Every successful product balances performance with cost. This blog post dives into how BLS’s teardown-based cost analysis uncovers the “bill of materials” (BOM) and manufacturing cost of competitor electronics. By knowing what a product likely costs to build, you can inform your own pricing, budgeting, or supplier negotiations. We’ll use examples like smartphone teardowns to illustrate this, and show how clients use these insights to avoid overpaying and optimize their designs.
When the iPhone X launched at a $999 price point, analysts tore it down and found about $370 worth of components inside. This BOM analysis (performed by IHS Markit) revealed the cost of major parts – such as the OLED display (~$110), the stainless steel frame (~$61), and the dual-lens camera (~$35). Such insights illustrate a powerful point: the retail price of a gadget can be dramatically higher than its material costs (in this case, roughly a 60% markup over BOM cost). For companies, understanding this cost structure is invaluable. Here’s why:
- Pricing Strategy: If you know a competitor’s approximate production cost, you can infer their profit margins and pricing flexibility. In our example, if a competing smartphone sells for $999 but costs $370 in parts, there’s a sizable margin that might allow them to drop prices in a price war. Armed with this knowledge, you can strategize your own pricing – either by justifying a premium based on superior features or by identifying room to offer a more cost-effective alternative.
- Should-Cost and Supplier Negotiations: Teardowns don’t just list parts; they enable a “should-cost” analysis – what should this product (or one like it) cost to make? If you’re negotiating with a manufacturer or supplier for your own product, having a detailed BOM from a similar product sets a benchmark. For instance, if BLS’s analysis shows that a competitor’s laptop is built with $200 in components and assembly, you might question why your supplier is quoting you $300 for a similar BOM. Fact-based cost breakdowns provide leverage in negotiations. McKinsey recounts a case where a team, after a teardown, identified a “sizeable gap” between a product’s supplier prices and best-in-class should-cost benchmarks, leading to significant cost reduction opportunities. In short, knowing the should-cost can prevent you from overpaying.
- Identifying Costly Components and Trade-offs: A teardown report will highlight which components are driving the cost. Is it the high-resolution display? An over-engineered aluminum chassis? With this information, you can debate design decisions with concrete data. For example, if a teardown shows a competitor kept costs low by using a simpler camera module, you might decide whether adding a costly dual-camera in your product is worth the extra expense or if consumers wouldn’t mind a single good camera. Conversely, if a competitor is using a premium part that you left out (like an expensive GPS chip for better accuracy), you’ll recognize this difference. Cost analysis informs design trade-offs: where to invest for differentiation versus where to save money.
Real-World Scenario: Suppose your company is considering sourcing a new fitness tracker to resell, and the manufacturer is asking $50 per unit. BLS conducts a teardown of a sample unit and finds that the total component cost is only about $20, with relatively simple assembly. We provide a breakdown showing, say, the display costs $5, sensors $4, battery $2, casing and straps $3, and so on. With that data-driven estimate, you could confidently approach the manufacturer to push for a better price, or explore alternative suppliers. On the other hand, if the analysis shows $45 in high-quality components, you know the quote is reasonable or that the device truly uses top-notch parts.
BLS’s competitive analysis service delivers comprehensive cost reports from teardowns. We detail each component, often matching them to known supplier prices or industry cost databases, to estimate the manufacturing cost. You receive itemized insights like “Display: $15, Processor: $12, Memory: $5, Assembly & Testing: $3,” etc., along with commentary on any features that significantly drive cost (e.g., a milled metal body vs. plastic casing). Our experts will highlight opportunities for cost savings – for instance, pointing out if a competitor achieved a cost reduction by using a single combined chip where you use two separate ones. We also ensure you understand the implications: if a competitor’s product is cheaper to make, we discuss whether that comes with performance or quality trade-offs. Ultimately, BLS’s teardown cost analysis helps clients make informed financial decisions: setting target costs for new products, pricing products competitively yet profitably, and negotiating confidently with full awareness of the underlying costs.