Chapter 767 – Price war
“Manager Feng, you are not coming back?” Liu Chuanzhi asked over the phone.
“I will not be going back. If you need anything, call me. I will ask someone to help you. Have you considered this well? We will be the industry’s public enemy!” Feng Yu reminded.
Liu Chuanzhi wanted to make use of the National Day Holidays to start the price war in the PC sector! PC prices will be lowered drastically, and at the same time, he will offend the PC manufacturers.
Of course, the PC manufacturers will not be limited to China’s manufacturers. Lenovo will be the common enemy of all international PC manufacturers. In the future, it will be hard for Lenovo to venture into other countries.
Lenovo’s advantage in this price war was the high tariffs on electronic products in China. Their manufacturing cost was about the same or even more than overseas PC manufacturers. Other than the transportation cost and exemption from tariffs, they do not have any other advantages.
But with the high tariffs, overseas PC brands will cost at least more than 10,000 RMB. Lenovo could sell their PC at 7,000 to 8,000 RMB and will still have profits.
What was the cost of those overseas brands? The manufacturing cost was about 5,000 RMB and coupled with branding, distribution, transportation, storage, marketing, etc., it will be a loss if they sell their PC below 10,000RMB.
“Manager Feng, this is the best opportunity to take over the Chinese market. After we become China’s number one PC brand, our profits will surely improve by leaps and bounds. We will have the funds to invest in new factories and increase our productions. This way, we will be able to lower our manufacturing cost further.” Liu Chuanzhi also knew he would be the offending all other PC brands if he started this price war.
But Liu Chuanzhi had to do it. If not, it will be harder for him to occupy the market. After all, Lenovo’s brand awareness, technologies, etc. were still not comparable with those big companies.
Pricing was Lenovo’s most significant advantage as it is China’s domestic brand.
When Lenovo become China’s top PC brand, it could easily monopolize the Chinese market. The government agencies will surely purchase Lenovo PC. Also, the software they developed could help increase its sales.
Lenovo had also signed an agreement with Microsoft. Lenovo was the only company in the world to be able to get the cheapest Win95 Chinese edition. The other brands could only use an outdated operating system or the Eng version of Win95.
You all want to buy the Chinese version of Win95? Sure. One PC will cost at least 800RMB! This is the wholesales price. If you’re going to install it into one PC, it will cost 1,300 RMB!
Microsoft Win95 Chinese version was jointly developed by Microsoft, Kingsoft, and Lenovo. But all the profits will go to Microsoft. Feng Yu was the one who set the market price. In the US, original version of Win95 cost this much. I am offering a Chinese version now and is not charging you extra.
In Feng Yu’s previous life, Microsoft’s operating system was the most expensive, and this was also one of the reasons why there was so many pirated version of it.
The original version of the XP operating system cost 998 RMB and a PC cost around 3,000 to 4,000 RMB. The operating system cost almost 25% of the PC. More importantly, those PC sellers will install a pirated version of the operating system to attract customers.
Lenovo had the advantages of pricing, location, and operating system. It also got the support of the Chinese Government. If Lenovo still cannot control the Chinese market with these advantages, then they should forget about venturing overseas.
“Old Liu, remember we talked about self-assembled PC? Do you think that if we sell the components of a PC, like motherboard, graphics card, hard disk, RAM, mouse, keyboards, monitors, optical drives, etc. separately, will the price be lowered further? The taxes on electronics parts were not high, and many of Lenovo’s PC parts were imported.” Feng Yu reminded him.
“You are saying that the customers can buy parts and assemble their own PC? Although PC is not considered complicated, ordinary people will not know how to assemble one. PCs are more complicated than TV. Also, these are expensive items. How many people would dare to DIY themselves?” Liu Chuanzhi replied.
“What if those people who know who to repair PC set up a shop to assemble PCs for people? They can use the same parts and without the branding cost and high taxes, how much do you think they can sell their self-assembled PC for?”
“This…… This should not be possible. Where can you find so many people who know about assembling a PC? Even if there is, their operating systems will be much more expensive. There will not be much difference between our pricing. Also, we are branded and have after-sales service. They will still not win us.” Liu Chuanzhi replied after thinking for a while.
“Then have you ever considered that if the other PC manufacturers did this? They can customize the PC according to the customer’s demands and sell to them. They will be importing parts and not a PC.”
“Manager Feng, the government will not let them exploit this loophole. PC parts importation has limits. After a certain volume, the taxes will be the same as importing a PC. We can do this is because we have the support of the government. But this support is not forever. That’s why we still need to set up factories to produce parts in China. In the future, we will try to produce most of our parts ourselves.”
Feng Yu was more assured when he heard what Liu Chuanzhi said. If there are restrictions, then those big brands will never win Lenovo in pricing. PCs of the same specs will have a few thousand RMB differences. How are they going to compete?
“How much are you going to sell our PC?” Feng Yu asked.
“8,800 RMB, with a free operating system, office software, and other software for them to access the internet.” Other than the operating system and office, the rest of the software was developed by Lenovo themselves. Of course, some of the software was developed by Kingsoft. The software was also another way to attract customers.
“How much is our cost?”
“Around 6,000 RMB, inclusive of the software. The profit is quite high. I am confident that we will become China’s top-selling PC brand within 3 months.” Liu Chuanzhi was very confident. He will be targeting the government agencies too.
“Fine. I will trust you. Remember to keep a lookout for self-assembled PC. Also, you must have total control over the retail shops. They must not just raise the prices as and when they like.”
“Don’t worry. We have our own retail shops and counters. We have also signed contracts with distributors. If they breach the contract, we will make sure they will pay the consequences!”
Lenovo had wanted to sell their products only in their own retail stores. But they had to take care of some distributors in certain regions because of some ‘special reasons’ and to prevent trouble from the local authorities. Also, the cost of managing its own retail stores was high. Lenovo still does not have enough funds to set up so many retail stores. But if anyone does not abide by the contract, Lenovo will not let them off lightly!
“Ok. Then I will wish for our success in this price war. We will take over China first, followed by Asia, and then the world!”