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Pricer’s Points: Microsoft’s tablet pricing strategy. | Matt Burnett

This is a counter argument to an article written by Tony Rizzo of techzone360.com. You can read it here.

Tony Rizzo of techzone360.com has written a piece concerning Microsoft’s failed attempt at making a dent in the tablet market.

Rizzo argues that a core problem with Microsoft’s strategy was pricing. In particular the fact that Microsoft didn’t meet the price points as established by Amazon and Google and that thus its tablet pricing strategy was way off. Rizzo says that had Microsoft met some of those price points then it would have been possible for them to shift more units and thus drive the adoption of its new operating system.

However, there is a counter argument to this: the race to the bottom. By pricing at these extremely low price points Microsoft would have become stuck in a race to the bottom that would have left it struggling to breakeven, let alone make a profit.

To support this argument there is a key point to consider: how competitors make a profit in the low priced tablet market.

Amazon deliberately prices below cost or at breakeven to shift units. It then aims to drive profit through sales of digital content that customers consume on the device.

Google does the same by pricing its Nexus device near breakeven. However, its strategy is to make Android even more ubiquitous and by doing so nudge people into using Google services that it can then sell ads off the back of.

Microsoft doesn’t have either of these two strategies to fall back on.

Apple doesn’t even compete at these price points. (The iPad mini is £70 more expensive than the Google Nexus 7.)

What Microsoft did instead was deploy a value pricing strategy: that is pricing a product on the merits of its attributes. The bad news for Microsoft is that those attributes simply weren’t (still aren’t) good enough. Not enough consumers thought the value reflected the price they would be paying.

This isn’t necessarily a pricing problem. It’s a product problem. If Microsoft wants to succeed in the tablet market it needs to build a more compelling product and communicate it’s value better to consumers.

This may be the same for your business. Playing in a game for the race to the bottom is only going to end in disaster unless you have a strategy like Amazon and Google. It’s much better to have a value-based pricing strategy to maximise your product. However, just make sure you have a truly compelling product. Good luck!

* This article was originally published on the MattBurnettBusiness.com – a blog about business, pricing and technology.

Hi, I’m Matt Burnett and I’m a pricing analyst for a UK DIY retailer and a graduate of the University of Portsmouth. I’ve previously worked at, The Southern Co-operative, IBM and Waitrose.

I’ll be using this blog to share my thoughts on topical business issues (mostly pricing) and my interests in technology. I’d love to hear your thoughts on anything I write.

If you wish to get in touch you can find me on both Twitter (@Matt_Burnett) and LinkedIn, you can also find me on Google+.

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