Pricing

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Apple Pricing Strategy: Don’t Diminish the Brand
March 6th, 2009 at 10:00 AM - Columns and Opinions by John Martellaro

"Good marketers don't lead with price."
-- Carl Howe Apple is a premium brand of computer. Apple doesn't try to compete with PCs directly on price for several reasons that are well known. Cut throat pricing leads to diminished profits and loss of shareholder value. It diminishes the hard won reputation of the Apple brand. Finally, it's too early for Apple to jump on price decreases before it fully understands the the impact of the Jan-Mar quarter sales. Another reason is that dropping prices for a premium brand has to take into account Apple's experience with the price elasticity of its products. Price elasticity is defined as the response in demand for a product as the price decreases. For example, if Apple were to drop the price of the low end Mac mini from US$599 to, say, $399, would the demand increase so much that the new production rate would lower costs and make more money for Apple? Or would the price reduction simply reduce Apple's earnings? Based on what we've seen from Apple lately, the answer has to be the latter. I suspect that Apple has some fairly sound computer models that suggest what the impact would be of various price reductions. To put it euphemistically. Tim Cook, Apple's COO, has a sharp pencil and a sharp mind. He knows, to the penny, the bill of materials for each Apple product, what the new cost would be based on an increased order, and how his gross margins would be affected. Recession Realities It's a fact of life that people who are concerned about getting laid off tend to avoid premium products. That said, Apple still has to ask itself some hard questions about what the impact of lowering prices would be on the company. Eventually, the U.S. and the rest... [continues]

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