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Industry Leader Preempts the Low End of the Market

Recently, Intel announced the Atom chips. These chips are inexpensive, built for ultra-cheap desktop or portable computers called Nettops and Netbooks. The Atom chips for Nettops cost $29 each, while those for the Netbooks will sell for $44. These are both Price Leader products.

In our analyses of price points, we have identified four separate price points in the market place. (See: “Why Do Leaders Lead?” in StrategyStreet.com/Tools/Perspectives) Three of these price points appear in most markets:

  • The Standard Leader price points are those that command the middle of the market. They set the standards for all products offered in the market.
  • At the high-end of the market, the Performance Leader products occupy the premium-end of the market, with prices starting at 10% over the Standard Leader product. These products offer more performance in the form of Features, Reliability and Convenience than do the Standard Leader products in return for a much higher price.
  • At the low-end of the market live the Price Leader products. These products offer fewer benefits, lower performance, than the Standard Leader products. Their prices must be much lower to make up for that. Most Price Leader products have prices at least 25% below those of the industry Standard Leaders.

These price point categories apply to both products and companies. For example, a Standard Leader company will often offer a Performance Leader product in addition to its Standard Leader products.

By introducing a Price Leader product, the Standard Leader company, Intel preempts the low-end of the market. Its main rival, Advanced Micro Devices, Inc. (AMD), might have had an opportunity at that low-end but its unique opportunity has passed it by. AMD will inevitably introduce a Price Leader product in order to continue offering a broad product line, but it will probably not gain much market share from the introduction.

In an unusual move, Intel is ahead of its major customers on this product. Hewlett-Packard and Dell, the two leading U.S. producers of personal computers, had yet to introduce their full lines of Nettops and Netbooks. Instead, some of the industry’s followers dominate these Price Leader computers.

Intel read the tea leaves correctly. Congratulations on an astute innovation.

Posted 6/19/08

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