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Thursday, July 18, 2013

Two Tales of Plummeting Prices

When a new digital device gets a big price cut, it's usually good news for consumers, but it's usually a sign of poor sales, too - even if the maker of the device doesn't want to admit that publicly.

Take the BlackBerry Z10 smartphone, which, after disappointing sales, dropped significantly in price just a few months after release.

When it was released in the United States in March, the Z10 cost $200 with a contract. Now the Z10 is free at Best Buy with an AT&T contract, or for $50 with Verizon. In Canada, where the Z10 was released in February and where sales were stronger, the smartphone is $100 to $150.

Or take Microsoft's Surface tablet. It cost $500 when it was released in October, but it is now $350 on Microsoft's Web site. Analysts estimate that demand for the tablet was weak during the holiday quarter.

It has become a tradition for company representatives to shrug off a major price cut and say that these types of sales always happen. That was Nokia's explanation when it halved the Lumia 900's price soon after release, and AT&T's explanation for the price cut of the HTC First, the Facebook phone. Neither of those devices were selling well.

Meanwhile, the price of the iPhone 5, one of the best-selling smartphones in the world, hasn't changed since its release in September.

Adam Emery, a BlackBerry spokesman, said that trimming the price of a smartphone was part of normal procedure:

Like any other smartphone maker, we, along with our partners, make adjustments as we roll out new elements of the product portfolio. And with the recent arrival of our flagship BlackBerry Q10 smartphone, now is the right time to adjust the price for the BlackBerry Z10 all touch device. As we have said, we will be introducing several BlackBerry 10 devices before the end of our fiscal year. It's part of life cycle management to tier the pricing for current devices to make room for the next ones. This is just one element of our marketing strategy that will ensure we remain aggressive in a very competitive market landscape.

Microsoft's response is a bit different. The software maker, which is a new player in the mobile hardware market, says it has been happy with past promotions it has done for the Surface, like one in the United States in which customers received a free keyboard cover when they bought the tablet. So it says it is sharply cutting the price to get the tablet into even more people's hands:

We've been seeing great success with pricing and cover promotions over the past several months on Surface RT in the U.S. and other markets. People who buy Surface love Surface, and we're excited about all those additional people out sharing their excitement for Surface with other people.

Sales for mobile devices do happen. But Jan Dawson, a telecom analyst at Ovum, says that if a device is still new, a big discount is typically a sign that its sales didn't start off strong and the company is trying to clear out inventory.

“In the case of the Z10 it seems to have happened pretty quickly,” he said of BlackBerry's phone, “which probably means one of two things: It's selling poorly, or they want to clear inventory before bringing out something more appealing later this year.”

This post has been revised to reflect the following correction:

Correction: July 17, 2013

An earlier version of this post referred incorrectly to the country in which customers received a free keyboard cover when they bought a Surface tablet. It was in the United States, not Japan.