What is it?

How to price innovation.

On September 1, 2010 Bloomberg Businessweek reported Panasonic’s claim that Samsung started a price war for 3-D TVs.  The authors, Mariko Yasu and Adam Le, go on to tell us that Samsung began offering the sets in March and garnered 88.3% of the market by the end of August.  Since March both Sony and Panasonic have entered the market.

Given these facts what would you have done if you were running Samsung?  I’d have done exactly what they’re doing, lowering the price.  Yes, I know that sounds strange coming from me, the leading advocate of higher prices.  But, as I’ve said before, this is a situation that begs lowering prices.  Why?

Samsung was the first to market.  They had no competition, which allowed them to charge a premium price.  The price premium provides a large ROI on both their innovation and marketing dollars.  As soon as their competitors enter the market with a competing product, they lower the price to prevent those competitors from enjoying similar returns.

The financial gains they earn while being the sole provider of 3-D TVs allow them to continue to innovate and be first to market, which enables them to maintain a commanding lead over their competitors for decades.  Who wouldn’t embrace a strategy that enables them to accomplish so much so quickly.

It’s counter-intuitive, but lowering prices just as your competitors come out with a competing offering doesn’t cost you money.  It solidifies your competitive advantage and, often, your market share.  The latter is especially true if you have the next generation of innovation ready to launch.

If I were Samsung and being accused of starting a price war, what would I do?  I’d smile all the way to the bank.

Author – Dale Furtwengler