Pricing niche products: Why sell a mechanical keyboard kit for $1,668?

← Back to Kevin's homepagePublished: 2019 August 22

I recently visited a friend who runs Keycult, a business that designs and sells $500 keyboard kits.

Not keyboards — keyboard kits — the buyer must provide their own switches and keycaps, as well as solder everything together themselves.

My friend's beautiful hands, assembling a high-end custom keyboard

(More photos of my friend’s beautiful hands assembling a keyboard.)

I knew nerds built their own mechanical keyboards, but I hadn’t realized just how deep this obsessive-collector subculture went.

During my visit, my friend listed their kits for sale and sold out their entire inventory of 60 kits literally within minutes.

So I did what any good friend would do: Point out that $500 is obviously below the market-clearing price and they should charge more next time.

But exactly how much more?

A primer on the custom keyboard market

One can buy fully-assembled mechanical keyboards at retail; the largest sub-market is “gaming”, where keyboards run $50–200 and look exactly like what you’d expect (black with Mountain Dew-colored LED back-lighting).

However, my friend serves a very different niche, which I’ll call the “enthusiast market”. This market consists of folks who hang out in online forums like r/MechanicalKeyboards, Deskthority, and GeekHack, where they swap keyboard photos, trade rare boards and keycap sets, and record videos about (I’m not joking here) how to install space bars backwards and lubricate switches to improve key-feel.

The process for buying custom keyboards on these communities roughly goes like this:

  1. A creator posts 3D renders of a new keyboard design.
  2. They hype up a “group buy” to collect enough money for a production run with a Chinese contract manufacturer (the keyboards are typically CNC-machined aluminum with custom circuit boards, so unit costs work out much better when ordering 20+ parts).
  3. If enough folks pre-order, the group buy goes forward.
  4. Stuff then goes terribly wrong (the organizer runs off with the cash, the organizer wasn’t a scammer but PayPal understandably freezes their account anyway after 100 strangers suddenly wire over $500 each, the PCBs don’t work, the aluminum anodization turns out poorly, etc., etc.).
  5. After 6+ months and much gnashing of teeth on the forums, a keyboard kit shows up in the mail (maybe).

(That my friend has a reliable track record for delivering keyboards on time in part explains their brand’s popularity.)

Setting a price

Back to my friend’s pricing dilemma — how should they choose a price?

One approach could be to estimate various factors:

and then combine them into a single price.

However, I’m not a fan of this inside-out approach, for several reasons:

The most compelling argument against simply picking a price, though, is that it limits how much you can learn about your market.

If you run a sale at $X, the most you can learn is that Y people were willing to buy there. Actually, not even that: If your entire inventory sells out, you learn only that at least that many people were willing to buy — you don’t learn how many would’ve bought your kit, had it been in stock.

Vickrey auction as price discovery mechanism

So, rather than speculate on a price, I convinced my friend to run a Vickrey auction to let their market determine the price. The auction worked as follows:

(See Keycult’s announcement for more details.)

Much has been written about the Vickrey auction from a game theoretic perspective — namely that it incentivizes bidders to ignore other bidders and simply state their own true value — but the auction has other benefits for an ongoing luxury keyboard brand:

On their next sale, my friend reserved 10 keyboards to sell via an auction. This auction worked out…well:

Vickrey auction results graph

The 10 kits sold for 3x list price, with the top bidder willing to pay 5x list.

Long story short, my friend is now:

Why isn’t this more common?

I cannot understate the benefits of knowing the demand curve.

In my friend’s case, the auction let them sell far above their initial price and revealed that the market was deep enough to justify a larger production run.

In the context of an ongoing concern with multiple production runs, having email addresses associated with price-levels allows for very effective targeted email marketing: “Hey, we just did a larger run with lower unit-costs, so now we can afford to sell you a board for $X — you still in?”

Given these benefits, why aren’t such auctions more common in artisan manufacturing niches?

(I’m seriously interested, so if you have ideas please email me!)

Explanations I don’t find compelling, buyer-side:

Perhaps these factors will keep auctions out of the mainstream consumer consciousness, but the empirical success of the Keycult auction shows that enthusiast buyers are open to participating in non-traditional market mechanisms.

Explanations I don’t find compelling, seller-side:

Potentially compelling explanations:

However, none of these explanations feel like a slam dunk: The first two sound like “people are dumb amateurs who don’t like money”, whereas the third presupposes that Reddit keyboard designers have all attained galaxy-brain levels of economic reasoning.

Again, if you have an explanation that I missed, please email me!

People are worried about custom keyboard market liquidity.

Okay, maybe not a lot of people worry about the liquidity of niche products on Reddit. But I do think improving those markets would, on the margin, increase the amount of interesting, small-run art / products in the world. This could occur via at least two mechanisms.

Consider a product designer who runs a Vickrey auction instead of a fixed-price, fixed-quantity pre-order.

Mechanism 1: Sustainability The designer can use the demand curve to choose the size of their production run — maximizing either their profit (as a business) or their status (as an enthusiast, maximizing distribution of their work and spreading the “keeb lifestyle”). Either way, the more effectively they meet their goals, the more likely they’ll be inclined to produce work again.

Mechanism 2: Super-niche discovery Unlike a fixed-price pre-order, auctions will discover the super fans who’ll pay $2,684 for a keyboard kit. These price levels may easily determine the viability of a niche or polarizing product (e.g., successfully selling at $2,000 to 10 people versus a failing a $200 pre-order with 70 backers).

Given the trends that’ve enabled niche manufacturing in the first place:

It seems feasible that creators could run regular pre-order auctions to quantitatively gauge the viability of new design ideas.

Personally, I’d love for the preorder status quo to shift from “would you buy this?” to the more nuanced “how much would you pay for this?”

As my friend discovered, the answer to the latter may be a pleasant surprise =)

Further reading

Misc. thoughts

Thanks