Over the Razr’s unprecedented two-year run, the retail price of the device has plummeted from $500 to $50, drawing new volumes of consumers at each price point along the way. In the process, this game-changing handset has sold more than 50 million units, spawned countless imitations and launched its own family of successor devices. The best-seller has not only revived Motorola Inc.’s fortunes, but thrust the vendor into the forefront of the design-and-style-oriented handset market.
Moreover, the Razr’s run has contributed to changing the way U.S. carriers market their services. Exclusive handset deals have gained added cachet and today carriers are as likely to tout their handset portfolio as their network quality. The Razr also reminded the industry that a cool handset primarily designed for voice functionality can trump the most feature-packed “mobile device” at the point of sale. (Duly noted: the Razr has acquired features with successive iterations.)
Motorola’s pricing approach on the Razr probably has contributed to its recent gains in market share and represents a distinct approach to a halo product turned truly iconic-today, a much-abused term. Arch rival Nokia Corp., for instance, treats the pricing of its halo products differently; generally it attempts to maintain price tiers within its portfolio. Whether Motorola will follow the same path with the Krzr, the Razr’s successor, remains to be seen. But giddy talk at Motorola’s analyst day in Chicago in July of selling 500 million handsets in the Razr family suggests that, if the company can rekindle Razr’s fiery sales, it will repeat the handset’s pricing pattern.
According to analysts and Motorola, the company’s approach to the Razr was a deliberate effort to create a halo product that would burnish its image and draw attention to its portfolio. In July, when Razr sales topped 50 million, Ron Garriques, president of Motorola’s mobile devices business, said: “The development [of the Razr] was a journey we took to find and express the soul of our company.” (Motorola was unable last week to provide a spokesperson to address Razr’s pricing.)
Selling that soul carried a steep price-$500-back in November 2004; today, a piece of that soul is $50. The steep price descent in between has produced some collateral damage to sales by the competition. Today, halo products appear to be a critical element of everyone’s game plan. Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd. have managed to establish their own halo line or handset, with Samsung’s Ultra Edition and LG’s Chocolate increasingly grabbing attention. Sony Ericsson Mobile Communications’ Walkman handsets have caught fire. And Nokia’s marquee 8800 series has sold well at prices in excess of $700. Apart from typical, fourth-quarter dips in price to juice retail sales, or carrier “specials,” however, none have taken the path Motorola did with the Razr.
The Razr’s pricing history, in a nutshell:
- In November 2004, Cingular Wireless L.L.C. launched its exclusive offer on the Razr at $500. (Prices given typically required a two-year service contract.) The carrier sold 750,000 units in 90 days and 5 million units over the course of its eight month-plus exclusivity period. By May 2005, Cingular-undoubtedly with help from volume pricing by Motorola and its own subsidies-had cut the price to $400, then to $350, and down to $200. T-Mobile USA Inc. got into the act in July 2005 and both carriers maintained the $200 price until December 2005, when Alltel Corp. and Verizon Wireless launched CDMA versions of the Razr v3c models at $200.
- By early this year, Razr pricing was in play. Post-holiday, Cingular and T-Mobile USA cut their retail Razr pricing back to $150 as Alltel and Verizon Wireless held steady at $200. By September, when the latest and greatest iTunes-enabled Razr v3i launched at Cingular at $250, T-Mobile USA hawked its Razr v3 at $50, the same price Sprint Nextel Corp. charged for its v3m when it launched earlier this month. (Sprint Nextel’s lateness to the Razr phenomenon may have contributed to its current financial malaise.) Resellers have even touted free Razrs like a matador waves a red cape before a snorting bull.
The Razr’s precipitous price drop has helped fuel Motorola’s resurgent fortunes. And in financial discussions of Motorola and Nokia’s falling average selling prices, the spotlight remains on their death-match in emerging markets where low-cost handsets grow volume shipments-the two rivals’ critical, competitive arena. (Nokia and Motorola are thought to be roughly at parity in market share in developed markets, with Nokia having the edge in emerging markets.) But analysts have discussed that Razr’s current, mass-market price may make the Krzr’s current $200 price at Verizon Wireless untenable. Motorola clearly is banking on the Krzr’s refreshed design and look-the Krzr’s emphasis, a legacy of Razr, is on “CMF,” colors, materials and finishes-and its feature set.
Thought process
Along the Razr’s remarkable sales arc, many in the wireless industry have sifted the data for insights, if only to marvel at the trajectory of this meteor’s fierce roar across the sky and smooth landing just as its successors lift off, seeking a similar streak. Two leading analysts shared their thoughts.
“Razr was designed as a halo product, not to sell 50 million units-not that Motorola is disappointed with that,” said Avi Greengart at Current Analysis. “I certainly wasn’t expecting it to be a mass-market product and, initially, it wasn’t priced to be a mass-market product. It was priced as a `halo product’-the notion was to show that Motorola was `back,’ that they could design a hot, sexy phone. A halo product is designed to get people into the showroom and raises your brand profile.”
At that time, Greengart said, Nokia struggled in terms of design. The spotlight was taken by Samsung and LG, which launched tapered, internal-antenna, clamshell phones that sold well in the critical mid-tier price point. Motorola, according to the analyst, was floundering.
Cingular’s sales numbers for the $500 handset-Motorola had priced in the high costs of tooling associated with manufacturing an ultra thin metal phone with a unique keypad-astonished everyone.
“When the sales figures blew everyone away-including Motorola-they amortized the tooling costs and, rather than keeping this just as a high-end product, Motorola decided to push for volume,” Greengart said.
Motorola dropped its price in steps and broadened the handset’s presence to other carriers, resulting not only in the sale of unprecedented volumes, but giving the Razr a longer life than anyone expected.
“This is a consumer product and, like all consumer products, there are magic price points,” the analyst said. “Each time you hit a new price point, you open up a whole new audience and volume jumps.”
Now, Greengart said, exclusive deals to launch a handset have proliferated. The Razr brought home that a hit handset could drive subscriber numbers. This notion is backed by data from J.D. Power and Associates’ latest retail study, released last week. Nearly one in five consumers, or 19 percent, cite the type or brand of handset as a key factor in selecting a wireless carrier-up from one in 10, or 11 percent, two years ago. In other words, over the two years Razr has been on the market, the number of consumers considering a handset as a means to choosing a carrier has doubled. (Coincidence? Cause-and-effect? In the absence of correlative data, you make the call!)
In marked contrast, Greengart said, is Nokia’s strategy on its halo-wearing 8800 series, which has sold more than a million units at prices that range from $700 to $1,000. Nokia has chosen to maintain its sense of brand and retain clear price tiers in its portfolio.
“Preserving a premium line and a mass market line is something they want to do,” Greengart said.
In contrast, Samsung and LG generally have attempted to compete on price right away, when a handset launches, he added. Another element in the mix is carrier subsidies-oft-mentioned yet little-discussed, at least publicly-which vary. According to Greengart, by the time Verizon Wireless launched its Razr offering, it was more aggressive on its subsidy than Cingular had been and, at retail, accelerated the rate at which the Razr approached mass-market status.
A Greengart prediction: after holiday sales slow, Verizon Wireless will drop its price on the Krzr.
So, is the Razr’s price trajectory a new phenomenon? Ovum’s Roger Entner said no.
“Motorola took a page out of Intel’s playbook,” Entner said. “The microprocessor vendors have slowly moved their product price lower and lower to maximize revenue.”
“This is standard Marketing 101-it’s just that a lot of people in wireless have not taken that course,” Entner said. “It’s getting better, but for a long time you felt as if whatever engineer screwed up on a project got put into marketing. That has changed. Now, a lot of wireless companies are taking marketers from typical, consumer-goods companies.”
In fact, Motorola’s new chief marketing officer, Kenneth “Casey” Keller, has worked for Proctor & Gamble (snacks, Pringles) and H.J. Heinz Co. (ketchup).
“In the end, ketchup isn’t that different from a cell phone,” Entner said. “The Razr is simply another indication that wireless has morphed from a techie- to a consumer-oriented industry. The industry has matured in the way it markets its products. There’s no difference between cereal and soft drinks and ketchup and cell phones.” RCR
