Not many people know about Apple’s Newton which was a flop show. Market analysts blame it on nothing but the poor pricing strategy adopted by Apple. Marked at $700, Newton proved to be a pretty pricey sidekick for the customers and was eventually canned in the year 1997. From yet another page in history, when Samsung entered the mobile market which was captured by Nokia, it was their pricing strategy which has now surged Samsung ahead of Nokia.
In the last couple of months, the CDIT market has been bombarded with niche products. iPhone 4S was the talk of the town but Samsung could not let it take the centre stage when they launched Galaxy S3. Though, iPhone 4 S has had a record booking oversees but in India the newspapers reported the launch day as 'Pricey iPhone 4S gets tepid response on first day of launch'. In a country where, price matters more than the brand value, it’s interesting to figure out how these companies envelope the product at the best possible price.
Production and Distribution Cost
Just as the basic salary of an employee hardly gives the true picture of the CTC, the production and distribution cost are not the primary factors in establishing the MRP of any product. The total cost of production for an iphone 4S 16 GB is $196 and is retailed at $199 whereas per unit production cost for 64 GB iphone 4S is $254 but is retailed at $399. This is not an ambiguity but the strategy which ensures profitability of the company.
iPhone 4S: The Production and Retail costs
|Total BOM cost||$188||$207||$245|
|BOM and Manufacturing Cost||$196||$215||$8|
|Retail Price w/o Contract||$199||$299||$399|
E-retailers for price correction
Most of the CDIT retailers in India market the products at a margin of around five to eight per cent of the cost. With an awakening of e-commerce in the country, manufacturers are eyeing internet portals like ebay and flipkart to reach out to the customers at lesser prices. No wonder Samsung Galaxy S3 which was launched at a price of Rs 43,180 was soon available for a price range of Rs 37,000 – Rs 39,000 at various online portals. Keeping the trend in mind, companies have started installing several touch and feel zones for the customers, making it convenient for them to make an online purchase.
The Battleground, the Competition
The price war is the real battleground where companies often apply all their strategies to overpower their competitors. Competitive pricing is used more often by businesses selling similar products, since services can vary from business to business while the attributes of a product remain similar. The most common practice in a competitive market is neck to neck pricing. Playing safe, companies with similar brand positioning and offerings launch their product at price very close to their competitors.
Pricing to match brand position
Do you agree that higher the price, better the quality offered? Prestige pricing is a method that capitalises on society’s generally accepted belief that the higher the price paid, the greater the quality received in return. This is why most of Apple’s products are marked as the tallest in the price’s queue. When the iPhone was first released in 2007, Apple charged its customers $599 for the 8 GB version. Only 66 days after the initial offer at the end of June, Apple dropped the price to $399 for the exact same device, which led to huge protests among the innovators and early adopters. Clearly there is a certain buyer’s expectation linked to Apple’s pricing, because the company has created a high quality image with a relatively high price level.
Setting the launch price of Galaxy S3 at Rs 43,180, Samsung triggered the prestige price of iPhone 4S but in the hind side of this, the e-retailers made the product available at Rs 5,000 lesser than the launch price. A stroke satisfying the prestige as well as the pocket.
Another trend worth talking about is the dropping prices of certain products like Dell streak which started off with Rs 32,000 is now worth Rs 17,890. In an era of cut throat competition, companies do not want their new products to compete with the existing ones. To give a free channel for the sale of the fresh arrivals, companies make the existing products vacate the price range set for the new launch.
With new products hitting the market almost every week, Indian market is ready to witness the price war between the top players. Whether it is Samsung and Apple or HP and Dell, it’s their efficient ricing strategy which will pave way for their products to lure the ever growing Indian Market.