Will Snubbing the Pre-Order System Get Us the Products We Want?

glennac Aug 10, 2015

  1. umtrr-author

    umtrr-author TrainBoard Member

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    I can add a data point (just one) with respect to quantities...

    Way back in the "previous century" I looked after a special run for my local N-Trak group. When we did the math, we decided we would have a better chance of selling an MTL car if we bought 400 rather than the minimum 300, because we would be able to set the retail price that much lower. That turned out to be the right decision-- we hit breakeven faster since we sold more at the lower price. And we had some "leftovers" for new members as well.

    With respect to the previous comment about the department stores... I'm thinking that a 500 store chain might order a case of a single freight car type (several roadnames). At let's say 24 per case, that's 12,000 cars. Split into 6 roadnames, that's 2000 cars each. And that's just one chain.

    Whereas I've been told that some roadname SKUs are being run in quantities like 100. Holy lack of economies of scale, Batman...
     
  2. Adrian Wintle

    Adrian Wintle TrainBoard Member

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    I'd think department stores might have been more likely to have ordered something like the Model Power mixed selection cases so while they would be ordering similar quantities of cars, there was no sorting effort required at their end.

    Adrian
     
  3. Inkaneer

    Inkaneer TrainBoard Member

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    You know the old adage, "my word is my bond" is not completely dead in this country. Some people still have sufficiently high morals that they take making a pre-order as a commitment to buy and therefore are unwilling to make that commitment on a product sight unseen. Another old adage comes in to play here, something about "buying a pig in a poke".

    Did Trainworx ask for pre-orders? If they did I missed them. People are expecting Bachmann to announce a new locomotive at the end of the month. No pre-orders requested. When Bachmann brought out the EM1 no pre-orders were requested. In fact they announced them in August and they were here in October. But I bet that if people were asked, before the Bachmann announcement, if anyone would do the EM1 people, other than B&O types, would have said no. But it was a huge success. Try to find one these days. This is how the market place works. Profit is the reward for risk taking. To paraphrase a saying popularized in a Kevin Costner movie, "make it and they will buy it." The pre-order system is an attempt to avoid risk but still make a profit. It is more on the lines of "buy it and we will make it."

    Listen, in an ideal world supply would always equal demand. But we don't live in an ideal world. Given the constrictions in the manufacturing pipeline manufacturers are better served by over producing rather than under producing. Customer satisfaction is better than having unsatisfied noncustomers. The cost of the unsold product can be made up in pricing or can be part of the parts inventory. Of course the word 'inventory' is not liked today. We don't want to keep inventories or customer service. All we want to do is maximize profit and the customer be damned.
     
    ken G Price likes this.
  4. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    Comes from so many years of vaporware and long, long waits.
     
  5. Inkaneer

    Inkaneer TrainBoard Member

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    Why nine set ups and why 37 SKU's? You are producing the same product only painting them different. Judging by the costs between painted and unpainted models painting does not add that much cost to the equation. So let's say your factory in China produces just one SKU, the undecorated one. You ship the product to your location and do the various paint schemes here close to the consumer. Doesn't take very long to paint a batch of shells so after you receive the product from China you make your product announcement. You can now react quicker to the demands of the market place. You are more flexible in meeting the demand for ABC RR and not getting stuck with unsold XYZ RR.

    Now about that second run, it will probably be smaller but will unit costs necessarily be higher? Maybe not. You won't have some really big costs like tooling new dies. All of that would have been (should have been) amortized on the first run. If you require new tooling for every run you make then you better get a new tool and die maker. Building in the flexibility described above may also make a second run unnecessary. Having unsatiated demand for ABC RR while sitting on bunches of unsold MOP RR and XYZ RR doesn't do either the customer or you any good.
     
  6. Rossford Yard

    Rossford Yard TrainBoard Member

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    The old LL GP 60 units (and maybe some others) had the total parts list and individual price for each part. While it totaled up to the retail price, so obviously about twice what they figure their cost was, I think it gave a pretty good idea of what the relative value of the motor, shell, etc. was. I don't have mine anymore, but it would be interesting to see.

    As PUD allows, motors cost the same, maybe more, boxes, etc. Painting may cost more. The tooling probably is figured to break even in the first run, since there is no guaranteed second. That was probably figured in the shell cost, but I am guessing. I would guess that once set up, they might run enough shells for another run, since they are only pennies per shell at that point. Overall, I have no idea if the second run is that much cheaper.

    I read in a John Armstrong book years ago that 80% of all sales of any given model come in the first month or so maybe the mfgs figured it out long ago. We have heard from Paul Graf back on the old Atlas forum, as well as a few others that they have also learned that dumping a lot of product on the market at once doesn't help sales. They have gained an intuitive sense about how much spending the market can absorb, which PUD confirms. Many of he second run buyers will be the guys with large fleets looking road numbers 3 & 4, or 4-6, or 5-8, etc. They need time between runs.

    One thing I don't get in Inkaneers argument is the statement "unsatiated demand for ABC RR while sitting on bunches of unsold MOP RR and XYZ RR doesn't do either the customer or you any good." Basically, while arguing against pre-orders, it seems that one sentence makes a pretty good case for it, no?

    Obviously, not every company does the pre-order route. It seems the ones who don't are providing what they know are niche products. BLMA probably knows that the big reefers, grain cars, etc. are something that hasn't been done. Kato with its passenger trains (sticking with mostly the big western roads and Amtrak) etc. Bachmann and steam, with a new model, etc. Those providing re-runs and more generic models may have a more difficult time predicting sales.
     
  7. RBrodzinsky

    RBrodzinsky Staff Member TrainBoard Supporter

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    One thing for the armchair cost planners to take into account is the cost of tooling. For plastic injection molds, it doesn't pay to go to "hard" tooling for any of the volumes being discussed (say 3000 for a run). For those not familiar, a "hard" tool, even a mold, will cost many many thousands of dollars (I routinely approve capital expends of >$500K each quarter, just for hard tooling). Those will produce 100's of thousands of parts. But, for smaller quantities, it just doesn't pay, so a less expensive soft tool is used. While still having the initial precision, they do not last. Depending on the part being produced, 3000-5000 may be all that you get (and the finer the detail and complexity of the part, possibly even less). The injection house may not even keep them around for very long after the initial use. That would depend on the supplier relationship and the likelihood and timeliness of reuse.
     
  8. Puddington

    Puddington Passed away May 21, 2016 In Memoriam

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    The economics of shipping unpainted shells to North America and setting up painting operations here; with all the associated direct and indirect costs that entails would add significant cost to each unit. While it might allow a producer to provide JIT style service to stores and clients the costs would far outweigh the benefits.

    You'd be amazed at how complex the painting process can be today; multiple passes on Tampo printing; unit specific details means more set ups (even if they are small, short sets) and more potential for waste and more labour... and let's face it; the labour component of durable goods costs are the most significant of all.

    I've tried to be open and honest about this topic; tried to provide you guys with one manufacturer's perspective; a manufacturer that is, above all, a modeller himself and "suffers" through the ugly aspects of pre ordering. We understand it isn't perfect; we know some companies do it better than others. We know that long, unexplained delays are frustrating and we try our best to communicate to the market when they occur; I've tried to shed some light on how they occur as well. It's clear that some flat out do not accept pre ordering as something they want to participate in; that's fine; that's their right and they accept the risk of missing a model they might otherwise have wanted. I sense that some here feel that pre ordering is a scam; a profit gouge being perpetuated by those big, evil model train companies.... ok; well; I've done my best to try and explain it's usefulness to us; if some still feel it's a pox upon the hobby then that's their business and I have obviously failed in my mission. The fact is that as manufacturers we want to do two things; satisfy our customers and be profitable and successful..... today; for many of us protecting our profitability by using pre ordering is a valid tool; and being profitable is how we can help assure we're here for the long haul to bring new models to you in the future...

    ..... and with that; I retire from this thread.... more models to design; more personal modelling to be done! Thanks for listening guys!
     
    tracktoo and Rossford Yard like this.
  9. RBrodzinsky

    RBrodzinsky Staff Member TrainBoard Supporter

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    PUD - I, for one, am grateful for your posts. They are well written and show the constraints of small manufacturing planning.
     
    Rossford Yard likes this.
  10. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    I believe what some folks are pointing to is that there are manufacturers looking so hard at protecting profitability, they are actually neither satisfying customers, nor achieving all the profit which is potential. When you limit your output, the market can be unfulfilled and certainly leave folks unhappy. You also may be restricting what could be returning on your investment.
     
  11. Rossford Yard

    Rossford Yard TrainBoard Member

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    While PUD said it, and other just implied it, let's take his 3000 unit model, probably a loco that retails for $125 and they sell to the distributor for about 40-50% of retail.
    3000 x 125 x45 (average of my numbers) The total take for that model is only about $170K. He has said there is about $15K in marketing, taking it down to about $150K. At 10% profit, there is only $15K for that one model, and maybe ten models a year. And we hear that new tooling is near $100K per loco, maybe 1/3-1/2 for cars (which sell for a lot less) It seems probable that most "profit" goes right back into the next model.

    Its just not big business folks. One bad project can sink that small a boat and they need to protect whatever they might make to develop the next one!

    I understand the differences of opinion and reluctance to order sight unseen, I really do. Its just that I think the mfgs have tried their best to satisfy us and those who pre-order with the products they make, probably have legit reasons to do so.
     
  12. mtntrainman

    mtntrainman TrainBoard Supporter

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    Just so we're clear here...

    I would be happy to 'preorder' a model I may want. As long as whomever I am preordering from isnt asking for CC info....the title to my car...the deed to my house...or for me to signover my paycheck....that they will hold till the model is built and is on the market...when I place that preorder !!!

    Ask me if I would be interested in one...if I say yes...tell me I'm on the list. Tell me to have a nice day and all that mushy stuff. Then...contact me when/if its built and you have it ready to be shipped so I can pay ya for it !

    NOT a problem.....:p(y):)
     
  13. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    This not not a good scenario. If it never gets beyond such bare existence, it may be time to sit down and ponder the future. Labor of love or whatever, certainly the financial industry is not going look at it as a good risk, if they need to be approached.
     
  14. Inkaneer

    Inkaneer TrainBoard Member

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    Not really. In my argument the company commits to making the model but the final paint job is not done at the factory in China but is outsourced here in North America. That way the manufacturer gets a leg up on their competitor manufacturers by actually having the product in hand and can then tailor the final product supply to the demands of customers. That way the manufacturer doesn't end up with the problem of demand for ABC RR and no supply and/or no demand for XYZ RR and no supply.

    It seems that companies who do not use the preorder system seem to do well. If they didn't they would either disappear or go to a pre-order system. But they probably have confidence in their market research abilities which pre-order companies seem to lack.
     
  15. Thomas Davis

    Thomas Davis TrainBoard Member

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    Back in the 1960s, I bought the majority of my HO scale Rivarossi passenger cars at the downtown Chicago Woolworth's. They usually had a larger stock of the passenger cars than the downtown hobby shops (probably because few people thought to shop Woolworth for such things). But AHM/Rivarossi was about the top of their lines.
     
  16. Rossford Yard

    Rossford Yard TrainBoard Member

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    I may be overly pessimistic about it, and do think, like many small businesses, the smaller producers are probably buying themselves middle class jobs because of their love of model railroading, and on our behalf. But hey, its probably not a bad life, middle class and working at something you love to do. I figure Walthers, Atlas and Kato, with decades of history have probably figured the biz out and gross in the millions, and do well for their owners. Of course, like HoJO and Holiday Inn, markets change and newcomers do well (a la BLMA, FVM). Certainly nothing is guaranteed to any of them. Just some of the names above prove that....Woolworths, AHM, Rivarossi, etc. Times keep changing even in the MR world..

    Inkaneer,
    I understand your position, and I think we have established that few if any vendors do ask for CC numbers. If they did, most of us would think twice or three times before doing that. I think we are all more comfortable with an Atlas or Kato from whom we have bought before with 99% good results and reliable, as advertised product. The combo of pre-order AND spotty quality is a problem in building brand loyalty, but I suppose each industry will have its top brands, middle brands and lower brands, based on their ability.

    As per above, we don't really know how well they do. Of course, we can get an idea of who seems to be struggling, but its always a guess.
     
  17. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    What I'm seeing described is a continual "break even" situation. It's like crossing a patch of ground where there may be gold, or quicksand. So you are constantly tiptoeing along, hoping to find that gold, but praying to never step in the quicksand and hoping for a guarantee it can never occur. In business there is simply no way to be assured of success.
     
  18. gcav17

    gcav17 TrainBoard Member

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    Ok... So how does bachman succeed without preorders? And people here and everywhere, bashing them when they can?
    I think, they are using a good model for business in the hobby market. Low end starter sets for the kiddos. We need them youngsters in the hobby.
    That "terrible" low end market keeps them in the higher end business. Plus, outstanding service.
    I understand risk. If I wanted to I would tell people to give half of what a project costs starts upfront. Of course that could be months in advance. I think it's a poor business method. Thats, too risky for me and them.
    The OP has said he does not want a commitment by credit card for something that may NEVER be produced. That's risky for a customer. Heck, I just discovered today that my IRS filings were hacked. ...
    In my view. Kato atlas bachman.. They can afford more risk than midlevel and smaller. But how do so many midlevel companies stay highly successful without preorders? Do they not take just as much risk but with more at stake?
    There needs to be more than just a " we want to build this, but we want monetary commitment first". Just build the dang thing. Get it out to market. If you build quality, I swear you won't have a problem making money...



    Sent from my SM-G900V using Tapatalk
     
  19. Point353

    Point353 TrainBoard Member

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    Suppose manufacturers starting using a "kickstarter" type method to gauge interest in, and perhaps partially fund the development of, new models - especially those of more obscure prototypes or for less popular roadnames. How many customers might be willing to "buy into" such a concept?
     
  20. steamghost

    steamghost TrainBoard Member

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    I don't see relative supply of roads to be a problem. Falling short by something like 10-20% of actual demand is frustrating for both sides, but no new run will be possible for many months, anyway. That assumes there would be more roads possible aside from new numbers of the same roads. IMO it's more determining overall demand for the body style. They're running out of choices of that vs. possible demand. I'd like to see builds by Mt Vernon Car but don't expect anything except via Shapeways.

    Bare shells are what's always being painted. Then details (brakewheels, doors, you name it) must be painted and added (think painting those parts halfway around the world would get a perfect match?). Underframes and suchlike must then be added, so the overall assembly must be done here, and then cars must be individually boxed. So you're basically moving the assembly process here, too. That's all done cheaper in China. You might be willing to pay for that; most people clearly want it as cheap as possible.
     

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