Cobots: thoughts on their pricing

As a cycling fan, I like to buy Alpecin. If cycling can be followed for free, at least the sponsors should earn something, that's my thinking. Because if the sponsors are satisfied, they will continue to finance the teams. One of the sponsors is the shampoo manufacturer Alpecin. With a package price of 5 to 8 euros not cheap, but I do not need so much. Nevertheless, I was shocked when I was at Rossmann the other day. The drugstore chain now has its own caffeine shampoo for a paltry 65 cents (photo above). Comparing the price per liter shows that Alpecin is more expensive than Rossmann's own brand by a factor of 10. (And having been an advisory board member of a cosmetics manufacturer for many years, I know that cheap products are often of comparable quality). That's when I started thinking.

Robotics: Overestimation of the payback period

Market leader Universal Robots advertised the short payback time of the cobots years ago. Nevertheless, demand was far from meeting expectations. For a year now, there has been a noticeable increase in demand. Corona is probably one reason for this: cobots do not require a minimum distance, cannot become infected and, in general, the shortage of skilled workers has not diminished. Compared to the pre-Corona times, the payback time has not decreased noticeably, yet sales are now working out. (However, there are now programming aids and increasingly interesting accessories). The greater demand with comparable amortization time is an indication for me that the sales price is secondary. For the purchase decision of a medium-sized company, there are initially knock-out criteria that cannot be eliminated even with cheap solutions. These include the concern that automation will not succeed, especially if it means that a functioning production line has to be changed, the fear of losing flexibility, or not wanting to lay off employees. This is an important aspect, especially in the countryside, where everyone knows everyone and possibly went to school with them.

At the beginning, only a few wanted to drive Tesla

I think there is another important aspect to the now more encouraging sales: the spread of cobots has now reached a critical minimum size. In addition, their continued mention in the trade media has led to familiarity. This familiarity has led, in a second step, to the building of trust in the technology. At the same time, many have now seen a cobot in operation somewhere - keyword "lighthouse thesis". The aspects mentioned ultimately mean that cobots do not have to be as cheap as they often are. However, there is the problem of price comparison. If all cobots were, say, 10 or 20% more expensive, they would probably continue to be bought and the sales shares of the individual brands would hardly change. However, the fact that there are comparisons and thus price competition means that there is less room for price increases.

How are the AI cobots perceived?

From a price perspective, changes may be in store in the coming months. The current cost/benefit ratio may shift due to the new competitors Neura Robotics and Agile Robots. These clearly include artificial intelligence along with sensor technology. If the potential user sees added value in these, they may also cost more than otherwise comparable cobots without AI. If these cobots are offered at a low price, the comparable cobots without AI must become cheaper. Otherwise, a potential UR 3e or UR 5e customer is in danger of buying an Agile cobot after all. In this respect, the new models could upset the existing price structure. Universal Cobots is therefore already playing the quality card. With UR, production can be kept at the same level and the cobots are made for 24/7, according to the main argument of the advertising(link). This safety aspect is again a value driver for an SME. But: In the course of time, the new competitors will also be able to prove their longevity and provide corresponding references. The quality argument therefore only buys time, but probably not a lasting competitive advantage.

Online stores are not without danger

Looking back, 2021 could go down in robotics history as the year when online stores first started operating in earnest. Now there are some online retailers that are also really present. To that end, ABB is the first manufacturer to enter the Internet retail market. Hardly any of the parties involved believe that cobots will be bought simply by mouse click, but for establishing contact the stores are appreciated. However, this raises the question of the selling price presented. Price dumping in the true sense has not been observed so far. Products are offered at the list price. But: List prices can differ from country to country, also depending on exchange rates, local purchasing power (thus different amortization time) and of course competition. Thus, I ask myself whether, for example, Swiss prospective customers surfing on German online sites are not spoiled in terms of price.

Is there a need for supply bottlenecks from a price perspective?

As explained above, robots would probably also sell well with a longer payback period, i.e. if they were more expensive. However, competition and the usual prices now prevent price increases. The automotive industry has so far been familiar with the issue of artificial scarcity on a small scale: Ferrari manufactures only 8,000 cars a year, and thus fewer than are in demand. In return, Ferrari can impose almost any price. Well, in terms of utility, cobots are more comparable to ordinary cars.

2021 was objectively bad for German automakers: their world market share fell from 18% to 15%. VW produced as few cars in Wolfsburg as it last did in 1958. To justify this solely on the basis of the chip shortage is wrong. After all, production figures in Wolfsburg were already falling before that. Not as brutally, but still. The German automotive industry has strategic problems, but these are being masked by the chip crisis and its positive (!) effects. Since manufacturers can hardly deliver, they have to grant only pro forma mini-discounts. At the same time, the residual value of the returning leased vehicles is significantly higher than the calculated value, so that they can be sold at a profit on the now higher-priced used car market.

In view of this case study, one might think that supply bottlenecks could well drive up the selling price of the robots to such an extent that the disadvantages (lower volume) could be more than compensated for. Pure theory, but not uninteresting for the back of the head: scarcity can also have a good thing.

It remains with the theory - the competition is getting tougher

Rationally, higher robot prices may be feasible. But I think that the "train" has sailed. Competition is getting stronger, whether through greed for quick market shares (financed by investors) or also through imputed subsidies. Universal Robots recently effectively lowered the price of its successful UR 10 model: its payload was increased by 25% with no change in selling price. Possibly the UR 10 now competes with its more expensive brother UR 16 from time to time. To avoid the price comparison, alternative pricing models such as RaaS can be interesting. Franka Emika is now planning this(link). However, the question is how the effort around (programming, accessories) is compensated.

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The author of this blog is significantly involved in the AI/ robotics project Boost-Bot. He advises robotics companies and investors on market (entry)/ business development and funding/subsidies. More about him can be found here.