Information (a)symmetries in new product introduction
by Kannan Amaresh
I was encouraged by the responses to my earlier post to share further views on the subject of new product introduction, especially those focused on individual consumers. It's about "information asymmetries".
In a flattening world, one of the aspects we talk about is how information asymmetries are going away. If as an enterprise you are clued in to this aspect, you will realize that even your prospective customers are watching your product launch, reviews and so on. Increasingly enterprises will find it difficult to take advantage with information asymmetries even though the product was marketed to a particular geographic or market segment.
We all know how that iPhone introduction was watched on the web by millions of prospective clients. Now with the price reduction done, perhaps without sufficient substantiation [you can read Apple's open letter and make your own conclusion], it looks like a perfect mis-reading of the market, by those who are already iPhone owners and the prospective ones.
Here is my thought – assume I want to buy an iPhone for $399. At what level of confidence will I be buying this, knowing the established precedence of a potential price reduction of another $100 in about 3 months?
In addition, I had a look at Apple latest 10Q filing to get some numbers on the iPhone, to ascertain whether the price reduction has any bearing on the profitability of the product per se.
• Investment in R&D capitalized: $ 26 millions – amortization over 36 months
• Cash inflow on the first round of sale of iphone: [270000*$444 average price realization] - $120 million – revenue and cost of sales recognition over 24 months
• Store credit at $100 to piggy back other potentially non-moving items: $30 million
By doing rough back of the envelope calculation, my opinion [read.. just my personal opinion] is that on sales of $5million for the quarter, Apple perhaps booked a loss of anything from $350k to $500k. So obviously they need to focus on increasing incremental sales while compromising on perhaps the forecasted margin.