(Bloomberg Opinion) -- It took three years, but Snap Inc. has finally worked out a wise pricing strategy for its Spectacles smartglasses, which incorporate an embedded camera to record short video clips.
That’s not just because the new sticker price of $380 for the third generation of glasses, announced Tuesday, will let the social network milk a healthier gross margin from each pair than the previous two versions, which were were priced at $130 and $150 respectively. The higher price point could also counterintuitively help Snap sell Spectacles in more stores.
It can be hard to persuade people to buy sunglasses they can’t try on, so an in-store presence is essential. Since Snap introduced Spectacles in 2016, the company has struggled to persuade eyewear distributors to stock them because of their cost, which competed with non-smartglass offerings. The low price also made it harder for the smartglass industry as a whole by making consumers accustomed to cheaper products.
Consider EssilorLuxottica SA, the French-Italian firm that dominates the U.S. eyewear market — Jefferies analysts estimate its share of the global market is 30%. It owns Ray-Ban, Oakley, LensCrafters, Sunglass Hut, Persol, Sears Optical and many other brands. Although the company’s business is vertically integrated — it makes the lenses and frames and then sells them in its own stores — it doesn’t have a major smartglass offering.
That might have created an opening for Snap to persuade the firm to stock its Spectacles, which are made by the Chinese contract manufacturer Goertek Inc. The problem was that they were sold more or less at cost, meaning there was little scope for the retailer to make a profit. What’s more, at $130, they undercut Ray-Ban’s own Wayfarer Classics, which cost $153, but with more functionality.. Those glasses helped EssilorLuxottica deliver a 63% gross profit margin last year. The Charenton-le-Pont, France-based firm would have cannibalized its own sales for no profit.
By lifting the price to $380, Snap will not only do more to cover its own costs but make it more attractive for third parties to sell the glasses in their stores. And by making them limited edition, Snap is less likely to risk a repeat of the $40 million writedown for unsold inventory it had to take in 2017.
Whether the glasses are priced attractively enough to draw consumers is a different issue. But getting the glasses into stores will only help bolster their revenue, which was “not material” to earnings in the second quarter. Snap CEO Evan Spiegel should have opted for a higher price from the outset.
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Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
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