In every buying decision, one of the top factors that’s taken into consideration is price. It’s not always the TOP factor, but especially in economic times such as this it is highly important. When Apple refreshed the Mac line, it had a big opportunity to make a splash by dropping prices.
It didn’t. Instead it created a token sub-$1,000 machine and focused more on the new CPUs and graphic cards inside the machine. Apple clearly sees itself more of a Mercedes brand than a Mercury, but is such pricing and position sustainable? Are Apple customers completely price insensitive?
How much does price matter?
In September I asked TechRepublic members to tell me what the most important factor was when taking a new laptop purchase into consideration. Of the almost 900 responses at the time, the top two factors were performance and reliability, which were practically tied for first with approximately 33% of the vote. Price was a distant third, coming in with only 8% of the vote.
Now the drawback is that our poll tool allows you to pick only a single item. You can’t multi-select nor rank order your votes. That means that the poll doesn’t really tell much about how important price is on a decision continuum for TR members, but because 10% still selected it as their top in the face of the other factors means that it’s still significant.
Everyone who’s attended any economics class (or just has gone to a grocery store) is familiar with the Law of Supply and Demand. If you want to sell more of something, you lower the price. If you charge too much, fewer people will buy. So why doesn’t Apple lower the price to compete with Dell and HP? Especially if by doing so they’d crush them because of their supposed “superior” product?
Apple and price
The answer is obvious and simple. Apple has no desire to be Dell or HP. Although there’s something to be said for the #1 maker of laptops and computers on the planet, Steve Jobs isn’t going to do so if it means sacrificing margin for market share. I’ve pointed this out before in Steve Jobs doesn’t want to be Michael Dell.
Apple is more of the Lexus and Mercedes of computer makers. It’s priced the way it is on purpose: to command the highest price that the market will bear. Apple locks its customers into proprietary hardware and software and squeezes them for every last dime.
If Apple were to attempt to compete on a price basis, there would be a lot less chance to lock the customer in. Economies of scale favor traditional Windows vendors because even though companies like HP and Lenovo do some unique engineering, Windows is so generic that it runs on just about all hardware, driving profit margins out. Windows machines are commodities more like Fords and Chevys and less like a Mercedes. To successfully compete on price, Apple would have to accept lower profit margins and use more generic equipment. That would mean not doing things first like using the 6MB-cache Penryn Intel CPUs that the Macs are getting before other vendors.
Apple has tried before to grow market share at the expense of margin. Although it’s more of a discussion in Classics Rock, you can look to what happened to Apple in the 90s when they introduced lower-priced Macs in an effort to grow market share. All that happened was that their profit margin dropped 4% in less than one year. It wasn’t much later that Steve Jobs was brought back into the company, and those who championed expanding Apple’s market share were gone. Steve’s not to let history repeat itself.
Plus, let’s not forget the Jobs ego. I’m sure the last thing he wants to do is see the company he created, the company where in epic fashion he was forced out of and returned to in glorious fashion and more than rebuilt, become a Ford. I’m sure he’s quite happy to have it be viewed as a luxury brand.
Breaking the law
I was in an Apple Store over the weekend, and you could barely walk around the place. Clearly no matter how weak the economy is, people are still snapping up the new Macs, iPods, and other accessories. Apple’s third quarter ended in June, and they returned record results. They’ll report fourth-quarter earnings tomorrow, so it will be interesting to see if they can defy the law of supply and demand in a down economy as forecasters predict.
Beyond the cachet of the brand, it’s hard to see why Apple customers would endure the price differential. ZDNet’s Larry Dignan questions whether Macs are affordable enough and suggests that they’re not worth the $100 price difference. On the other hand, ZDNet’s Mary Jo Foley seems to think that a $999 price point may attract customers that might otherwise not look at a Mac.
What do you think? Why do Apple customers pay a higher price for Macs? Is price no object or at least not that big of a deal to a typical Mac user? And is Mac OS X worth the price difference?
