New-economy products with old-economy mindsets
by Kannan Amaresh, Banking Domain Competency Group
Two recent news items caught my attention. One, new product introduction of a $20 multimedia handset for Indian Market by a firm from Netherlands and the second one, about Apple iPhone price reduction in the US. While these two may not appear to be connected, they are. For one, Apple, though being a new-economy company, appeared to be following an old economy style of product introduction – initially skim the market with novelty and charge huge premium. Then with the first round of skim over, push the product broader market to sustain demand. On the other hand, here is a Dutch firm at the outset bringing out a product for $20 – imagine the potential of marketing this in developed markets for, lets say $50 or so – what will be their margins? Of course this is a very simplistic comparison. However it brings out the point that enterprises in today’s world (more of a flattening world) need to price their product and services while taking global demand and market into account. No longer can you adopt such skimming of the market technique and wait for the consumer base to be loyal to you.I also went into a lengthy discussion with one of my colleagues around various hypotheses on cost and value curves and how an event like a sub-$25 multimedia handset can trigger cascading impact. Little did I realize that Google, without being in telcom space have revolutionized search marketing and now seen as a powerful mover of consumer business -- imagine if the hardware is this cheap, what would be the potential? No wonder Google wants to get into the Spectrum business.
Comments
Hi,
An interesting thought indeed.
Agreed that the firms will have to price their products and services keeping the global markets in mind - still we find that companies to adopt differential pricing across geographies at the same point in time. One example is Video Gaming consoles. Apart from pricing, the companies do launch the products in different countries in a staggered manner - thereby treating countries in different manner. Is this also sustainable over time?
Taking the discussion forward, do share your views on pricing of IT services across different geographies - can we draw any parallels with product pricing??
Posted by: Subir Dhar | September 23, 2007 05:58 AM
Your post is very interesting. The pricing trends in the new economy product market seem to be aping old economy product markets. However, regarding Apple's decision to give refunds for premiums charged to the early adopters of their product has an interesting perspective in Seth Godin's blog the URL is here:
http://sethgodin.typepad.com/seths_blog/2007/09/how-to-spend-20.html
Posted by: Sunil S Chiplunkar | September 24, 2007 05:04 AM
For one, Apple though it follows old economy model, they are the guys who can pull of the magic. They could really follow the same strategy and still have the loyal customer base. All rules have exception and they are an exception! Google in spectrum business, well they really gotta prove themselves and have a long way to go.Except for search none of their products are complete.I do use most of their products, gmail, gtalk, picassa,orkut,youtube,googledocs. yeah google rules. still they can rule in a far more better manner.Not to mention the identity crisis, whether they are competing against the guys in richmond or the ad agencies. Coming to the crix of the issue, variable pricing across geographies, arent the price of the electronic items such as laptop, digital camera vary a lot and are much cheaper in US?
Posted by: Pradeep | September 25, 2007 07:48 PM
Google - Yes they are. They are going to bid for spectrum in 2008 for low frequency ranges. Let's wait.
Posted by: Kannan | October 7, 2007 05:25 PM
The $20 multimedia handset subscribes to the theory propounded in "The Fortune at the Bottom of the Pyramid". Designing and marketing products for the world's billions of poor people who have immense entrepreneurial capabilities and buying power provides a great opportunity for all companies.
Posted by: Munish K Gupta | October 8, 2007 12:19 PM