Friday, January 11, 2008

Marketing Math

What kind of a bizarre parallel universe is it where 7 is greater than 117? 23 greater than 1500? 7 months longer than 10 years? Wherever that strange universe may be, it's apparently where model railroad product managers dwell. How else to explain the recent decisions by Athearn and Atlas to develop new HO scale models of the GP‑40X and RS‑36 respectively, but not to offer the Alco S‑2/4 in N scale?

For those trying to keep score at home, here's how it breaks down. A mere seven railroads purchased RS‑36s new, compared with 117 who bought S‑2s. And with the resale market, there might be another 100 or more prototypes that rostered S‑2s at some time.

The GP‑40X sold even more poorly in the real world -- a mere 23 units vs. over 1500 S‑2s. And the GP‑40X's ephemeral production span of seven months does not compare favorably with the S‑2's ten-year production run. (Throw in the similar S‑4 and that expands to 21 years -- about 36 times longer than the GP-40X!)

So how can tooling-up and producing these new HO models of pretty rare prototypes be seen as a better business decision than releasing a quality S‑2 in N scale*? HO chauvinists will point to the smaller market for N scale. OK, maybe … but here's where the math gets interesting. If a recent survey by a model railroading market participant is correct, there are about 2.79 times more HO scale buyers than N scale buyers. Let's give HO'ers the benefit of the doubt and round up to three.

OK, now let's apply this to the numbers above. If there were 1500 real-life S‑2s produced versus 23 GP‑40Xs (and we apply the 3X HO vs. N ratio), the market for N scale S-2s is a whopping 2000%+ larger. But maybe numbers produced isn't the best measure. OK, let's take number of road names for the marginally more successful of the two prototypes, the RS‑36. If 117 prototype railroads bought S‑2s new and just 7 bought RS‑36s (and remembering to apply the 3-to-1 HO market size advantage), the N scale S‑2 market size is still more than 500% greater than is the HO scale RS‑36 market size. That's even before considering the many hand-me-down owners of S‑2s over the years.

Yes, I understand that bringing out a new model requires more than just the tooling for a new body shell: the availability of an appropriate drive train and chassis is also a factor. And the S‑2 is a physically small model in N scale (though not smaller than Kato's recent successful N scale NW‑2), increasing the design challenge.

Estimating market sizes is difficult. I often make market estimates for my technology marketing consulting clients and there are always uncertainties. But a 500% to 2000% larger market potential seems like a pretty straightforward decision to me. Why do model railroad manufacturers stubbornly leave this money on the table? You'll have to ask them -- and I hope that you do.

*No, I haven’t forgotten about the old Arnold S‑2 (although I'd like to). But these are of very old design, suffer from cracked gears, and most samples run like rusty meat-grinders. No offense to the meat-grinders. I have one of these in custom SP paint that has had hours of custom care and rebuilding by an expert. It still runs like a train-set Tyco. And even that's a huge improvement over the out-of-the-box performance.