Extra BTO pre-orders... Can dealers make it up in volume?

Jim 1939 posted:

So without BTO preorders what happens if what you waited for doesn't get made? Not enough orders and that's what will happen.

True.  But the irony lies in the fact that most of the enthusiasts waiting to bargain-shop might already have more trains than their great-grandkids can enjoy.  So I'd suggest they're not too disappointed if something doesn't get manufactured.

Case in point:  Lionel's Steel City Switcher set at $1399 MSRP ($1050+ typical pre-order price).  I'd certainly LIKE one, but I'm not spending $1K+ for a switcher loco and 4 freight cars.  Ain't gonna happen.  So I'll wait things out.  If the set doesn't get made for lack of orders, no big deal.  And if it does get made, I'll wait for a super-sale.

It's really not our responsibility to help the importers turn a profit at all costs.  It's their responsibility to make it too difficult for buyers to NOT pre-order.  

David

Landsteiner posted:  I believe these prices are based upon the (lack of) economies of scale due to decreasing sales volumes, the increasing costs of new tooling and similar unfortunate facts of life. 

In terms of economies of scale, please explain then how an MTH UP FEF is about $400 less than Lionel's current FEF?  How or why is MTH's 2015 FEF price in line with inflation plus a stronger dollar relative to what Lionel charged for their FEF in 2008....but Lionel's current price is WAY beyond this?  

Going back to the lawsuit between the companies back in the early 2000s and based on the information that was made public, Lionel deals in a much larger volume level than MTH.  Economies of scale would tell you that Lionel's equivalent products should actually be...get this...cheaper than MTH.  But the opposite is true.  (And please keep in mind that Lionel is owned by a Private Equity Firm.)

This large price differential is apparent throughout the entire 2015 and 2016 catalogs of both companies.  (We can even ignore the fact that Lionel makes a nice chunk of change licensing their TMCC products to other manufacturers for the sake of this discussion.) 

Lionel already had (presumably) recouped its fixed costs when the first batch of FEFs were made in 2008.  The newer units, without the initial fixed costs should have actually started out cheaper....then incurred the cost of whistle steam....plus inflation....plus increased costs in China and a stronger US Dollar.  This would lead you to (I opine) roughly MTH's current street price....which no one is complaining about.  Lionel is, in my opinion, greatly overcharging for their current offerings.  So I do not buy them when they are first out.  I generally like the product....but I do not like the price.

But here's the real rub:  In just about every economic transaction the RISK of the transaction typically piggybacks on those who are making money/profit in the transaction.  In the case of BTO, this would be Lionel and its dealers. 

Why should I, as a consumer, voluntarily agree to absorb some of this risk to help Lionel (and the Limited Partners who own the company) make as much money as possible?  That's what BTO really is....and that's why I'm not playing.

I bring up MTH only b/c it's the closest thing to an apples to apples comparison that can be made.  We can speculate all we want...but MTH's current pricing model is indicative of what our beloved, modern, three rail, O-Scale trains actually cost to manufacture, market, distribute, and sell.

But enough belly aching for one night.  It's still a free Country and we can agree to disagree on this.

Hope everyone has a nice holiday weekend....and runs some trains for part of it.

"In terms of economies of scale, please explain then how an MTH UP FEF is about $400 less than Lionel's current FEF?"

Thanks for the holiday wishes, which I extend to all as well.

To me at least, the explanation for the differential(s) in MTH and Lionel prices are relatively simple, despite fact that Lionel sells more of any given item by and large than MTH. 

Firstly the volumes are very small for both.  Whereas MTH used to and probably still does smaller runs of 50 or 100, Lionel does runs of 500 and 1,000, which are still very low numbers to spread or allocate the overhead of fixed costs such as tooling, packaging, etc.  So Lionel's numbers don't really create economies of scale, except perhaps for their sets, which they sell in the thousands or tens of thousands.  That's one reason Lionel can underprice MTH on sets, but on virtually nothing else.

Secondly, Lionel is still doing new tooling, unlike MTH at this point.  MTH's tooling probably dates mostly to the 1990s and early 2000s when costs were lower.  So that's an enormous pricing advantage, since they are reusing tooling that is partially or fully amortized, as compared with Lionel using new tooling for many of their most expensive products.

Thirdly, and very importantly, MTH has to undersell Lionel by price or they will likely be out of business.  Lionel's brand recognition, popularity and dealer network, media presence, etc. all dwarf MTH's.  Some of this costs money that MTH doesn't have or choose to spend, but I'd guess Lionel's profits are greater to go along with those higher prices.  Many luxury brands do not have proportionally higher costs to account for their dramatically higher retail prices, as we all know.

However, there is a difference between "luxury" pricing and gouging.  Some think Lionel is gouging. I do not.  They are just accounting for their higher costs, innovation and brand leverage in making probably reasonable profits.

Rocky Mountaineer posted:

Jim 1939 posted:

So without BTO preorders what happens if what you waited for doesn't get made? Not enough orders and that's what will happen.

True.  But the irony lies in the fact that most of the enthusiasts waiting to bargain-shop might already have more trains than their great-grandkids can enjoy.  So I'd suggest they're not too disappointed if something doesn't get manufactured.

Case in point:  Lionel's Steel City Switcher set at $1399 MSRP ($1050+ typical pre-order price).  I'd certainly LIKE one, but I'm not spending $1K+ for a switcher loco and 4 freight cars.  Ain't gonna happen.  So I'll wait things out.  If the set doesn't get made for lack of orders, no big deal.  And if it does get made, I'll wait for a super-sale.

It's really not our responsibility to help the importers turn a profit at all costs.  It's their responsibility to make it too difficult for buyers to NOT pre-order.  

David

 

I agree with David on this. Most people have quite a few trains and If they already have a model of say a heavy Pacific , I don't think they would jump off a bridge if the new version with 1 extra feature did not get made.  Vision line bigboy was such a big deal. you can already get them for lower than the best bto price which I think mr Muffin had at 1800. If you don't mind one that has been run ,even cheaper.  I just want to say that I love all the people that buy the latest and greatest. As a mostly secondary buyer they help me alot! John

Another Lionel offering that was basically a BTO program was the 784 Boston and Albany Hudson, along with a bunch of freight cars. These pieces could only be ordered directly from Lionel. Originally they cut out the dealer completely. I seem to recall that after a lot of dealer complaints, Lionel had customers specify their Lionel dealer, and paid them a small commission.

From what I see, the 784 Hudson did not hold it's value any better than any of the other Hudsons of the era. It was too expensive for me when new, but I did manage to pick one up at a much better price years later.

So far I haven't found any of the cars from the offering, but I don't really look.

It's simple. If I see it in the catalog and  I know it's a winner, I order it. The Vision cars were a no brainer. The Berkshires as well. 

I applaud the reissues only in the fact that I can find the older version. 

BTO is just a way to communicate to the consumer that once it's gone. It's gone. 

What concerns me more is the 5 year only service policy. 

C W Burfle posted:

... From what I see, the 784 Hudson did not hold it's value any better than any of the other Hudsons of the era. ...

I think it's safe to say that the technology treadmill is moving much too quickly for anything to hold it's value.  As long as importers keep publishing HUGE catalogs and pumping products into an already saturated marketplace, any potentially "hot item" only maintains that status for a relatively short moment in time -- which is precisely why successful dealers/sellers want to move stuff QUICKLY. 

Imagine how happy some sellers were to unload their premium-priced VL Reefers the week before Lionel released the new 2016 catalog containing another three-pack with new road-numbers (but otherwise essentially a re-issue).     Lionel lets years go by with no VL Tanker re-issue, yet here we have a VL Reefer re-issue in nearly back-to-back catalogs.  One week they're worth $500+ on the secondary market... The next week they're selling for a bit over the re-issue's $215 pre-order price -- more or less as a convenience to buyers who don't want to wait for the re-issue later this year.

It's tough to predict -- like it always has been -- which items are gonna be this year's "hot item".  And BTO hasn't changed that one bit.  Some BTO items are hot (on spec) as soon as they're catalog'd.  Others are sleepers -- becoming hot after the fact.  And some BTO items like the Heavy Mikado steamers become the year's bargain opportunity for hundreds less than their $1300 MSRP.  Lowest price I've seen from a Lionel dealer is $806 if you're flexible on road name.  And these haven't even been on the street for a year yet.  Go figure. 

Further proof that MSRP's (and anything based on them) are absolutely meaningless numbers.

David

P.S.  BTW, we should stop using the "M" in MSRP when talking about toy trains, since it's become a bit of a misnomer.  The "manufacturer" (in this case) has absolutely no role in "suggesting" the selling price!  Yet I don't think ISRP (Importer's Suggested Retail Price) would ever take hold.    So let's just go with SRP. 

I have always gone by the old saying, a bird in the hand is worth 2 in the bush. On that note why didn't Lionel produce the number 8 VL surviving Bigboy#4023? Still waiting.

"P.S.  BTW, we should stop using the "M" in MSRP when talking about toy trains, since it's become a bit of a misnomer.  The "manufacturer" (in this case) has absolutely no role in "suggesting" the selling price!  Yet I don't think ISRP (Importer's Suggested Retail Price) would ever take hold.    So let's just go with SRP."

Most "importers" like Ford, Apple, etc. design products both here and abroad, and manufacture (actually build stuff) all over the world.  

I think if you ask your dealer, their cost is figured as a discount off the MSRP. Thus the proposed cost to the consumer is directly related to the MSRP.  

Imagine how happy some sellers were to unload their premium-priced VL Reefers the week before Lionel released the new 2016 catalog containing another three-pack with new road-numbers (but otherwise essentially a re-issue).     Lionel lets years go by with no VL Tanker re-issue, yet here we have a VL Reefer re-issue in nearly back-to-back catalogs.  One week they're worth $500+ on the secondary market... The next week they're selling for a bit over the re-issue's $215 pre-order price -- more or less as a convenience to buyers who don't want to wait for the re-issue later this year.

With the VL Reefers trading so high, in some respects, it's not surprising that Lionel would run them again. That gives Lionel an opportunity to cash in on their popularity. On the other hand, it shows people that Lionel can kill the secondary market on anything that does skyrocket in value. Is that good for Lionel's sales?

What is the secondary market on the VL Tanker? I see some on EBay, new stock at $250 for a set of three. If that is close to the street price when the cars were released, there probably isn't enough demand to run them again.

So, I hope folks are not buying their trains as an investment, or with the expectations of high resale value.

Landsteiner posted:

...

I think if you ask your dealer, their cost is figured as a discount off the MSRP. Thus the proposed cost to the consumer is directly related to the MSRP.  

That's the biggest misconception out there.  Dealers (of any product) are often presented with their cost -- plain and simple.  How it's represented to the consumer is an entirely different picture, and providers of product will often help their dealers "market" their product accordingly.  It's to the dealer's advantage to represent an actual selling price as % off MSRP, because it plays into a sort of smoke-and-mirrors game of yielding a huge (and meaningless) discount without divulging the dealer's true cost.

David

"That's the biggest misconception out there. "

I've seen the Lionel dealer price lists from time to time.  They specify a cost that is a fixed discount from the MSRP, which is significantly less for high end items like locomotives in most cases,  and a greater percentage discount for the rolling stock and train sets.  It can vary from 15-40% in most cases but is predictable from the target audience.  Each item's price represents an easily calculable and relatively consistent percent off MSRP.  So the MSRP does indeed mean something.  It is different from product line to product line and I assume, from manufacturer to manufacturer.   MTH's dealer discount from MSRP has traditionally been significantly less than Lionel's for example. Probably still true judging from dealer prices for both lines. 

In summary, the dealer's cost (at least before shipping and any rebates) is figured off the MSRP in almost all instances according to every dealer who has chosen to share the Lionel dealer cost sheets with me.  Not a comprehensive survey, and perhaps out of date, but it was done that way for decades.

I have always pre-ordered almost everything since getting back in the hobby a few years ago, so the BTO policies change nothing for me. For reasons others have stated above I actually prefer pre-ordering. Nothing I have pre-ordered has yet been canceled. If the price is in line with what I am willing to pay and within my train budget, I order the item (although I have fudged a time or two on the yearly train budget). If nothing meets my criteria, there will be another catalog along in a few months. If I am happy with the price I pay at the time of pre-order (which is a must for even placing an order), I don't worry about what the items are selling for after that.

As for the big blow outs, I think those days are over and we won't see anything like we have in the past. The dealers are now taking all the risk and the manufacturers are making their profits selling to the dealers. So the room for discounting is much smaller for the dealers than it is (or was) for the manufacturers. In turn any blow outs will not have the discounts like they would if the manufacturer was doing the blowing out.