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Posts Tagged ‘Product Pricing’

A Tale of Two Samsung Galaxy S4s

In Design Methodologies, Education, Embedded Systems, Engineering Principles on May 14, 2013 at 7:23 PM

When you are in school or college, you are taught about the best ways to do things. It is generally about a point solution. Alternatives are rarely discussed in detail. One almost always looks for the best answer, the best method, the best algorithm. When you begin to work  for a company, you almost always realize that the best solution is not what one is always looking for. Time and market pressures play a role in choosing solutions. You can choose a solution that suits the “taste of the target market“. When you serve more than one market, then it becomes interesting. Would you want to choose two different solutions for two different markets for the same product? This is one of the reasons that analysts cite regarding what Samsung has done with its Galaxy S4 smart phone. While the US and the Korean versions appear identical on the outside, they use quite a number of different components. Their processors, wireless and image processing architectures are different. Supposedly, the Korean version is faster and has a longer battery life because it uses  Samsung’s Octacore Exynos 5 processor which has an architecture (read here) that helps to attain a balance of power efficient and performance more than the Qualcomm Snapdragon processor in the US version. iSuppli’s IHS Teardown Service reveals all the component level differences between the two designs here.

A more plausible reason for the difference in the two architectures is the fact that the LTE bands supported by mobile operators in US and Korea are different (see here). The two processors (essentially system on chips in this case) may not support both the LTE bands. However, it does illustrate an important point related to engineering product design. It shows that you can design the same product with different architectures. While not related to S4, this analysis reminds me of regulations in certain countries which make it compulsory for a manufacturer to source components from local suppliers for products to be sold in the local market.  An example is here. Therefore, as a manufacturer you can end up with different components in different markets for the same product.

I used to think that a consumer electronic item sold in different countries used the same components. That myth now stands broken! While you can easily spot the differences in software, prominent being the language used in user interface, it is not easy to spot differences in hardware.

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Learning Electronic Product Pricing

In Design Methodologies, Education on July 19, 2012 at 4:14 PM

Do you ever wonder about how pricing for a product is done? In simple terms, the retail price has to be greater than the raw material cost. To this, one has to add manufacturing, marketing and some other costs (like labor etc.) depending on the industry segment. While there are different pricing models like the software pricing model, capital asset pricing model etc. in different market segments, in order to get a feel of how pricing is done in electronics industry, one could start with a teardown analysis and BOM (bill of materials) analysis of a product. The IHS iSuppli Teardown Analysis Service is a nice place to start. It shows teardown analysis of various electronic products in the market. The BOM cost (plus the expected manufacturing cost) generated from this analysis can be compared with the retail price of the device. This can give some insight into the product strategy being followed by the product company. Of course the actual BOM cost is expected to be slightly lower when volume production is taken into account.  An analyst/engineer can further analyse the BOM  to provide insight on component selection. Was a particular component chosen because of price or performance or a long business relationship between the product company and the component company or any combination of these? My earlier post “Electronics Engineering through Real World Examples” focused on the design aspects of a product. This post adds the product pricing issues to design considerations. The two posts should be seen to complement each other. Sometimes, a design engineer may not get a component of his choice because a similar component is already being sourced from another supplier (because of various reasons including company legacy)  and its details are already available in the internal component database maintained by the company. The two components may differ a bit in their performance, package, PCB footprint etc.  and the design engineer has to use his/her skills to workaround this issue. If you subtract the sum of BOM cost and manufacturing cost from the retail price, you can think of the remainder as the sum of marketing cost and profit per piece of the product. If you further do a little bit of study on money spent on marketing of the product and its sales volume, you can come up with a reasonable estimate of the profit earned per piece of the product. Of course, I have simplified the analysis a bit to give a reasonable understanding of the pricing methodology.  In a more complicated model, for products where technical support is required, there could be a “support cost” built into the pricing model. I will leave it to you to dig further into pricing models if you are interested.