Thursday, January 28, 2010

Creating The Best Coastal Voyaging Motor Yacht Under 40 Feet

A discussion has started on Truebuild Yachts' Facebook page for the purpose of Creating The Best Coastal Voyaging Motor Yacht Under 40 feet.

This discussion is open to all people that desire to participate and is intended to set a new standard for exceptional value in new yachts based on a collaborative effort and unrestricted imagination.

I look forward to broad and enthusiastic participation.

Tuesday, January 19, 2010

How the evolution of yacht brands reduces yacht value

I’ve had the pleasure of participating in boat model decisions for major yacht brands on over 40 boat models during my career, so far. Most models were successful and some were not commercially viable. In all cases, decisions on boat models were made by a small number of people in each yacht builder.

The yacht building industry remains largely entrepreneurial owing to cyclical profitability. Yacht building is reasonably profitable in the good times, but is subject to sudden, deep and prolonged negative profitability during periods of economic uncertainty or decline.

Once a builder succeeds in a particular market niche future models are typically scaled versions of the original successful model to appeal to buyers of like tastes, but with different budgets and space requirements. The boat model line is then populated with additional models, separated by a few feet in length, based on the original successful boat model concept. (For the purposes of this discussion, the term “yacht” or “boat” primarily refers to boats, sail or power, between 35 feet and 100 feet in length, built on a production or semi-custom basis.)

Successful builders have a “fan base” that grows with each new model introduced. The successful builder listens, almost exclusively, to this fan base and modifies its boat models either continuously or from time to time based on input from their fan base. Ideas from outside the fan base are rarely heard.

As the population of delivered boat models of a particular brand grows, that builder faces the challenge of differentiating new boats from previously built boats to keep the production running and maintain gross profits as gross profits trend downward as each boat model ages. The typical builder response is to add features, upgrade features, enhance luxury and occasionally modify an existing model’s hull to create a new derivative boat model. Radical change is risky for the builder, especially if it signals to current boat owners that features used in the past may have been sub-optimal or if significant model changes, when publicized, may lead to a slowdown in current orders as potential buyers defer purchase decisions while waiting for details on new models.

Builders have every financial incentive to sustain the boat model concept that made their brand successful. The number of builders with the capital to launch a new line of boat models to expand their brand is rare in the yacht market segment relevant to this discussion and it is risky to pursue a new market owing to uncertain appeal to a new fan base.

On the one hand, builder value is enhanced by leveraging the successful boat model concept in that many fewer decisions need to be made by the builder, the builder’s team can effectively make the correct execution decisions more often given a focused brand philosophy and buyer’s expectations are well defined.

On the other hand, buyer value is reduced over time owing to evolution that leads to bloating of features, added equipment, changes to interior features as well as improved fit and finish (luxury). Prices of new boats escalate more rapidly than overall inflation.

Higher prices lead buyers to search for ways to improve their personal value proposition. Buyers attempting to delete standard equipment are frequently disappointed by the small amount of credit offered by the builder. Buyers seeking customization of equipment, system operation, interior layout, interior features, interior finish, etc… optimize their personal value proposition find these modifications to be expensive.

The net effect of buyers attempting to adapt to the reduction in builder provided value in the standard boat is expensive change orders and increased buyer interface costs for the builder. There are also a plethora of boat purchase contract issues that surface as “friction points” between the buyer and builder as the build progresses on customized boats. If the boat purchase contract is properly crafted and the build is effectively managed by the buyer “friction points” can be prevented from becoming serious issues that can result in cost overruns, defective execution and schedule delays.

My initial blog entry on the topic of finding radical new ways to increase the value of new yachts offered algorithms for calculating value from a buyer’s point of view and value from a builder’s point of view. Some buyers perceive great value in a yacht build and ownership experience that is based on a specific execution of their preferences. These buyers are willing to increase the purchase price for customization as well as accept resale value risk. Escalating prices are increasingly excluding other buyers from purchasing as they struggle to justify the value proposition by pursuing extensive modifications or the price of the boat simply moves beyond their budget.

Some builders embrace buyer changes across all the models or some of their models. Other builders view requested customer changes as unwelcome and will only reluctantly make them for a significant price. No matter what the builder’s attitude about changes, there is an element of price, it can be significant, included in the base price for “buyer interface costs” as included in the builder value algorithm.

I share these thoughts as part of a foundation for a conversation in pursuit of finding radical ways for boat buyers and boat builders to get greater value.

Monday, January 11, 2010

Why Are Radical New Ways Needed to Improve the Value of New Yachts?

Radical new ways to improve the value of new yachts are needed owing to escalating sales prices, cost of maintenance and complexity of operation of new yachts excluding potential buyers or causing many to buy less yacht than they desire. For the purposes of this discussion, the term “yacht” primarily refers to boats, sail or power, between 35 feet and 100 feet in length, built on a production or semi-custom basis.

Yacht builders which have been in business for a number of years and are still in business today are very good at what they do. These yacht builders are among the best ever, having survived many competitive and economic challenges. If the assumptions of the first paragraph are valid, the value of new yachts is declining for both buyers and builders. Profits of builders of new yachts are severely depressed in the current economic environment. Even in good times, builder’s profits are less than many buyers of new yachts expect.

In my previous post I offered the calculation of value used at Truebuild Yachts to guide its process of enhancing value for all stakeholders. Even when acting as advocate for a yacht buyer, Truebuild Yachts increases value for the builder by reducing the buyer interface costs for the builder, enhancing the builder’s brand and increasing the builder’s gross profit by facilitating achievement of the buyer’s desired outcome in the most cost effective professional manner (Think Lean). Truebuild Yachts lubricates the process.

There are a number of value reducing trends in the yacht building / buying process now. Among the enemies of value are:

1) Evolution of brands

2) Emulation of successful brands by new yacht builders entering the market

3) Increasing buyer interface costs

Truebuild Yachts can currently increase value for all, but Truebuild Yachts is also aggressively pursuing how to radically increase the value for both buyers and builders of new yachts so all comments are welcome on this, past and future posts.

Wednesday, January 6, 2010

Radically improving value for buyers and builders of new yachts

I've begun 2010 by steering Truebuild Yachts on a quest to find radical new ways to increase value for both buyers of new yachts and builders of new yachts.

What is value? How can value be increased for all stakeholders? By what process can the answers be determined?

The yacht industry does not have an effective mechanism for listening to buyers, at least one of which I am aware. This blog has been created to enter discussions in pursuit of answers to the above questions and more. I hope many will contribute their thoughts and ideas.

A key step in this process is arriving at the best possible understanding of how value is defined by yacht buyers and yacht builders. Below is the operating definition of Value that Truebuild Yachts currently uses, based on over 35 years of experience in the yacht industry. Clearly, it took me a while to dedicate myself to deeply understanding the value propositions.

Buyer of New Yacht Value Calculation:

Buyer of New Yacht Value = (Purchase/Build Experience + Ownership Experience) - ((Purchase Price + Operating Cost) - Resale Price)

Builder of New Yachts Value Calculation:

Builder of New Yacht Value = (Gross Profit + Brand Enhancement) - (Sales / Service Costs + Buyer Interface Costs)

Obviously, some of the value elements are personal and not readily quantifiable, but they do translate into a "willingness to pay" amount for buyers and a "willingness to build" amount for builders.

I will share more thoughts on the broad and far reaching implications of these value elements in future blogs. Meanwhile, your thoughts and ideas are welcome.

Friday, January 1, 2010

Radical Ways to Increase Value in New Yachts

2010 - It's time to find radical new ways for new boat buyers and boat builders to get great value.