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Topic: profits group buy...

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  1. #1

    profits group buy...

    Hello,

    i just read about the group buy and although I welcome these initiatives, I have a bit an unpleasant feeling about it too. The fact that one can give a discount of 60% and still make profit ( even with almost 500 buyers), doesn't that tell something about the profits made on the normal prices or, do I see this wrong?

  2. #2
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    Question Re: profits group buy...

    Quote Originally Posted by Wim Verhoeven
    Hello,

    i just read about the group buy and although I welcome these initiatives, I have a bit an unpleasant feeling about it too. The fact that one can give a discount of 60% and still make profit ( even with almost 500 buyers), doesn't that tell something about the profits made on the normal prices or, do I see this wrong?
    Do you mean that developers should only make a certain amount of profit otherwise selling is wrong? I will pay what I feel the product is worth and they will charge what I will pay. We are trading. I can go elsewhere if I feel I am being cheated and they will lower their prices if enough people do so. This is the essence of a truly free trade between individuals.

    Christiaan

  3. #3

    Re: profits group buy...

    I think that it's a little too black and white to say that you "see this wrong", but more like you're not acknowledging the big picture. Sales and marketing and profit and loss and product development are not a science. There is much to the art of the deal. Any company has a baseline of expenses and other costs. The group buy can serve many functions. A bump in the revenue curve. A way to get the product into the spotlight, perhaps. Think of that angle as a way to advertise. The numbers could be crunched in many ways. In any case, a product is always worth what someone is willing to pay for it, right?

    When you develop and market your own product of this caliber, then you will be able to more accurately judge this sales tactic. I don't mean that in a smart-~~~ way at all, just trying to point out that you can't walk in their shoes.

  4. #4

    Re: profits group buy...

    Developing costs for a typical (SampleTekk) grand piano, (can't speak for the other developers, but I should think that it's about the same) is about $30,000.
    If you have a MSRP at $195, you have to (when you have reduced the price with the costs for covers, packing and media) sell about 165 units to break even. This given that we sell directly from our online store.
    At 80% discount, we have to sell about 1200 units to break even. After that, it's profit.
    Do you want to get wealthy? Do NOT become a sample producer!!!!!
    Do you want to have a great job where you can combine your interest for music, studio work and tecnology, it's a great job.

    End of story!
    Worra
    SampleTekk

    Arf, arf, arf...

  5. #5

    Re: profits group buy...

    Quote Originally Posted by Wim Verhoeven
    Hello,

    i just read about the group buy and although I welcome these initiatives, I have a bit an unpleasant feeling about it too. The fact that one can give a discount of 60% and still make profit ( even with almost 500 buyers), doesn't that tell something about the profits made on the normal prices or, do I see this wrong?
    Yes, you see it wrong. IMHO. When sales are typically rather slow one needs a higher markup to stay afloat. If one is going to cut that profit margin they have to count on bulk sales to make up the difference. The group buy does this by making a deal with the buyers; "guarantee us this many sales to cover our butts and we'll cut our margins by this much". Now the fact that the sales have been deliriously successful for PMI and EWQL both is just gravy for them but no one should complain because we're getting a great deal.

    Anyway, the regular price is one that the market has proved consumers (or at least many consumers) are willing to pay. $200 foir a piano like Old Lady is not extortionate. They have the right to ask any price they want and you can take it or leave it.

    Of course, I think these group buys have made everyone happy...

    IMO.

  6. #6

    Re: profits group buy...

    I don't think you are looking at this correctly.

    The actual "marginal cost" of producing and selling additional "boxes of software" is extremely low compared to the actual costs of developing the library in the first place.

    I would suspect that the real cost of actually producing and shipping each additional Gold "Box" is about US $50. Therefore, one could theoretically sell each copy for that price, but "profit" would need to consider the original development costs.

    Let's say (a complete guess on my part) that the actual recording, hiring of musicians, editing of the samples, programming, etc. for the EWQLSO cost US $ 1 million (the total development cost of Silver, Gold, and Platinum). The software developer has to look at the marketplace and decide on a retail price for that item, given the knowledge that the higher the price, the fewer copies they will sell. In the end, the developer hopes that the price they have set will generate enough unit sales to cover all of their costs and provide them with some amount of profit.

    In this situation, I think East-West is "amazed" at the "price sensitivity" of this library (i.e. they had no idea that a discount of 60% would cause such a spike in sales). What this really tells me is that there are a lot of people who are willing to spend $400 for "sounds", but that number drops off sharply when you get to $1000.

    In this situation, you have a lot of sales based on "perceived value". It is a well-known fact that buyers equate price with quality/value as a decision criterion if other criteria are not available. For example, if I advertised "Library A" for $500 and "Library B" for $1000, and I told you nothing else, wouldn't you assume that Library B was of higher quality?

    When you have a product that retails at US $995, and is currently selling at US $398, it is tough to resist!!

  7. #7

    Re: profits group buy...

    One other point to look at is that current sales also funds future development. Many companies use sales instead of bank loans to finance future products.

    Either way, though...what's wrong with a company making a profit?
    I remain solely responsible for the content of my messages, and agree to indemnify and hold harmless northern sound source, and their agents with respect to any claim based upon transmission of my message(s). Rock on.

  8. #8

    Re: profits group buy...

    I don't think that what he is saying is that developers shouldn't be making as much money as possible.

    I think he was just making an observation about the amount of mark-up that exists on sampling products.

    Here are my thoughts on the subject:

    A sample library is a product where the mark-up is totally variable depending on the cost of development and production and the projected number of sales.

    Let's say that all in all, a product like QLSO Platinum (assuming that Gold and Silver did not have the same financial impact due to the recycling of the same audio data as Platinum) cost about $500,000 to create. So when Platinum comes out at $3,000 a copy, there is absolutely no mark-up on it in the sense that until the costs have been recouped there is not profit margin, and the projected sales interest is a pretty unpredictable figure to compute due to the "revolutionary" nature of the product.

    Ok, so the World goes on to buy 166 copies of Platinum (the rest of us can't afford it). Now the developers are back in black, so the 167 copy of the product sold is almost total profit (minus of course advertising and operating costs). Same applies to Gold and Silver, in this case the development and production costs are greatly offset by the fact that the audio material was already recorded and paid for by Platinum.

    Of course, since these numbers are all coming out of my ~~~~~, I really have no way of knowing if by the time Gold and Silver came out, Platinum had already paid for itself.

    What I am trying to say in a very convoluted way, is that at one point, Gold yielded $60 of profit, then as more and more units sold, and the cumulative net profit based on total sales rose up, Gold started yielding $600, now the profit margin probably yields just enough more for East West to offer the product at the price of $398 and still make a margin of profit on it (I can't speculate how much).

    The only people who are getting a royal crap-of-a-deal (money-wise mind you and not product-wise since Gold is awesome) are the people who are not aware of the Group buy (I am sure a lot of people fall in this category) and who are purchasing Gold at the full price of $999. This of course is only true during the length of the Group Buy period, the moment the price reverts to $999, East West goes on to make a true killing on Gold!

    Just to be clear, I am not making any judgements against East West, or anyone's right to make as much profit as they can possibly squeeze out of their product.
    >>Kays
    http://www.musicbykays.com
    Music Composition for Feature Films, Television and Interactive Entertainment

  9. #9

    Re: profits group buy...

    I think Fred has put it perfectly

    The guarantee that there will be "this many" buyers allows for them to lower the price and still make teh profit needed. Just lowering the price DOES NOT guarantee buyers. It may mean more buyers but not a guarantee that you'll get enough to cover the drop in price/loss of profit.

    The group buy is one of the best things I've seen happen on this board.

    And I DONT think that new products should be allowed to be thrown into a group buy right away. I think its good that new products can come out and people who are willing ot stay "ahead" of the game and have the cash can buy it and have something not everyone will have. Then after a year or so, a group buy will allow others to have it. Everyone wins here, even developers.

    Congrats on Everyone involved in making this happen.
    Operation Mindcrime 2, in stores now.
    or go here...
    The Digital Bitphonic Orchestra
    -Ashif "Ash" Hakik

  10. #10

    Re: profits group buy...

    The only people who are getting a royal crap-of-a-deal (money-wise mind you and not product-wise since Gold is awesome) are the people who are not aware of the Group buy (I am sure a lot of people fall in this category) and who are purchasing Gold at the full price of $999.
    That's what I was thinking about...Also the people who bought exactly the same product some weeks before this group buy and don't understand why they had to pay so much more, not because there's a newer product but just because they were too early.To say;well they were willing to pay it sounds a bit too easy... This can't be right and I think some people who replied didn't miss the train...

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