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Hello all,

I bought a new grand piano (Henry F. Miller 5'3) five years ago and I was given a certificate of my exact purchase price. The dealer guarantees to offer me a trade in value of what I paid for. The other dealers in other states also offer me the same thing. In order for the dealer to make a profit, surely he has to increase the sale price of the new piano to make up for the depreciated value of the trade in or sell back the my trade in with a higher price. I was told by my dealer that pianos unlike cars do NOT depreciate but actually increase their values and that's why he can offer me the guarantee buy back. He used the Steinway as an example. Mine ain't Steinway but is it true piano don't depreciate in values? DP

No, it's not true.

Trade-in guarantees work for dealers for two reasons: (1) relatively few people take advantage of them, and (2) dealers may be less inclined to cut you a better deal on the piano you're trading up for.

And they will still make some profit when they sell the piano you traded in. The price for a new one may also have gone up since you bought it, and that's what the dealer will be base his price for the used piano on.

Also, trade in agreements often require the purchaser to trade up to a higher priced piano on which the dealer makes a greater profit.

DOUBLE POST

Your offer is not a "buy back" as you characterize. It is more likely a 100% trade in allowance. There are likely conditions as to what you must trade in for to qualify i.e. only a new Steinway, or only a new piano double the price, etc. The fewer restrictions the better the offer is. Ours has only one, that the trade up purchase be at least 50% more than the original. This is off our discount/sale pricing.

There have been lots of threads on these trade-up deals. Use the search function to check some of them out.

I have argued at length that these deals are of very little value to most customers, though they sound good initially.

Pianos do depreciate in value (especially the first few years), but the value of money depreciates faster, and pianos last long enough that they may catch it and even surpass it. So you might get the same amount of dollars when you sell your instrument, but the dollars will be worth less than they were when you bought it.

This part is true. However, if Steinway, Boston, and Essex prices were firm (which they are not), the retailer wouldn't have the wiggle room to manipulate the new price in order to offset the inflated trade-in value. In that case the arrangement would have some value for you.



This part is not true. Pianos from China depreciate quickly due to buyer doubts about long-term performance. On top of that, the actual cost of most new entry-level Chinese instruments in the West has been declining -- not going up. Steinway can somewhat protect their 'Steinway investment' claims by boosting the going price on genuine new Steinway instruments annually. It would be foolhardy for the consortium of Steinway dealers who offer Miller to employ a similar strategy on Henry F. Millers.


If you had a Japanese-made Kawai or a Yamaha to bring to the bargain, the actual unmanipulated trade-in value of your piano would not vary much at different dealerships and you could get a similar 'deal' anywhere if you traded up to a more expensive new product. However, the Henry F. Miller will have little value to any dealership other than one of the consortium of Steinway dealers who contract for those pianos. The consortium can sell them more readily by creating the illusion that they are pianos offered by Steinway (when in fact they are not). So, if you have your eye on a Steinway, a Boston, or an Essex, that certificate may actually hold some benefit for you.

Although not many people use the trade up policy(so in that sense it is of little value to most)it offers peace of mind, and I don't think it adds much if anything to the price dealers sell their pianos for. From my own personal experience, it saved me around 10K when I traded from a Mason A to a BB. If one is buying from a dealer where the prices are basically non negotiable, then one doesn't have to be concerned about getting less of a discount on the trade up piano just because one is using the trade up feature.

In this kind of situation I think it's a win-win situation for the dealer and buyer. I saved money and the dealer will resell my traded in piano for as much or close to what I paid for it. The dealer makes a bigger profit on my new more expensive piano, and the trade up feature they offer probably results in more piano sales for them.

Not true, I'm afraid. Anyone trying to sell a near new piano will know the depreciation in the first few years is brutal.

The question is impossible to answer, as there is not standard. Each dealership has their own trade-up policy.

We allow full trade with only two restrictions; that the piano be undamaged, normal wear and tear accepted, and that the instrument traded for be of equal or greater value.

In a typical piano retail establishment the dealer has to benefit substantially from the proposed trade-in transaction or he'll be history very shortly.In the industry,with substantial overhead one can not survive on "skinny deals" of "good will". In the retail industry the dealer usually has to benefit from both the new found sale and the trade in transaction. There is never a no profit "wash" so to speak in a tradein.These are the basic rules of RETAIL. Now the 100% trade up is an exception to the rule.Everybody is aware that the dealer usually has to make up for the inflated trade-in on the back end. Without the opprotunity for the dealer to benefit on the back end(increased profit on the new piano),it has to make sense in the scenario in it's entirety. Upon taking back a "new" piano as opposed to the prior sale of a preowned piano,the dealer is at a disadvantage in that the piano is no longer "new" and can not be sold as a "new" piano. The dealer can purchase the piano "brand new" at wholesale for way less $ than the allowed trade in value.Nowadays the dealer has to pay for the newly acquired piano at wholesale which is more $ than his profit margin of the whole transaction.The advantage the dealer has in being an authorized dealer,he has more of a chance of acquiring the bigger $ in that he sells new ones againest it. Now a preowned piano the dealer will have no problem acquiring full resale value later. There is no difference in a preowned piano 15 years new as opposed to 18 years new. As was said, it is an offer most don't take advantage of so it is near a moot point. Same as "lifetime warranty".which means nothing but gives the purchaser some sense of "peace of mind".
Thats business "You don't get something for nothing" in this world.with the exception of Piano World.

The one situation where the trade-up guarantee seems to be worth something to the buyer is when it is exercised fairly shortly after the original purchase, and where the next piano purchased sells at little to no discount in the marketplace.

Thus it's almost a buyer's remorse clause for a Steinway purchase.

If the trade-up clause is offered on other brands that typically sell at a 20% to 30% discount below MSRP there is a lot of room for the dealer to reduce that discount by exactly the amount he must 'overpay' you to take back the original piano. Remember, he's only willing to buy a used piano like yours on the open market for wholesale, and if wholesale is lower than your original price he'll recoup on the back end as PB notes. A buyer can always refuse and go somewhere else that might offer a truer discount on the next piano, but then they have given up the supposedly valuable trade-up guarantee, n'est-ce pas.

If a person has owned the piano for many years, its nominal value in the market is likely higher than what they paid originally, so the trade-up policy offers the buyer no positive worth beyond not having to market the piano for themselves. And this would be true even at the hypothetical Steinway dealer that does not offer discounts.

Even in this 'older piano' case, a non-Steinway dealer that normally does discount new purchases may still reduce the buyer's maximum negotiable discount on a new purchase. The amount that the buyer originally paid may still be higher than the wholesale value of the old piano so the difference will come off of any discount the buyer might have been able to negotiate otherwise.

If one buys from a delaer who regularly negotiates each piano's price then I think what you say makes sense. Even in this case think the trade up policy can be a benefit to an individual because of the difficulty in selling a piano privately.

But there are some dealers who give the normal 20-30% discount off the Fine MSRP on pianos but do not negotiate further with buyers. As I said in my first post, when using a trade up option with those dealers, one does not have to be concerned with getting a smaller discount off MSRP than a customer who is buying the piano without a trade up involved. And I don't see why this would benefit the buyer only "fairly shortly"(do you mean 1-2 years?)after the original piano is purchased.

I am certain that I would have gotten considerably less than my original purchase price for my Mason A if I had tried to sell it privately as opposed to trading up for a BB and getting my full purchase price on the A as credit.

I also think the dealer benefits. From my experience the dealer can usually sell the trade up used piano for about what the original buyer paid for it because the price of a new piano of the same model has increased in the meantime. Even if the dealer sells it for a little less than what the original buyer paid for it, he makes up the difference with the greater profit on the more expensive piano(Mason BB in my case).

Since this trade up policy is rarely used anyway and must help the dealer sell some pianos he might not sell otherwise, it seems to me the dealer comes out fine also.

As an additional thought about situations where the 'guarantee' may have value ...

To the extent the guarantee is an insurance policy, there is a premium to be paid for that insurance. That premium is spread over all purchasers of that brand of piano. The insurance cannot be free. As PB has noted, there are certain rules of retail.

I would hazard a guess that in situations where the deal has real insurance value, the brand in question has differentiated their product enough to allow them to spread the cost over all purchasers without having too many buyers run to other brands just because there is a small (and hidden) insurance premium built into the price.

As I noted above, for brands that usually sell at a substantial discount the insurance premium (if any) is likely quite small because the 'guarantee' really doesn't offer much that imposes either any true cost on the dealer or any real benefit to the buyer. But the Steinway case (and perhaps M&H too, though this is a brand that does discount) seems to be one where the insurance premium can be built into the price.

Piano*Dad, in your last 2 posts you have explained the aspects of this perfectly.

I've always said a trade up policy means nothing unless the dealer can tell you what they are going to charge you for your next piano!

However, many here seem to grasp the difference between negotiating a discount vs. exercising the 100% trade-in price.

I have always explained to customers that I discount aggressively, which includes the piano that they are buying now. If they are buying a more expensive piano later, they will still enjoy the same aggressive discount, which will be worth even more, and I can probably achieve a trade-in value of most of what they paid prior. If you don't overcharge in the first place, the trade-in is a whole lot easier!

However, the 100% value seems to work best for the Steinway family where they can hold the prices high and keep raising them higher.

But, it kind of reminds me of the organ business!

I'm not sure if you're refering to my posts or not. Would you agree that when the dealer has the same discounts off Fine's MSRP for all customers and does not negotiate once those prices have been determined, it would mean that a buyer does not have to worry about getting a smaller discount when using the trade up policy?

Pianoloverus,

I think that yours is a special case with the Mason & Hamlin.

True, you may have gotten a discount, but off of what? Oh yes, the Fine list price.

This guide is very useful because it explains what kind of discount one might expect for the brand they are buying.

I sold new Masons from 2000-2005 and know the pricing well.

It is of particular interest to note, that Larry Fine states clearly that discounts on Masons will run 25% OR MORE, but not even Larry Fine can tell you where the discounts will stop!!

For other brands he can give the range of discount, but he leaves this open for Masons!

In other words, since Masons sell for nowhere near the Fine list price, there was plenty of room for the dealer to do your deal and not have to charge you list price for your new BB.

Thanks,

Nick

You can never fully know the counterfactual. What 'might' you have been able to negotiate if you had not had the trade-up guarantee involved. That's why an individual case is fraught with complications.

My point is general and it is based on thinking through the markets and the incentives. I may have missed some features of those markets, so there might indeed be more to the story of trade-ups, but certain general principles likely apply.

Oh, and here's another addition to the story.

Suppose a small insurance premium IS built into Steinway prices. Steinway is just an example, but it is perhaps the most likely one for our purposes because of their dominant market position in the high-end U.S. market.

Steinway now faces the problem of adverse selection. This plagues all insurance markets. In health insurance, for instance, sicker people are more likely to want it and healthier people are more likely to do without. This makes insurance costs go up because the pool is riskier than it would be if everyone were forced in. In the piano case, adverse selection means that people who are more likely to exercise the trade-up option gravitate toward firms that offer the insurance. Since sellers really don't want to get stuck with two year old pianos that cost more (because of the guarantee) than wholesale on a new one, adverse selection means that the insurance premium built into a Steinway price has to be that much greater.

How large the premium must be to cover the costs of the insurance program depends in part on how big a problem this adverse selection is likely to be. If it is a tiny mouse of a problem, as in very few people exercise it, then the premium will be small and those who truly get remorse for having bought an A instead of a B will find value in the policy.

Steinway also faces the problem of moral hazard. For those of you who don't know what moral hazard means, take the example of automobile insurance. If you have liability coverage, and you drive faster as a result, you are exhibiting the problem of moral hazard. The act of buying the insurance may induce you to engage in riskier behavior. This too makes the cost of insurance higher than it would be otherwise. Insurers have a simple way to combat moral hazard, and it is called deductibles. You want a lower deductible, you pay a substantially higher premium. Welcome to moral hazard costs.

In pianos, the equivalent would be that people who value the trade-up option most are more likely to be people who beat the crap out their pianos in very short order. And moral hazard suggests they may beat 'em up even more than they would have otherwise. Thus the firm that accepts the piano back after three years may have a piano with ten years of wear on its major parts. Again, moral hazard raises insurance costs. How much of a problem this may be is the proverbial 'empirical question.'