	$1,960	0.652	$3,006	1213
12/24/1993	$2,060	0.671	$3,070	1275
12/24/1994	$2,190	0.688	$3,183	1639
12/24/1995	$2,330	0.708	$3,291	1856
12/23/1996	$2,330	0.729	$3,196	1571
12/23/1997	$2,330	0.745	$3,128	1962
12/23/1998	$2,330	0.757	$3,078	1976
12/23/1999	$2,330	0.774	$3,010	2165
12/22/2000	$2,399	0.800	$2,999	1821
12/22/2001	$2,399	0.823	$2,915	2788
12/22/2002	$2,469	0.836	$2,953	3006
12/22/2003	$2,469	0.855	$2,888	2416
12/21/2004	$2,599	0.877	$2,964	2959
12/21/2005	$2,749	0.907	$3,031	3207
12/21/2006	$2,849	0.936	$3,044	N/A
12/21/2007	$2,849	0.963	$2,958	N/A
12/20/2008	$2,849	1.000	$2,849	N/A
6/20/2009	$2,999	0.99	$3,020	N/A

Besides income the biggest area of differentiation for Martin customers is in how conservative they are in regards to deviations from traditional building methods. Vintage guitars from Martins golden era (1932-1943) can go for hundreds of thousands of dollars. The closer Martin comes to reproducing those instruments the more the tradition minded customers are willing to pay. For instance the D-18 Authentic, modeled after the 1937 version of Martins flagship Mahogany guitar has an MSRP of $8,599 versus $2,599 for the modern version.[ii] Here is a link to a YouTube video of Chris Martin IV discussing the D-18 Authentic and the philosophy behind the pricing. The pricing is discussed around the 2:30 mark through the end.

http://www.youtube.com/watch?v=K7UtKDmtDu0&NR=1

Their highly segmented and differentiated approach and relative lack of elasticity in their customer price sensitivity allows Martin to charge a substantial premium over their competition. We’ll see support for this assertion in the next part of this article.


[i] Inflation Factors from http://oregonstate.edu/cla/polisci/faculty-research/sahr/sahr.htm
[ii] This and other Martin Pricing info come from http://www.martinguitar.com/catalog/PDF/MartinPriceList.pdf