Chapter 632 – Promotions Part 1 of 2
Now, all sorts of VCD player brands had appeared all over the world. The traditional VHS market had shrunk. All the manufacturers were losing money. Some of the big brands stopped their production of VHS players. This was because they had the authorization to use VCD technology.
Those smaller factories went burst. They had tried to sell their VHS players at a loss, but no one wants to buy them. This was like after the appearance of mobile phones, no one wants to purchase pagers.
When all the companies were negotiating on the retail price to protect their profits, Wind and Rain did something unexpected.
Wind and Rain VCD player had a promotion for their price cuts!
Wind and Rain Electronics had invented the VCD player, and the initial prices were set by them. After the authorization was issued to the other companies and other brands of VCD players appeared, Wind and Rain Electronics was still selling their VCD players at 3,000 RMB.
Sony and the other companies were still laughing at Wind and Rain. You think Wind and Rain is a big brand? Is your brand value as high as Sony? You will fail if you try to make use of your brand to increase your profits.
This was the truth. Wind and Rain VCD player sales start to decline. When Sony’s Norio Ohga knew about this, he was overjoyed.
Do you think you can sell your VCD players at such high prices because you are the ones who produce it first? Are you regretting? Your high prices are causing you to fail.
But now, Wind and Rain VCD players suddenly announced a promotion and price cuts. It was a massive price cut! The VCD player retail prices had dropped to 1,999 RMB from 3,000 RMB! The other companies were selling their players at over 2,000 RMB. Wind and Rain was a few hundred RMB cheaper!
At the same time, Aiwa VCD and AIWA VCD also announced their price cuts. It was the same as Wind and Rain!
The other brands were stunned. The consumers will no longer buy their VCD players. These 3 brands were the oldest brand of VCD players.
This year, RMB suddenly depreciated against other currencies. Last year, the rates of RMB against USD was about 5.8:1. Now, it was 8.2:1. That means 50 USD of authorization fees were equivalent to more than 400 RMB!
The difference in retail prices of Wind and Rain VCD players against other brands was about 50 USD. All the companies were furious.
Wind and Rain Electronics was too much. They lowered their retail prices, and the other companies had to follow. They had to lower their retail prices to about 200 USD. Their production cost was about 100 USD, and the authorization fees were 50 USD. There were not many profits left. Almost all the profits were taken away by Wind and Rain Electronics.
The most frustrating part was Wind and Rain did not lower their retail prices after they issue out the authorization. If Wind and Rain dropped the prices from the start before the other companies expanded their factories, the losses would not be so high. Now, the companies had increased their production, and their profits dropped. It will be hard for them to survive.
Feng Yu had been waiting and maintaining the retail prices for this moment. He wanted to wait until those big brands expanded their operations and then lower the prices. He wants to use this opportunity to wear them out.
Feng Yu knew clearly the production cost of a VCD player. In the past, the cost of producing a Wind and Rain VCD player was more than 1,000 RMB. But as the factory scale increase, workers became trained, and the efficiency of the facilities upgraded, the cost dropped to about 600 RMB. This also showed that Feng Yu’s profits were way higher than other companies. The production cost of other companies should be more than 1,000 RMB.
Those companies had just expanded their scale. Their workers were still not familiar with the production process. Some of the core techniques were not sold to them, and these cause their production cost to remain on the high side.
Actually, this was still fine for the companies. If their production cost was about 1,000 RMB, they could sell the players at 2,000 RMB. But these companies still had to pay taxes, transport, and sales cost. Their profits will not be high, especially in Chinese companies. The earnings for one VCD player was about 50 USD.
But Feng Yu’s sudden price cuts had killed these overseas brands. There was no way for them to continue manufacturing VCD players. They had two possible solutions. First, companies can produce VCD players in China. This way, the companies will not have to pay the import duties and lower the cost of transportation. But the companies had to build factories in China. The investment will be huge. The second solution was to withdraw from the Chinese market.
Most of the overseas brands chose to withdraw from the Chinese market. The companies also withdraw from the region where AIWA had branch factories. These factories were also producing Aiwa, AIWA, and Wind and Rain brand of VCD players.
But those companies realized that they had handed over most of Asia, Europe, and US markets to Wind and Rain.
How can this be done?! The companies had just opened up the market, and when they were about to see the profits, they had to give up the market. They had been busy for nothing.
In the end, these companies came to an agreement. They will only withdraw from the Chinese market. In other regions, these companies had bigger factories than AIWA. They will be able to compete with them.
Most importantly, if these companies withdraw from these areas, they will lose their VCD market share and the DVD market in the future.
There was nothing these companies could do about this. They also drop their retail prices. After all, these companies still have a small profit after the price cut. But if they withdraw from these regions, they will not even get this small profit!
…….
Price cuts were the fastest and simplest way to get the market share. In Feng Yu’s previous life, many brands used this method to gain market shares fast. When they have obtained the market share, they will increase the retail prices for more profits.
After Feng Yu used this strategy, the Wind and Rain VCD player market share increase to 50% again. This figure was still increasing as their sales rise.
The overseas market sales also increase. Once again, Feng Yu had the upper hand.
Jiang Wanmeng and the rest also noticed that after the price cuts, their profits did not drop as there was an increase in sales. These few months, the sales of VCD discs had increased beyond their imagination. Wind and Rain Electronics had received more profits than before!
There was still the authorization fees collected from the various companies.
Feng Yu started the second phase of his promotion campaign after the other companies drop their retail prices. Buy a VCD player and receive free movie and music discs.
Buy 1 and receive 2 free. This promotional effort was too big.
Most of the people bought this VCD player to watch movies, listen to music or to sing. The consumers had to buy the player and the disc. The total amount of consumers had to spend was a lot. It was like buying a car and paying for petrol. The consumers might not feel the pinch when they purchase the discs. But if they total up the amount spent on discs, it was a lot.
The cost of one disc, including the copyrights, transportation, etc. was not more than 10 RMB. The free discs were worth only 20 RMB.
“Manager Feng, our sales had increased again. This promotion you suggested was too worthwhile!” Jiang Wanmeng said excitedly.
“This is nothing. The next promotion will be a lucky draw. Whoever that bought our product will entitle to a lucky draw. The top price will be a full rebate of the things the consumer purchase. The second prize will be a rebate of 50%. The third price will be the Bladeless fan……. The consolation prize will be a movie or music VCD disc. Everyone will win something!”
Feng Yu made use of some of the promotion strategies used in his previous life. Those big brands did not know who to set up a good promotion campaign, and they will fail!