LEO Pricing

I'm interested in the SCAR 17S.  I think it will look great next to the FAL.  Prices are in the stratosphere at present, and I am pretty much broke, so I will have to wait a bit.

I am, however, watching prices.  One thing that stands out, over and over, is the people selling SCARs are selling to the law enforcement officers at cost.

Why?

There's 150 million plus gun owners and about 800 thousand cops of all kinds.  Every gun owner I know is not a cop and owns something evil and black.  Every cop I know is not a gun owner outside of their duty firearm.  The civilian market is almost two hundred times bigger than the LEO market.

I wonder if economics is really that hard, since I see so many people getting it wrong so often.

What benefit comes from selling to a cop at cost?

Hoping to get all his business?  He's likely not coming to you for ammo or accessories, which are either issued or sold to him through a specialty store.  You might get all of his future gun sales, but at what cost?

The SCAR 17S is a decent example to work with.  Dealer cost is rumored to be about $2,300.  Street price for us unwashed is about $2,800.  They just aren't selling at this price, I have seen quite a few posts indicating that people are waiting until the "new shiny" effect wears off and street prices drop to about $2,500.  That means that charging $2,800 is not selling a gun to most people.

Let's say that there are 200 people in the market for one.  On average 1 will be a cop in this size group; 199 will be everyday gun owners.  If 5% are willing to pay the premium price (which seems to be the correct percentage) to be early adopters that nets you a profit of $5,000.  Seems like a good amount, doesn't it?  What if you sold them at the market break price of $2,500?  Just $200 profit per gun now, but it adds up to $39,800.

You now have 199 people who remember that you sold them a gun for $300 less than "market" and if just 5% of them are shopping exclusively with you from now on, you have ten times the sales that Mr Cop would bring if your discount got him to do the same; but you're not making as much of a profit off him since you've decided that the smallest segment of your market gets a steep discount.

How much profit from that cop?  ZERO!  You sold to him at cost, you actually lost money because it cost you time to process the sale.  I'll say that again, you made no money at all selling to that cop, and likely did not generate enough good will to get him back into the store for anything else.  Why?  Because the LEO discount is so common you are not offering him something he can't get someplace else!  Which is precisely why you shouldn't offer such a discount, you don't make anything off of it, so sending him to the competition doesn't hurt you and has a slight negative effect on your competition.  WIN WIN!

What if you can only get 30 rifles from FN, and not 200?  First, it doesn't seem that demand is high enough to get people bidding against each other for the scarce number of rifles.  Our group of 200 still has 10 people willing to spend $2,800 for one, still netting $5,000 and we still have one cop buying at cost.  the other 19 rifles are sitting in their boxes unsold at a cost of $2,300 each for a sunk cost of $43,700, so you're down $38,700 so far.  There are 189 people out there waiting for the price to drop to $2,500 which covers your costs and makes a profit of 3,800 for a total of $8,800 once the dust settles.

But, let's look at this again...  We sell the early adopters their guns at full tare, sit on the stock for a while, reduce prices and sell the rest.  We made $8,800!  What if we'd priced it at $2,500 per gun from the git-go?  That would give us just $5,800!  Oh, we still made zero from that cop; but can you see what the gun shops are doing now?

I should point out there's also about 5% who will try to hold out for the $2,300 price, so if there were enough guns to sell, there'd be ten unsold guns waiting on the cheapskates; but if there are fewer guns than the market can sell, these people don't matter.

By the way, what we are seeing is a real world inelasticity in price where demand exceeds supply.

Two economic lessons in one post!