Eric Jackson (owner of Jackson Kayaks) explains the reasoning behind pricing, manufacturing, purchasing, etc involved with kayak sales. It gives a very knowledgeable explanation of gross profits and how these break down to business longevity as well.

This thread is one of the better threads I have seen on Boatertalk related to the subject of paddlers and their equipment purchases, and how the world turns for Dealers, manufacturers, etc..

Some VERY knowledgeable input, good job!   there was also a learning process for others, which is what makes boatertalk so valuable.

I figured I might as well have my input- as Jackson Kayak is the company that this was based off of.

Our goal at Jackson Kayak when you purchase one of our boats…

We believe that several things need to happen in order for kayaking to continue to be a healthy sport and industry.

1. people need to have the resources to positively affect our sport- such as run a dealership, kayak school, do demos, run events, and for manufacturers to create new/better/exciting equipment for us to enjoy and improve with.
2. Paddlers need to have a product that is functional, durable, well supported by the manufacturer and the dealer, and has a high re-sale value so that they can afford to continue investing in new product when the time comes.

some facts- your local dealer does the best job of helping you fit equipment, provides demos for you to try, and is a resource for everything related to your paddling.    Some local dealers are better and stronger than others…  No local dealer can be particuarly good or strong for you if they can’t make any money selling kayaks.    If a dealer sells 200 whitewater kayaks in a season, how much do they make?   If they sell 200 Jackson Kayaks at full MSRP they make about $80,000-$90,000 in gross profit.  from that cash they must remove their overhead (rent, utilities, sales staff, accounting, taxes, interest on loans, etc.)   What they have left they can use for investing in programs, their personal income, etc..   that isn’t alot of money.  there are plenty of individuals who’s personal income is greater that.     Now- let’s say the dealer’s overhead related to the sale of the 200 boats is $50,000 and they take home $20,000 in personal income.  That leaves $10,000 to invest in their business.
Now, let’s say the same dealer offers you a 10% discount- (that is over 25% of their gross profits!)- the same scenario leaves the dealer at a loss of $2,500, of which they’ll be out of business unless they start making it up in future sales, or go further into debt.

the epicenter of kayaking in the 70′s-early 80′s was New England, and upstate NY- today there isn’t a whitewater dealer in Maine with a showroom, the NH dealer shut down their showroom, Vermont has one small one, Massachussets has the biggest whitewater one (Zoar) and Connecticut has Collinsville and clarke outdoors, but both are VERY small whitewater dealers.   the market there is 1/20th what it was in 1980!  Why- everyone offered big discounts to everyone and canabalized each other and then they all gave up saying, “whitewater isn’t profitable”  A regional catastrophe.   You can’t go to a local shop and get your gear fitted in Maine, where i grew up paddling the Kennebec and Penobscot rivers, terrible.

New subject- manufacturing.-   somebody eluded to JK being the big dog.   for the sales of whitewater boats, it is correct, in that “category” we are the largest in marketshare at around 39%.    As a company we are not the largest by a HUGE margin.   The USA whitewater brands are all part of a parent company that makes and sells 5 to 10 times the volume that JK does.    we operate our whitewater business with the goal of it being self sufficient and able to continue on and offer new exciting product worth buying.   In order to do that we have two choices- charge more, or cut expenses.    Because we manufacture out of cross-linked plastic, and creat more new boats (R+D, and capital expenditures are higher) we have to charge more money than you charge for old models out of linear plastic.   It is a simple decision, lower quality of materials and slow down R+D or charge enough to make money while making a better product.

for our dealers- if we don’t provide them with product that you want to buy, say the new 2010 Fun, or All-Star, or Villain (did I just say that out loud?) that is shiny, well built, strong, lightweight, with JK standing behind the product in the case of breakage, you won’t go to the dealer and get a new boat, because your old one was working just fine.   then the dealers dry up and everything along with it.

Pricing and territories-  We have a pricing and territory policy designed to help dealers stay strong and service our customers better.   that policy is that if a dealer agrees to be a preferred dealer or super store for us, we’ll give them a radius of 120 miles- depending on the agreed territory (we do one on one agreements, based on the reality of the market).   This prevents you the customer from easily running back and forth between two dealers and beating them up for the best price, which is what happens (even if you personally wouldn’t do it).   Consequently, Jackson Kayak has less dealers than other major brands, but the dealers we do have make more money by getting more business and at MSRP in most cases.      Some dealers are not preferred- meaning that we don’t protect their territory.   why? because they haven’t agreed to carry a demo and retail of each major boat (so that you can show up and try it, or buy it) during the season.   or they owe us money and we can’t collect it, or they don’t follow the spirit of our dealer agreement.

Jackson Kayak’s Dealer agreeement- we consider our dealers to be our partners in business.   we do what we can to make them profitable, and they do the same for us.   That alone is a challenge in this business and environment.   Over the past three years Jackson Kayak has put double gross profit into dealers’ hands than any other brand of whitewater boat.    It still isn’t enough, but we are doing the best we can.     We ask our dealers to advertise and sell JK boats at MSRP.   MSRP is just that- what we believe our boats are worth and the market can bear.   In the real world- our MSRP is $100 or more lower than any business consultant would suggest it to be for long term health.   However, we have to be sensitive to the other brands and offer the best overal value to you the customer, if we are to earn your business.
We have dealers who violate our dealer agreement.  Some just are desperate to make that one sale, or to befriend somebody.  Others use it to poach on other dealers’ territories by selling a boat cheaper than they can get it locally.     Is this good or bad you ask?  It is the “American Way” some would say, but it is the Walmart way, not the craftsman way, not the buy local and create sustainable community way of American life.     Jackson Kayak takes a stand…  we make our parts in the USA, Tennesse in my factory whenever possible.   We don’t support internet only stores,nor discounters, as their business plan is to leach off the work of others to develop a market and wreck the businesses that are local and supporting the local market and then move on to where another healthy market is.    We do support a properly run internet business as long as they have a store of their own that they develop a market with and their internet store sells at MSRP and charges shipping.   people who buy online to save money are not doing themselves a favor.  people who buy online because they don’t have a local shop, or their local shop doesn’t provide the product they want are doing what they have to do get gear.

Is what we do legal?  100% legal and we consider it to be ethical and sustainable and the best way to grow local communities of paddlers and a support network for those paddlers.

Is Jackson Kayak perfect?  No and far from it.   We miss chances to reward dealers who are doing it right, and we miss chances to correct dealers who don’t follow our dealer agreeement.    We struggle everyday to do what we know is right and we want to do, like communicate with you the customer better, and etc. etc.   We just know that kayaking isn’t a Walmart business for us and we will do what we can do keep the local businesses that are owned by people who care about you in business.  We hope you’ll return the favor by buying from brands who are doing the same.

OK your economics- you pay more for a Jackson Kayak right????   I don’t think so, not in the end…  Our re-sale value is the highest in the industry and the difference between a two year old JK boat is about the same as the difference in the new boats between JK and other brands.    pay more today, sell for more tomorrow.   Invest more into a JK boat, yes.   Does that money go into my pocket?  i hope one day, yes.   My salary in 2008 and 2009 was lower than in 2007, and we have not paid out any dividents as we have not made any real money yet.   My blood, sweat, and tears, and that of our staff goes into each boat we make, with the goal of delivering the best boats in the world in a way that is good for the community, environment, our customers, and our staff.

Finally- we make boats that are for you, the customer… without the spreadsheets supporting the design as a profit center….  this is the list of boats that are larger, smaller, or different enough that only JK touches it.

Fun 1, Fun 1.5, Shooting Star, Side Kick,  Super Fun, Mon-star, Mega-rocker, Super Hero, Mini-tripper, Dynamic Duo  (Mega-Rocker, Super hero and Dynamic duo are less in this category as they do dip into the normal range of paddlers, but go well beyond normal on the big side)

these boats are to assure we all can kayak.    can we re-deisgn them every round?  no way.  however, they are there for you, at MSRP.

what about those who don’t have alot of money????  We have the “poor man’s Mercedes” too.

Last generation boats are called “Classics”.   we are selling 2007 Funs, STars, and Rockers at full MSRP for only $799 in 2010, starting today, really.    How can we do that?  We are running through any existing inventory (sorry not much left), but then making them out of Super Linear (cost us about 1/2 of crosslinked hulls), and using hte Super Linear outfitting make-up for 2010 (foam butt pad instead of sweetcheeks, and foam footblocks for playboats instead of happy feet).

We have added one last thing for 2010 season- “Super Linear models” of our new designs.   Now you can choose between a $1049 Super linear boat or an $1199 “elite” model in cross-link with a double warranty and all of the trimmings.      We did this to allow us to make the best boats, but still offer a lower priced option for those who just can’t afford it.

Sound good?

thanks for listening- alot of this was already covered by the thread here, so sorry for the repetition.

Sincerely,

Eric Jackson
president- Jackson Kayak

Access the full article here: http://boatertalk.com/forum/BoaterTalk/1697827/