Wednesday, June 22, 2016

Eye 2 Eye - With reference to Freedom 251, Is marketing a product majorly on its cost the correct marketing strategy? || Ajay Singla & Pragya Paromita || IIM Raipur & XIMB || March 2016 edition

The choice of marketing strategy depends on the target market. India is a low middle income country where around 32.7% of the total population lies below the property line. A lot of mobile phone brands like Apple, Samsung, Micromax, Lenovo etc. hold majority of share in the market. There is huge competition in the market. These companies are competing using price cuts and new features in the mobile phones. For a new player to enter the market and survive is a very difficult task. In such a scenario, marketing a product on its cost seems logical.
Ringing bells is going to launch Freedom 251 mobile phones for the Indian customers with a price of just Rs.251. The significant share of population who could not afford mobile phones earlier is the main target market for this product. The company has already received millions of rupees in lieu of advance orders placed for buying the mobile phone. The marketing of product on the basis of low cost will definitely help the company grab significant market share from the already existing market players.
However, it is not ultimately the revenue which defines the health of a business but the profits left after reduction of the costs. It looks practically impossible to provide a mobile phone at Rs, 251 with dual camera, GPS and other facilities. If the company is not able to recover the costs from the price at which the products are offered for sale, the company will fail miserably albeit high revenues.
Overall, we can deduce that marketing a product majorly on its cost can be the correct marketing strategy depending on the type of target market and also the marginal profits obtained by using the strategy.

At the first look a marketing strategy based on price, may seem very catchy and attractive from a customer’s viewpoint; and disastrous from the seller’s. A case in recent times, “Freedom 251” a mobile gadget that promises all essential features priced at an unheard of figure –Rs 251. The sheer incredulity of the price garnered much needed hype and publicity. However, getting back to the basics – Was adopting a price point based marketing strategy correct? There can be a lot of debate either for or against such a policy. But the essential point here is to have a look at the industry.
Governed by the Moore’s Law, the industry poses in itself a lot of challenges – rapid rate of technological innovation, shifting tastes of customers and short product life span. The Indian Smartphone industry is marked by stiff competition, highly attractive growth potential (36% compounded annual growth rate in the upcoming 5 years) and ever increasing Internet enabled services on Smartphone. In an industry such as this, being the lowest priced product may seem an attractive proposition for short-term; however for long term sustainability it’s the product quality, innovation in features and customer experience that will be the front-runners in keeping the product alive in the market.
Now, from the customer’s viewpoint, a cheap product equates for two things – perception of lacuna in terms of quality of the product, and no loyalty for the brand. This would be the case even when the product supposedly functions well enough and meets all the minimum specifications. According to a research conducted by Accenture (Feb 9th, 2016), Indian Smartphone users are giving more importance to services offered as compared to owning newer gadgets. And thus, attempting to woo the customer based on price alone would be like selling a hot dog without the sausage.


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