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I understand that this raises eyebrows, but it's hardly fraud. Do people actually think that retail price is a function of production/R&D cost? It's not, never

• AndyJPartridge 16y ago
  Agreed it's not fraud... But wouldn't it be (morally? commercially?) better to sell one product at the mid-point? I know in a limited range it's good to have a better and a worse to sell the median, but that doesn't apply here. They have many models above and below these two.
  • jbri 16y ago
    It's all about what's called the consumer surplus. If someone is willing to pay $350 for a pair of headphones, but they only paid $200 because you didn't have a $350 offering, you just lost $150. The trick is to effectively capture that surplus without pissing off your customers or making them feel they're being ripped off.
    • AndyJPartridge 16y ago
      What I was thinking, put another way, is that they are taking a risk with these two price-points doing this and getting caught out. There is no need when they have headphones much cheaper, and MUCH more expensive than these two. I do agree with your reasoning if the above wasn't so.
      • lukeschlather 16y ago
        Are they really getting caught? Near as I can tell, there are no penalties for this sort of behavior, and for every person who is willing to rip open a $150 pair of headphones to get them working like the $350 pair, there's someone who has no idea how headphones work, but is still willing to pay top dollar for the best they can get. And odds are these people won't even be aware of this blog post.
  • deleted 16y ago
    [deleted]
• _delirium 16y ago
  In a well-functioning market, the price should be driven by competition towards a level a bit above the production/R&D costs, at least over enough of a time horizon. Of course, plenty of markets aren't well-functioning, and I wouldn't be at all surprised if high-end audio equipment were among them. I agree it's not fraud, though, at least unless their advertising materials made false claims about the products' differences. For example, if they claimed that the higher-end headphone removed certain artifacts, but didn't disclose that they had created those artifacts in the first place, that would be misleading at best...
  • jbri 16y ago
    For commodity products, yes. Luxury goods have never been "well-functioning" markets by the definition you appear to be using.
    • _delirium 16y ago
      Hence the surprise of many consumers, I believe. They're actually being sold a luxury product, whose price is based a lot on branding/status/etc., but they believe, or want to believe, that they're buying a product whose price is based on the quality/cost of its inputs (and/or design, or manufacturing). So, 2x as expensive headphone is expected to be made out of better components, or constructed with a more expensive method, or something, and people are dismayed when they find that that isn't the case. It is somewhat unfortunate as a consumer that the market has turned out that way, rather than as a more competitive market. It makes shopping for audio equipment a lot more time consuming, because prices don't have much to do with either production cost or quality.
      • ximeng 16y ago
        The problem is that the companies producing luxury goods benefit from providing as little information as possible to their customers. It would be better for society if the companies with the most knowledge of how to produce a particular type of good could be incentivised to educate consumers rather than to capture as much consumer surplus as possible with dubious market segmentation partly based on keeping people ignorant. This seems to me why people complain about IP laws. They encourage one type of good behaviour - innovation - but also discourage another type of good behaviour - sharing.
• borism 16y ago
  I sincerely doubt that there is a moral obligation to set price points in any other way. and who claimed that? there is however a moral obligation to not lie to your customers. if anything, the crippled version is actually more costly to produce, since some R&D went into making it crippled.
  • ent 16y ago
    I can't really see any lying being done here. Is microsoft lying to people when it's selling windows 7 home edition to people for less money than the ultimate edition even though it wouldn't cost them any more to make copies of the ultimate?
    • artsrc 16y ago
      I think it is pretty well understood that the manufacturing cost of the Microsoft products are close to zero. When I buy headphones I expect more than a license to use technology.
  • uxp 16y ago
    Technically, they aren't lying about the product here. The foam in the 555 model degrades the performance, compared to the 595. It is a lower performing product, and it's pricetag reflects that. I do, however, find it ironic that the $199 555 model physically contains more "parts" and more manufacturing costs than the $349 595 model. Curious if anyone has thought about the correlation between shareware/trialware software and these headphones, being that HN readers are generally more software than hardware people. I mean, the only difference between my 30 day trial of Something.app and the unlimited version is a 32 character string, and depending on my current morality level, I could find any number of those strings floating around the internet.
    • stcredzero 16y ago
      Yes, but trialware publishers are up-front about this difference. Sennheiser was not.
• slee029 16y ago
  I completely agree that price is a function of perceived value. However, this scenario smells like they are misleading consumers in a legally grey area. This somewhat reminds me of the case a few years back about the scam of daily contact lenses. Basically it was revealed that the daily contact lenses from Bausch & Lomb and Johnson & Johnson were exactly the same as the weekly/monthly disposables which pissed a lot of people off and got them sued. Not sure but wasn't there a recent backlash about processors being crippled and then "unlocked" for higher power if they paid additional fees? http://www.dailymail.co.uk/health/article-357082/Contact-lens-firms-ripping-off.html http://www.dailymail.co.uk/health/article-357082/Contact-len...
• noonespecial 16y ago
  This is classic market segmentation. The R&D costs are sunk, the marginal cost is low, there's only so many people who will buy the things for $350. If only we could sell some for $150 without pissing off the people who paid $350 or doing a whole new R&D cycle, there's lots of people who'd buy them for $150. The real question that they should be asking is should they have just sold them all for $150 and not risked the bad PR? They may have sold enough at the lower price for it to come out a wash, and not be embarrassed by something like this.
  • jerf 16y ago
    "not risked the bad PR" The risk was minimal. Everybody does it. The odds of them getting targeted weren't significant, given the pool of possible targets. You could spend every hour of every day cataloging all the places this occurs. And this still is yet to be a big deal, even. (Please note that when I say everybody does it, I mean simply that everybody does it, no more, no less. I'm not passing judgment about the virtues or lack thereof. It's just the truth. Oh, and everybody doesn't literally mean every single person, but this is a well-established meaning of the term.)
    • noonespecial 16y ago
      Everybody does do, but audiophiles are a tricky bunch to market to. Stuff like this really gets their attention. If they found out that they could buy their $350 headphones for $150, they might not buy either because they're "not expensive enough to sound good."
      • cma 16y ago
        It could turn out well for them; all these people thinking they are hacking the system to pay $150 and save $200 when in fact both sets are actually worth $15 or less.
      • jamesaguilar 16y ago
        I'll bet none of them could tell the difference between with foam and without foam, either.
• sskates 16y ago
  The real point is that blog posts like this make your company look bad. Consumers are fine with you jacking up the price so that the cost of production and R&D isn't significant, but if you do anything to intentionally make a product worse then people will really get riled up, as it looks like you're intentionally destroying value.
  • chris11 16y ago
    It may make some people regret buying the high-end product, but it makes the lower-end product more attractive. And besides, other companies get away with doing this all the time. In fact one of the selling points of the dual-core Amd phenom II chips is that you have a decent chance of easily turning it into a quad-core chip for free.
  • georgieporgie 16y ago
    I suspect that the intersection of headphone purchasers and blog readers is low enough that there will be negligible impact on their sales.
  • narag 16y ago
    ...as it looks like you're intentionally destroying value Does it looks like? They're doing it!
• bostonvaulter2 16y ago
  In my opinion, this type of crippling is okay, but with one condition: The consumer must be allowed to make this mod. Of course it is pretty legal in this case, however, I see this freedom as similar to the freedom to circumvent DRM, which can contain harsh penalties.
• krig 16y ago
  I do think this is fraudulent, and I think the comparison falls down: A customer buying the 20$ dropbox account knows exactly what he is spending his extra 10$ to get, and it is worth it to him to do so. Even if objectively, 10$ may seem like excessive premium. Sennheiser in this case is being fraudulent by claiming that there is an actual difference between the two models while in reality they are exactly identical apart from a tiny piece of foam clearly put there only to defraud customers that want better sound and are prepared to pay for it. To quote the amazon page for the 595's: "The HD 595 is the top-of-the-line headphone of the audiophile 500 series range, boasting a new level of comfort and sound quality. Features include our E.A.R. technology and a highly constant,compressed cellulose fleece to reduce total harmonic distortion. Velour ear pads and high-quality leatherette headband both provide outstanding comfort." compared to the 555's: "A comfortable, high-quality headphone system" Don't you see how this is fraud at work? Nowhere in the description of the difference between these models is the piece of foam mentioned or hinted at. To the contrary, the description of the 595's indicates that they include ADDED technology to improve sound quality and comfort. Which is full-on lie. No, pricing is not connected to incurred cost. That's not the issue.
  • stonemetal 16y ago
    Don't you see how this is fraud at work? Nowhere in the description of the difference between these models is the piece of foam mentioned or hinted at. To the contrary, the description of the 595's indicates that they include ADDED technology to improve sound quality and comfort. Which is full-on lie. Nowhere in the 595 description do I see wording to the effect "exclusive to this model". Nor do I see anything in the 555 description that says it is missing features of other headphones in the line up. So where is this full on lie?
    • stcredzero 16y ago
      It's more a lie of omission. The 555 headphone produces the frequencies desired, but the company withholds them from the customer with a piece of foam. If there's something you're not telling someone, which would really piss off that someone, you may be guilty of a lie of omission.