Why GP's are bad?

Sat May 15 05:18:49 EDT 2004

Well, since Dave brought up my name, and I feel I have input to offer, here
I am!  I'll be arguing as both the supplier and the purchaser.

As an introduction (for those of you who don't know) I am as small time as
they come.  Currently self-employed and in college.  What do I sell?  Audi
parts!  On occasion, I find gems at the junkyard and make some cash selling
used stuff, but I have ONE and only one actual product - a short shift kit
for 80/90/Coupe (and some others).  I'm not trying to promote the kit in
this email, just the institution of the Group-Buy.

I sell between 10 and 15 of these a month if I am ambitious and keep them
well stocked.  Not a ton of sales, but it keeps me in grocery money.  To
date there have been 2 group buys on the short shifters.  The first group
buy had me sell 52 of them in one month.  The current group buy has 29
members signed up already.  Normal price is $110, and they are currently
$87.  I work on a lot lower margin than the alcoholic beverage sales
industry.

The point is that during a buy like this, I lower investment per unit by
getting a volume discount on the parts I need. In addition, machine work is
lower because I am no longer paying a premium to set up machines - once they
are set up, the work goes quickly and the manfacturing cost per unit is
lower.

In addition, I lower profit margins.  Do you think I really save $23 per
shifter because I get a volume discount?  Not even close.  I can afford to
do this because I have just doubled my monthly sales of the shifters.  This
DOES promote a positive image of me as a supplier and it definetly attracts
more sales later down the road.  Do I cut corners or reduce the quality of
my product?  Not at all - it is still the best product it can possibly be.

With a beer, a .25 savings is negligable.  No one cares because it doesn't
affect them in the short term.  Now if they were simply shopping for beer
and were planning on purchasing 100 beers, they would notice the $25
savings.  My point is that the $23 discount is a significant amount. Sure
its a little higher percentage discount than you were talking about, but all
of a sudden this is a real-world savings for those of us who consider $20
important (I do!).

How does a group-buy help me?  Well, a sudden influx of cash like this
allows me to focus on other projects - with this group buy I just might be
able to afford the first production run of Ur-S4/S6 shifters or maybe even
the Ur-Quattro shifter I was working on.  And when those are ready, I'll
have another group buy because those products' pricing is VERY dependant on
machine costs.

Now what about big business slashing prices to drive little guys like me out
of business?  It doesn't happen.  Take a look at the big suppliers - like
H&R (suspension), GIAC (chips), Turbonetics (turbos and accessories), etc.
NONE of them do group buys. They might offer volume discounts to their
vendors, but never to a consumer directly.  The point is that these
companies are so large and brand-name-recognized that the little guy
probably never has a chance.  I don't think you could enter the suspension
market with only one fitment of springs.  Or one particular chip.  Or one
specific turbo.  If B&M came out with a competing short shifter, so be it!
A)They won't try to undermine someone as small time as me B)They have to pay
for R&D (I do it myself, free!) C)They have to maintain a facility and have
more overhead than me (none) D)They have to pay for advertising and E)by the
time they pay for all that stuff and put their brand name on it, the product
will probably wind up costing more.

Recently, Autotech (dealer for Quaife torque-biasing differentials) slashed
prices to drive Peloquin (a competing small-time diff maker who only does
VW) out of business.  Peloquin is still going strong (last I heard) because
their product was superior and still cheaper.  Sure, Quaife sells more diffs
per month, but I don't think Peloquin is threatened by them.

We aren't as small a group of enthusiasts as you might think.  There's a
whole world of Audi enthusiasts, and I'll tell you what - 99% of them aren't
on the quattro list.  For me, group buys like this gain international
exposure and they are absolutely free advertising.  Word-of-mouth
advertising goes farther than ever with the increasing popularity of public
enthusiast forums.

Now to present my case as a consumer: I've participated in a few group-buys
in the past.  Most recently was the purchase of an Innovate Motorsports
wideband O2 sensor.  I saved $50 off the regular $350 retail price.  In
addition, the company EIP (who organized it) sold 20 units in one month.
Judging by the outpouring of support, this was a pretty popular thing and I
am sure that EIP came out ahead for the month.

Innovate Motorsports has one product, just like me. I have no idea what
their monthly sales figures are.  In any case A)they approved a group-buy
for the same reason I do  or B)EIP did the group-buy entirely of their own
accord and continued paying the same price per unit from Innovate.  Either
way, Innovate sold more product.  I am sure that they win in either
situation - they wouldn't approve it if they didn't, and if it was all up to
EIP, then they simply sold more units that month and made more profit.  EIP
attracted business that they would not otherwise have had as well.  ME, for
one.

Sorry I had to enter rant mode.  I support the group-buy structure and will
continue to do so.
Thanks for reading!
Richard
trying my hardest not to promote myself on the non-commercialized quattro
list!

----- Original Message ----- 
From: "Steve Meyer" <quattroslm at yahoo.com>
To: <quattro at audifans.com>
Sent: Saturday, May 15, 2004 1:13 AM
Subject: Re: Why GP's are bad?

> Fellow Audians;
>
> I think we all need to realize that we ARE a very
> small market of people. Especially, when considering
> the number of 20v owners, Urq owners, or any other
> sub-group. Yes, there are more and more A4 and A6
> turbo owners, but with increased sales comes increased
> numbers of people who only buy Audis because the are
> new, different, whatever...not becuase the have always
> dreamed about making them faster! (like most of us on
> this list) We are talking about groups of
> 10s..maybe20s. Small volume retailers/manufactures do
> not have the capabilities to cut into their profit
> margins to justify a group buy.
>
> Many of these companies that make these specialized
> products are very small companies as well. The simply
> don't have the resouces to cut into their profit
> margins. The only saving grace for them to do this
> would be the positive effect it would have on people
> views of the manufacturing company and would lead to
> future buys. This only works for companies that make
> other Audi related items, and would be an incredibly
> small number. Probably not large enough to influence
> agreeing to a group buy. Another benefit to the
> manufacturing company would be brand recognition. The
> idea is hopefully people on the list who did not
> participate in the group buy would purchase from the
> manufacturer because of their earlier generousity.
> Once again, this would be a TINY number of people and
> signifigent enough to warrant a discounted price.
>
>  Here's another example:
>
> Bottle of beer:
> Price $2.00  Cost $.65  Profit* $1.35
> Let's say I sell ten beers a night.  I make $13.50
> How cheap do I have to go to get more people to come
> in: Will cutting my price in half, double my sales.
> Then I only make $7. I would have to sell 4 times the
> number of beers to actually make more money.
> In a small market there may only be a total of 15-20
> people who want a beer. In a large market the quantity
> will start make up for a small profit margin.
> If I only lowered my price to $1.75, it probaly
> wouldn't be a big enought change to lure people in.
> Of course, beer is different than car parts, one
> person can drink several beers, but you get the idea.
>
> And this model doesn't even bring into account how
> much I'm really making on a beer. Payroll, electric,
> insurance, advertising etc. The profit margin is even
> smaller, making the effects even worse.
>
> So, yes group buys are bad for the Audi community as a
> whole. If the larger product companies can afford to
> make no profit on a certian item to lure people into
> buying there other products then the small companies
> that specialize in some the the things we need(and
> make better than some of the larger companies) will be
> forced to either stop producing the item, make it with
> cheaper parts(making an inferior product), or sell at
> a smaller profit margin that will eventually lead them
> to bankruptcy.
>
> Steve
> frustrated with running a bar and grill in a very
> small Iowa town.
>
>
>
>
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