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Price war leaves bad taste to loyal customers

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Last week one of the biggest news in consumer electronics arena is Apple decided to cut the iPhone price. Consider Apple just started shipping iPhone in late June, this move is a blow to its most loyal customers (early adopters). Apple quickly responded to the angry customers by offering $100 credit (source: Apple.com).

From my own experience, US car makers do those kind of price cut all the time. They carry out price wars mainly in two ways: rebate and/or low interest loan. Sometimes I saw a $8000 rebate on a 20 to 30 k truck or SUV. One side effect of those kind of promotion is the lower residual value of pre-owned cars (trucks), compared to similar model Japanese cars/trucks.

Interestingly, this car price wars are now extended in China, for the good or bad of consumer. On the good side, the new customers can buy the cars on the cheap; on the other hand, the early (loyal) customers paid a premium for the car. This is an Chinese article talking about Hyundai cars. The war is not limited to Korean car makers. It appears to me low end car makers have most to lose; while high end cars such as BMW still have much price power. (Picture below: Hyundai Coupe).

hyundai cars pic

PS, after I wrote the above, I realized there is difference between price cut and price war. But I think there is a strong connection between the two: price cut is the tactics of a price war, e.g., Apple announced a price war against its competitors (Motorola, Palm, RIM etc.) by cutting the iPhone price. Now the competitors will have to respond by cutting their prices if they don’t want to give up market share.

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