[Harp-L] Some thoughts with respect to Hohner's recent pricing and packaging initiatives

[Johnnie Harp <johnnieharp@xxxxxxxxx>]

Just to clarify, if Hohner prices in Germany have remained relatively stable, then higher US Hohner prices should reflect a drop in the value of the US dollar compared to the Euro over the last couple of years. Significant comparative inflation within Germany would weaken their currency in comparison to the US, making German products cheaper in the US.

Some key questions to further investigate North American Hohner price increases:

What is happening to the price of Hohner harmonica's within Germany and Europe? 

Are any price increases consistent with price rises generally in the economy? 

What's happening to Seydel and Suzuki prices there?

Hohner's low end harps such as the Piedmont sets and Hot Metal, etc. are made in China. They are likely drop-shipped directly into North America so that any price fluctuations should be primarily due to China-US economic and balance of trade issues rather than specific German domiciled production cost issues.

Already, retailers and consumers are complaining about the universal blister packing of Hohner harps; looks cheap and is inconvenient. Interferes with customer product evaluation / purchasing. Seems to weaken competitive position compared to Suzuki, Lee Oskar and Seydel also as Hohner is the only one doing it?

I expect that the harmonica market as a whole shows the traits of mature markets generally. This would include low year-over-year sales volume growth (1-2% for the market as a whole) and limited ability to raise prices without negatively impacting sales volumes.

Hohner is taking a very strange strategic approach given my presumptions of the competitive environment that it operates in. Hohnerâs actions would seem to weaken itâs competitive position versus Suzuki, Seydel, Lee Oskar.

Huge price increases from par (30%+ increase in Hohner previously competitive prices in 12 months here in Vancouver), and current Hohner prices significantly exceeding other manufactures comparable products, is usually disadvantageous competitively in a mature industry.

Suzuki held prices constant in my neck-of-the-woods over the same time period (at $31 for a Bluesmaster). I believe Lee Oskar prices have been quite stable too. Seydel price behaviour in North America, Germany and elsewhere would be an interesting comparison given their history and status as a harmonica company based in Germany.

In terms of price increases in Vancouver, the best price for a Golden Melody has gone from $31 in January 2008 to $32 in March 2008 to $43 in April 2008. Golden Melody is still $43 here, as of January 2010. Marine Band gone from about $28 to $37. Big River gone from $16 to $27. Suzuki Bluesmaster constant at $31 over the same time frame. 

Is the blister packaging an attempt to reduce customer pickiness therefore diminishing product pre-sale returns (if bellows testing turns up problems in the harp)? Or is Hohner planning to have racks of harps in every Target and Walmart? But at what price?

Has packaging changed in Germany and Europe too? Globally?

This is an interesting business case in that Hohner, in the space of a year, has grossly increased prices, and significantly changed its packaging (in the minds of customers). None of this is consistent with what Hohner retailers and consumers apparently want.

Why has it been done given that direct competitors donât appear to have led the charge nor followed suit? Significantly higher pricing and cheapened product appearance usually arenât a recipe for commercial success in a mature market.

In such a case, issues top of mind include:

Has upper management changed recently (i.e. in this case, replacing harmonica industry veterans with inexperienced financial managers with minimal direct industry experience)?

Why has corporate strategy apparently been changed? Is it to aggressively focus on the bottom line?

Has there been outside financial pressure suddenly applied by lenders, creditors, shareholders to precipitate this behaviour?

Has there been or is there contemplated to be a change in ownership with new investors (venture capital or others) suddenly becoming involved and putting pressure on or advising on improved financial performance?

Have new financial advisers or management consulting firms become recently involved with the company?

Disclaimer: All of my comments reflect the sort of questions that investment analysts typically consider. No harm is intended to Hohner nor to itâs related parties. I am making these comments for educational purposes only, as a confused, long-time customer with no direct, specific knowledge of Hohner nor the global harmonica market/industry.

A final thought:

The harmonica community as a whole benefits if Hohner continues to be a strong innovator and market participant. Frankly I, and apparently many other Harp-l posters, are left scratching our collective heads at Hohnerâs current strategic pricing and packaging initiatives while evaluating and switching to competing products. Will "chasing" long-time customers away, better serve the harmonica community and Hohner?

Iâd sure love to be a fly on the wall at the local beverage establishments where Hohner employees head after work. Hanging with Seydel and Suzuki folks might be fun too? For the industry scuttlebutt in addition to the comraderie, I mean !!!! :-)







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