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......Differentiation Must Be Based on More than Price
In addition to the strategic error of launching a low-end product to compete primarily based on price, Handheld is not differentiating their products based on distribution of price points throughout their product line defined by features-driven solution segmentation (Hall, 2005) as well. The Model X5 is priced at $250 the X6 at $400 and the X7 at $200. In industries that have rapidly changing product lifecycles, it is essential to have at least a 30% difference in price to achieve differentiation (Olsen, Sharma, 2008). At only $50 below the X5, Handheld must either drop the price to at least $175 for the X7 to alleviate cannibalization from occurring by the X5. The paradox however is that to lower the price of the X7 is to prolong the payback period for this specific model, which is the most unprofitable of the entire company. Ideally the X7 needs to have a higher price point associated with it, and in retrospect the better product strategy would have been to expand into higher-priced models where Handheld would have had ample room in terms of price points to differentiate. The new product needed to be approximately 30%

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