Why Apple should keep its prices high during the recession
An analyst named Ezra Gottheil from Technology Business Research said late last week that Apple needs to consider bringing the prices of its computers down to fall in line behind other PC vendors that are lowering their own PC prices to compensate for less consumer spending.
"It is too much to ask consumers to pay more than twice as much for a PC in these times," Gottheil said in a statement.
The analyst went on to explain that she believes the market is moving away from high-priced computers, thanks to the rise in popularity of Netbooks, and with a recession haunting consumers and businesses alike, Gottheil believes Apple's current strategy of upgrading device specs without modifying price could prove damning in this economic environment.
For years, Apple has contended that it's providing more value for more money and it has always been loath to drop the price of its machines to compete on price with competitors. And so far, Apple hasn't made any statement regarding its desire to change that strategy.
But that's a good thing. Apple shouldn't lower the price of its Macs to compete on price with Hewlett-Packard and Dell. It's a premium vendor with a premium product that thrives off its higher price point. Why should it fiddle with a strategy that has worked for years just because the competition is trying to find a way to increase its own PC sales as Apple gains market share with each passing month?
The sweet spot for Mac pricing is $999. And thanks to the MacBook, Apple hits that psychological threshold and makes consumers believe that although its low-end MacBook is more expensive than the $500 junkers HP and Dell are selling, they provide more value. And just in case you want to measure Apples-to-Apples, I think you'll quickly find that an HP or Dell notebook with a configuration that's comparable to Apple's MacBook isn't that much cheaper. Heck, Dell's Inspiron 13 laptop's top-end configuration starts at $820 ($1,139 before instant savings). Does that really sound like a deal to you?
Apple has the luxury of being, well, a luxury brand. Most consumers don't look at Apple and put the company on the same level as a Dell or HP. For consumers who want to save money on a computer or don't want to worry about learning Mac OS X, Apple isn't a consideration anyway. But for those people who have some money to spend, they want the most value for their money. And although some would disagree with their sentiment, I think many believe they get more value from a Mac than any other company's products.
People who buy Macs aren't looking to save money; they're looking to buy a premium brand because of the perceived value of the product. Apple understands that; we understand that; why don't analysts? Sure, the market is moving towards cheaper alternatives and some people want smaller laptops, but hasn't anyone noticed that over the past few years, Apple's market share has grown considerably in the face of "cheaper" computers?
OK, OK, I know what you're thinking: "But, Don, there wasn't a recession hitting the world when Apple gained market share as a premium brand." True. But we need to realize that a recession doesn't have any impact on perceived value. In other words, a premium brand during a booming period is still a premium brand during a recession. Granted, less people are theoretically able to buy premium products during a recession, but we can't lose sight of the fact that when we compare comparably equipped products, a Mac is, on average, far less expensive than some want to believe. So maybe a person can't afford that MacBook Pro he or she has wanted, but you know what? That $999 MacBook is still affordable and, hey, it's better than buying another cheap Dell laptop, right?
Historically, premium brands perform well because they're just that--premium. There's no reason for Apple to drop the price of its Macs to satisfy one analyst who worries the company's prices are too high. Mac sales are up, Apple's margins are healthy, and people covet Macs more than any other computer on the market. Consumers are drawn to Macs because they provide more perceived value than any other product on the market. And it's that perception that has made Apple's "premium" strategy an unbridled success.
Recession or not, Steve Jobs would be crazy to change anything in that plan.
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Don Reisinger is a technology columnist who has written about everything from HDTVs to computers to Flowbee Haircut Systems. Don is a member of the CNET Blog Network, and posts at The Digital Home. He is not an employee of CNET. Disclosure.
I should be clear, I'm not an apple hater. I agree that there are many positives about Mac's and controlling the hardware has obvious advantages. Microsoft should have emulated that approach to a degree at least, instead Windows is bloated with drivers most people don't need or want.
The thing that astounds me about apple fans is how content they are to pay for products knowing full well that 50% of their purchase was profit. That is why apple Inc has so much liquidity right now. I don't mind paying a little extra for a good product, but its touch to justify the double price difference. They've priced a lot of people out of using apple products. Just as frustrating is the fact that as the product ages, the price does not decline! That is insane and doesn't recur in any other aspect of the technology marketplace. The price of production shrink, the viability of the hardware is reduced as other technology advances and yet the price remains astronomical(as do the profit margins).
Steve Jobs, when asked about netbooks and the possibility of an affordable MAC ever being produced, he said they weren't going to try to appeal to that end of the market and that they "didn't know how to build a five hundred dollar piece of crap anyway." Obviously they could do so if they wished, maintain high quality and still make a healthy profit. He exposed himself to be quite the elitist and that doesn't sit well with me.
I should be clear, I'm not an apple hater. I agree that there are many positives about Mac's and controlling the hardware has obvious advantages. Microsoft should have emulated that approach to a degree at least, instead Windows is bloated with drivers most people don't need or want.
The thing that astounds me about apple fans is how content they are to pay for products knowing full well that 50% of their purchase was profit. That is why apple Inc has so much liquidity right now. I don't mind paying a little extra for a good product, but its touch to justify the double price difference. They've priced a lot of people out of using apple products. Just as frustrating is the fact that as the product ages, the price does not decline! That is insane and doesn't recur in any other aspect of the technology marketplace. The price of production shrink, the viability of the hardware is reduced as other technology advances and yet the price remains astronomical(as do the profit margins).
Steve Jobs, when asked about netbooks and the possibility of an affordable MAC ever being produced, he said they weren't going to try to appeal to that end of the market and that, "We don't know how to make a $500 computer that's not a piece of junk, and our DNA will not let us ship that." Obviously they could do so if they wished, maintain high quality and still make a healthy profit. He exposed himself to be quite the elitist and that doesn't sit well with me.
And cheaper doesn't mean inferior. My PCs tend to last 6 years. And by that time, programs require more power, so it would have been best to upgrade them anyways. Hmm, it's been 2 years since I bought my (relatively computer-illiterate) father a Dell pc with Vista. He's yet to have a SINGLE hardware or software failure even though he uses it daily.
@celtic & januss: We've all had varying experiences, so the whole argument about which is better is really subjective. I own both Macs and PCs and it often comes down to simple things for me: I hate the high price of Macs but I love OS X and I think Apple's MacBooks look better and feel better than comparable Dell or HPs. Yet, on my desktop, I prefer PCs.
Apple doesn't need "significant" market share to be successful. Proof in point, Apple currently has 25 billion cash in the bank while Microsoft has only 20 billion. Furthermore, Apple's stock price has risen 800% in the last 10 years while Microsoft's has fallen nearly 50% in that same time frame.
And for every one of your feel good PC stories I can find 9 that are the complete nightmares.
Just wait for Windows 7, your 6 year product cycle will come to a screeching halt. Most people put off upgrading to Vista because it required a whole new system.
I suppose someone will always defend their inferior product simply because of owner bias. I feel sorry for you and the PC community.
Have you ever wondered why anal-ists are what they are? Because they are incapable of creating a multi-billion dollar company in their parents garage.
As for Apple, they are a premium brand and should never ever drop prices simply because of economic conditions. Are Mercedes and BMW dropping their prices? How about Tiffany and Omega?....... No. So why should Apple? it would only bastardize their brand equity they worked so hard to create.
Will this same lame anal-ist tell Apple they should "raise" their prices when the economy eventually recovers? I think not.
I don't believe your automobile analogy is accurate. For one thing.... Do you watch the news? Car companies are lowering prices across the board and offering rebates and extended warranties you couldn't have hoped for a year ago. Cadillac(granted, GM's American) was offering their employee pricing to anyone off the street, but I don't think doing so has cost them they're luxury item perception.
You're correct about luxury brands maintaining their image even during an economic downturn. However, that has not kept them from offering lower priced models, sometimes under an alternate naming convention. Or expanding their line up offerings to accommodate different budgets.
For every S-class Mercedes sells it sells a hundred C-class models which come in at reasonable prices when compared to other mid-market cars. Also they produced the Smart car under a different name if you'll remember and that sells for well under 20K.
BMW now has the 1-series on the way as well aimed at the sub 3-series market.
While other company's make machines as capable as Macs, they have to slug it out with each other for pennies while Apple has no competition and makes huge margins.
Why change?
Just to note, we are at 75 days uptime on my glorious vista machine. Until i cave in and install the update that number continues to climb.
"The last attempt to resume the system from its previous location failed. Attempt to resume again?
(Use the arrow keys to highlight your choice)
Continue with system resume
Delete restoration data and proceed to system boot menu"
You do realize this mentality is EXACTLY what allowed Microsoft to leapfrog Apple even when they had a jump start with the desktop computer? When Apple introduced the Macintosh desktop they were so far ahead of everyone, and yet MS easily took over. MS took over the I am the BMW of computer's mentality by licensing the OS and keeping the price low.
Today the only real difference between an Apple computer and a PC is the operating system. In fact Apple "wisely" finally stopped sticking to proprietary hardware and moved toward more standardized hardware used by PC's. That was a smart move. It allowed them to bring down cost, interoperlate better and focus on the real difference maker...The operating system.
So now you want them to go backwards and pull the same stupid move they made in the 80's? Good Grief man get off the high horse.
Im afraid I have caught you in a lie. Not only do you lack self control, but you lie about your computer experience. Everyone knows that Microsoft distributes security updates on a nearly daily basis, and your computer needs to be restarted on each occasion. So, you either refuse to install the security updates, or you are simply lying.
And Macs are real computers. Many developers, IT specialists, Doctors, Lawyers, Designers, Schools, Engineers, and Scientists use Macs.
Grow up.
"Everyone knows that Microsoft distributes security updates on a nearly daily basis, and your computer needs to be restarted on each occasion."
I shoud point out that this is incorrect. While many patches do require a restart to take effect, this is quite true of Apple as well. And most patches do not require a restart at all.
"And Macs are real computers. Many developers, IT specialists, Doctors, Lawyers, Designers, Schools, Engineers, and Scientists use Macs."
They also use Windows systems, Linux, and quite a few other platforms.
It's a good idea to check your own color before you start calling that kettle black.
Did you know Apple has 25 billion in the bank? Did you know that Micorsoft has only 20 billion? Did you also know that Apple's share price has risen 800% in the past 10 years while Microsoft's has fallen 50% in that same period?
I think Apple is doing fine. They don't have to have 90% of the market. They only need to continue to create superior products and drive innovation and buzz for their goods.
Not sure what you mean by going backwards? Looks like Microsoft is going backwards and is stuck in the 90's. What's coming out of Redmond for anyone to get excited about?.........Nothing.
Moreover, do you know why MS gained such a foothold in the PC world? It wasn't because they made excellent products, it was because they made excellent partnerships with Intel and the computer makers, and crushed anyone that got in their way. However, that business model is now hurting them because their partners are not as cooperative and technology is changing faster than Microsoft can keep up with.
Again, Apple does need to reach some magic number in market share, they simply need to continue to create better products and maintain their luxury brand status. If you can't afford a Mac then so be it. Not every one will be able to afford a Mercedes either.
>Cheap PCs
Asked whether users will be likely to see a cheaper computer from Apple, Jobs answered, "I think what we want to do is deliver an increasing level of value to these customers."
"There are some customers which we chose not to serve," he added. "We don't know how to make a $500 computer that's not a piece of junk, and our DNA will not let us ship that. But we can continue to deliver greater and greater value to those customers that we choose to serve. And there's a lot of them."
"We've seen great success by focusing on certain segments of the market and not trying to be everything to everybody. So I think you can expect us to stick with that winning strategy and continue to try to add more and more value to those products in those customer bases we choose to serve."<
He's the man running a mulit-billion dollar company he started in his parents garage that growing 3 times faster than the rest of the PC industry. I think he knows what he is doing more so than the PC shrills on this board.
There's a reason why Toyota outsells Porsche. If you are happy to be a niche product, then that's fine.
There is a misconception here that Apple needs to grow their marketshare to be successful. I don't see that at all- if they really wanted to grow to any signifcant size for the competition, they would have to change their business model entirely and that would lose most of the appeal that Apple has now.
it's fine as a niche product. You don't have to keep growing to be successul. Sometimes it is better to just be satisified with what you have and do a good job at it.
Packard introduced a cheaper Packard, the Packard 180 i beleive. Unfortunatly, the perception was that Packard was now making cheaper cars and as a result, never recovered their premium status which Cadillac gained.
Cadillac on the other hand saw their sales reduced during that time BUT introduced a sister car called the LaSalle. LaSalle sales supported the division during those lean years and the brand was done away with after the depression ended. Cadillac became the premium brand in America surpassing Packard in reputation.
Cadillac never "built a cheaper Cadillac. its all perception indeed.
Suggestion: Apple maintains its image as the premium in computing, but introduces the Core.
Cores are basic computors able to compete price wise to the other "lesser brands". Apple engineering, Core built.
Mike DuBois
- by kgun1 January 3, 2009 1:50 PM PST
- I am a computer tech at a School District. We have finally got rid of all of the mac's in our district. Mac's support model sucks. They got themselves in the door of education by offering deals in the beginning. Then the cost for the privelege to keep them running and purchase parts went thru the roof ( have to have a mac certification that renews every year).
- Like this Reply to this comment
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(27 Comments)When an imac motherboard goes out or the video board you can plan on spending over $500. Got way to expensive for school districts to own and suport mac's. And for those of you that say they don't break, i want to live where you live. They are all electronic componets and will break down. So the bottom line...how much does it cost you to own and support. Steve Jobs does not know how to make a $500 computer because that is what he is getting for a motherboard. As long as people will pay there would be no reason to change.
How many people have forgotten how beaten down Apple was,,,,,then a miracle happened....did they come out with a new invention or some new technology that bailed them out....ah, well no...they added color to the imac. And the mac folks went crazy and apple surged on, it is sad to say....a colored imac....
Apple ran with that for several years then they needed something else because lets face it, computers all do the same stuff and little color only can carry your company for so many years. So out comes the ipod and Apple is saved again. Question is can they keep coming up with company saving gadgets
For all of you that want to compare who has more money in the bank, what does that mean for you. Zippo. Microsoft has made more milliionaires than any company in the world. Which would you have rather invested... a $1000 dollars in Microsoft at startup or the same money in Apple at startup...hummmm At least Steve has a bunch of money
I went to a mac training and was amazed at the propaganda and microsoft bashing not only from the mac peole there but also the ( Professional Trainers). Very unprofessional. They all wanted to rant and rave about microsoft service packs and updates but strangely could not see that Apple had the same thing with their os upgrades. So lets count how many Os's Apple has had came out with in the last 15 years.
As far as blue screens and all of the OS problems that you read about, well, I don't see it, We have about 3000 computers that range from p3 1000's to current. Blue screens are rare. Most of our problems stem from user issue's and print drivers.
Steve Jobs does not know how to make a $500 computer because that is what he is getting for a motherboard. And remember what turned Apple around this time, not it's computers, the ipod