Symantec’s Non-Price Response
Symantec continues to battle Microsoft’s foray into the computer security software market through a public relations campaign, yet they have not responded in matching Microsoft’s price. Why make a public response but privately ignore a potential price response? Because other options are more profitable.
A Price Reaction Would Be Harmful
We can understand the cost of a competitive price reduction by Symantec through conducting a profit sensitivity analysis. While it is difficult to get prices on the enterprise editions of Symantec’s and Microsoft’s security applications, the prices of home and small office editions are readily available. As such, we have the following assumptions and facts about the home and small office editions:
- Norton 360 is priced at $69.99
- Microsoft’s OneCare is price at $49.99
- As a premise, software has zero or near-zero marginal cost to reproduce and sell. All or nearly all costs for security software are either sunk or fixed. Thus, the per-unit contribution margin for security software is at or near 100%.
With these assumptions and facts, we can conduct a profit sensitivity analysis to determine the required volume changes to make a price change leave Symantec better off by matching Microsoft’s price.
A profit sensitivity analysis reveals that the 29% price drop required for Norton 360 to match Microsoft’s OneCare price would leave Symantec better off only if Norton acquired 41% more volume. The most recent market shares data publicly available at the time of this writing implies that Symantec has a 62% market share compared to Microsoft’s 1.6%. Hence, even if Symantec completely took Microsoft’s market share, it would still fail to meet the profit hurdle to respond in-kind on price. Furthermore, it is highly unlikely that an industry wide price decrease of that magnitude would grow the market sufficiently to enable Symantec to increase volumes by the required amount to leave the firm better off.
Competitively Weaker Opponent
One might argue that Microsoft is long-term threat and therefore Symantec should respond in all possible manners to thwart them off. While Microsoft may be the stronger competitor in many fields, their competitive leverage in the computer security market is limited to their distribution capabilities and tangential brand value proposition. Also, both Symantec and MacAfee have the competitive advantage in terms of economies of scale and experience. Finally, most independent computer security solutions tests indicate that Microsoft is at a product feature and benefit disadvantage.
A standard competitive price response analysis, which rates the competition on its strength and a price reaction on cost to profitability, reveals that the best price response from Symantec is to ignore Microsoft.
A Public Relations Response is Helpful
Ignoring a competitor from a price perspective is far from ignoring that competitor altogether. Symantec has other options to fight off an unwelcome new-entrant to their computer security market. Price is only one of the four classical marketing variables. There is also promotion, placement, and product. Of the remaining variables, promotion is the easiest and quickest to implement.
Recently I was contacted by Andy Ryan of Symantec’s PR agency. He pointed me directly to the failure of Microsoft’s OneCare to pass third-party antivirus tests, including a recent Virus Bulletin. Clearly, Symantec is turning up the PR volume on this issue.
From a profit perspective, a PR campaign should represent a far less incremental expense than a drop in price. Furthermore, a PR campaign bodes well for Symantec and their industry cohorts through establishing their brand value and fending off future competitors as they arise.
Publicly Attack, Price-wise Ignore
Symantec is publicly attacking Microsoft yet, as far as price is concerned, privately ignoring them. From an analysis of the profitability of a price response and the relative competitive strengths, Symantec has chosen wisely … for now.
- Mark Boslet, “Microsoft, Symantec Get Ready for a Showdown”, Wall Street Journal,14 December 2006, p B4.
- Norton 360 1 year subscription was priced at $69.99 at the Symantec Online Store at www.symantec.com on 28 June 2007.
- Windows Live OneCare 1 year subscription was priced at $49.99 at the Microsoft Online Store at http://onecare.live.com 28 June 2007
- Tim Smith, “Can You Have the Highest Price and the Largest Market Share?”, Wiglaf Journal, January 2007. http://www.wiglafjournal.com/pricing/2007/01/can-you-have-the-highest-price-and-the-largest-market-share/
- Thomas T. Nagle and Reed K Holden, The Strategy and Tactics of Pricing, 3rd ed. (Upper Saddle River, NJ: Pearson Education, Inc., 2002) pp 73 – 118.
- Tim Smith, “Pricing for Volume Is Just Hard to Justify”, Wiglaf Journal, April 2007. http://www.wiglafjournal.com/pricing/2007/04/pricing-for-volume-is-just-hard-to-justify/
- Thomas T. Nagle and Reed K Holden, The Strategy and Tactics of Pricing, 3rd ed. (Upper Saddle River, NJ: Pearson Education, Inc., 2002) pp 119 – 146.