Why CE Prices Always Go Down
Everyone in this industry who I have spoken to in my career covering CE has always complained about ever-lower prices and margins.
They all point fingers at some other company and wring their hands. It’s like complaining about the weather, but as the old adage goes, no one can do anything about it.
Well, now I’ll point a finger, not that it will do much good either: an industry that is far worse off than CE, the garment business, is using this industry’s products to get store traffic … with the help of CE suppliers!
The Wall Street Journal reported yesterday that from July 21 to Aug. 3 at American Eagle stores customers who try on a new pair of jeans will receive an instruction card directing them to a website to select one of dozens of free (my emphasis) phones, including the BlackBerry Bold, the Motorola Backflip and the HTC Aria — provided they agree to a two-year contract with either AT&T, Sprint-Nextel, T-Mobile or Verizon Wireless. The new device will be shipped to the customer along with a $25 American Eagle gift card.
Now it’s bad enough when mass merchants, with the cooperation of certain suppliers, entice consumers into their stores with discounted CE so they can buy diapers, mayonnaise or blenders, and worse when car dealers offer nameless MP3 players or compact camcorders for free if they come in for a test drive, but for brand-name handset makers and carriers to allow this to happen is ridiculous.
Let’s hope this type of “promotion” isn’t catching. What do you think? Let us know.
ZoetMB commented:
The problem at this point is that many (but certainly not all) CE categories have dropped so far in price, there may be no return. Customers have become completely spoiled. Cheap manufacturing in China, India and other countries in the third world are part of the cause. CD/DVD burners for $19.99? DVD players for $39? It's completely absurd. Consumers spend more on lunch than on these products.
But having said that, the American Eagle example may be a good one. While it might devalue the phone in a customer's mind, it's not really a deal that the customer couldn't get from the phone company even without the clothing purchase.
But why stop there? How about more deal between CD manufacturers and content providers. Buy a Blu-ray player and get X discs or vice-versa: buy X discs and get a Blu-ray player, etc.
However, there are some categories that have been resistant to a downward spiral on prices, in spite of the fact that the products are generally produced in Thailand, Singapore or China: DSLRs and high-end audio. $500 cables anyone?
The real question is what is the CE industry going to do now that Chinese workers are demanding higher salaries and better working conditions? That is definitely going to raise costs over time. As it should.
ZoetMB commented:
The problem at this point is that many (but certainly not all) CE categories have dropped so far in price, there may be no return. Customers have become completely spoiled. Cheap manufacturing in China, India and other countries in the third world are part of the cause. CD/DVD burners for $19.99? DVD players for $39? It's completely absurd. Consumers spend more on lunch than on these products.
But having said that, the American Eagle example may be a good one. While it might devalue the phone in a customer's mind, it's not really a deal that the customer couldn't get from the phone company even without the clothing purchase.
But why stop there? How about more deal between CD manufacturers and content providers. Buy a Blu-ray player and get X discs or vice-versa: buy X discs and get a Blu-ray player, etc.
However, there are some categories that have been resistant to a downward spiral on prices, in spite of the fact that the products are generally produced in Thailand, Singapore or China: DSLRs and high-end audio. $500 cables anyone?
The real question is what is the CE industry going to do now that Chinese workers are demanding higher salaries and better working conditions? That is definitely going to raise costs over time. As it should.
A Parseeker commented:
Cell companies are all about customer acquisition and routinely subsidize phones to get customers. That doesn't mean that the subsidy is passed on 100% to the mfg, and in many cases is absolutely not passed on. However the manufacturer does benefit from a phone-driven campaign and may want to participate. That's why the cost curve tends downwards, because everyone's counting on or hoping for a profit curve tending upwards. Ultimately if we can all get something for nothing we all win, and the pursuit of this elusive goal drives relentless consumerism.
As consumers, we need to think about what we really need and apply backpressure to the industry to correct this problem that ultimately affects all.
A Parseeker commented:
Cell companies are all about customer acquisition and routinely subsidize phones to get customers. That doesn't mean that the subsidy is passed on 100% to the mfg, and in many cases is absolutely not passed on. However the manufacturer does benefit from a phone-driven campaign and may want to participate. That's why the cost curve tends downwards, because everyone's counting on or hoping for a profit curve tending upwards. Ultimately if we can all get something for nothing we all win, and the pursuit of this elusive goal drives relentless consumerism. As consumers, we need to think about what we really need and apply backpressure to the industry to correct this problem that ultimately affects all.
A Parseeker commented:
Cell companies are all about customer acquisition and routinely subsidize phones to get customers. That doesn't mean that the subsidy is passed on 100% to the mfg, and in many cases is absolutely not passed on. However the manufacturer does benefit from a phone-driven campaign and may want to participate. That's why the cost curve tends downwards, because everyone's counting on or hoping for a profit curve tending upwards. Ultimately if we can all get something for nothing we all win, and the pursuit of this elusive goal drives relentless consumerism. As consumers, we need to think about what we really need and apply backpressure to the industry to correct this problem that ultimately affects all.
A Parseeker commented:
Cell companies are all about customer acquisition and routinely subsidize phones to get customers. That doesn't mean that the subsidy is passed on 100% to the mfg, and in many cases is absolutely not passed on. However the manufacturer does benefit from a phone-driven campaign and may want to participate. That's why the cost curve tends downwards, because everyone's counting on or hoping for a profit curve tending upwards. Ultimately if we can all get something for nothing we all win, and the pursuit of this elusive goal drives relentless consumerism. As consumers, we need to think about what we really need and apply backpressure to the industry to correct this problem that ultimately affects all.
Aaron M. commented:
Short answer: The manufacturers find it easier to build cheaper products of questionable merit, and the stores find it easier to sell on price than "the quality experience". In other words, our industry has become lazy and is getting paid back for it in spades.
Barry Vogel commented:
It has always been a basic of business; Nothing that is "free" has any consumer value. The same is true of the insanity that is "discounting". In what other business is it perfectly normal to discount state of the art products that consumers want and are willing to pay for? "But how many MORE can we sell by knocking 10% off?" The correct question, of course, is how many MORE will we have to sell to get back to the profit levels at the higher price? This is an industry of smart innovative people doing very dumb things and destroying the lifeblood of any business; PROFITABILITY!
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