Thinkgeek

[wardred]

If they get their production kinks worked out, and there's enough profit margin that they can offer a "wholesale" price to retailers and the retailers can markup the product to the "retail" price the team is offering and everybody makes a profit, then this is probably the best place for the team to be in. I could see the team not getting to this point any time soon, and instead offering discounts directly to the customers rather than having a wholesale and retail price, at least until they've recouped their costs, and preferably made a couple bucks themselves.


The plus side to offering up to retailers is it gives them exposure to people they may not otherwise attract, and potentially significant injections of capital at semi-regular intervals. (Edit: Some retailers may have a diverse enough clientèle and be large enough that they can markup higher than Craig's and ED's store without worrying too much about it, but I think most retailers like having the option of offering the product for the same price, if not lower, than the manufacturing team is selling it for.)


The main problems would be stabilizing that production line so that the retailers don't end up waiting months for their orders, something I'm not certain they'd stand for, and getting a profit margin high enough that they can have a retail and wholesale price without making that retail price astronomical.


ED, or maybe Craig would be the better person to ask, what would you anticipate a minimum order for a retailer smaller than ThinkGeek to get a wholesale price, and do you anticipate being able to do this with either the Panodra or the iControlPad anytime in 2011? I know ED and a couple other stores are already reselling Pandoras, but mostly I've thought of them as team members/investors. They'd obviously have priority over some truly 3rd party retailer, which is what I'm talking about.


Along those same lines, how many orders from the US would you have to have to warrant getting FCC certified? (I believe this is required if you're a US based distributor.) For the curious minded.


Edit: Also, having a fair number of "non-enthusiasts" isn't necessarily a bad thing. Getting the software to the point where somebody not comfortable with anything more complicated than a console, or web-browser and solitaire, can use it should be the goal. No weird tweaking to the PNDs. No cautions about the browser cache running off of the nand, and here's what one has to do to get it to run off of one SD card or the other... in short, getting it to "just work". I know that's the goal, but having a few people who really don't know, and don't want to know, how to tweak things can help a project get to that point.

 

[Gerix]

Along those same lines, how many orders from the US would you have to have to warrant getting FCC certified? (I believe this is required if you're a US based distributor.) For the curious minded.

The FCC certification would be a fixed cost. You could divide it by the contribution margin/unit (Revenue/unit - Variable cost/unit) to find the number of units needed to break even. However, since the certification could be spread over a run longer than one year, it might be better to use a model that takes discounted cash flows into account. Sorry, I'm studying for the CPA exam, and saw a chance to apply what I have been studying. If anyone sees something wrong with what I've said, please point it out. You would be doing me a huge favor.

 

[wardred]

The FCC certification would be a fixed cost. You could divide it by the contribution margin/unit (Revenue/unit - Variable cost/unit) to find the number of units needed to break even.

Thanks for the response.


Assuming they're even willing to offer retailers a discount any time soon...


I guess my hope would be that small US retailer X could purchase a batch of Y-100 units - not enough for them to break even on the FCC certification - but enough that it makes sense to get the cert for small retailer X, and possibly other retailers, with the intent that after Z number of batches are purchased they've recouped their costs, and Z+1 batches sees them making a profit.


They may not be in a position to do this. My understanding is that batch 1 was sold at a loss, I don't know how significant, and I'm not sure if they'll break even after all of batch 2 ships.


Even if they do offer wholesale, it may very well take Large Retailer or a middleman wholesaler order to totally cover the cost of FCC certifications for this to make sense to the team, or maybe the smaller retailer would have to buy X units, and pay some of the cost of FCC certification thereby sharing some of the risk with the team on recouping the cert cost. In the latter case I'm guessing the small retailer might ask for a period of US based retailer exclusivity so he has a chance to recoup his portion of the FCC costs. Edit: it wouldn't prevent ED or OpenPandora shipping to the US, it'd just prevent other US based retailers from jumping in while the small retailer is still trying to recoup his portion of the FCC costs.


'Course, they have to have enough margin to even offer a "wholesale" price in the first place. They may elect to simply lower the price of the Pandora to direct customers and ED's store rather than having 2 different price points. We're not yet talking a hand-held with a large distribution and it may never get to the point where offering wholesale/retail prices makes sense, or the number of units that would have to be purchased to make a wholesale price point make sense may be more than a small retailer could afford.


'Course while the numbers are still highly constrained a small retailer could simply buy X number of units and sell them at a premium over retail, but that's not really a sustainable model, especially if the team gets the manufacturing kinks worked out.


I hope it gets to the point where a small retailer could stock X-100 units, and I'm curious to see the team's take on this. It simply may not make sense.