International Arbitrage: Saxophone Edition

Let’s start by addressing your concerns. “Paul, thanks, but I think I’ve had my fill of musical instrument talk for, well, let’s say ‘forever’. I’ll see you next week.”

And I’ll say, “Hold on there, pardner.” ‘Cause even though today is an alto-saxophone-themed adventure story, it is rich with broader financial lessons. I promise.

 

Last April, my son committed to start band this fall. He was lucky and got his first choice instrument, the alto saxophone. An instrument so cool that it almost completely reverses any uncoolness that may result from actually being in band.

It was also rumored to be way cheaper than many others (French horn, euphonium, etc.), which was nice. I saw new ones online for $300-$500, so I figured we’re good to go.

Then I got the email telling us how to get kitted out for band. We couldn’t get just any ol’ sax, we needed to get a Yamaha YAS-26, the Mercedes-Benz of entry level student alto saxophones.

While you could purchase the instrument, you could rent (with an option to buy) from a local music shop for $55 / month.

Let’s break that statement down, and see how many personal finance trigger words we can find.

First, the word “rent”.

There is a short list of stuff that I find acceptable to rent. It includes:

• Bowling shoes / bowling ball
• Ski / snowboarding gear

I think that’s about it. Maybe an apartment? Whatever – the point is that an asset-based individual shouldn’t be renting much. You can rent things for occasional use or when you’re worried a big ticket item may be a major mistake. Neither applied here.

“…with an option to buy”. Oh my. “Rent to own”, the siren song for financial illiterates.

“local music shop” I have nothing against local businesses, but when I think “inefficient, expensive, old-school, 1950’s-era business model”, I think of the local music shop. Perhaps I should make a loan to my local buggy whip manufacturer while I’m at it.

“$55 / month” This instantly becomes one of my highest monthly expenses. What are we renting here, a Stradivarius? How much does this dern thing cost?

Rent Versus Buy

Turns out the list list price on a Yamaha YAS-26 is $2,100. Whoa. I guess I’m glad we didn’t get one of the expensive instruments?

After I sorta recovered from my sticker shock, it was spreadsheet time. Unsurprisingly, it didn’t make financial sense to rent. Plus, musicians were telling us there were non-financial advantages to owning your instrument: a kid practices more and takes it more seriously when it’s owned.

So we’re going to buy rather than rent. But is there any way to bring down that insane price?

New Versus Used

Of course there is. A used YAS-26 cost $900-$1,200. I guess there’s a big discount for an instrument that’s already bathed in someone else’s saliva.

My biggest concern was how to avoid buying a lemon. There were none for sale locally, and buying a used sax online would have all sorts of complexities if something were wrong. Plus, step 1 would be trying to figure out if something actually were wrong with it. I found a local sax repair guy who could help, but I got tired considering all the scenarios.

Frugal folks can complain that buying a new car is a ridiculous waste. I tend to agree, but the fact remains that a new car DOES have something the used car doesn’t. It may not be worth the full premium, but it’s worth something.

The same holds true for a saxophone. A shiny new spit-free instrument with no nicks or dings is alluring. Since my son already has a strong musical background and was all-in for the sax, the missus and I were seriously considering the full rack rate.

But that’s when things got interesting. (j/k – I know it’s been super interesting from the start.)

International Arbitrage

I got to thinking. Yamaha is a Japanese company, right? By happy coincidence, we were headed to Japan over the summer. Maybe the pricing would be different, and I could save sales tax (VAT in Japan) – you’re allowed a refund of VAT as a tourist, and the cost would be within the U.S. duty-free allowance on our return.

So I went to the Yamaha.jp site to see the list price for the YAS-26.

Only it wasn’t there! It’s not sold in Japan at all. What gives?

Thankfully, I have a native Japanese speaker on retainer and didn’t have to muck with google translations. The missus took a gander and confirmed that I can read letters and numbers and, indeed, the YAS-26 wasn’t sold in Japan.

She said the “Student Alto Saxophone” in Japan was the YAS-280. So it has a different number. That’s not interesting. And it looks just about the same. That’s also not interesting.

However, the price was really interesting.

The YAS-280 was about $1,000 less than the YAS-26.

That level of price differential causes concern. However, I was way more curious than worried. Were the instruments basically the same, and if so, why would the price be so much cheaper in Japan?

Distribution Channels Matter

As I starting thinking about an alto saxophone distribution channel case study, I started to see why the instrument could be a lot cheaper in Japan. Yamaha is super strong there. Plus, the population density and concentration of most folks in a few major cities probably makes it easy for them to afford their own distribution network of stores. In the U.S., they might need help, which would lead them to partner with the local chumpchange music shop. The local chumpchange music shop needs to be paid, so prices need to be higher. And once you decide to partner with a distributor, you can’t really go behind their back and also sell direct to consumers at a lower price. Distributors don’t like that.

However, if that were the case, I would expect to find “gray market” (legal but unofficial / unauthorized) sales of the YAS-280, and that’s exactly what I did. Both ebay and Amazon (through dodgy 3rd parties) were selling it “new”.

But was it truly the same? If my son showed up on Day 1 with a YAS-280, would the director throw it in the trash can, pour a cup of coffee on his head, and kick him out of the band?

My local sax repair guy had never heard of the YAS-280. None of the band forums (a fun place to hang out, btw) knew anything – there were a few people asking the question, but no one had an answer. Everyone was put off by the low price and thought the YAS-280 must be seriously inferior.

I really needed a side by side comparison of the two instruments, but the YAS-280 was exclusive to Asia and Europe and the YAS-26 was exclusive to North America.

Enter Australia. Whenever you want things done differently, Australia is your go-to place. I believe the conversation within Yamaha went something like:

“Hey boss, which student alto sax should we sell in Australia?”

“I don’t give a flip. Are Australians even capable of making music, other than a didgeridoo? The market’s so small and meaningless it doesn’t matter – just send them the extras from the places we actually care about.”

If that is what happened, shame on you, Yamaha. Australians are wonderful people and are trying really hard to build a cultured and civilized society.

More importantly, though, your decision to sell both the YAS-26 and the YAS-280 made my man Cameron the sage I was looking for. Take it away, mate!

If it was just too tense for you to watch this showdown, I’ll summarize. The instruments are basically identical, but the YAS-280 (which you’ll recall would cost us $1,000 less) has the cooler case.

(As a bonus, it would have been really nice if the missus had been a musician all her life, had played in a jazz band in college, had gotten to know a future employee of Yamaha while in said band, had reached out to him to ask about YAS-26 v. YAS-280, and had been able to confirm that the instruments were identical except for the case. That would have been nice.)

Since we could get a shiny spit-free YAS-280 for the same price as a used YAS-26, and save $1,000 versus a new YAS-26, the missus and I were sold.

However, we were breaking the rules. The band director’s instructions were very specific, and I wasn’t sure how he’d react if we bought a different model.

It was time to have a chat with my son about Permission versus Forgiveness. If we asked the director if it was OK to buy the YAS-280, and he said “NO!”, we were sunk. If we bought it and then just reacted if he had a problem, we might be OK (especially with the facts and my volcanic temper on our side).

My son looked at the figures, weighed the decision, and said he definitely wanted to buy the YAS-280 in Japan. He also chose the Forgiveness route 🙂 Congratulations, son. You just saved us $1,000. It was also a big moment for him to see some of the complexities of household finance and the commitment (as measured by how many video games we could have bought) we were willing to make to band.

Purchasing anything in Japan is a treat: customer service is taken very seriously there, and buying his saxophone was a truly memorable experience for my son. I have no doubt that the pomp and ceremony reinforced how important this purchase was and got him even more excited about starting band.

 

At long last, let’s tie this back to personal finance. What lessons can we learn from this adventure?

Don’t Rent Stuff

If you’re sure you need something and will use it regularly, it will rarely make sense to rent. Renting is just a combination of expensive financing and an expensive option.

Most band families with older kids chose to rent. In almost every case, they would have been better off purchasing.

Sometimes New Is Worth It

Some purchases are purely utilitarian. For those, it can definitely make sense to buy used.

Some purchases are emotional and symbolic. If buying a shiny new sax gets my son excited for band, leads him to take better care of the instrument, and incents him to practice more, the premium starts to fade in significance.

So far in my son’s band, there’s only one kid cleaning his sax regularly, and it’s the same kid who’s practicing the most. Any bets on who that is?

Marketing Matters

Sometimes the reason products cost a lot more has little or nothing to do with the product itself.

Our saxophone marketing channel arbitrage is an extreme example, but it’s important to remember in all things that cost <> value.

The ROI for Curiosity

A little curiosity can save you a boatload of money. While I could have just followed instructions and supported our local music shop, spending a little time researching saved us $1,000.

While the internet in general and companies like Amazon specifically have been enormously empowering for consumers, I imagine there will be increasing opportunities for price discrimination (even from our beloved Amazon) in the years ahead. Information isn’t always served up perfectly, and lazy folks who don’t ask questions are going to pay for it.

The Power of Wealth

I really do enjoy beating the system like we did with this purchase, but I realize there was one huge factor that made it possible.

We could afford to take the risk. If the band director had seen the YAS-280 and pitched a fit, we could have gone out that same day and bought the $2,100 YAS-26. The risk of that was extremely low, but it wouldn’t have been a major problem for us.

That’s lovely, but what about a family who has less resources and isn’t (in my parlance) asset-based? That gives me pause. Normally I spend less than other people because I’m frugal, but this time I spent less because I could afford to.

Some families can’t afford to buy a $1,000 instrument, so they’d be forced to rent. Many families can’t afford to make a $1,000 mistake, so they’d never risk buying the cheaper (unapproved) YAS-280. Those people are paying more because they have less.

While that dynamic is nothing new, I do worry that many societal shifts (e.g., skyrocketing housing costs) are making it worse.

Did We Get Away With It?

On the first day of band, I prepared my son for an irate band director. His answer, when challenged on the different model, was to be, “We bought it in Japan, and they have a different case there.” If it went beyond that, direct them to your volcano-in-waiting dad.

Because I’m an extremely weird guy, I almost relished the coming fight. I would be a champion for consumers and truth and justice! There was irrefutable proof that the models were the same, so how dare you force us to pay $1,000 more!

Sadly, it appears that fight is not going to happen. Neither the band director nor the instrument teacher have even noticed. If they ever do, I seriously doubt they’ll care.

All of the kids have noticed, though, because the finish on my son\’s YAS-280 is quite a bit shinier than their YAS-26 rentals. And his case is way cooler 🙂