From Cost-Based to Value-Based: the Pricing Journey of OnePlus
The story of Chinese-based company OnePlus begins in April of 2014 with the unveiling of the OnePlus One. Advertised as a Flagship Killer, it boasted impressive specs and a very contained price tag ($299). Fast forward to mid-2018, 6 generations of phones later, OnePlus announced a $529 OnePlus 6. While most phone manufacturers have raised their prices over the period, this is one of the steepest increases of all. The reason probably lies in OnePlus shifting from a cost-based approach to a value-based pricing strategy.
The OnePlus One: textbook cost-based pricing
The promise of the original OnePlus phone was simple: top-of-the-line specs and design for half the price of comparable phones. To achieve this, OnePlus cut on costs at different levels:
- OnePlus only sold the One on their own store to avoid retailer fees,
- They compromised on some components, namely the camera, to keep parts cost low,
- A lot of fixed costs were absorbed by OnePlus’ parent company Oppo,
- The margins were maintained razor-thin on this product.
In our article Is Cost-Based Pricing Still Relevant in the Era of E-Commerce? we discussed the specifics of this pricing methodology. We concluded it was still a valid way for new brands to penetrate a market. It seems to be precisely what OnePlus did with the One. The price of the One was a significant component of their communication, and they took pride in keeping costs as low as possible. Within 8 months, they had sold a million units.
It is worth noting that for the first few months, the One was only available through an invitation system. Most commenters saw this as a marketing stunt, designed to increase word of mouth. But if we factor in the fact that OnePlus was very close to actually losing money on the One, the invite system was an excellent way to prevent sales from getting out of hand.
From the One to the 6: a steady shift in paradigm
We’ve all read articles trying to come up with the exact manufacturing cost of the iPhone or the Samsung Galaxy. The conclusion is always the same: Apple’s margin is enormous, but we’re still buying them.
It is actually irrelevant to look at the cost of parts of Apple phones. Apple spent the last decade building a brand of phones that we’d want and selling them at the price we’d be willing to pay. Years of marketing campaigns and millions in advertising have been spent to increase our perceived value of Apple’s iPhones – and our willingness to pay at the same time. Apple is the uncontested master of value-based pricing, which we have discussed in our article Can premium brands still use value-based pricing if they’re selling online?
To build a brand that can command higher prices is the goal of every marketer. OnePlus is no exception. Over the years, they capitalized on their growing reputation to steadily increase their rates.
A handful of reasons can reasonably explain the price increase:
- more marketing expenses (from word-of-mouth to actual sponsoring and advertising),
- more expensive parts,
- introduction of indirect sales and associated retail costs.
But these don’t fully explain the 77% increase in price in just 4 years. It’s actually worth comparing the prices to equivalent flagship Samsung Galaxy phones launched at the same time.
The OnePlus One was 54% cheaper than the Galaxy S5. The OnePlus 6 is just 26% off compared to the Galaxy S9. What happened over 4 years is that OnePlus focused on building their brand. They stopped talking about parts cost and talked about performance instead. They halted their cheesy, invite-only direct sales system and started working with Amazon.
Of course, they still rely a lot on word-of-mouth, online community, social media, etc. for advertising, but their marketing mix is beginning to look more and more like Apple’s and Samsung’s.
OnePlus 6 and onwards: pricing for value
Years of making OnePlus phones valuable to the consumer’s eyes have paid; OnePlus has entered the premium phones business — and so have their prices. OnePlus does not claim anymore that their phones are good value.
The OnePlus One was a good phone, for its price.
The OnePlus 6 is a good phone. Period.
And it is priced according to what people are willing to pay for a good phone. OnePlus has earned the ability to do that in just about 4 years, joining the likes of Apple and Samsung. There’s a good chance that OnePlus will continue their journey until their phones are just as good and expensive as the flagships. And maybe they’ll eventually kill the flagships for good.