Revic Pricing Structure
To really understand how revolutionary the Revic Pricing Structure is, we first need to explore the existing price structure common to the sport optics industry. Most US Branded “Manufacturers” (USBM) are actually more like a marketing and distribution company than a true manufacturer. Certainly, none of them manufacture all of their goods. That means that manufacturing generally starts with an OEM or Original Equipment Manufacturer. The OEM delivers the goods to the USBM. Most sport optics are then passed through a distributor or rep agency before landing on dealer shelves. Finally, the customer makes his purchase to complete the distribution. By cutting out the distributor and rep agency, we’re able to deal more directly with dealers and customers to reduce overall price to the customer.
Let’s break down the financial part of the analysis. Look at the costs for a typical high performance scope with a nice feature set and modern high ratio optical design. The OEM rate could start at 65,000 Yen. Depending on the exchange rate to the dollar, this is approximately $565. A real penalty on high-end rifle scopes is the 20% import duty and customs brokerage that you pay when you import a high end product from Japan. That puts us at $678 for a landed cost to the USBM. With a gross margin of 55% to the USBM, the distributor is paying $1,507 and earning 15% when the product is sold to the Dealer for $1,773. The final markup to the customer brings the price up to $2,728.
Now that we have a good idea of the levels of markup in the traditional retail distribution model involving distributors, lets break down the pricing structure for a consumer direct model of distribution. Let’s start with the same $2728 retail price and discount it 50% for the USBM markup for a landed cost of $1364. Now we’ll back out the 20% for Import Duties and Customs Brokerage ($1,091) and convert from dollars to Yen for a OEM cost of 125,490 Yen.
The takeaway is that traditional distribution requires lower and lower OEM costs to prevent exorbitant customer prices. With Revic’s direct pricing model, we can develop better products with twice the cost, and still deliver the product for the same customer price. Revic develops the products we want–we’ll leave the price targets to the other guys!