The paradox however is that to lower the price of the X7 is to prolong the payback period for this specific model, which is the most unprofitable of the entire company. Ideally the X7 needs to have a higher price point associated with it, and in retrospect the better product strategy would have been to expand into higher-priced models where Handheld would have had ample room in terms of price points to differentiate. The new product needed to be approximately 30% or more than the X6, with significantly greater features including support for WiFi, social networking apps including Facebook, MySpace, Twitter, Friendfeed and other features that could be turned into value-added services that could be upsold to customers. A new product at the higher end of the product line would also give Handheld the opportunity to move into the lucrative services sector as well, offering WiFi-based applications and content syndication through partnerships with providers. As X6 saturation is progressing at the most rapid rate of all three products, this higher-end product strategy makes more sense than launching a $200 unit that has little strategic direction apart from being a loss-leader. The X6 customer loyalty is exceptional, further supporting the decision to enter a higher-end segment than attempt to compete only on price. Despite this being the best direction, Handheld has $12.8M invested in the X7 and must significantly re-position the product to make it profitable. Summary

Cancelling the X7 is not an option given the high R&D costs sunk into the product already. Handheld must increase the functionality of the X7 through electronics upgrades that allow for related content services...

By adding in these services and increasing functionality, Handheld can substantiate their price point of $200, yet without significant differentiation at the product and service level, the X7 will languish and fail over time. Handheld needs to find new strategies for injecting greater value into the X7 and stabilize pricing. Future product strategies should be focused on their higher-end segments of the market as their most profitable product lines are getting quickly saturated and their loyal customers need a trade-up strategy in order to stay with Handheld.
References

Negandhi, Anant, R. (1973). Comparative Management and an Open Systems Theory. Academy of Management Journal:

PROCEEDINGS,150. Retrieved October 27, 2008, from ABI/INFORM Global database. (Document ID: 1938333).

George Haley, Stephen Goldberg. (2008). Reciprocally derived demand and pricing strategy for mature industrial products. Management Decision, 46(7), 1066-1080. Retrieved October 27, 2008, from ABI/INFORM Global database. (Document ID: 1524741101).

Mike Hall (2005, March). Adding value for embedded. Electronic Engineering Times,(1361), 56-57. Retrieved October 27, 2008, from ABI/INFORM Trade & Industry database. (Document ID: 809766711).

Rob Markey, John Ott, Gerard du Toit. (2007). Winning new customers using loyalty-based segmentation. Strategy & Leadership, 35(3), 32-37. Retrieved October 27, 2008, from ABI/INFORM Global database. (Document ID: 1363604831).

Eric G. Olson, Deepak Sharma. (2008). Beating the commoditization trend: a framework from the electronics industry. The Journal of Business…