Market Analysis and Low-Price-Segments
The global market for music instruments covers about $16,8 billion. As there are no reliable sources on worldwide sales data for guitars, the U. S. market shall be examined exemplarily. Table 1 shows the development of units sold, retails, and average prices over the last ten years. It can be observed that there is a growth of nearly 275% in units sold, and about 160% in retail, whereas the average price decreased by 57%. According to this, there is a strong tendency for low price products.
In table 2 this tendency appears very obviously. In the low price segment, that is prices below $500, are about two-third of the whole market volume. Comparing acoustic and electric guitars it can be observed that there is a stronger request for high prize electrics than acoustics.
$101 to $200
$201 to $350
$351 to $500
$501 to $1,000
$1,001 to $1,500
Also, it turns out that high-quality guitars as Gibson’s or Paul Reed Smith’s, which are presented in this paper, are prestige goods with an inverse price-demand relationship. That is higher prices are associated with higher quality.
The strategy of focusing on the high-quality segment
Gibson’s former attempt to join the low price segment in order to compete with rivals such as Yamaha and Ibanez, which are both producers of cheap guitars, did not turn out to be successful as it did not match with their “century-old tradition of creating investment-quality instruments that represent the highest standards of imaginative design and masterful craftsmanship” (Kotler et al. 2010, p. 327). The strategy of focusing on the high-quality segment, at a time when most guitar manufacturers entered the low price segment, has proven very successful. Gibson’s chief executive noted: “We had an inverse [price-demand relationship].
The more we charged, the more product we sold. ” Kotler et al. 2010 (Principles of Marketing, Thirteenth Edition, Philip Kotler, Gary Armstrong, Pearson Education Inc., Upper Saddle River, New Jersey, 2010) In case of prestige goods, the demand curve sometimes slopes upward. Consumers think that higher prices mean more quality. For example, Gibson Guitar Corporation once toyed with the idea of lowering its prices to compete more effectively with rivals such as Yamaha and Ibanez that make cheaper guitars. To its surprise, Gibson found that its instruments didn’t sell as well at lower prices. We had an inverse [price-demand relationship],” noted Gibson’s chief executive. “The more we charged, the more product we sold. ”
At a time when other guitar manufacturers have chosen to build their instruments more quickly, cheaply, and in greater numbers, Gibson still promises guitars that “are made one-at-a-time, by hand. No shortcuts. No substitutes. ” It turns out that low prices simply aren’t consistent with “Gibson’s century-old tradition of creating investment-quality instruments that represent the highest standards of imaginative design and masterful craftsmanship.