GoPro's (NASDAQ:GPRO) launch of the Hero 4 Session in July was its first major blunder as a public company. GoPro assumed that the $400 device would complement its premium Silver and Black cameras, but dismal demand forced the company to cut its price to $300 in September. That price cut led to a $19 million writedown last quarter, which contributed heavily to the company missing the low end of its sales guidance by $30 million.

The Hero 4 Session. Source: GoPro.

In early December, GoPro cut the price of the Session again to $200, which Citigroup analyst Jeremy David estimates will cost the company up to $40 million in revenues during the fourth quarter. That's bad news considering that GoPro already expects sales to fall 17% annually during that quarter due to a lack of new flagship cameras. Let's discuss why the Session flopped, and the key lessons GoPro should learn from this debacle.

1. Failing to study Apple's iPod Shuffle strategy
The ice-cube sized Session is 50% smaller and 40% lighter than its flagship Black and Silver cameras. But unlike the Silver, which also costs $400, the Session lacked an LCD touchscreen and the ability to record 4K video. Simply put, GoPro believed that the Session's tiny form factor was worth $400 on its own.

The Wall Street Journal compared the Session to Apple's (NASDAQ:AAPL) iPod Shuffle, and noted how Apple also introduced the tiny Shuffle to expand its iPod lineup and reach new users. However, the Shuffle always cost less than its other larger iPods, since it was intended to be a cheap entry-level device to tether users to its iTunes ecosystem. Apple probably didn't believe that customers would pay a higher price for the Shuffle simply because it was smaller.

If GoPro had followed Apple's example and designed the Session as a $100 bottom-end device instead, initial sales might have been much higher. Over time, those buyers might have upgraded to GoPro's higher-end cameras to capture 4K content. Instead, shoppers with $400 to spend on an action camera chose the more powerful Silver, and it became clear that the Session was overpriced.

The Session in a waterproof "floaty". Source: GoPro.

2. A confusing form factor
Even shoppers who were interested in the Session were confused by its tiny form factor, one-button design, and a dependence on GoPro's mobile app. At the Citi 2015 Global Technology Conference in September, CFO Jack Lazar said that he hoped Best Buy (NYSE:BBY) employees would take a more hands-on approach when introducing the Session, since many customers had "never actually held a Session in their hand" before.

Lazar also wanted GoPro to "do more in-store training" for employees at Best Buy and other retailers, and put its own employees in local stores during the holiday season to help buyers choose the right camera. Those were bold words, but several analysts noted during Black Friday that GoPro products were simply being sold in discounted bundles without any special guidance from store employees. For now, it seems like GoPro is hoping that the Session's new $200 price tag will generate higher sales on its own.

3. Weak marketing efforts
In addition to poor pricing and a confusing form factor, CEO Nick Woodman admitted during last quarter's conference call that GoPro "underfunded marketing in the second and third quarters of the year" and would take a "more aggressive advertising approach in the fourth quarter."

In my opinion, GoPro spent less on marketing during those quarters because it believed that viral videos on YouTube and social media could replace traditional forms of advertising. However, most of those videos promote GoPro as a "lifestyle brand" instead of distinguishing the capabilities between specific cameras. Therefore, people who see a viral GoPro video might be encouraged to buy a camera, but there's no guarantee that they'll buy the pricey Session instead of an entry-level Hero.

When Apple launched the Shuffle, it marketed the device with a TV ad of its trademark silhouette figures dancing around with a white silhouette of a tiny Shuffle. It conveyed a clear message that the Shuffle was designed for more active lifestyles than the traditional iPod. GoPro's official YouTube ad for the Session mostly features POV content spliced with occasional shots of the tiny camera being placed on helmets and other surfaces. To the uninformed viewer, the Session doesn't look that different from GoPro's other action cameras.

Lessons learned
As a GoPro investor, I hope that the company learns some valuable lessons from the Session's failure. The company clearly misjudged demand elasticity and failed to properly promote the device through traditional advertising. But I believe that if GoPro can survive this painful episode, it might bounce back next year with new products and a more disciplined approach to marketing and pricing.

 

Leo Sun owns shares of GoPro. The Motley Fool owns shares of and recommends Apple and GoPro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.