Midcurrent Warranty Piece
- This topic has 34 replies, 20 voices, and was last updated Jun 20, 2009 at 2:13 am by
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Zack
Not to worry about picking on me this is all for the sake of discussion, but I see several road blocks to this idea
Insurance companies are in business to make money you pay them up front then hope you don’t need them. Finding a company to deal with such a small niche for people will be difficult, 300 and some million people in this country how many own a fly rod.As the guy behind the counter I doubt that I can sell an insurance policy without some kind of licence, but I guess you could call it an extended warranty.
Just a few ideas to toss around. 1 claim per customer and only in say the first 3-5 years, not a lifetime.
Instead of fixing each rod give the original buyer at the time of purchase a voucher for a fixed amount he can use to fix his broken rod or put towardsMark, as a fly shop you could do something along the lines of companies like Best Buy, which sell you a protection plan.
Some guys wont buy an item unless it’s in a certain price point and they think it’s better. I have seen lots of $100 dollar casters with $500 rods.
Well put.
Zach,
I guess I really must have missed the real point what you say above seems a bit in contrast with your open letter,or not.
MSMark –
It’s a technical discussion; I wouldn’t honestly understand it at all if I hadn’t been involved in the insurance world so intimately. When I say in the letter that the rodmakers have been prevented by the market from setting a proper reserve, in plain English that means that they haven’t set enough back from the beginning to cover their future repair costs. They could either (a) take more of the initial money they make from the rod sale and set it back for repair costs, while leaving the price alone, thus impacting their profits, or (b) raise the prices so that they can take enough to offset their future liabilities.
By undervaluing the costs of repair, then charging a somewhat higher deductible when they do get a broken rod that needs repair, they are offsetting the averaging problem I discussed at the end of the letter. Since they don’t take their full costs of repair up front, when they initially raise the price of the rod to cover their future expenses, they are only getting *some* of the money necessary to fix that broken rod from all the non-rodbreakers out there. Then when the broken rod comes in, they get the rest of the money they need from the rodbreaker in the form of the higher deductible or “service fee.” This has the effect of making the actual rodbreaker responsible for a bigger piece of the pie when it comes to costs to repair his rod. However, the rodbreaker still gets some benefit from all the money that non-rodbreakers paid in to the rod company by buying warranties that they don’t use.
Mathematically: if the “warranty” cost of the rod is $75, everyone pays an extra $75 when they buy the rod. If the actual costs of repair are $100, that leaves a $25 gap. The manufacturer could either raise the price of the rod to, say $80 and then average that out over all their sales to make up the $25 gap on the repairs that do come in. Or, they could leave the price alone, and just charge the actual rodbreaker the fee necessary to make up their gap. The burden borne by the whole market is thus reduced somewhat, and shifted to the pocket of the actual rodbreaker. The most extreme possible example would be if the companies offered no warranty and simply charged full costs of repair; then the rodbreaker would personally bear the whole burden for getting his rod fixed. As it is now, it’s a hybrid system with everyone bearing most of the burden and the actual rodbreaker then picking up 100% of a little remaining cost.
It’s not easy, dude; this isn’t stuff most rod companies talk about with their customers, but I bet the businessmen on the board will find all this pretty familiar.
Zach
Mathematically: if the “warranty” cost of the rod is $75, everyone pays an extra $75 when they buy the rod.
ZachZach, not really. If the rod’s price from the maker includes $75.00 for repairs then the retail buyer pays $150 for that repair. Lets remember that the fly shop takes a $300 cost rod and sells it for $600. So an issue for the rod maker is that retail price goes up by a factor of two and only $.50 of each dollar paid (give or take 5% or so) gets into the hands of the rod maker.
Roy
Roy –
I see your point that the ‘base price’ of a rod is effectively doubled before sale to a customer. If the warranty is built into the ‘base price’ then that would appear to make the total cost of the warranty double. But I do think the manufacturers and retailers are a bit more sophisticated than that. I know enough fly shop owners to know for certain that no one is getting rich in that business; the market has tuned the price anglers will pay pretty well. While a greater proportion of the total price flows to the retailer than to the manufacturer, that doesn’t necessarily mean that reducing the ‘base price’ by cutting out the warranty would cut your hypothethical $150 off. The retailers would probably still insist on taking the profit they already take; thus the percentages would change (the rod price would drop and the manufacturer would get only, say, 35% of MSRP while the retailer would still get his old profit, expressed as a higher percentage, like 65% MSRP). Do you follow me? I am admittedly not a financial writer.
Biggest problem with having this discussion is that none of us (well, no one who is free to comment) has access to any of the manufacturers’ numbers.
Zach
Lauren: The rod maker sets (determines) the retail price. Dealers must sign agreements to sell at the designated price or loose their ability to sell a specific line of rods. Therefore, if the maker were to drop the price the retailers would follow. What was $600 retail is now $450 retail with dealer cost dropping from $300 to $225. The retailers would still make the same % which is what they are after.
All of this however, I believe to be a moot discussion as no rod maker can afford to abandon the warranty program. Competitors would take away a large % of sales and that rod maker would be no more.
Roy
Dealers must sign agreements to sell at the designated price or loose their ability to sell a specific line of rods.
RoyThis is only true in theory when you sign your agreement you say you won’t sell below msrp unless your are having a promotion etc. etc. The manufactures that I asked said they do nothing specific if they find a dealer selling below the set price. L****d’s does this constantly just by calling a new item a customer return for up grade.
MS
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