Sunday, February 04, 2007

The War on Low End



When I was strolling in a shoppping complex after dinner, I came across the new low-end handset by Motorola, the Motofone, as shown above. This phone has a retail value of RM199 (~ US$55) for the original set. I saw price that went as low as US$32 in some foreign websites.

Here we have Motofone, the latest phone from Motorola that aims to wage war on the low-end (aka cheapo) markets. However I can see a few problems with this approach:

  • This destroys the hard-earned cool-gadget brandname won by the Razr family. Consequently when people mention Motorola handsets, words like 'cheapo', 'tacky', and 'low-end' come into mind faster than I can say "Mary cooks the little lamb".
  • The low-end market has very little head room for profit margin.
Will this strategy work? Let's see what are the components of handphone sales:
  1. Existing handphone owners wanting to upgrade/replace/get one more phone
  2. New customers
For people in category 1, I assume the cash cows are those who like to 'lead the pack' and upgrade their phones frequently, while the contributions are assumed relatively small for the rest (e.g. those who replace their stolen/broken phones, or those who need a second phone, etc.)
Will Motofone and family appeal to the cash-cow group?

"Look guys, I just got a new cool Moto handphone, it has monochromatic six-segment-display-ish screen, and..., and..., well, nothing else. Hey, better still it comes with Walmart's everyday low-price guarantee."

Here Motorola is targetting the new customers in developing countries. Yes the markets are largely undeveloped, but in order to win, a company must have extremely strong cost-control for a profit, and hoping other handset makers will not jump in (especially companies with significant cost advantages). In other words, low-end market is a bone with abysmally thin of meat attached. Motorola is chewing this bone and trying to scrape every bit of meat in sight. It gotta chew tonnes of these to get a decent meal.


Disclaimer: Though I am quite sarcastic and cynical on the company strategy, personally I do think Motofone is a good start for handphones: it is just a plain, simple phone equipped with the necessary features: phone calls, sms, long battery hours. This is what I want from my handphone. Do I need more? No.

3 comments:

Jimmy L. said...

Making cheap phones doesn't erode market for more expensive phones. It just price-targets the low price buyers.

Sweet profit doesn't just only mean big margins. You can have small margins * big volume and still make a good profit. In terms of low end cellphones, targeting 3rd world markets like China and India, it could mean lots of money and brand-building for other more expensive phones.

If I don't have enough money, I choose the cheapest functional phone.

Say, if I like MOT MOT's cheap phone, and I got more money, I'd buy MOT MOT's more expensive phones right?

Cuppa Chai said...

Ya, small margin will need large volume to get a decent profit, that is why I say this market is a bone with abysmally thin of meat (profit) and Moto gotta chew a lot of bones (volume) for profitability.

On the branding issue of cheap vs. expensive phone, your point may be valid. However, to me, 'cheapening' a brand's image by entering a low-end market still doesn't sound a clever tactic (imagine BMW is entering in the Kancil, Kelisa market)

Anonymous said...

This is the "chap fan" style of business. Cheap with volume.

It could be a good idea for someone like me. I won't be so crazy over it and turn it off most of the time, only turning it on when I want to use it. Could work. ;)