Yesterday, Palm President and CEO Ed Colligan was asked by UBS analyst Maynard Um about pricing strategy relative to the kind of years past, when the average selling prices (ASPs) were pretty good, at about or above the $400 level. Is higher functionality enough to maintain a premium price point, particularly in light of competitors and a 3G iPhone at $199?, he asked.
Colligan’s answer was what you might expect. A big part of pricing on the street is driven by carrier decisions around subsidies and how much carrier executives think devices are driving increased ARPU or bringing in new customers. It’s up to companies like Palm to work with carriers to make sure devices are appropriately positioned in the market relative to end-user pricing and marketing around it. Colligan said Palm can be competitive in the marketplace even at higher ASPs and can have a reasonable growth in its gross margins.
In a note to investors, Um later said new Treos coming out later this year may be priced higher at retail than upcoming competitors’ phones, such as Apple and Research In Motion (RIM), despite similar features, which may limit volumes. Alternatively, he said, if Palm prices them more competitively, it likely will weigh on margins.
It’s a difficult position for device makers. Palm says it is seeing great success in sales of the Centro, which is going for $99 after rebate and a 2-year contract, but then Palm loses out because it’s cheaper than what smartphones historically have sold for.
I realize the device makers need to recover their costs of making devices and make a profit. But I just don’t see how carriers can offer too many smartphones above the $199 price that the 8 GB model iPhone will carry when it launches on July 11. There is some wiggle room in that the 16 GB model will be priced at $299. But that $199 sticks in your mind. If I can get an iPhone for $199, why should I pay more for a competitor’s device? Some people will stick with their non-AT&T carrier and choose another device, and they’ll be just fine. But that $199 is very tempting for those consumers who are on the fence.
While RIM is trying to boost sales in the consumer segment, Apple increasingly is going after the enterprise segment. Interestingly, RIM co-CEO Jim Balsillie told analysts this week that RIM is not seeing overlap with the iPhone customer base. But I suspect his answer a year from now will be different, after Apple has time to woo the enterprise market with the 3G version and enterprise-related apps and updates.
With the current economic climate, wireless operators face shrinking marketing budgets and reduced consumer spending.
Globally, the credit crunch is very much alive, and operators will be tightening their belts into the foreseeable future by putting off capital purchases.
