Answering two messages in one...

Andres Tarzia wrote:
> ... There are an awesome lot of variables to take
> into account when fixing prices, and customer opinions are not even near
the
> top of the list.

Tjaart van der Walt wrote:
>If competitiveness is not close to the top, they should re-think
>their pricing structures. (Hey, *we* can help them ;) )

Mark A. Walsh wrote:
>Perhaps I don't understand the semiconductor business, but my customer's
>opinions are at the top of my list when I fix prices on my products.  They
>have to receive a perceived advantage from me in price, performance, and
>service or they will go to my competitors.
>
>We have started using the AVR chips in some of our new designs because
>our customers expect us to be competive.  The AVR and PIC's both have
>advantages and disadvantages.   But if I don't watch the bottom line, I'll
>have to lock the door and go into a new business.  If Microchip won't set
>competitive pricing, they'll lose their market share the same way I would
>or any other company would.  It's up to them.

First of all, I have to say that I am on a different business. Electronics
is just a hobby for me.

Now, suppose I design a home-made digital answering machine using some uC,
some memory, some interface chips/discrete parts and a home-made PCB. The
case is ugly. The display is rude. I spend $30 just for buying the parts.
Now, if I were to market this product, which price should I set for it?
Surely, CUSTOMER OPINIONS will be that they'd find a much nicer-looking
digital answering machine for $15 at any electronics shop. And it is
smaller. And it allows more time for messages. Now what? Should I sell it
for $10? I spent $30 just for the parts! And I expect some money for my
work...

What I mean is that there is a bottom price at which you can sell a given
product. Surely you can't sell it at a lower price than its cost, or you'll
lose money. Then you have a structure to maintain (all those nice .PDFs we
all love takes money to write, for example) and a bunch of investors who
demands some money back. And there are government taxes. So you have to sell
the product for some amount money OVER your cost. These considerations, and
others that I am not writing here, come way BEFORE any customer opinion.

Then there are marketing considerations. If you sell your product (a good
product) at $0.03 per part, in a market where the competition is charging
$10 per part, you will sell a lot of them, but you will not recover your
money and will go out of business faster than you can say "PIC". On the
other hand, if you charge $100 per part, you could surely count units sold
using just one hand, and you'll go out of business anyway.

There is an "optimal" price for any product. That is the price where your
income is maximum. A lower price and you'll get less money (although you may
sell more units) because of a slimmer margin. A greater price and you'll get
less money because of less units sold.

Sadly, sometimes a market is driven by huge companies and the "optimal"
price is too high for starters, hobbyists or small companies. For example:
does the Xeon have to have such a high price tag? Some other times the price
is good, but the selling terms kills any small quantity customer. Try buying
GPS chipsets. They sell for $30 or so per chipset. But they only sell you
thousands at a time (in one case, no less than 100,000!). Forget about
buying just a couple for your home project.

I don't know what is driving the PIC prices, but as I said before, I don't
think that we, as customers, will have a big enough impact as for forcing
Microchip to lower prices JUST FOR OUR OPINIONS. Now, if Atmel, Motorola,
and/or others start producing alternatives at a lower cost, that is a
different story...

Excuse me for the message lengh...

Regards,
Andres Tarzia
Technology Consultant, SMART S.A.
e-mail: atarzia@smart.com.ar