Piano World Home Page Forums Our Most Popular Forums Piano Forum FAQ - Piano Forum The taboo topic of piano pricing

The purpose of this post is to pass along some new and used piano pricing rules that made a big difference for me in deciding what a reasonable deal was. I hope that they'll help other piano buying newbies out there. While these are not earth shattering secrets, I had to talk with a lot of people and read a lot of information to find them. I came into this piano purchasing quest with no special knowledge of pianos and no ties to the industry. I'm not a piano guru. I'm just an engineer (AKA obsessive compulsive) sifting through a lot of data, so take it for what it is, if you decide to continue. I should warn you that it's a long one!

The Piano World Forum has been a great resource for sorting out the confusing world of piano buying, such as the differences between brands and models and resolving issues like "stencil brands" and "gray market". The topic that seems to be taboo on this forum is pricing. A number of times I've read posts stating that dealers have a moral obligation to steer customers from other areas back to their home markets, that customers and dealers should be the ones to decide what a fair price is, and that dealers should never quote new piano prices over the phone. As a novice customer with little information dealing with seasoned piano professionals with a lot of information, this seemed terribly unfair.

My feeling is that dealers should not be afraid of consumers educated on piano pricing. I think that you will increase your business because the consumer will be more comfortable with the process. However, the education process also needs to include an understanding of why a 67% markup over wholesale is highway robbery for cars, but that it is not at all unreasonable for pianos.

I'm a piano customer, but I'm also a small business owner. I'll do my best to give the dealer's point of view. The piano business is tough. It requires a very expensive inventory and a well trained sales staff. You are usually selling an expensive, discretionary purchase to an uninformed customer with big tastes and a small budget. On top of all that, the piano market is a shrinking market due to digital keyboards, MTV, and all kinds of other reasons. You love pianos and helping people buy pianos, but you also need to make money to stay in business.

From the customer's point of view, this is the first and possibly the last time that we will buy a piano. Even though the dealer is local, we probably have never dealt with them before and may never deal with them again. We know little about pianos and even less about pricing. The person whose goal is to make money from selling you a piano is also your key source of information. This is not a comfortable position to be in. Just today there was a post from a woman who was told by the dealer that she was getting a great deal on a Kemble Empire upright. She was suffering from buyer's remorse and debating whether to run back and demand a refund.

New Piano Pricing -- The wholesale price of a new piano is approximately half of the list price in annual supplement to The Piano Book. While I'm sure that this is not absolutely true, I've had it confirmed by several sources. The industry average markup is 75%. A 67% markup over wholesale is a reasonable deal for a new piano, 43% is a good deal, and 25% is a great deal. Dealers cannot stay in business at a 25% markup, so this will only happen under special cases, such as going out of business sales. Dealers tend to take higher markups on higher priced pianos. I don't know why. Maybe someone out there can explain it.

I'll use today's question about the Kemble Empire as an example. The list price in the annual supplement is $10,240. Dividing by 2 gives a wholesale price of $5,120. Adding 67% markup gives a reasonable price of $8,550, a good price of $7,332, and a great price of $6,400. This makes her price of $6,300 an amazing deal!

Used Piano Pricing -- The price of a good quality used piano can be calculated by taking the "reasonable" price of a new piano and depreciating it according to the age of the piano. This is not an exact science, but will give you a surprising good ballpark figure.

Used pianos drop about 12% the first year. They drop around 2.5% per year from 2 to 10 years old and by 2% per year from 11 to 25 years old. After that, the price drops very little for the new 30 years. More expensive pianos will depreciate at about the same rate, but will stop depreciating at a younger age. For example, the Yamaha C3 depreciation flattens out at 30 years old and 33% of the new price while the C7 flattens out at 20 years old and 45% of new. It'll take more analyses to figure out where various model prices flatten out.

This used piano pricing rule was developed with a combination of The Piano Book and regressions based on Internet prices. I got many of the prices from PianoMart because it had a large number of pianos, but I also used PianoWorld, eBay, and other sites. This is the engineer in me coming out. The numbers from the piano book fit surprising well to real word values. I should note that even my economist wife wasn't interested in my analyses.

For the mathematically inclined, you can use the following formula:

Used Price = New Price * (0.00031*age^2 - 0.029*age + 0.91)

I'll use the 25 year old Yamaha C7 that I ended up buying as an example. The dealer was asking $10,900 for this piano. The used price rule told me that $16,000 would have been a reasonable price which made this a great deal. I should note that this is a gray market piano and I bought it site-unseen, which is not for the faint of heart. I did have it checked out by a registered piano technician.

Take the "reasonable" new price of $35,158 and depreciate it according to the age, stopping at 20 years old because that's were the C7s stop depreciating -- 1 year at 12%, 9 years at 2.5%, and 10 years at 2%.

Used price = $35,158*(100% - 12% - 9*2.5% - 10*2%) = $15,997

Using the regression equation gives a similar answer:

Used price = $35,158 * (0.00031*18^2 - 0.029*18 + 0.91) = $15,962

As a final disclaimer, these rules should only be used as a first cut at determining a reasonable price. I'm fairly thick skinned and fully aware of the limits of my piano knowledge, so differing opinions and corrections are always welcome.

Best regards to all,
Barry

Very interesting and potentially useful, Barry. I'll be curious to see how the dealers on this forum respond to your deductions and calculations!

I had really written this post for other piano seekers, Aaron. But I'm also interested to hear what the dealers have to say. I felt more than a little arrogant professing to have the magic rule for piano pricing.

Barry, I am one of those dealers that has problems with piano pricing on the Internet.


1st, I believe that your calculations are off, but not by much. A 67% markup over cost produces only a 40% margin, not 43%. (A piano costing $1000 multiplied by 1.67 = $1670. $1670 - $1000 = $670. $670/$1670 = 40%) The national average is about 43% (NAMM). Also, you need to add to the piano cost the cost of getting it to the dealership, usually about $200 on both uprights and grands. This "incoming Freight" is not a part of overhead, but a part of the "cost of goods sold".

Once you correct your figures your analysis on new pianos however is actually very sound AS AN AVERAGE. Your used piano analysis is certainly "in the ballpark", howver the range varies significantly as one would expect in the used market.

One HUGE caveat: You figures are close to the AVERAGE. Many dealerships in markets both large and small necessarily operate on margins higher and lower than you would calculate. It is VERY important to note that those that have higher costs, either costs of goods sold or overhead, are not taking advantage of shoppers when their prices are higher. Indeed they may NET less.

However, even as a major dealer advocate, I think that, as a basis for comparison, with the corrections I have noted you are well within reason.

I posted the following about two weeks ago on a thread about the variations in prices from dealership to dealership. I thought it would be useful to re-post it here:

Let me give you an example. A particular grand piano had a wholesale price of $9300. I consult a number of dealerships who sell this line of pianos.

One dealership is in a smaller, albeit growing market. They sell about 100-125 pianos a year, grossing about $500,000-$650,000 a year. In thier growing market they pay about the same rent as in more urban locations as demand for good retail space is high. The same goes for their payroll expenses. Because they are a not a large dealership for the supplier, yet not very small, they get a 5% discount bringing the grand's cost to them to $8835 + fgt = $9000.

Another client is a very large metropolitan dealership. They sell about 1500 pianos a year grossing just over $8,000,000 in 5 locations plus outside sales. They sell from warehouse locations and their rents and payroll (per employee) is about the same, if not a little less than the smaller dealership. They buy pianos from the manufacturer in containers and receive a 25% discount. The example grand costs them $7,200.

The breakeven point (selling price needed on the average sale to meet all annual expenses but make no profit) for the smaller dealership is right on the industry average of ~41%. They need to sell the example piano for $15,300 just to break even. They ask $17,500 for the piano, but will sell it at about $16,000 if needed.

The larger dealership also needs to make 41% to break even. They break even at $12,200. They ask $14,500 and will take $13,000 if needed.

Thus one dealership breaks even at $15,300 while the other breaks even at $12,200 a ~20% difference!

Don't think that the price advantage always goes to the volume buyer. For example, one of my other clients in a small market. He only sells about 50-60 units a year. However he is in a small piano rebuilding shop with a small showroom and he owns the building. He only needs about a 28% margin to break even. While he pays the full wholsesale price of $9300 he can sell it at $12,900 and break even.

In addition to these factors, some dealerships have higher overhead due to their willingness to do more extensive pre- and post-sales services.

The bottom line...a shopper should explore all the options in their local market. Comparing prices nationally inevitably leads to bad feelings. People think that because one particular dealership sells for less that those selling for more are profiteering.

Unless you have deep experience and knowledge of the particular market and dealership it is nearly impossible to determine what a "fair" price for that dealership is. Knowing the regular wholesale price (generally 1/2 of Ancott) doesn't mean much.

Sure the consumer can shop nationally to find the best price, but it isn't a "fair" comparison, and often leads to ill feelings when both parties are actually acting ethically and within good business parameters.

Barry,

In your example of the used C7 (great piano BTW... I'm in the market for one) you state a reasonable" new price of $35,158 yet you use $30,160 in your calculation which is actually closer to the good deal value (I think).

It also appears that you are using current "reasonable" new price and depreciating it, as opposed to the original "reasonable" new price but that isn't how depreciation works (right???). Using your model (starting with current reasonable price), if piano prices increased by only 3% every year over 20 years, then your used C7 would actually be worth more than what the original purchaser paid for it 20 years ago and a 30 year old would be even better.

I don't doubt your formula, but I think that you should try plugging in the original purchase price and see how that effects you final value.

Some other things that may also be considered:

1) In Canada there is a 7% (i think) import duty on pianos but this was likely different in the past. I suspect there are/were similar issues in the US at some point.

2) At one point, there was an extremely high duty on Pianos manufactured in former Soviet countries but I believe that this has been lifted. Again this would effect the wholesale price during that period.

Neither of the above points makes any difference if you use your equasion as stated (using current reasonable price) but will have an impact if you use original price.

Rodney

no comment, b/c this is just pathetic. like i said a while ago, they don't mention piano pricing, especially over the Internet, b/c they're afraid they'll run away the customers, who might think that their mechandise is too expensive, [or find that it's overpriced, and/or the pianos being of poor quality] and therefore, they'll lose money and be put outta buisiness, simple as that, let's just put it like that.

Masterful engineering, Barry! And some excellent clarifications by Steve.

It's good to know why piano prices vary from market to market. Some people will buy locally to get local service, and some people will buy long-distance and exchange that service (and the chance to see the piano) for a good price. In my opinion, both strategies are perfectly valid. Information like Barry's and Steve's will go a long way toward helping shoppers weigh the pros and cons of this very high-cost decision.

Interestingly, a dealer gave me a publication that showed a depreciation schedule for used pianos. (It seemed like an unusual thing for him to do, but I appreciated it and have recommended him more than once.) The depreciation curve for the C7 gave me results almost identical to Barry's, so I think he's onto something.

Mary Anna
http://www.maryannaevans.com

Rodney, I messed up when transferring numbers from my spreadsheet. The final answer in my example was right, but the new value piano was wrong. I have edited my post to fix the error that you found. Thanks for pointing this out.

Steve, I didn’t say that a 67% markup was equivalent to a 43% margin. I said that a 67% markup (40% margin) was a reasonable deal and that a 43% markup (30% margin) was a good deal.

Your point that delivery costs should be included is a good one. I also agree that dealers with higher markups may be making less money because of higher rent, higher invoice price, and more money spent on prepping.

Where we seem to differ is whether it is better for the customer to be better informed about pricing structure. I could be wrong (and it wouldn’t be the first time), but I feel that, if a consumer has the whole story, they will understand that the dealer is not fleecing them and is just trying to make a reasonable profit so that they can stay in business. Again, the pricing rules that I proposed are just to give the consumer a ball park idea. Other things should be taken into consideration and additional education may be necessary. I feel that the hidden price structure that the industry seems to promote builds distrust.

The capitalist free market says that a company with higher costs selling the same product as a competitor will not stay in business unless they provide additional value through convenience or service (I have a PhD in economics, by marriage). The piano world seems to be trying to fight this by creating mini-monopolies within each dealer’s area. I liked Mary Anna’s point that the consumer’s decision on whether buying locally or not should be based on how and where they find the most value.

The issue of consumers trying out your piano in the store and then buying them over the Internet from a warehouse dealer is a much tougher issue. But I don’t think that pricing information will help or hurt this issue.

Regards,
Barry

P.S. I noticed that your avatar is poker players -- 2 people competing and not showing their cards to each other. I’ll let you decide what my avatar of a crazy artist says about me.

Barry,

First of all - Congratulations on your new piano!. We are seeing a number of our members buying used C7s so this must be a value leader right now. It looks like you got a super deal.

I have been studying the piano market for a little over a year and I found one area / variable you have not considered and that is "used private party sale". This is one area where very good deals can be found if the buyer is patient. The air gets mighty thin for some of the higher priced piano and if the buyer has cash and is open minded regarding options then deals can be found.

Have fun with your C7.

Regards,
Steve

Barry,
Congrats on your new piano ... any pictures on another thread??

As a small businessman myself it looks like a pretty good analysis ... every industry has its quirks but ???? all in all looks pretty good....

I like your description ...
"I'm a piano customer, but I'm also a small business owner. I'll do my best to give the dealer's point of view. The piano business is tough. It requires a very expensive inventory and a well trained sales staff. You are usually selling an expensive, discretionary purchase to an uninformed customer with big tastes and a small budget. On top of all that, the piano market is a shrinking market due to digital keyboards, MTV, and all kinds of other reasons. You love pianos and helping people buy pianos, but you also need to make money to stay in business."

I liked your description here but wonder if there should be something added (implied in your post but not stated) about pianos being a lower volume business and thus necessitating a higher margin to stay in business (maybe it would help folks like piana justice :rolleyes: -- then again maybe not)

Piana Justice ... have you ever run a business??? with all the overhead components such as Insurance (inventory, liability, work comp, medical, etc) taxes (including social security matching) rent, payroll, keeping up with govt. paperwork and many "fees" (disguised taxes) and inventory costs etc. etc. etc .????? ... I can assume not ... yes dealers look to make a "profit" but there is less out there every year it seems .... or would you prefer there were no dealers and you had to order your piano by mail or Internet?? :rolleyes:

I agree that, were the shopper to truely comprehend the financial aspects of piano retailing, they would be able to make the proper judgement. Unfortunately, the vast majority of shoppers, for a wide variety of valid reasons, devote far to less time than needed. And only knowing part of the reality usually leads to serious distortions.

Also, you define the 40% margin as "reasonable". I would argue that the average deal make in the USA was "reasonable". And it was 43%.

Is the average buyer unreasonable?

Jay, I'm still waiting for the big arrival. I'll be sure to have a coming out post when it arrives. They're saying another week or 2 because of the backlog caused by shipping associated with the big show.

I'm sure that PianaJustice is right that there are a few dealers out there taking advantage of customers, but most are good people trying to run a business. I would really like to see the dealers out there have successful businesses both for themselves and for the good of society. Time spent playing or listening to a piano is better then time in front of the TV. Unfortunately, it's going to continue getting tougher as the market shrinks. Aside from helping other piano buyers, I'm trying to encourage dealers to take a look at their business model. I think that it's time to update it.

Stevester, in my search, it seemed that private sales were slightly less than dealer sales, on average, similar to the car market. To me, this is the way that it should be since dealers are a somewhat safer source because they have a history that you can check on and because they often offer some kind of warranty. I bought my piano from a dealer because they had the low price and a warranty.

Steve, I didn't mean to imply that a 40% margin was more reasonable than a 43% margin. Your knowledge of the business far exceeds mine, and your reason for using 43% as the "reasonable" value makes good sense to me. I started to call it the "fair" value, meaning that it was an equitable price for the seller and the buyer, but I thought that it might be misinterpreted.

Where we differ is on the best way for dealers to charge a margin that will allow them to stay in business. My hypothesis is that it would be better for dealers to educate consumers when they have misconceptions then to try to hide the whole pricing structure from them so that they don't see the issue at all. That may have worked in the past, but the Internet will makes this hard to do. Now you’ll be dealing with a partially educated customer and there’s no going back.

When I was writing this post, I was somewhat concerned that I’d get badly flamed. Steve has demonstrated that it is possible to disagree without attacking and that it’s OK to acknowledge the other person’s point of view even if it’s not yours.

Barry

Steve...
Yes ...OF COURSE the avg. buyer is unreasonable ... we ALL want to buy at $300 over dealer cost!!?? :rolleyes:

however I think the practice some (a few??!!hopefully) stores have of marking up pianos OVER MSRP and then "discounting" to full MSRP ... leads to mistrust :rolleyes: ...

places like the forum are great for the info they give to consumers to be comfortable in their purchase decision ...ie: the Kemble empire upright purchaser who is hopefully much happier now that she? has some more information...

OK....

I guess I'll take the plunge here.

How do you put a price on service?

As we know, service is VERY important.
It is both the knowledge and experience of the dealers techs
as well as the willingness of the dealer to use them in responding.

Service costs money.

Sure, someone providing LESS service, can charge LESS money for the piano.

It's worth something to me to be able to go to a good-sized store and play a wide variety of well-prepped pianos when I searched for my instrument. This costs the dealer a lot of money to provide a high-quality experience. But as a consumer I don't really want to have to pay for all that. In the end, when I buy a piano I do pay for that anyway, and this is what brings me to my conclusion about piano pricing: you're going to pay a retail price for it, so why worry about what the invoice to the dealer was? It has little or nothing to do with what the dealer can afford to sell it to you for.

I don't think pricing is the only "slimy" issue, either. The "hard sell" or the "outright lie" are bad too and really turned me off to some shops. It's too bad some people feel they have to resort to such tactics. I don't have any answers and I wish I did, all I can relate are my experiences and feelings over the last several months when I shopped.

Larry, people put a price on service all the time. You pay more for full service gas then self serve, more for full service restaurants than self serve, more at department stores than warehouse stores. Some people go for the full service and some for the self service.

Your job is to convey to your customer that the value of your service is worth more than the extra cost of pianos in your store. You’ll win some and lose some. Good luck!

Barry

Barry,

I was responding to your original math on pricing.

I may have mis-read, I don't remember seeing any comments on the overhead costs dealers bear.

I should probably clarify here, service involves the all the personel at the store not just the tuner. The cost of maintaining a complete high quality staff is significant.

I am merly pointing out that it should be included in anyones formula on pricing.

If it were a perfect world there would be no problems, but as luck would have it, it is not.
The responsivness of the staff is important.

Finding a dealer to do business with is not just about the price, it is also about his reputation for service before, during and after the sale.

Personally, many times I buy equipment from a dealer that I know will respond quickly and knowledgebly when I have questions or problems. I am willing to pay more for that.

My point is simply, there is more to pricing than the formula you presented. I am merely suggesting that people look for good service balanced by a fair price. I believe that is where value is.

Seebechstein,
I think we must have shopped in some of the same stores!

Larry, you're right that I didn't explicitly quantify the overhead costs. The 43% markup (I’ve switched to using Steve’s value) gives the customer an idea of generally (individual results may vary) what it takes to cover the dealer’s overhead and keep them in business. If it costs the dealer more to offer additional services then this should translate into the customer willing to pay more. If it doesn’t then the market has spoken.

While there are a lot of good dealers out there, I have to agree with Seebechstein that there are dealers using a variety of tricks. I was pretty underwhelmed by my local dealers. They bad mouthed each other’s brands and told me that their 75 to 100% markups were a good deal. I’m just thankful that we have information sources like The Piano Book and this forum to help me tell what’s real.

My goal in discussing pricing is not to drive down the profits of good dealers. It’s a tough enough business already. My goal is to help customers understand why good dealers charge what they do and to be able to tell when unscrupulous dealers are trying to fleece them.

Barry