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…..to 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.
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