Apple’s rise in the past decade is one of the business world’s great success stories. The company, which in the late 1990s looked like it was on its deathbed, is now one of the richest businesses in the world.
And it has a fairly unique story: as the prices for computers and consumer electronics devices have plummeted, Apple has been able to sell more units of its products than its competitors despite the fact that its products have generally been priced higher.
But that’s changing. From the Macbook AIR and Macbook Pro to the iPad, it’s clear that Apple is getting more aggressive on price.
According to the New York Times, this has a lot to do with the enviable supply chain the company has built over the years. In short, Apple has the scale to push component prices down, and the “war chest” to lock up big volumes of components ahead of time.
On the surface, Apple’s ability to bring prices down is a good thing, but there’s an ironic potential downside to its pricing strategy: it might eventually hurt the Apple brand.
In the past, the Apple brand was synonymous with high-end hardware that was pricier than what most mainstream consumers would spring for. As a result, the stereotypical customers were professionals (think designers, videographers, etc.) who could afford to pay a premium to avoid the Wintel world, where prices for hardware were constantly falling.
Over the years, however, as Apple’s product portfolio has expanded beyond desktops and laptops, it has achieved great financial success by creating consumer electronics devices that straddle the line between the high-end buyers it used to serve almost exclusively and the mainstream consumer.
Much like high-end fashion labels which manage to maintain their brand cachet while finding ways to appease aspirational consumers who can’t jet off for a Champs-Elysées weekend shopping excursion, Apple has managed to maintain its position in both markets. Consumers love Apple, as do professionals, computer and electronics enthusiasts, and digital hipsters.
But is Apple’s aggressive pricing strategy sustainable long-term from a brand perspective?
Anecdotally, I spoke to a friend recently. He’s always bought Apple products, and it’s not just about the technology. To my friend, owning the latest and greatest is a fashion statement. So I was somewhat surprised when he mentioned that he was probably going to buy an Intel-based ultrabook.
His rationale: not only were the specs appealing given the relative similarities in price, the Macbook AIR was simply becoming too common.
While my friend represents but one Apple customer, I think the story highlights two challenges Apple will increasingly face:
Avoiding head-to-head competition.
The ultrabook market could be telling for Apple. Intel is betting big on ultrabooks, and if some of the early ultrabooks trickling out into the marketplace are any indication, the Macbook AIR is going to have some real competition.
For Apple’s biggest fans, these ultrabooks are little more than imposters, but for mainstream consumers who see that sleek ultrabooks with features like HDMI out are similar in price to a Macbook AIR, a purchasing decision may be difficult.
The point: so long as the Macbook AIR is no more than $100 to $200 more expensive than a similarly-spec’d ultrabook, Apple has put the Macbook AIR into a competition it wasn’t in when the lowest-priced AIR was significantly higher in price.
Maintaining an aspirational brand while selling products that are well within reach.
Apple’s huge profits over the past several years evidence the fact that it has managed to sell products that lots of consumers want to buy at quite healthy margins. But if Apple gets too aggressive on pricing, the brand could lose some of its cachet.
After all, if everybody owns an Apple product, could it diminish the company’s appeal, particularly to higher end consumers, some of whom take pride in showing that they’re ‘thinking differently‘?
To address these challenges, Apple may need to look at fashion brands like Luis Vuitton and Gucci, which manage to walk the same line. A line that appears may be getting even thinner as the company’s products get cheaper.