the tablet/ e-reader industry jaime de la hoz sacasa colombe bommelaer christy kung alex nelson aem...
TRANSCRIPT
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The Tablet/E-reader Industry
Jaime De La Hoz SacasaColombe Bommelaer
Christy Kung Alex Nelson
AEM 4160: Strategic Pricing
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Table of Contents
Introduction
Industry Structure
Pricing Strategies
Recommendations
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Introduction
Industry Structure
RecommendationPricing
Strategies
New and exciting
Growth rate potentially reaching maturity
Evolving Concentration
Disruptive technology
Various pricing strategies
Why this industry?
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Industry Structure
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Introduction
Industry Structure
RecommendationPricing
Strategies
• Allow users to easily read e-books without a computer
Lightweight
Affordable
Difference between E-readers & Tablets
E-Readers Tablets• Serves broader purpose
& functionalityOperate via touchscreen
E-Reader functionality in addition to browsing the Web, watching movies, sharing files, taking photos, and using social media.
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Introduction
Industry Structure
RecommendationPricing
Strategies
• Larger selection than at a brick & mortar stores that mainly carry the “best-sellers”
• More niche content available to the readers
• Accessible with Internet connection
The Long Tail Advantage
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Introduction
Industry Structure
RecommendationPricing
Strategies
Target Market
13-17 18-24 25-34 35-54 55+0%
5%
10%
15%
20%
25%
30%
19%
14%
26%
4%
17%
Age Distribution TabletsAge Distribution Tablets
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Introduction
Industry Structure
RecommendationPricing
Strategies
Tablet ownership over time
May 2010
May 2011
Dec. 2011
Nov 2012
Sept 2013
Jan 2014
0%5%
10%15%20%25%30%35%40%45%
% of American adults ages 18+ who own a tablet
% of American adults ages 18+ who own a tablet
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Introduction
Industry Structure
RecommendationPricing
Strategies
• Retail Stores: Apple and Samsung Stores
Distribution
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Introduction
Industry Structure
RecommendationPricing
Strategies
•Official distributors (Best Buy, Walmart…)
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Introduction
Industry Structure
RecommendationPricing
Strategies
Online Stores: Apple, Amazon, Ebay
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Official Site Wal-Mart Best-Buy Ebay
Apple Ipad Air 2
(wifi)
$499 $489 $499 $448
AmazonKindle Fire
HDX716GB
$179 -- $179.99 $99
AmazonKindle Fire
HDX8.916GB
$379 -- $379.99 $284.99
Samsung Tab 4 -10.1 16GB
(wifi)
$299 $321 $299 $234.69
Google Nexus 9
32GB - LTE
$599 $792 $479.99 $479.99
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13
Apple “Price Umbrella”
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Introduction
Industry Structure
RecommendationPricing
Strategies
• Capital intensive industry
• Existing companies have:• Cost advantages
• Consumer brand loyalties
• Established advertising budgets
• Locked in consumers
High Barriers To Entry
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Introduction
Industry Structure
RecommendationPricing
Strategies
•Large size of competing companies.•Aggressive competition through innovation and pricing.•Exits costs are low.
High Degree of Rivalry
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Introduction
Industry Structure
RecommendationPricing
Strategies
Major Players
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Introduction
Industry Structure
RecommendationPricing
Strategies
HHI/ CR4
Top 5 Tablets Market Share 2012
Source: IDC Worldwide Quarterly Tablet Tracker, February 2, 2015
CR4 85.08
HHI 2953.7184
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Introduction
Industry Structure
RecommendationPricing
Strategies
HHI/ CR4
Top 5 Tablets Market Share 2013
Source: IDC Worldwide Quarterly Tablet Tracker, February 2, 2015
CR4 62
HHI 1537.66
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Introduction
Industry Structure
RecommendationPricing
Strategies
HHI/ CR4
Top 5 Tablets Market Share Q4 2014
Source: IDC Worldwide Quarterly Tablet Tracker, February 2, 2015
CR4 51.4
HHI 1044.19
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Introduction
Industry Structure
RecommendationPricing
Strategies
HHI/ CR4
Top 5 Tablets Market Share Q1 2015
Source: IDC Worldwide Quarterly Tablet Tracker, February 2, 2015
CR4 55
HHI 1135.19
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Introduction
Industry Structure
RecommendationPricing
Strategies
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Introduction
Industry Structure
RecommendationPricing
Strategies
• iPad launched in April 2010• First mover advantage• Disruptive technology• Created a new market
Apple’s iPad
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Introduction
Industry Structure
RecommendationPricing
Strategies
• Launched in September 2010• 2nd major player of the industry• Major supplier of Apple products
Samsung’s Galaxy Tab
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Introduction
Industry Structure
RecommendationPricing
Strategies
• Launched in November 2011• Tablet version of Amazon’s e-reader• Runs on a custom version of Google’s Android OS
Amazon’s Kindle Fire
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Introduction
Industry Structure
RecommendationPricing
Strategies
• Nexus line: smartphones, tablets and digital media players• First tablet (Nexus 7) launched in 2012• Google manages the design, development,
and marketing• Devices manufactured by various
companies
Google’s Nexus
Manufactured by HTC
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Introduction
Industry Structure
RecommendationPricing
Strategies
Sourcing – GoogleModel Google Nexus 7
(First Generation)Google Nexus 7 Google Nexus 2010 Google Nexus 9
Year 2012 (Discontinued in
2013)
2013 2012 2014
Manufacturer ASUS ASUS Samsung HTC
Android Version
4.1 Jelly Bean 4.3 Jelly Bean 4.2 Jelly Bean 5.0 Lollipop
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Introduction
Industry Structure
RecommendationPricing
Strategies
Sourcing – Apple
Part Manufacturer
Display Samsung Electronics Co. Ltd
Display Driver IC Chip Samsung Electronics Co. Ltd
Flash Memory SK Hynics Inc
Touch Controller Broadcom
Microchips Fairchild Semiconductor International Inc.
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Introduction
Industry Structure
RecommendationPricing
Strategies
• Example of other parts:
Sourcing – Apple
Display Samsung/LG
Flash Memory Toshiba
DRAM Chips Elpida Memory/Micron Group/SK Hynics
A Series Chips (A5X or A8) Qualcomm/Samsung/ Taiwan Semiconductor Manufacturing Co.
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Introduction
Industry Structure
RecommendationPricing
Strategies
•Over the last 3 years, Apple & Samsung have filed over 40 patent lawsuits against each other.•Apple has also filed lawsuits against Nokia &
HTC.•However, Apple & Samsung are still business
partners: Samsung supplies key components for most Apple devices.
Patent Lawsuits
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Introduction
Industry Structure
RecommendationPricing
Strategies
Major Tablet Producer MarginsModel iPad Air Google Nexus 7 Samsung Galaxy
Tab 3Kindle Fire HDX
Year 2013(November)
2013(July)
2013(July)
2013(October)
Manufacturer Apple ASUS/Google Samsung Amazon
Retail Price $499 $249 $300 $229
Hard Costs $274 $159.25 $214.57 $175
Gross Margin 45.09% 36.04% 28.48% 23.58%
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Pricing Strategies
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Introduction
Industry Structure
RecommendationPricing
Strategies
Goldilocks Effect
Versioning
Intertemporal Pricing
Tying
Pricing Strategies
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Introduction
Industry Structure
RecommendationPricing
Strategies
Goldilocks Effect
Retail Pricing (As of November 2012) $299.00
Total BOM Cost $188.00
Manufacturing Cost $10.00
BOM + Manufacturing $198.00
NAND Flash $9.20
DRAM $6.30
Display $60.00
Touchscreen $20.00
Processor $13.00
Camera $11.00
Wireless Section (Module) $ -
User Interface & Sensors $15.00
WLAN/BT/FM $5.00
Power Management $7.50
Battery $13.50 Mechanical/Electro-Mechanical/Other $26.00
Box Contents $6.00
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Introduction
Industry Structure
RecommendationPricing
Strategies
Goldilocks Effect
Retail Pricing (As of November 2012) $499.00
Total BOM Cost $269.00
Manufacturing Cost $5.00
BOM + Manufacturing $274.00
NAND Flash $9.20
DRAM $10.50
Display $90.00
Touchscreen $43.00
Processor $18.00
Camera $9.00
Wireless Section (Module) $ -
User Interface & Sensors $10.00
WLAN/BT/FM $5.00
Power Management $7.25
Battery $19.00 Mechanical/Electro-Mechanical/Other $42.00
Box Contents $6.00
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Introduction
Industry Structure
RecommendationPricing
Strategies
Goldilocks Effect
Retail Pricing (As of November 2012) $399
Total BOM Cost $236.95
Manufacturing Cost $8.15
BOM + Manufacturing $245.10
NAND Flash $16.80
DRAM $7.60
Display $57.00
Touchscreen $40.00
Processor $14.20
Camera $4.10
Wireless Section (Module) $ -
User Interface & Sensors $10.00
WLAN/BT/FM $5.35
Power Management $5.85
Battery $22.75 Mechanical/Electro-Mechanical/Other $47.80
Box Contents $5.50
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Introduction
Industry Structure
RecommendationPricing
Strategies
Goldilocks Effect
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Introduction
Industry Structure
RecommendationPricing
Strategies
Versioning
What is it?
Versioning is the creation of and management of multiple releases of a product, all of which have the same general function but are improved, upgraded, or customized .
Software (SV) Hardware (HV)
Free or inexpensive
Great margins
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Introduction
Industry Structure
RecommendationPricing
Strategies
HV examples: Apple
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Introduction
Industry Structure
RecommendationPricing
Strategies
Capacity Space Increases MarginsiPad Third Generation
WiFi Only WiFi + 4GComponents/Hardware Elements 16GB 32GB 64GB 16GB 32GB 64GBRetail Pricing (As of November 2012) $499 $599 $699 $629 $729 $829 Total BOM Cost $306.05 $322.85 $356.45 $347.55 $364.35 $397.95 Manufacturing Cost $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 BOM + Manufacturing $316.05 $332.85 $366.45 $357.55 $374.35 $407.95 Major Cost Drivers NAND Flash $16.80 $33.60 $67.20 $16.80 $33.60 $67.20 DRAM $13.90 $13.90 $13.90 $13.90 $13.90 $13.90 Display $87.00 $87.00 $87.00 $87.00 $87.00 $87.00 Touchscreen $40.00 $40.00 $40.00 $40.00 $40.00 $40.00 Processor $23.00 $23.00 $23.00 $23.00 $23.00 $23.00 Camera $12.35 $12.35 $12.35 $12.35 $12.35 $12.35 Wireless Section (Module) $- $- $- $41.50 $41.50 $41.50 User Interface & Sensors $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 WLAN/BT/FM $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 Power Management $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 Battery $32.00 $32.00 $32.00 $32.00 $32.00 $32.00 Mechanical/Electro-Mechanical/Other $50.50 $50.50 $50.50 $50.50 $50.50 $50.50 Box Contents $5.50 $5.50 $5.50 $5.50 $5.50 $5.50
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Introduction
Industry Structure
RecommendationPricing
Strategies
Storage Capacity Margins – iPad 3WiFi Only
Components/Hardware Elements 16GB 32GB 64GBRetail Pricing (As of November 2012) $499 $599 $699 Total BOM Cost $306.05 $322.85 $356.45 Manufacturing Cost $10.00 $10.00 $10.00 BOM + Manufacturing $316.05 $332.85 $366.45 Major Cost Drivers NAND Flash $16.80 $33.60 $67.20
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Introduction
Industry Structure
RecommendationPricing
Strategies
4G Capability Margins – iPad 3iPad Third Generation
WiFi Only WiFi + 4GComponents/Hardware Elements 64GB 64GBRetail Pricing (As of November 2012) $699 $829 Total BOM Cost $356.45 $397.95 Manufacturing Cost $10.00 $10.00 BOM + Manufacturing $366.45 $407.95 Major Cost Drivers NAND Flash $67.20 $67.20 Wireless Section (Module) $- $41.50
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Introduction
Industry Structure
RecommendationPricing
Strategies
Samsung
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Introduction
Industry Structure
RecommendationPricing
Strategies
• This industry is unique because it is moving so fast. Apple has switched from the iPad mini 2 to 3 in a very short time (less than a year).
• With this pricing strategy, companies can maximize benefits as they target a higher price for a new products, but at the same time reduce the price of the “older” versions to attract more customers
Versioning
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Introduction
Industry Structure
RecommendationPricing
Strategies
• The product is first launched at a high price.
• As the weeks/months go by, we observe a decrease in price
• Allows for 2nd degree discrimination where consumers are discriminated based on their WTP.
• Consumers with higher WTP (i.e., early adopters) will buy the product as soon as it is launched.
• Consumers with lower WTP will buy the product once its price is lower.
Intertemporal Pricing
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Introduction
Industry Structure
RecommendationPricing
Strategies
Apple iPad Prices
Launch
1 Month
2 Month
s
3 Month
s
4 Month
s
5 Month
s
6 Month
s
7 Month
s
8 Month
s
9 Month
s
10 Month
s
11 Month
s
12 Month
s$390
$410
$430
$450
$470
$490
$510
Ipad 2Ipad 3Ipad 4Ipad Air
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Introduction
Industry Structure
RecommendationPricing
Strategies
Kindle Fire HDX 7
24-Apr-1
4
15-May
-14
5-Jun-14
26-Jun-14
17-Jul-1
4
7-Aug-1
4
28-Aug-1
4
18-Sep-14
9-Oct-
14
30-Oct-
14
20-Nov-1
4
11-Dec-1
4
1-Jan-15
22-Jan-15
12-Feb-15
5-Mar-
15
26-Mar-
15
16-Apr-1
50
50
100
150
200
250
300
Price History ($) Price History ($)
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Introduction
Industry Structure
RecommendationPricing
Strategies
Kindle Fire
Model Fire HDX 8.9 Fire HDX Fire HD 7
Initial Price $429 $239 $199
2nd Price $379 $199 $169
3rd Price $159
Final Price $139
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Introduction
Industry Structure
RecommendationPricing
Strategies
• To buy one product/service, a consumer must buy another product/service.
• The purchase of a tablet or e-reader is tied to the purchase of apps and other downloadable content.• A tablet’s utility increases with the number of apps
it contains [Metcalfe’s Law]
Tying
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Introduction
Industry Structure
RecommendationPricing
Strategies
•Amazon Kindle + e-books• The Kindle is sold at cost or at a low price in order
to make it affordable to many consumers.• However, you must purchase e-books for the
Kindle to be useful.
•Apple iPad + apps
Tying - Examples
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Introduction
Industry Structure
RecommendationPricing
Strategies
•Tying arrangements have been the subject of extensive litigation.•Violates antitrust laws if:• Distinct products exist• Firm has sufficient monopoly power• Forecloses volume of trade
•Example: United States v. Apple
Tying Arrangements and Antitrust Laws
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Recommendations
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Introduction
Industry Structure
RecommendationPricing
Strategies
• The industry is becoming obsolete, need to redefine
Shakeout
• Consolidation of the industry in which businesses are eliminated through intense competition
Investment Perspective
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Introduction
Industry Structure
RecommendationPricing
Strategies
Google Trends
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Introduction
Industry Structure
RecommendationPricing
Strategies
It´s starts looking like:“By 2018,
tablets will be obsolete, I don’t think there’ll be a reason to have
a tablet anymore ”
Heins, Blackberry CEO
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Introduction
Industry Structure
RecommendationPricing
Strategies
• They have to redefine the industry, otherwise, if they continue selling just tablets and compete in price: Commodity• Be more than just a tablet•Apple “does not sell tablets”, they sell iPads
Pricing Strategy
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Introduction
Industry Structure
RecommendationPricing
Strategies
The Future?
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Introduction
Industry Structure
RecommendationPricing
Strategies
MacBook Pro tablet
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Questions?Presentation
Target MarketTablet Ownership Over TimeDistributionTablet Prices by DistributorApple “Price Umbrella”HHI/CR4Major Player ProductsSourcing AppleSourcing GooglePatent LawsuitsTablet Producer MarginsGoldilocks EffectCapacity Margin Increases4G Margin IncreasesiPad Intertemporal PricingKindle Fire Intertemporal PricingSamsung Intertemporal PricingTyingTying Arrangements and Antitrust LawsInvestment RecommendationGoogle Trends
Additional Information iSuppli iPad BreakdowniSuppli Kindle Fire BreakdowniSuppli Nexus 7 BreakdowniSuppli Samsung Tab BreakdowniPad Prices Today (Refurbished)Adoption Rate by GenerationMoore’s Law Not ApplicableConsumption Spreads Faster Today
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iSuppli iPad Breakdown
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iSuppli Nexus/Kindle Breakdown
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iSuppli Samsung Breakdown
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Model Initial Price Refurbished Price
Percent Change
iPad $499 $109.95 - 78%
iPad 2 $499 $159.99 -68%
iPad 3 $499 $199.99 -60%
iPad 4 $499 $239.99 -52%
iPad Mini $399 $175.99 -56%
iPad Mini 2 $499 $249.99 -50%
iPad Air $499 $299.99 -67%
iPad Prices Today (Refurbished)
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Introduction
Industry Structure
RecommendationPricing
Strategies
iPad Prices Today (Refurbished)
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Moore’s Law not in effect?
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Consumption Spreading Faster