Rod Pricing Psychology
- This topic has 15 replies, 11 voices, and was last updated Jun 12, 2009 at 6:45 pm by
.
-
Posts
-
Hey guys –
Ok, full disclaimer: I recently read Michael Lewis’ excellent book about baseball, “Moneyball.” In it, Lewis basically analyzes market inefficiencies in major league baseball in an effort to explain why the 2001-2002 Oakland A’s were one of the best teams in the bigs with the worst total salary. It got me thinking about how markets price certain products and commodities, like fly rods.
Having read that book, and having had some conversations with some friends of mine in the fly rod industry, some things have become obvious to me. The first is that the fly rod warranty system is (a) backwards (b) inefficient and (c) more expensive for everyone involved than it has to be. Hold your fire on that one, and watch for a piece to appear on MidCurrent next week.
The second thing that has become obvious is what I want to talk about in this thread: rod pricing, and psychology.
Using the Way Back Machine, I looked up the prices of some top-selling rods in 2001. The Sage XP is a good example; it cost about $515 new and was Sage’s top-end rod. Today, Sage’s Z-Axis fills the same market niche as the XP did in 2001. Today’s price on a new Z-Axis is $695 (assuming a nine foot five weight four piece). Meanwhile, Orvis’ seven-piece Trident TLS from 2001 (their most technologically advanced rod at the time) was $595, whereas today, a new Helios (now their most technologically advanced rod) is $775. (That extra bit for Orvis is probably due to the fact that they have actually changed how they make rods a lot; their thermoplastic technology is arguably the biggest change any rodmaker has made in the overall construction of rods in this period, and of course that costs money.)
Now, let’s look at the purchasing power of the dollar since 2001. According to the inflation calculator, a dollar in 2001 had the same buying power as $1.21 today. Based on that model, we would expect the same Sage XP we bought for $515 in 2001 to cost $622 today. The $595 Orvis Trident TLS would cost $718.
As you can see, the price of new fly rods occupying the same market niche is rising faster than inflation. (Sage’s top end rod price growth has beat inflation by 11%, while Orvis’ has beat inflation by 8%). Some of this is the expense of new technology; after all, a Z-Axis is (at least theoretically) a more technologically advanced rod than the XP. Orvis made a big capital investment in new machines when they went to thermoplastic. But not all of it. And, further, it’s not always clear that the technological advancements in these new rods are really worth the price increase; Sage’s customers demanded the XP back so vociferously that Sage fired up the old factory line and started making more of them after it had been “replaced” by the Z-Axis.
What’s going on with these rod prices? Why are they growing out of pace with inflation at such a rate?
My answer is: because we let them. Stay with me.
We have been programmed by the tiered market structure to evaluate rods primarily based on price. An $85 St. Croix Pro Graphite rod is “less” of a fly rod than a $215 St. Croix Avid, which is less than a $365 St. Croix Legend Ultra (just to quote some numbers that I recall vaguely from back in 2001). While we can believe that the technology between these rods is different, we can’t actually *see* it and evaluate for ourselves.
Further, and no offense here, but most anglers aren’t good enough casters to be able to objectively tell a difference between a top end rod and a bottom-of-the-barrel rod. This is especially true for new casters making their first purchase. So, we all look to the price tag on a rod line to know which rod is “superior.” The manufacturers assist us with this by placing clear gaps in their lineup, typically of about $100, between rod lines. This is the same tiered pricing scheme which works in all retail, be it cars, or electronics, etc. It works very well; a customer can tell at a glance which is the manufacturers’ most technologically advanced rod and which is their more budget-minded rod, without knowing anything about fly rod construction and without having to make subjective judgments on cosmetics alone.
But what happens when different manufacturers price their top end rods differently? Here’s the problem, y’all. This is how we leapfrog ourselves to higher prices.
Let’s take a hypothetical example. Company A has a top end fly rod that costs $500. It costs $500 because Company A is efficient, can make a profit at that price, and is comfortable with the level of technology being offered. Company B comes along, and offers a very similar top end rod for $600. Company B is less efficient, has staffing problems, got hung up in R&D for too long, and thus must charge more for its rod in order to make a profit.
The customer knows none of these things. All the customer knows is that Company B’s fly rod costs $100 more; exactly the same amount of price gap between all of Company B’s other rods, going down to the $100 bargain basement special. If the customer knows nothing about fly rods, and he sees Company B’s top end rod sitting on the rack for $600, and Company B’s second-level rod sitting on the rack for only $500, he can immediately tell that Company B’s first rod is “more advanced.” You see where this is going.
Company B’s $600 rod and $500 rod are sitting right next to Company A’s $500 rod (which, remember, for Company A is the top end stick). The customer, programmed to evaluate unknowable fly rod qualities based on price, assumes (incorrectly) that Company A’s $500 rod is technologically inferior to Company B’s $600 rod. In other words, he thinks Company A’s rod is second-tier technology, so he buys Company B’s more expensive rod. Perversely, Company B encourages this misconception by promoting its “advanced technology” in all the marketing literature.
What is Company A to do? He’s getting hammered for being more efficient and making an equivalent rod for cheaper! There’s only one solution, right? Next year, Company A’s rod will be listed for $600. Company A will make a bigger profit, but the customer will no longer have the option of buying that top end rod for $500. He’ll be faced with a choice between two equivalently priced $600 rods.
This has actually happened repeatedly in our industry. When one company raises prices, everyone else follows in order to assert the technology “advantage” we customers associate with the top-level price category. Even worse, many companies will actually leap frog each other in prices so as to appear to offer the better technology.
The only way to stop this game is for the consumers to insist on buying lower-priced, mid-level rods. In an industry known for, frankly, a lot of show-offs, it’s an uphill battle. People truly need to do better research into what they are buying and quit assuming that price equals quality. It doesn’t; I promise. Some top end rods are priced like they are because the technology involved really is that expensive, but others aren’t. Customers have been swept up in marketing lingo that makes them assume they can buy their way to better casting, but they can’t. It’s a vicious cycle, and we’re all literally paying for it.
Zach
Edit: With apologies to Mike L, I did have the wrong figure for the Helios, and I have updated accordingly.
On a totally unrelated note…Do you think the technology is really increasing at the point where a new rod line every 1-2 years is necessary, or do you think the manufacturers put out a new line every year or 2 for the sole reason of keeping up sales?
Mike –
To be perfectly honest with you, in my subjective opinion, I think there’s about a 10% difference in overall quality and enjoyment between the worst Chinese made import and the most expensive domestic fly rod. That didn’t used to be true; I had a POS I got at Wal-Mart which actually had the ferrules upside down (you put the top end *inside* the bottom end to assemble it). Nowadays, though, it’s simply been too long since anyone was able to come up with an electrifying new technology and keep it all to themselves. Every year we get closer to absolute parity.
That also leads to some tricky situations, like 7 weights being marketed as 5 weights to increase anglers’ perceptions of their distance casting abilities. The industry is in a slow burn right now; rods get marginally lighter, marginally stronger, and marginally more flexible for a given graphite recovery speed every year. But every year the amount of increase in those categories is in the single digits, percentage wise. Meanwhile, price increases have (as I demonstrated) largely outstripped performance gains.
At some point, someone will come up with some new material or technology to radically propel us forward again, but right now we’re in a holding pattern.
Zach
Edit:
I’ve been guilty of this in the past…and will probably fall for it again in the future.
The last time I purchased a rod I tried four different rods in a “blind” test.
Great stuff Zach.
You put into words a lot of what I have experienced and thought about as I have been working my way through graduate school at a mom & pop urban fly shop.
My conclusion after reading your post is this: some of this burden must be dealt with at the retail shops. 1. educating the customer base 2. telling the truth 3. as best as possible being more concerned with providing the best gear for the given customers application over $$$ in the register.
Stop the insanity!
IMO – The brick and mortar retailers ought to have a greater voice in what is produced by manufactures. We are the ones interacting with customers forty hours a week. And don’t get me started on sales reps…a van and a catalog doesn’t mean anything to those of us who spend our time “on the floor” talking to customers.
My first trip from the East to the West bumming around with highly educated / experienced guides and what not opened my eyes to a lot of what you described – me on the retail end of things while they are on the “fishing” end of things.
Anyway, thanks for your insight. Very helpful.
KBilcherI get nervous when a lawyer ventures in to business analysis. LOL 😉
Your points are well taken Zach, let’s hope this doesn’t turn in to a political rant. Whenever (always) we talk about money and financial structure in the fly fishing niche industry things quickly turn to an anti big-business conspiracy rhetoric. However, all said, things are getting pricey.
check this out. I thought of fly rods the first time I heard about this on NPR.
http://news.stanford.edu/news/2008/january16/wine-011608.html
This is absolutely true. A cell phone manufacturer we work with did a test with two models of phone (one low end model one high end) with the same vocoder in it. The more expensive model got higher voice quality marks in the testing even though the entire signal path was exactly the same.
- You must be logged in to reply to this topic.