Why Philips’ new light bulb’s pricing strategy is wrong

Philips just launched a new light bulb that will last for 20 years. Downside is that it costs 60 dollars. At first sight this price may not seem that high, considering the longevity of the lamp, but let’s take a closer look.

An average light bulb costs around 2 dollars and lasts, let’s say, 1 year. Multiply that by 20 years, and total costs will amount to 40 dollars. At first sight, it just does not seem an economically wise investment. However, judging from the LED technology that is used in the new Philips bulb, one can infer that the operational costs per hour will go down. Kind of makes sense to go out and and buy it then right?

Unfortunately, the issue here is, is that a fixed ‘investment’ of 60 dollars upfront is just too high. Consumers are sensitive to the benefits they can enjoy right now, rather than the benefits on the long run (see for examples bad mortgages, credit cards, etcetera), and will not be prepared to pay 60 dollars for something as ordinary as a lightbulb.

Besides, if one would take into account the accident-factor (e.g. dropping the box of the bulb as you come back home after you purchased it at the store or breaking it as you try to rid your ceiling of dust or spiderwebs during spring cleaning) it will be a costly sunk investment.

Even though I do not see a growth opportunity for Philips in the consumer market, I can imagine that for this price, governments will be very excited. Street lights’ investments are not the bulk of the costs that governments carry. In fact, costs mostly lie in maintenance work (e.g. replacing bulbs). Governments and companies with very large office may be able to achieve significant savings by purchasing these long-lasting light bulbs, but not consumers.

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