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Mobile Phone Pricing – The Good & The Bad

Today we saw the Nokia Lumia 800 getting a steep price drop from Rs 27000 to Rs 23700. The ones who paid Rs 30000 at launch for the device just a couple of months back might feel bad about this. The situation reminds me of an article, I wrote last year – “Premium Smartphones, Value For Money & Annoying Perceptions”. While you can read the entire article on smartphone economics here, I am quoting a part of the article below that talks specifically about price drops and value!

Pricing. The Good And Bad

By far the price is the most discussed factor when it comes to smartphones. Far too many times a product is said to be a flop, just because it wasn’t priced correctly. On the other hand, many phones are a hit because they are priced rightly. And then there is an entire debate on manufacturers dropping price of a product shortly after launch, which I have criticized on multiple occasions. So how does this price dynamics work and what gives MORE value to the consumers? Yes the perspective here is, what servers the consumers better?

Manufacturers drop prices for a variety of reasons, often the reason is that they feel the volumes would be significantly more if the pricing is reduced. This holds true for the Motorola Xoom, HTC Salsa and Samsung Galaxy Tab 7″ that launched in India at exorbitant prices and shortly after launch the prices were reduced significantly. For each of these three, the price was reduced as the demand at the launch price was poor. Another popular reason for reducing the price is competition. A Samsung Galaxy SII faces competition from LG Optimus 2X or the HTC Sensation. We can expect these three to fight each other on pricing to an extent.

I might be wrong if I blame any of the companies for doing this. It is a part of their business, by design. They compete with each other on specs, features and pricing. Would they be any less successful if the don’t do this? Probably yes, probably no. We won’t touch upon that.

Lets simply ask what about the consumer?

Anyone who bought the Samsung Galaxy Tab 7″ for over Rs 37000 is today getting roughly 40% value in the resale market (Rs 15,000). Is that good value for money? How did this happen? Well, Samsung reduced the pricing of the Galaxy Tab at regular intervals and today has another 10″ offering at less than Rs 37,000.

Another example. Look at the competing smartphones when the iPhone 3GS launched in 2009. Pick any of them, say the HTC Hero. Just for records, it launched for over Rs 30,000. Today it would fetch you Rs 6000 – 7000 depending on how good of a salesman you are. The iPhone 3GS on the other hand still gets you over Rs 12,000. Now why does this happen?

Reasons are plenty. HTC has discontinued the Hero nor can you expect official updates for it and on the flip side 3GS still sells (even though now discounted) and is getting software updates from Apple. It naturally raises the value. As a consumer had I invested in a 3GS, my returns are better.

Now before you start raising any more questions, let me the first to point out, things aren’t as simple as they appear. There might be a good reason for players like HTC or Samsung needing to do discontinue products and reduce prices (we discussed a couple of scenarios above). Here I would refrain from simply blaming them for their approach. But as a consumer, is the dropping price good for me? By now you should realize: Not Always, mostly not.

Is maintaining the price point the only way of delivering value? No. If you are a shopper in India, you know that Nokia is a brand that would give you the maximum returns. Not because they stick to a price point forever (though I must admit, I haven’t seen them slashing rates like crazy), its because people know that there is demand for this brand. There are some Nokia products that have bombed in the resale market and they deserved to, but largely the trust people put on brand Nokia favors the valuation. This brand hasn’t been built with TV commercials or SRK unveiling products, it has been built by a constant flow of good products, reliable hardware and widespread service. Something as simple as the fact that anywhere I travel, it is easy to get a Nokia charger to help me on a bad day, worked for Nokia.

This is one of those things where you can take either sides and debate for long. Both camps (the ones for a price drop soon after launch hype is over and the ones against it) would have arguments to deliver. While we may choose either side on a case to case basis, why is it not appreciated when a company sticks to a price point and delivers value?

The only change in this piece is that today we have seen Nokia slash their price like crazy. And while on the face of it you may be disappointed, do see the postivie side in it. Nokia is transforming, from a burning platform to a growing smartphone maker. They may need to burn a few more bridges, but if they can strike the balance between the old Nokia and the New Nokia, they might well have a winner here.

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