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    Case 3 - Mobil Eye - Zukünftige Preisstrategie

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    Clara Schmitz
    Mobileye has strategically positioned itself as a tier 2 automotive supplier to capture high margins. It initially implemented a value-based pricing strategy set at a premium level. However, increasing competition threatens its market position. To maintain market share and margins, Mobileye should transition to a high-value strategy while building a premium consumer brand in the aftermarket. This two-pronged approach will help Mobileye retain customers and invest in new technologies.

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    Case 3 - Mobil Eye - Zukünftige Preisstrategie

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    Clara Schmitz
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    Mobileye has strategically positioned itself as a tier 2 automotive supplier to capture high margins. It initially implemented a value-based pricing strategy set at a premium level. However, increasing competition threatens its market position. To maintain market share and margins, Mobileye should transition to a high-value strategy while building a premium consumer brand in the aftermarket. This two-pronged approach will help Mobileye retain customers and invest in new technologies.

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    Case 3 - Mobil Eye- Zukünftige Preisstrategie

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    Mobileye has strategically positioned itself as a tier 2 automotive supplier to capture high margins. It initially implemented a value-based pricing strategy set at a premium level. However, increasing competition threatens its market position. To maintain market share and margins, Mobileye should transition to a high-value strategy while building a premium consumer brand in the aftermarket. This two-pronged approach will help Mobileye retain customers and invest in new technologies.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    23 views3 pages

    Case 3 - Mobil Eye - Zukünftige Preisstrategie

    Uploaded by

    Clara Schmitz
    Mobileye has strategically positioned itself as a tier 2 automotive supplier to capture high margins. It initially implemented a value-based pricing strategy set at a premium level. However, increasing competition threatens its market position. To maintain market share and margins, Mobileye should transition to a high-value strategy while building a premium consumer brand in the aftermarket. This two-pronged approach will help Mobileye retain customers and invest in new technologies.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 3

    Case 3: Mobileye

    The automotive industry is a multi-layered system, in which hierarchies and bargaining


    power of manufacturers, as well as suppliers, create a dynamic pricing landscape in which a
    business needs to find a strategic position in order to succeed and capture long term profits.
    In general, price is the “sum of values that customers exchange for the benefits of having
    or using the product or service” (Armstrong et al., 2017). It is (or is making an effort to be) an
    exact representation of the value the product creates for the consumer, hence the more a business
    knows about their customers and the amount of value they see in their product, the more it is able
    to set prices and maximize producer surplus.
    Mobileye claims that “pricing had always been easy” (Yoffie, 2015) for them, however,
    considering the growing threat of competition and the bargaining power of OEM’s, it becomes
    clear that this is a short-sighted view and pricing should constantly be re-evaluated.
    The company has strategically positioned itself as a tier 2 supplier early on, in order to
    capture high margins as opposed to “high revenue, thin margins and huge support costs” (Yoffie,
    2015) in Tier 1. Additionally, Mobileye has a “relatively focused product line” (Yoffie, 2015),
    which sets them up to develop core competencies is a very focused market segment. This
    strategy is being reflected in the pricing strategy of the company as well. Since the beginning,
    Mobileye has committed to a “disruptive pricing strategy” (Yoffie, 2015), which implies a value-
    based pricing strategy.
    With a value-based pricing strategy, marketers assess customer needs and value
    perceptions, set a target price to match customer perceived value, then determine costs that can
    be incurred in order to maintain good margins, and lastly design a product to deliver the desired
    value at the target price. This requires a high degree of knowledge regarding the value perception
    of customers and allows the company to achieve maximum producer surplus.
    In the case of Mobileye, value added pricing led to a premium-strategy, which would
    have allowed the company to achieve high margins (around 90%) at the time of their product
    launch. However, the complexity of added costs reduced the amount of value, Mobileye could
    extract from customers, and so they set prices at $65, high enough to still achieve high margins
    (around 83%) but low enough for competitors to “lose money if they matched price” (Yoffie,
    2015).
    This strategy, however, cannot be continued forever, since competition will eventually
    catch up. There are two key questions associated with their future pricing strategy: Should
    Mobileye keep their prices and focus their target market or should they lower their prices and
    keep catering to all potential customers?
    To determine the best option for the company, the price elasticity of demand for
    Mobileye’s products needs to be determined: Since Tier 1 companies work on a cost-plus basis,
    it is reasonable to imagine that they are relatively sensitive to changes in price, leading to a big
    customer segment loss, if other companies offer similar products at a smaller price. At the same
    time, Mobileye believes that “good enough” options are no real thread to the company since
    safety is about having a product which is flawless. Whereas this may not be true for the
    aftermarket, it is for OEM’s. Though, this statement suggests that Mobileye will forever have a
    quality advantage, which, at the pace of technological advancement in this field, is not a very
    likely scenario. In order to keep their strong position in the automotive supplier market,
    Mobileye should develop different pricing strategies in their two main customer segments (the
    aftermarket and ties 1 suppliers).
    With competition on the rise and OEM’s calling for lower prices and threatening
    Mobileye with taking their business to cheaper suppliers, Mobileye should move away from their
    Case 3: Mobileye

    premium strategy and slowly transition into a high-value strategy. This would allow Mobileye to
    improve on their image as a premium supplier, while maintaining a big market share despite
    growing competition. To recoup the loss of revenue, Mobileye should invest into building a
    premium consumer brand and implement a skimming strategy. Since Mobileye technology
    mostly goes into premium cars, there is a potential to capture value and realise high margins.
    Since the aftermarket is characterized by an increasing influence of intermediaries according to a
    study conducted by McKinsey (2017), Mobileye should establish strategic partnerships with
    aftermarket retailers and service providers in order to be readily available and the first choice for
    consumers.
    By using this two-way approach, Mobileye will be able to retain a high market share
    across both their target markets while maintaining high margins and returns. Long term, this will
    enable the company to grow equity and goodwill and invest into new technologies in order to
    keep ahead of their competition.
    Case 3: Mobileye

    References

    Armstrong, G., Kotler, P., Trifts, V., Buchwitz, L. A., & Gaudet, D. (2017). Marketing: An
    introduction. Toronto: Pearson.

    McKinsey. (2017). The changing aftermarket game – and how automotive suppliers can benefit
    from arising opportunities. Retrieved from
    https://www.mckinsey.com/~/media/McKinsey/Industries/Automotive%20and%20Assemb
    ly/Our%20Insights/The%20changing%20aftermarket%20game%20and%20how%20autom
    otive%20suppliers%20can%20benefit%20from%20arising%20opportunities/The-
    changing-aftermarket-game.ashx

    Yoffie, D. (2015). Mobileye: The Future of Driverless Cars. The Case Centre.

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