The Deflationary Consumer Electronics Industry

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There are a number of websites that provide historical average prices for any number of things. For example, in 1975 the average price of a new vehicle in the US was approximately $4,200, which seems cheap compared with today. In 2010 the average was just more than $29,000, or just less than 700 percent more than in 1975.

However, based on annual inflation since then, the $4,200 1975 average new vehicle price today should be around $19,000. So, for whatever reasons the price of new vehicles has increased 5.5 percent per year since 1975, or about 1.5 prtvrny more each year than the annual rate of inflation during that same time period.

My son recently sent me a link to a Harvard case study addressing Pioneer back in the mid ’70s. Interesting reading much of which still applies today, but what caught my eye was the 1975 price list for Pioneer home receivers. According to that price list back then Pioneer’s rough equivalent of today’s MAP prices for receivers ranged from $240 to $700, or pretty much the same for their then competitors Kenwood, Marantz, Harmon

Kardon, Sansui just to name a few.
Today A/V receivers cover a wider price range than they did in 1975, from less than $200 to more than $3,000, but based on what is advertised it appears the bulk of sales occur around $500. If true, again according to sources cited in the Harvard case study, that is only $185 more than the average receiver price for all receivers sold in the US in 1975.
A $185 price increase in 36 years, about $5 a year, for a product that is vastly superior in capability to its 1975 counterpart. Even assuming the historical CPI for these last 36 years, the average 1975 $315 receiver should today be approaching $1,400, or $2,200 if the same price inflation that affected new vehicles also applied to receivers.
But of course it doesn’t. Whatever measure of inflation is used only applies to every single cost that goes into making and selling receivers, not their price, and the main thing that surprises me about that is the fact that there are any manufacturers or retailers left who have somehow found some way to stay in business. Well, that and why they would even want to given the dismal profit situation.
The commonly accepted logic for holding if not lowering prices is that sales will go down if prices go up. They might, although I can’t think of any other product where that was true enough to justify not raising prices at least to keep pace with rising costs. And since during these same 36 years non-inflation adjusted household income has increased more than 400 percent (+16 percent adjusted for inflation), we know that as bad as things might appear to us now, people have the money. So why hold a price that by any measure appears unreasonable?
Your guess is as good as mine.
William Matthies is the CEO of Coyote Insight (www.coyoteinsight.com) and can be reached at wmatthies@coyoteinsight.com or at (714) 726-2901. Visit Business Wisdom at http://businesswisdom101.blogspot.com/

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