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Why Is GoPro Optimistic about Reducing Product Prices?

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Increase in sell-through post–price cut

The two primary ways for consumer technology companies such as GoPro (GPRO), Fitbit (FIT), Canon (CAJ), and HP (HPQ) to increase their revenue YoY (year-over-year) is by getting existing users to upgrade devices frequently and by attracting new users. GoPro has been struggling to get users to upgrade their devices, and the company has attributed this to the higher price point of its products.

GoPro’s management has maintained that given the right price point, customer demand for its products will increase. As we learned in the previous part of this series, the company has reduced the prices of some of its products. GoPro expects its 1Q18 sell-through rate to be similar to 1Q17’s due to the price changes and a 50% rise in marketing spending.

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During GoPro’s 4Q17 earnings call, its management stated that while demand for the HERO6 Black was “solid,” there was a dramatic rise in sell-through for the HERO5 Black and the HERO5 Session after prices were slashed by $100. On January 7, 2018, GoPro slashed the price of the HERO6 Black by $100 as well.

GoPro aims to increase consumer demand

GoPro also stated that a meaningful percentage of GoPro customers are loyal to the product and will be motivated to purchase discounted older models or new products at the right price. 

The company’s chief financial officer, Brian McGee, stated, “Due to higher than expected HERO5 Black channel inventory, overall weeks of inventories increase sequentially and year-over-year to 16 weeks. We expect channel inventory to improve 25% to 30% in the first quarter of 2018.”

We know that GoPro is expected to launch a camera this year at an entry-level price point to increase customer demand. The product could be priced at $199, and GoPro has admitted to not having a product at this price in the holiday season of 2017. While this move is likely to put a strain on GoPro’s profit margins, investors will be looking closely to see if the strain can be offset by revenue growth.

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