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The Business of Intercooler Hoses and Quality

A customer recently asked me to compare the quality between our intercooler hoses and Samco brand hoses.

Intercooler hoses are a very simple product. Our products, like Samco hoses, use genuine silicone with 3-4 (size-dependant) fabric reinforcement layers. Quality is high and consistent for both companies, and our products have virtually identical specifications. This does beg the question of why our parts are so much less expensive when compared to Samco and other suppliers. There are dozens of forum threads dedicated to this topic and I hope to address the fallacy that cheap=junk.

There are several reasons that Samco hoses (and many other brands) cost 2-5 times as much as what we sell at, and none of them are quality.

One reason is because of our varying distribution systems. Your typical auto part manufacturer pushes their products through a traditional supply chain. This basically means they sell their product to a distributor, and then their distributor sells the product to a retailer, and then the retailer sells the product to the end user. Each one of these companies, the manufacturer, distributor, and retailer, must make a profit, in addition to paying for all of their overhead. What we do is sell the products directly to the end user. This also means we only have one warehouse full of parts - our parts don't stack up in the manufacturer's warehouse, the distributors warehouse, and the retailers floor space, requiring capital and costing money.

Another reason is because of competitive advantage in the area of manufacture. Our parts are manufactured in China. It did take us a while to find a factory that could produce high quality silicone products at a correct price point; and there is lots of junk manufactured in China. However, if you know where to look (or just look everywhere like we did) you can find factories in China that produce very high quality parts. Very plain and simply, it costs much much less to manufacture the exact same part in China compared to the US or the UK. And for anyone who says this hurts the US economy, I strongly recommend you read an economics book, and then contemplate where 98% of the stuff you own was manufactured.

Another reason we are priced so much lower than some of our competitors is because of marketing. Many people, unfortunately, think that a higher price means higher quality. These are the same people who bash value internet retailers in forums and coined the term 'ebay junk'. (Yes there is lots of 'junk' on EBay but there is also plenty of great stuff.) Many auto parts manufacturers intentionally keep their prices much higher than necessary just to create the illusion of quality. There is a concept called 'price elasticity of demand' and it is related to the optimum pricing level to achieve maximum profits. For example, if you lower the price on something by $1, will you sell enough more to make up for the lower profit in volume? Well in some markets, cars and auto parts included because prestige is so important, the elasticity curve has two or more peaks. You can make optimal profit by selling at a fair profit margin and a low price with high volume, like we do. Or, you can make optimal profit by selling at a gigantic markup with low volume like some of our competitors do. It sounds crazy to me but it sure is true - some people actually will buy something JUST BECAUSE it costs 3 times as much! I don't want to sound like I am bashing our competitors here - business is business. If you find a profitable niche selling the same thing we sell for three times as much, go for it.

The final reason I will talk about is efficiency. This is the most important reason that we can sell quality parts at low prices. Your traditional manufacturer has a huge payroll of salesmen who are paid to force their products through the distribution channels, by either pushing (getting distributors to buy or retailers to put them on the shelves) or pulling (getting end users to want the products). We acknowledged from the start that most people who need our product KNOW they need our product and will seek it out at the best value. Therefore we invest little in advertising, which allows us to cut prices. We also handle incoming orders like a big auto parts robot. Our order fulfillment system is fast and efficient and we have just reached a new level of accuracy. Every possible step involved with our business is automated. Phone orders are strongly discouraged. If we took every order over the phone, we would have to raise prices by over 20% to remain profitable! We try to handle customer service through email whenever possible. All of these things combined leave us with a streamlined operation that quite simply offers you the best prices on the best parts.

There is my incredibly long winded and detailed response to a seemingly simple question. Many people were probably expecting a technical reason that are products are less expensive - however such a reason does not exist. It's just good business, and many thanks to our loyal customers!

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