Global Electric Guitar Market

The electric guitar is not a commodity or a regular good, is an instrument that becomes an extension of the player and helps him to convey emotions, gives him the sense of belonging to a certain group and helps to show his or her own Individuality; customers as well as the brand value, in this respect is similar to a luxury product, with the addition that there is a huge loyalty towards brands.

Two companies clearly dominate the market: Fender and Gibson.

They were also the pioneers of electric tartars and boast a wide range of products for diverse target markets: their entry- level products range from 1000 and their high standard production models are offered for about 10000, from that price and higher they seek to appeal to the collectors market, going to as high as 800000 for a guitar from a particular year, in this aspect they not Just sell the guitar as an instrument but as an investment.

Is it not unusual for guitar players to identify themselves as a “Fender guy’ or a “Gibson guy’ to the extent of attributing personality values to the stated phrases, even if the onto actually possess an instrument from one of this two brands.

The Global Electric Guitar Market is highly differentiated, with companies offering a wide palette of colors, materials, sound and features, as well as “heroes” to promote a particular model.

Introduction to Porter’s Five Forces Framework

The Bargaining Power of Suppliers

Before assessing the impact of suppliers to the manufacture of electric guitars, it is important to know the structure of the guitars, and the materials that have been used.

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As can be observed in the image, 3 main parts compose the electric guitars: The headstock, the neck and the body, and all are made in wood. There are other small pieces in metal, plastic and the strings. Electric guitar parts Therefore, wood is the main raw material for the manufacture of electric guitars.

The wood has a great influence on the sounds the guitar can create so its quality is important. The primary requirements are that the wood must be consistent, flawless, knots or cracks; normally Mahogany, Maple, Basswood, Agate’s, Alder, Ash, Poplar, Spruce and Walnut are used. Although the quality of the wood is very important for making guitars, wood suppliers eave no bargaining power as firms can easily switch supplier since it is a very common material. Moreover, the production process of electric guitars of some traditional companies such as Gibson or Fender is done manually, and the machinery used does not have any significant level of sophistication.

The Bargaining

Power of Playing a musical instrument more specifically an electric guitar is not an essential need, in fact could be classified in the last level of Mason’s hierarchy of needs – Self- Actualization – which include realizing personal potential and creativity. Consequently, people play the guitar to enjoy, because they like it and nobody forces them.

Keeping this in mind, buying the musical instrument is a whole experience to explore, because of the type of good and price, a regular Gibson or Fender electric guitar cost about 1000?, the customers tend to do a very meticulous purchasing process. Electric guitar purchasing process In fact, buying a electric guitar is not spontaneous, there are some crucial factors to the consumers as, the recognition of the brand, the specific characteristics of the product, the quality, the kind of music that is going to be played and among other incinerations.

On the other hand, the “guitar industry is a unapologetically competitive market” (Guitar Center), which means, there is a significant number of companies operating in the market without a dominant control by any of these particular, the key issue in this type of market is product differentiation, not homogeneous goods are presented, ii, the guitars depending on the producer, have variations that allow it to be different. However, the producers must be very active and keep the advantages of the company, because the consumers can easily change the brand if does not fit totally with their expectations.

In the same way and according to Porter “If the product or service can be easily substituted, and if there is no risk involved, the bargaining power of the buyer is increased” which means that the bargaining power of clients in the electric guitar market is high. For instance “Fender and Gibson have long been the dominant electric guitar makers, but in the ass’s the Japanese guitar firm Beanie saw an opportunity and realized that they could make higher-quality products than the American firms, but at very competitive prices.

Beanie focused on product innovation, while the American firms seemed to rest on their laurels. Beanie has been a big success, and it is one of the top guitar firms today” (Edwards). V. The Threat of New Entrants Another of Porter’s five forces is the threat of new entrants. This refers to the threats and barriers new competitors of the same product or service undergo to try and succeed in the market amongst already established competitors. In the global electric guitar industry, seeing how it is a very unapologetically competitive market, the entry of barriers is quite moderate.

In a monopolistic competition “many producers sell products that are differentiated from one another, there are many producers and any consumers in the market, and no business has total control over the market price” (Wisped). Globally, there are hundreds of electric guitar manufacturers and According to Guitar Center, “There are few barriers to entry in the electric guitar industry, resulting in the ability for small guitar makers to build high quality instruments for reasonable prices. Small customized guitar makers make the inflated prices and poor machine made quality of the large vendors like Gibson and Fender look like robbery…

However, what the average and ignorant consumer does not know is that small businesses naturally eave an advantage in customization and unique application of products because of its ease of management and close ties with customers. Those startup businesses, which develop new quality products and services in existing markets, are able to enter novel products and markets to broaden their customer base. Many studies support the concept that consistently improved innovation or quality in production can satisfy and help create more customer demand”.

Although is hard to make a profit when your competitors are already making great revenue, if new entrants to the market focus on having a competitive advantage over he bigger rivals with high quality, personalized yet not too price electric guitars that could possibly be easy to ship to multiple places around the world, the new entrant could have a chance. However, as easy as that sounds, let’s not forget the loyalty of already existing manufacturers. Another barrier to entry is the cost to manufacture an electric guitar.

If one is based in the United States, the basic cost of building using pre-fabricated parts could cost over $700 (Seymour Duncan). Having the guitars being manufactured abroad might cost you less, if you take a look at Korea or Mexico for example, Mexican-made fenders come with a higher quality and the prices are quite low, yet it is still somewhat expensive, and hard to enter the global market as well. You have to consider the body of the guitar, the neck, the tuners, electronics, such as pots, switch, wires, the pickups, the bridge, neck plate, strap pins, etc.

And let’s not forget, the labor. And if this wasn’t enough, throughout the years, electric guitars have decreased in price tremendously. “What is happening with electric guitar industry is somewhat complex, but the main factor seems to be that the guitar manufacturers have simply over-produced. They have put far more electric guitars into the marketplace than the present demand for the guitars will bear. However, as a result of the overbuilding, the street prices of electric guitars have fallen dramatically.

For the consumer this is a very positive thing in general. For small music stores it is a disaster. Small music stores survived by selling an electric guitar or two at a 30% margin. The extra profit paid their bills. That margin has dropped for them. The guitars stay longer on their shelves. Plus, there is a true critical mass of investment in the guitars before the dealer can create a local market for the attar” (Gilligan). One of the main reasons of why the market for electric guitars have dropped is because the trend of now a days is a much different one.

Electric guitars used to be real big back in the baby boomers era and it is time that the baby boomers outgrow the electric guitars. The new hip music of today, although electric, contains no electric guitars. Electronic Dance Music is to be known as the music of today globally. News and financial information, Forbes, writes that “EDM/Pop is the music of the world now – and that type of music has little to no electric guitar in it. So all you kids trying to make the decision whether it’s better to learn how to make beats or Join a garage band, choose wisely.

The music of today might not be the music of tomorrow. Think hard before you give up on that plank of wood with metal wires. The electric guitar may be dead in music today as evidenced by guitarists everywhere scrambling to find new lines of work, but it may Just as likely rise from the musical ashes of tomorrow. Trends are like that” If entering the global electronic guitar market was not hard enough, Porter mentions another force that it is essential to take in mind before starting your own company, and that is the threat of substitutes.

The Threat of Substitutes

The threat of substitutes, according to Porter, is the “availability of a product that the consumer can purchase instead of the industry product”. This could be seen as another barrier to entry. Like mentioned above, there are hundreds of competitors in the electric guitar market and if your company does not have a solid and strong competitive advantage, it’d be really easy for a consumer to Just purchase another brand. However, it’s not only about consumers buying another brand of electric attar, it’s also about consumers choosing to buy a complete different guitar, such as an acoustic guitar.

An Acoustic guitar offers similar benefits to the consumer as the product produced by the firms within the industry and according to Porter’s 5 forces, threat of substitutes shapes the competitive structure of an industry. (SCOFF). In the Musical Merchandise Review Current Issue, MI Stats: Guitar Market Breakdown, they give a brief explanation of why is it that Acoustic guitars have been outdoing electric guitars. “Electric guitars make up less than half of all guitar sales at 47 percent with acoustic dominating the market by a small margin… r the last few years, in our annual 50 Dealer/50 State report that is featured in the December issue, retailers have consistently told us that electric sales have been flat, but acoustics have been growing. In this month’s At a Glance, Tommy Collette of The Music Zoo seems to back that up.

He says that while he’s always been known primarily as an electric guitar shop, his increasing embrace of acoustics in the last year has proven to be a winning strategy’ (Mitchell). Only time when it’s said for electric guitars to outsell acoustic tartars is when consumers already have in mind paying a high price. High price tends to be associated with high quality and if they are already thinking of purchasing an expensive guitar, they tend to prefer an electric guitar more than an acoustic one. Another high threat of substitution, when trying to localize in different countries is that many countries, especially in Asia, rather spend a few more and purchase an already known brand than purchase a local one.

“Local brands can’t compete with a Martin, Taylor, Fender, or Gibson… [Asians] are keen to show that they can afford products of that status” (Multidimensional). According to Porter, there is a high risk in threat if Consumer switching costs are high, if the substitute product is more expensive than industry product, if substitute product quality is inferior to industry product quality, if substitute performance is inferior to industry product performance and if there is no substitute product available. The last of the forces that Porter describes is the Extend of Competitive Rivalry.

The Extent

This is how the different factors impact the competition. The electric guitar market is a monopolistic competitive market because all producers differentiate their products. This means that on this point, the competitive rivalry is not so big as long as the producers keep their differentiation. But on the other hand, there is a big threat for substitutes, partially because of acoustic guitars which will be cheaper than electric guitars, and also guitars mainly coming from Asia, which are cheaper, but the population there would rather buy a brand as a way to show they can afford it.

Moreover, the buyers have a high bargain since it is not a need to buy a guitar, and this kind of buying needs to be thought about because the electric guitars are quite expensive. Finally, suppliers don’t have so many bargains since it is easy for the producers to choose another supplier (of wood principally). In overall, we can say that the competitive rivalry is quite high because there are a lot of producers, even if they can differentiate their products, and the consumers don’t need this product. Moreover, there is not so much rivalry with acoustic guitars which are thought for different customers. And those three factors are more important than the fact that suppliers don’t have much bargain.

Conclusion

From a threat, substitutes and rivalry point of view the guitar market is very interesting, because competition is not seen as a substitute, rather they are seen as a complementary good. Most guitarists aspire to own Fenders, Gibson, Beanie, and other brands whether they are “Gibson guys”, “Fender guys” or not. Is not surprising that many superstars own 400 or more guitars average, collecting instruments from several brands and periods. This means that as far as companies maintain their differentiation and be good with it, they will retain their customer base.

Both companies have their “golden years” in which they were particularly revolutionary in heir designs (mostly in the late ass’s), some of the previously noted “collector models” are from these years, and both companies have incorporated “Reissues Series” in order to create standardized replicas of the models of those years, this constitute more expensive products but not prohibitive, for example a brand new Gibson Less Paul ’59 Reissue sells for about 5200. We can separate the market into three segments: entry level, professional level, and “luxury level”.

Customers from entry level are people who are starting to play, and considering whether to buy an instrument or not, probably considering the prices a little high and thus struggling with it, when we talked about migration in the threads section we were referring mostly to this segment, this segment could decide to pick up another instrument following the current trend or simply not be that interested in buying a guitar. Customers from the professional level and “luxury level” already play the guitar for years, have some preferences already and are not likely to quit playing or selecting a this point).