Products need to map the income distrbution / buying power of customers. This is true even within Apple. Growth rate of iPad / iPhone / iPads have been order of magnitude higher than that for even Mac Air because the former group is much cheaper ( for iPhone 5 its still $ 200 w/ contract vs $ 1,200 for the cheapest Mac Air ). Wal Mart, Media Tek and other bottom feeders should not be scorned as they cater to the masses and are well versed in squeezing large profit from thin margins by going for volume ( they have the "masses" ). Soon they pile up enough billions to buy out "boutique" houses. Chinese semiconductor companies will soon have the bucks to buy out SiV design houses and smaller Fabless companies. As the technology diffuses, Apple would try to maintain its 60 % margin with innovation / stunts but find it increasingly harder. They already exerienced one such cycle with the Mac after Gates brought out inferior but workable & cheaper Windows. So the 80 - 3 - 2 rulec claimed by this Rcckchip fellow as his own goes back at least as far as 20 years - yet another case of Chinese IP piracy and trying to impress gullible reporters !
I think people can surely gain some market share if they price their product lower. However, why and how it can be lowered? The bloody Chinese manufacturers are squeezing all the workers' (in broad sense engineers and managements are all regarded as workers) energy so that cost can be much lower. Look at the life of Chinese a bit more you can see that people who work 16 hours a day can just earn just barely 1/3 of the salary of their western counterparts so they surely can win with lower cost. Besides, just because the time-to-market is so short, I don't think Chinese companies are doing real innovation with enough time to think. So, surely they can't build products that is 120% better but just can build something 80% of the competition. With less features, how can you ask for higher price? People in third country (Chinese Government also called itself as 3rd country) are just OK to live with lower profit as they basically have no choice! In most Chinese companies, the only person who really makes money is the boss. All other people are just working like slaves!
@Bert23306: "First of all, profit does not translate to revenues."
The question is whether revenues translate to profits. If your cost structure is out of alignment, they don't.
And while you can attempt to diversify and sell a range of products, this carries inherent risks. The benefit is that "all your eggs aren't in one basket". You have insulation if you are doing poorly in a market segment because you might be doing well elsewhere, and your consolidated results will be respectable.
The risk is that your revenues might increase, but profits as a percentage of revenues may drop. You may be making more profit overall, but will be vulnerable to criticisms that you could make a greater profit with a different product mix. A number of companies have attempted to move up the value chain, as the question they asked was "This line is profitable, but is it profitable *enough*? Can we make a better return investing corporate funds in other areas?"
Senior management are trustees of Other People's Money, with a fiduciary responsibility to place it where it will get the best returns.
There is one problem with the 80-3-2 rule. Often features don't incur hard costs, only firmware development. When that is the case, removing 20% isn't going to allow 1/3 the cost.
What is significant about reverse innovation, is that it is a strategy widely employed, particularly by emerging contries. The risks assocated with taking something that is working and doing it better and cheaper are much less than the risks of creating something new. The latter requires vision and innovation as well as a variety of technical risks and then market acceptance risks. As countries build expertise and infrastructure, they can then consider more cutting edge efforts.
Consider early Japanese automobiles. If you looked under the hood of a 1970s Datsun, you saw a Ford or Chevy, with all dimensions shrunk a bit. The general size and shape of the engine and parts were the same, just smaller. Compare that to a current Japanese car. For starters, the drive train has been moved from back to front. The engine has been rotated 90 degrees. The components don't look anything like they used to. They have moved beyond value engineering a successful design to creating some of the most reliable and fuel efficient vehicles on the planet. But they didn't start there.
The 80-3-2 rule sounds like an encapsulation of the fact that any market is not monolithic: there are a variety of designs and price points possible. Someone like Apple may have successfully staked out the high end of the market, but there's still the middle and low end. How do you target it and make make money?
Two ways, really. You need to constantly look for ways to take costs out of your product, so you can sell at a lower price and still be profitable. And you need to attain high volume.
In a different area, supermarkets are instructive. By definition, most of what they sell are fungible commodities. A quart of milk is a quart of milk, regardless of whose name appears on the package, so competition reduces to price. Supermarkets have been steadily consolidating to gain economies of scale and lower costs, and to attain high volumes. If your margins are paper thin and you may make a penny on a dollar, your challenge is to take in a *lot* of dollars to make pennies on. (The measuring sticks for supermarkets are inventory turns and return on assets, not profit margins.)
Supermarkets have also been trying to move up the value chain. The ones around me give pride of place to frozen foods, deli counters and the like. These provide convenience by reducing the steps the shopper must take to get and serve food, because part of the labor has already been done, and carry higher price tags and better margins in consequence. Retailers look at sales/square foot of retail space, and want those sales to carry the highest margins possible.
Whether the 80-3-2 rule is sustainable will depend on how successful you are at reducing costs and building volume. You must do so faster than your competition. Size matters, and smaller competitors won't be able reduce costs enough or sell at high enough volumes to survive long term.
I'll lay out a simple matrix that clarifies the business strategies being compared:
Strategy 1 - Cost leadership: think Walmart. This is what Rockchip is modeling. Broad target, low cost leadership, adopt the 80% rule as stated
Strategy 2 - Differentiation: think Apple. Unique set of values (in their case integration of S/W and H/W) with a broad target
Strategy 3 - Focused cost leadership. Narrow target, low cost. Think Nokia as they are right now with 80% of sales coming from handsets under $50.
Strategy 4 - Focused differentiation. No one in this space comes to mind right now. But these are the guys trying to claw a niche out in this market.
Comparing Rockchip's target market with Apple's is two opposite ends of the spectrum and not comparable. When the market for tablets matures, the cost leadership strategy will gain traction and it won't be Apple that goes there at least under their current strategy.....if they try it will either mark a shift in business objective or that management has lost it's vision.
In many cases the product development starts from the marketing team who looks at the competitor and requests what they have plus a few more features.
Japanese phones are a good example of this - they have everything you might imagine plus more.
On the other hand Apple is very frugal in what hardware they put into their products for the price point of American market can bear.
However I think 80-3-2 rule stands - if you can strip 20% of most expensive features, sell it for 1/3 of price you can always find buyers who would buy this product, play with it and thru away to get better but more expensive one. They would feel they paid 1+1/3 price justified to pay for their experience and mistakes.
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