Surface Sales Held Back by Poor Distribution & High Prices

Surface Sales Held Back by Poor Distribution & High Prices
My Marketing 101 professor started the first class by holding
up one hand and saying, “Here’s the product,” then held up the
other hand and said, “Here’s the market.” The objective of
marketing, he said, is to bring them together. Microsoft’s
Surface RT tablet, we’re told, is a pretty good product but
when we went to Best Buy and Walmart in Baton Rouge (a second-
tier sized market with half a million residents), none of them
had a Surface for us to see before we purchased it.

Microsoft may sell only 500,000 to 600,000 Surface RT tablets
in the December quarter, according to the Boston brokerage
outfit Detwiler Fenton. That’s far fewer that the one million
to two million it had originally expected.

Detwiler Fenton blamed the shortfall on a Microsoft strategy
that it said is in “disarray.” It said, “Lack of distribution
is killing the product. Mixed reviews and a $499 starting
price tag certainly don’t help, but lack of retail exposure at
Best Buy and others is severely depressing sales.”

Microsoft no longer has the drawing power it used to have when
buyers lined up outside retailers when a new version of
Windows debuted. Apple has usurped that. Surfaces are only
available in about 31 stores, 34 kiosks and at Microsoft’s Web
store so there is little opportunity for consumers to actually
see one.

“Lack of distribution is killing the product,” Detwiler Fenton
said. “Lack of retail exposure at Best Buy and others is
severely depressing sales.”

We’re expecting Microsoft to expand its distribution channels
soon so it and its retailers don’t miss out on the holiday
shopping binge — and to sell some of the inventory it has
accumulated.

Price
Surfaces are priced like iPads so most buyers that are
prepared to spend that much would prefer to purchase an iPad.
If they want to spend less, they’ll buy an Amazon Kindle or an
Ausus-made Google Nexus.

Detwiler Fenton’s director for technology research Mark Gerber
told The Channel that Microsoft needs to cut $200 off the
price. He said, “The Surface RT price needs to come down: $399
with the keyboard would be a good starting price.”

Forbes contributor Tim Worstall says Microsoft should cut the
prices of Surface tablets by one-third “if it’s going to start
to get decent sales volumes.” See:

http://www.forbes.com/sites/timworstall/2012/12/05/advice-to-
microsoft-slash-the-surface-price-by-33/

He also recommends that Microsoft increase its distribution to
give the Surface “a fighting chance to compete.”

Worstall says he’s the perfect prospect to buy a Surface:
– Doesn’t use a tablet
– Likes the basic idea of Surface
– Too set in ways with having a keyboard
– Likes the idea of a touchscreen tablet that also has a
keyboard

But, he doesn’t think he would pay $600 for one — unless it’s
an Apple — because there are many much less expensive tablets
in the $200 to $300 range. For $600, he says, you can get a
full-blown Intel-based laptop.

“What is it that Microsoft’s Surface adds for that incremental
$200 or more? He asks. “Not a huge amount as far as I can see
and thus the agreement that perhaps that price needs to come
down.”

There’s still a good opportunity for the Surface, Detwiler
Fenton said. Improved hardware and distribution coupled with
an aging laptop fleet in Western markets should cause demand
for Windows 8 tablets to improve in the 2013 second half.

There’s also the Intel-based version that will be available in
January. Corporates will love it because it runs their
existing Windows software, something that not even the mighty
Apple iPad can do.

About the Author

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