A few thoughts on the failure of Harrison Harmonicas
Our post on Harrison Harmonicas going out of business provoked more comments from visitors than any other post we’ve written. One recent post said in effect that HH was a great idea that was killed by greedy market forces–an interesting idea, but one we take issue with in this post.
The B-Radical was indeed a great product idea–a super-high-quality mass-manufactured diatonic harmonica. But there’s a big difference between a great product and a viable model for doing business. I haven’t talked to the principals at HH, but I think the basic idea behind their business model went something like this.
A Guess at Harrison’s Business Model
More and more harmonica players are buying harmonicas customized by craftsmen at prices ranging from $85-200 apiece. There is also an apparent market for high-end (and pricey) harmonica amps. All of this helps to confirm that there is a segment of harmonica players who have both the means and the desire to acquire very high quality, expensive instruments. (The size of this segment is of course an open question at this point, but Harrison apparently thought it large enough to pursue.)
A manufacturing company is better suited to meet this demand at competitive prices with consistent high quality than is a craftsman/customizer, assuming that products can be sold in sufficient quantity to make economies of scale possible. A manufacturing company can build high performance into the design from the start, allowing the use of less-expensive labor in the manufacturing process, thus increasing margins along with manufacturing capacity. A manufacturing company is also better-positioned to tap markets in multiple geographies.
So that was the basic idea: capture the high end of the market with a high-quality mass-manufactured product, using economies of scale to gain superior margins as well as wider distribution than any artisan could achieve.
Why didn’t it work?
The errors in Harrison’s Business Model
HH was gambling that 1) the market for high-end harmonicas is large, and 2) there is a substantial segment of this market whose needs (for price, availability, etc.) are not currently met by the customizers, and who are willing to pay customizer prices for mass-manufactured instruments.
In hindsight, both these assumptions seem questionable. First, I doubt that anyone really knows what the potential market size for high-end harmonicas is–and it may not be very large. Even many professionals, who should be the likeliest targets for high-end instruments, play out-of-the-box harmonicas priced in the $30-$50 range. Harmonica players seem to find it much easier to justify paying $1500 for an amp than they do paying $100 for a harmonica–and the initial Harrison models were priced at nearly twice that. Customer habits where harmonicas are concerned involve inexpensive instruments and frequent replacements; thinking of a single harmonica as a lifetime investment is new thinking indeed for most players.
Second, HH assumed that they would displace the customizers (and expand the market for high-end diatonics) with a better value proposition. But in what ways exactly did the customizers fail to meet the needs of the market? And in what ways was Harrison’s value proposition superior? Most customers probably think the products the customizers produce are very good. Most well-known customizers have waiting lists for delivery, which is not unusual with handcrafted products that are made to order, and the customers seem to be okay with what they perceive as a relatively minor delay between order and delivery (so long as the customizer delivers when promised, which most seem to do). The only thing their customers would really like to change is the price. But Harrison didn’t attack the customizers with reduced prices; the B-Radical came in at the very top of the established price range for customized diatonics. Further, the wait time for delivery of a B-Radical exceeded wait time for a typical customized harmonica, and at least some customers experienced multiple missed delivery dates on orders, with some paying but never receiving the goods. In short, Harrison’s overall performance was not nearly competitive enough with the established customizers.
Price was the biggest mistake
The biggest mistake HH made is probably the pricing decision, which reflects both failed assumptions. Harrison’s price point made them less competitive with customizers, and extremely vulnerable to attacks from traditional manufacturers. We appreciate that the technology involved in the B-Radical may have made a lower price point impossible to achieve profitably; the solution to that problem might have been to scale back the level of technology in the instrument, as opposed to scaling up the price.
Harrison took the reverse of the path for a “disruptive technology” described by Clayton Christiansen in his brilliant books “The Innovator’s Dilemma” and “The Innovator’s Solution,” both of which propose that disruptive technologies enter markets with low-priced products that are less functional compared to traditional alternatives, but easier to use, and which appeal to a new set of users with relatively low performance requirements, not established users seeking the highest possible performance. HH set out to upend the market from the top down; Christiansen argues that markets are disrupted from the bottom up.
HH’s business model left it wide open to an attack from the bottom, which was carried out by the traditional players, whose strategy was clearly to deny HH sole access to upwardly mobile diatonic players. (UPDATE: Steve Baker’s comments on this post, which can be found below, show that Hohner’s strategy at least was not a direct response to HH. But the effects were the same.) Just as HH was getting its first production models out the door, Hohner, Seydel, and Suzuki attacked the market for higher-priced higher-performance harmonicas from a different and more price-aware angle: they used their economies of scale to manufacture significantly better-performing instruments with only moderately higher pricing. A Hohner Crossover sells for about $60, less than twice the cost of a Special 20, and is noticeably louder and more responsive than the latter; Suzuki and Seydel have also introduced higher-performance instruments selling in the $60 range. There are obviously far more potential customers for these mid-premium instruments than there are for instruments selling at $200 apiece, and the upsell is a lot easier, especially when the seller is an established brand that the customer knows well. Harrison thus found themselves competing with traditional manufacturers as well as the customizers, and the traditional manufacturers had economies of scale working for them throughout the value chain that were unavailable to Harrison.
Economies of Scale Weren’t Available to HH Soon Enough
It is possible that Harrison intended to reduce prices once production was in full swing, but it seems that they did not achieve the economies of scale they wanted as quickly as they wanted. It appears that parts of the manufacturing process demanded more labor, and more highly-skilled labor, than originally anticipated. As delivery dates slipped, the company hired more labor at higher prices in an attempt to catch up. This put Harrison in the position of carrying costs far beyond those of both typical customizers and traditional manufacturers, with little opportunity for higher margins or, indeed, higher volume.
Harrison may also have been under-capitalized, and when you’re struggling to meet payroll, it’s tough to lower your prices.
Poor marketing and service iced the cake
Suppose a price of $200 wasn’t prohibitive for the market HH was trying to acquire? Leaving aside the question of how big the market is, to be viable HH had to demonstrate conclusively that their harps were absolutely the best-performing harps in their price range–indeed, at ANY price. Since there’s very little you can discern on a recording to distinguish one harp from another, players could really only experience the difference by playing the instrument. This means that HH needed to make instruments available to plenty of people quickly to build word of mouth, especially after early marketing efforts (not least appearences on CBS News) led to a surge of interest.
Astonishingly, HH put very few instruments into the hands of established players, with mixed results. To be fair, most professional harmonica players have long-established relationships with traditional manufacturers, and HH probably found the pickings slim when it came to finding well-known players to champion their instruments. But the company’s performance in building word of mouth was not tops. Delivery of instruments was apparently random in the sense that care was not taken to prioritize early deliveries to professionals and opinion leaders who could promote potential buyer confidence in the company and the instruments. At least some customers paid for instruments without receiving them, and other customers reported that quality was variable, with some instruments performing brilliantly and others far from it. In the Internet age, negative news of the company’s customer service spread rapidly, and did not encourage masses of buyers to throw their money down–if indeed there ever were masses craving to spend $200 apiece on harmonicas.
Conclusion: Too much, too soon
Harrison tried to do a lot with the B-Radical, including establishing a new technology and creating a mass market for it at a 6x increased price point for starters. I think it was a lot to take on, and in the end the company did not have the resources to execute against their vision and fight off the traditional manufacturers attacking from the low end of the market at the same time.
There may be a place in the market for a $200 diatonic. But I think Harrison, and harmonica players, would have been better served with an instrument incorporating some of the new design features at a price point in the $100-$125 range. This territory, I expect, will be mined by one or more of the traditional manufacturers in the near future–and they may well do so with designs that include technology licensed from whoever now owns Harrison’s intellectual property.
And there is one other important lesson here: in the Internet era, your first product release had better live up to expectations, because whether it does or not, everyone who cares to know about it will, almost instantly.
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