What’s The Catch?

Two things happened after Zenith Chairman
Raj Saraf disclosed the price of the new Zenith home PC systems. There was clapping and a
stunned voice rang out from the back "What’s the catch?" While one person
actually voiced it, the same question was in the minds of the over 100
reseller/distributors as well as the few journalists present for the launch of Zenith’s
home PC. How could Zenith come out with a full-featured multimedia PC for as low as Rs
33,500 and claim the product had the same components as are found in MNC brands?

The Zenith machine runs on an Intel 200 MHz
Pentium CPU, has 16 MB RAM, a 1.44 MB FDD, 2 GB HDD, 24x CD ROM drive, sound card, and a
color monitor. Saraf is confident that at this price he will be able to sell at least
10,000 units into the home segment in the next two months. Said a confident Saraf,
"at this level even the GIDs cannot compete with us. And the MNCs are at least 60 to
70 percent more expensive than us."

True, for once Zenith has gone one up over the GIDs with its
minimal overheads. But in a situation, where prices are constantly falling and everyone
but everyone is looking at more and more ways to cut prices, how is Zenith able to come
out with a PC that is much lower than the market price? Saraf gives a number of reasons
for the low price. For starters, he says his overheads are much lower than the MNCs and,
therefore, he is able to give a better price advantage. The overhead advantage also holds
true in the case of home-grown brands like HCL.

Second, at this price Zenith does not give
any software. Nor does the Zenith machine come with a mouse. Nowadays, even a GID PC comes
loaded with at least Windows 95. If you include these two the GID is able to give a
machine at a little over Rs 35,000 thereby putting the Zenith price scheme in the shade.
While at the local brand level, like HCL and Unicorp they talk about value for money and
systems coming with a range of software and CD ROM titles. With Zenith you only get the
hardware.

Third, Saraf admits to preempting the Intel
strategy of cutting down prices every quarter. Says Saraf, "I could have announced a
home PC for Rs 35,000 today, and then dropped my prices in a few days to around Rs 33,500.
But that would not have served any purpose. Since I know that Intel is going to drop the
prices of its 200 MHz to the entry-level, I can calculate my pricing strategy in
advance."

Fourth, Saraf has taken a gamble. At this
price, he needs to sell a lot of systems to amortize his overhead costs. While he is
confident of selling around 10,000 systems in the next two months, the key to Zenith
success will lie in sustaining volumes. Saraf says he needs to sell around 2,500 to 3,000
units per month for breakeven. While this seems a reasonable figure, what could put a
spoke in the wheel is that Zenith has absolutely no strategy for the retail segment yet.

If the company has to get the home segment
hooked onto its system, it needs that pretty bad. Saraf talks about looking at retail, but
it is in this space that he could face his biggest threat. Videocon is all geared up to
launch its branded PCs through its retail segment. HCL and Compaq have tried for years and
finally have some kind of a channel in place, at least in the metros. Saraf, meanwhile,
continues to fight on price. While the price is definitely attractive, he might need a
little more to sustain sales in the home market.

So finally what is the catch? On the face
of it there isn’t one. Not for the consumer at least. For Zenith, the catch will be in
being able to sell and maintain volumes at a profitable level. But to do that Zenith will
have to contend with the price points from local manufactuers as well as the GIDs.

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