Saturday, July 3, 2010

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.


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

2 comments:

  1. hi Mike,
    The biggest competition for Martin guitars is " used" Martin guitars. I suspect the reason Martin struggled in the 1980's is that the strength of the second hand market exceeded the strength of the "new" market. More and more the secondary guitar market has become a large factor in the pricing of "new" guitars.
    Why buy a "new" guitar when you can buy a perfectly good already broken in "used" guitar for much less. If you take a look at the "used" prices of the D-28 in 1980 you will find that $600-700 was the going rate for a nice clean D-28 made after 1969 so Indian Rosewood. These were plentiful, available and a good alternative to a "new" Martin D-28. In the 80's when demand for acoustic guitars was lower Martin could not in effect compete with itself. We are seeing a wave of that happening now. With the economy the way it is one can take a "new" Martin Model cut the MSRP price in half and look for a "used" guitar. The consumers read the articles and know the dealers pay half the MSRP so they have a place to start to look for a "used" Martin that the dealer can not compete with when offering a "new" one with a warantee. I believe this is the reason for the new models and not the knowledge of the Customer. It's that Martin does not want to compete with itself. This was why the Company almost folded in the 1980's.

    ReplyDelete
  2. Very good point. New models and limited editions do blunt the impact of the big pool of used Martin guitars floating around out there.

    ReplyDelete