The Real Truth Behind Beats by Dr. Dre

Beats electronics marketed their product under Beats by Dr. Dre is a division of Apple Inc. Its product line focused on headphones and speakers, famous for their emphasis on bass. In 2012 itself, Beats have a market share of 64% in the U.S for headphones. In September 2013, the brand was valued at 1 billion USD. We all know beats, and beats was one of the first that made headphone cool. But because of how viral is it in terms of its brand people start questioning the value of this headphones. The question that been circulating in the internet is, are these headphones actually worth the money paying for (over-priced)? Or it’s just the brand that makes it what it is now? Well that might be true, and there is no secret either. We shall explained further detailed below.

Let’s start with margins, it is the difference in the cost of making the product and price that you are actually selling in the market. And the bigger gap, means the bigger the profit obviously but you also need the gap to make up for other costs that you might have besides manufacturing. Every product has its margin. For example, the Samsung Galaxy S5 cost about RM750 in parts to manufacture. But it retail outright for around RM1750, so this gap is used to make up other cost that Samsung has such as research and advertising and of course, some profit. Headphones are the same thing, the difference between the cost of parts of headphone and retail sale Audio Technica Ath-M50 for example

The white bar is research (the majority of the cost), goes on with testing, packaging, not a lot of advertising which is maybe why you never heard of Audio Technica.

Beats on the other hand, will also spend on research and testing but they go to the next level when it comes to packaging and advertising (black). We all know it all, Dr. Dre package it’s headphone in topnotch, easily the best packaging out there with their presentation , the color, the image, the accessories you received inside, everything about the unboxing making it a great experience of owning a Beats by Dr. Dre, anything better than Audio Technica because they actually spent money to do that.

You heard of Beats by Dr. Dre, your parents, friends or even your uncle and aunties probably know what it is too but if you ask them to name another headphone out there, what is the probability of them naming one if they are not a Headphone savvy themselves? And that’s because Beats by Dr. Dre spent hell lots of money in advertising, endorsement and practically just getting their name out there. Not to mention to get their product in-front of anyone eyes. Before Beats there is any celebrities endorsed audio products same thing as basketball players endorsing shoes. They are technically the first one that does that, Dr. Dre is a legendary producer, he made music himself. So if he puts his name on the headphone, it must be good right? Even if it doesn't excite you because you not a Dr. Dre fan, there are many custom beats with Justin Bieber , Lady Gaga, Nicky Minaj, Skillrex, David Guetta, Will.I.am, Lil Wayne, Zedd, they show beats on their music video, there are also tons of athletes that wear beats by Dr. Dre, Le Bron James, Kobe Bryan but hey none of these are free. Just like a young basketball player buying his idol shoes, young kids buy it along-side because of their favorite celebrities on an event or tweet.

Perceived value is why Beats Electronics is winning, the more people think your product is worth the more they are willing to pay for it especially with the celebrities wearing it, the premium un-boxed experience, the design, fashion statement it and even the custom spots on stores which separate from the rest. That’s why they are able to charge for like RM900 for it when it might cost less than RM450 to make. Its funny how these factors can contribute to the inflated perceived value of people and it is not necessary bad, here is my bottom line. Knowing all these, you know all the margins and the perceived value you are buying a RM900+ headphones that is not necessary twice as good as a RM400 headphones and in-fact it is probably isn’t. Especially the RM900 ones are spending so much on marketing and their image. So if you are going to buy a pair of headphones, and all you care are about are the fashion and the design and the unboxing experience, name and the reputation of the company then Beats by Dr. Dre are a great choice, then the Audio Technica suck. But all you care is buying these headphones are the sound, frequencies respond, the accurately and you care less about the name and the brand image then the Audio Technica is great and the Dr. Dre sucks. So if you going to actually buy a headphone, get yourself a budget and pick what you actually want to buy. Do you want the importance of the sound or not. And that’s how you can make the decision.