Robotics companies, raise your prices! (part 2)

Two weeks ago, an opinion piece with the same title appeared here. The response was so great that I decided to write a second part. On the one hand, there was agreement ("Franka destroyed the prices back then"), but on the other hand, there was also rejoinder. The following is that of a reader expressing his private opinion. His post on LinkedIn was in English, I had it automatically translated.

Are the prices decoupled?

The question can be answered from different perspectives. Measured against the unchanged and rather increasing delivery problems, the prices are too low. The delivery times at Universal Robots are increasing. Car manufacturers such as BMW or Mercedes are known to no longer give the double-digit discounts that were common before the delivery bottlenecks. For cobots, on the other hand, the net price is unlikely to have changed significantly. On the contrary, Universal Robots has increased the payload of the UR 10e from 10 kg to 12.5 kg without a price increase. This effectively resulted in a price reduction.

From the customer's point of view, interest in cobots is steadily increasing. This is ultimately for two reasons: They are becoming more familiar and, at the same time, personnel management is increasing. Those who trust them are willing to pay more. Even with a significant price increase, the payback would still be very good for the majority of investments.

Lower prices through venture capital captal?

The basic thinking of VC investors is: we accept losses in favor of quickly gaining customers and market share. Both make sense for platforms. Once you've registered with Lieferando, you won't use any other service. And once Lieferando is popular, other services no longer stand a chance with restaurateurs. So for platforms, this approach can make sense. (Irony aside: Lieferando and other platforms may be market leaders, but they still don't make any money. Their business model apparently doesn't allow it).

For a VC-financed startup in the robotics sector, however, this thinking is dangerous. It is uncertain whether regular customers will be won by means of favorable prices. What is certain, however, is that at some point the money received from the VC will run out if no profits are generated from operations. With each new capital increase, however, the share of the founders decreases.

Are buyers more price sensitive than we think?

Of course, the so-called price elasticity is limited. If the price doubles, hardly any buyers will be found. A price increase of 20%, for example, will also cause potential customers to drop out. But against the background of the limited ability to deliver, this does not matter in the end. I ask to consider the calculation in the first article: A real price increase leads to a strong increase in profit. If you previously had a 5% return on sales (very few do) and you increase prices by 5% in real terms, you double your profit - with the same sales volume.

The market leader sets the price

There are probably only two cobot manufacturers, Universal Robots and Techman, that have been on the market long enough with larger volumes to be considered established. Although Universal Robots was founded in 2005 and is the absolute market leader with high sales (over $300 million), profits are modest. At the same time, the company has been operating rock solid for years - there are no known recalls or restructurings. Techman, the No. 2 in the market, carried out a capital increase last year, which was financed by Omron. That is, growth from its own resources is apparently not so easily feasible. Both companies together have a global market share of well over 50%. Even today, there are significantly cheaper suppliers. The Chinese suppliers are particularly worthy of mention here. Here, the price difference is already over 100% in some cases. But: The price difference does not take full effect. The integration costs are sometimes higher when Chinese models are used, as they are not quite as simple, and the same suppliers are often chosen as accessories as when a universal robot is used.

Universal Robots can also justify a higher price with its distribution. The customer does nothing wrong for the first time, the eco-system is large and there are enough integrators. For customers with a safety mindset, these are serious advantages over Chinese suppliers for years to come.

Niche suppliers can raise prices more easily

The sales price of the market leader is a benchmark. But so are special features in terms of customer benefits. What are Kassow Robots' selling points? First and foremost the articulation, but also the speed. For speed, the competition for Kassow Robots is higher than for lines of freedom. If Kassow Robots sells its cobots primarily to users who have limited space and need 7 axes, then the question arises as to why Kassow Robots offers cobots that are on average only 2,000 euros more expensive than Universal Robots. A prospective customer who thinks Kassow Robots is too expensive will hardly move to a competitor of Kassow - he has to search for a long time. The above figure tries - without claiming to be accurate or complete - to represent the customer's point of view. Depending on what is important to the customer, the criterion influences the starting position for the manufacturer. A Kassow Robots may be as good as it is, but the inexperienced cobot prospective customer, who may be a little apprehensive, will be satisfied with the information "world market leader" and "longer than anyone else on the market" to be prepared to pay a premium for Universal Robots. This is his insurance premium, so to speak.

Question of the day

As a consultant, I am very familiar with pricing. One question I like to ask is, "If there's profit in the purchase price, what's in the selling price?"

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In my own right/advertisement
The author of this blog is significantly involved in the AI/robotics project Opdra. He advises robotics companies and investors on market analysis and funding/subsidies. More about him can be found here.