Peter Wolf on the Guitar Manufacturing Industry

by Staff.

In July of 2009, Modern Guitars columnist Peter Wolf announced the launch of his new business, Brandwolf Consulting, LLC, aimed at helping music instrument makers with sales, marketing and related strategic concerns such as branding and distribution. Wolf recently left Paul Reed Smith Guitars where he served as the company's Director of Sales & Marketing from 2004, having previously been the International Sales Manager for PRS since 1997. His business relationship with PRS, however, goes back to 1990 and Wolf's founding of PRS Guitars Germany, a distribution company that imported and distributed high-end guitars and amplifiers to Central European countries. According to a recent press release from Brandwolf Consulting, "Under his direction, PRS Guitars’ export sales increased 10-fold in only 10 years and distributors and dealers in 56 additional countries were appointed and cultivated."

While on some levels the driving force behind guitar lutherie and making is a passion for the art and craft, economics plays a significant role in the contined health of the industry. Today's financial climate poses a challenge to how guitar makers and manufacturers go forward, if not an outright threat to whether or not they can.

What follows is a recent email exchange with Peter Wolf about the state of the guitar making industry and some fundamental ways makers can face the hurdles ahead.

Modern Guitars: Focusing on the guitar segment of the music instrument industry, what's the fundamental marketplace model?

Peter Wolf: It depends. From experience, I would say that traditional distribution probably provides the highest likelihood for success. Traditional distribution is manufacturing – distribution – retail – consumers. It all starts with building the brand, though. Building a brand and creating sustained demand takes time and great care. It doesn’t happen over night.

Modern Guitars: What do you think about manufacturers/makers selling directly to consumers, which is what many if not most of the small-production guitar builders do. Since, in general, many consumers are spending less, does it make sense for larger producers to adopt this approach or would it negatively impact a maker's relationship with distributors? While it would put the burden of customer relations on the manufacturer, it might increase revenues by cutting out some of the middlemen.

Peter Wolf: It’s difficult in reality to (suddenly) change distribution systems. First of all, what happens to inventory at dealers and distributors? Whenever somebody made a decision like this in the past, the result was massive blow-out of product. Blow-outs and sell offs are detrimental for the brand, so trying to do that in the middle of a difficult economic situation is a really bad idea, not to mention it will change your relationship with dealers and distributors forever. You do that to a dealer or distributor once and you can be sure they won’t be touching your product anymore in the future.

Modern Guitars: Is it a trickle-up model, meaning that when the consumer spends less, revenues shrink on each stop back to the manufacturer?

Peter Wolf: Not necessarily. As long as supply and demand are in a favorable relation (demand is greater than supply), things are generally fine. Margins can stay healthy and every part of the supply chain has an interest in growing. When supply is greater than demand, prices usually go down and the brand is hurting. It’s pretty simple.

Modern Guitars: At the moment, we're in a situation where demand has contracted not due to a branding problem but due to a contraction in consumers' willingness to spend disposable income generally - people either don't have as much disposable income or they're afraid to part with it. One thing other segments do in a shrinking economy where branding isn't the problem, is to make purchasing less painful by reducing prices or offering attractive financing to buyers - no money down, low monthly payments, etc. Is this a viable approach?

Peter Wolf: Yes, all of the above is certainly right and can be tried. It depends on how much demand has declined. It’s not the same for everybody, by the way. If somebody makes 500 guitars a day and demand drops 50%, it’s a completely different animal than if somebody makes six guitars a day and demand drops 50%. It is crucial to "know" the marketplace and have realistic expectations and projections. If necessary, less product needs to be produced for a certain time to not put supply and demand out of whack. Smaller makers can survive bad times better than bigger makers. They don’t have to deal with as many overhead issues and things are a lot less complicated usually.

Modern Guitars: The financial crisis seems to have become a matter of general public awareness in the third quarter of 2008, but were there tremors in the music instrument industry prior to that?

Peter Wolf: The "crisis" we’re dealing with right now is the result of greed on a very high level. I would say warning bells have been going off for at least two years or longer but it’s hard to convince people to be careful and reasonable. The MI industry is a very sensitive little organism. More than in commodity industries, numbers in MI are a result of intact relationships, internally and externally.

Modern Guitars: Has the financial situation forced manufacturers to re-focus energies toward lower-cost product lines?

Peter Wolf: That may be the case, but in my opinion that would be the wrong approach. It’s not so much a question of price. It’s more about how strong the brand is and how strong relationships really are. Finally, is there a war chest? Can they survive lower sales and revenues and for how long?

Modern Guitars: So, instead of lowering prices or offering financing incentives, you think the better approach is renewed effort to spark desire (branding)? What do you do about potential buyers who have the desire, just not the cash, or who are afraid to part with the cash at the moment?

Peter Wolf: I’m saying, it is what it is and companies of any size have to deal with it. I usually don’t like to compare the high-end guitar and amp market with other industries although many people do it all the time. Let’s face it, nobody needs a $5,000 guitar in difficult times, especially if he or she already owns five or six of them. My point is that coming up with "incentives" is reactive. It’s harder but smarter to "plan" proactively or, if that is not possible for a variety of reasons, at least keep the company in a financial position in which it can survive slower sales periods without massive internal and external changes.

Modern Guitars: In this climate, does a manufacturer decrease high-end product production and increase low-end?

Peter Wolf: I’m sure some manufacturers have been considering this approach. However, the lower price segments are very crowded and are actually hurting more right now. Of course, there are exceptions.

Modern Guitars: Is this where branding is again an important element, so that your low-end product stands out among the herd? Does having a strong high-end brand help the lower end? Does offering a low-end product ever hurt high-end branding?

Peter Wolf: I don’t think it would hurt as long as the general philosophy is being applied. There’s nothing wrong with offering lower priced products. In fact, I’m surprised and amazed at how good so called "cheap" guitars and amps are these days in general compared to, let’s say 1982.

Modern Guitars: What are some of the steps a manufacturer, luthier, or other high-end guitar builder can take to preserve, if not grow, market share?

Peter Wolf: Common sense, being reasonable and coming up with realistic projections in conjunction with solid finances are very important, especially right now.

Modern Guitars: Any specific, practical tips you can share? What sort of strategies would common sense dictate?

Peter Wolf: It depends on the individual situation, the brand, product line, financial situation, demand, manufacturing capabilities, dealer/distributor network, media presence and so on.

Modern Guitars: What services does Brandwolf offer to the guitar segment of the MI?

Peter Wolf: I guess I have a track record in finding and growing brands, especially in the high-end guitar and amplifier market. I have been fortunate to build solid relationships with dealers, distributors, manufacturers and media on a global basis. I can knock on any door at any time. I’ve always kept my promises and commitments, which doesn’t seem to be the rule anymore, unfortunately.

Modern Guitars: Two basic ways to increase profit - decrease spending and increase revenue. Is the trick now to find the right mix? How can a company spend less yet increase revenue?

Peter Wolf: Decreasing spending while increasing revenue is a difficult goal in a manufacturing environment, but it can be done. Planning is a key element and discipline throughout the company is inevitable. Management is responsible for making it happen.

Modern Guitars: Some businesses must be tempted to decrease spending in areas such as advertising and promotion, yet that runs the risk of also decreasing revenue. Should companies decrease spending in these areas where the expense-reward ratio is uncertain and maintain or increase spending where the ratio is clearly positive and trackable?

Peter Wolf: It has been very difficult to get to the bottom of this issue on a daily basis. Independent research is very costly and most companies in MI can’t afford it. As a result, manufacturers in our industry are trying to track through what I call internal research, utilizing employees, reps, dealers, distributors and, to a degree, media to find out if their marketing bears appropriate results. Customer surveys and direct marketing can help too if companies are willing to spend time and resources, which isn’t the case too often.

Modern Guitars: Is the key to success in this climate a well thought out balance between offense and defense?

Peter Wolf: I think it is very important to know the "truth" in the marketplace. It seems to me that some decision makers don’t really want to know the truth if it doesn’t line up with their expectations, hopes and financial needs. Things can get awkward fast when that is the case. Nevertheless, knowing what’s really going on out there is the only way to make good decisions. It ultimately comes down to management and leadership.

Related Links
Brandwolf Consulting
Peter Wolf's column, "Industry Views," on Modern Guitars
Peter Wolf Interview (2005)

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