BMW, Apple `Downshift' Prices
PRICE-CUTTING is no longer just the tool of retailers such as Sears Roebuck and K Mart. Even upscale manufacturers are reducing prices - the result of changing tastes by consumers as well as the sluggish global economy and concerns about the Gulf war. But in turning to cost-cutting, some companies are adopting a new marketing strategy that might be called ``downshifting'' - i.e., introducing lower-priced products that essentially utilize the existing technology of higher-priced items.Skip to next paragraph
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``Selling a product with a `price-cut' often sounds somewhat crude,'' says Donald Lehmann, a professor at the Columbia Business School. The objective, Dr. Lehmann says, is to sell the newer low-priced product without damaging the image of the more expensive brand name. And in the case of very expensive products, ``conspicuous consumption is no longer as `in' as was the case back in the 1980s.''
Examples of recent price-cutting efforts involving expensive products include BMW and Apple Computer. Other car companies are repositioning some brands at different price levels to take advantage of consumer concerns about finding the best value at the lowest price. The Toyota Motor Corporation's Lexus luxury car division is introducing a new luxury sports coupe this June, to be packaged between its lower cost and most expensive products.
BMW is now offering a version of its popular 3-series at a price below $20,000, the first time BMW has offered a car below $20,000 since the mid-1980s. Meantime, late last year Apple introduced the Apple Macintosh Classic, a computer that has a suggested retail price of $999, half the price of an older product.
Is BMW lowering standards by introducing a lower-priced model? ``Not at all,'' argues Carl Flesher, vice president of marketing for BMW of North America Inc.
According to Mr. Flesher, the main issue for car buyers today ``is value; consumers seek well-equipped automobiles that perform well.'' By introducing a lower-priced model, BMW is able to target potential car buyers between 25 to 35 years of age who have an income range of $50,000 to $70,000.
The new BMW, introduced in mid-1990, sells for $19,900, well below the more typical $25,000 range of the 3-series. A sports model of the new car is slightly more expensive, about $21,500.
Thomas McGurn, corporate spokesman for BMW of North America Inc., stresses that the lower-priced car is essentially a new car ``concept,'' although it contains much of the technology and features common to more expensive BMW models.
The car is selling very well, according to BMW, helping the German company hold its own in the United States market. BMW sold 63,646 cars in the US during 1990, down 1.9 percent from 1989, Mr. McGurn says.
Meanwhile, Apple has taken a major step in ``downshifting,'' with the introduction of its new Classic. There are two models, both introduced late last year: the basic Classic retails for about $999, about half the price of the Macintosh Plus, which sold for about $1,799, says John Cook, a spokesman for Apple in Cupertino, Calif. The slightly more advanced Classic HD sells for about $1,499, compared to the old Macintosh SE, which retailed for close to $3,000, Mr. Cook says. ``What you have are essentially the same levels of systems that used to cost twice as much,'' adding that the two Classics are completely new computer ``concepts.''
Now, Apple has a backlog for both models. The backlog is expected to ease around March. ``Apple had been losing market share in recent years. But since October, with the introduction of the Classic, share gains have been fairly significant,'' says Rick Martin, a computer analyst for Prudential-Bache Securities Inc.