That simply isn't true. The iPad clearly competes on price, it could have been priced at $800 but they went for the aggressive $500 mark and began eating up the netbook market.
Look at the iPhone it started out at $800, unsubsidized, and when that didn't take off they quickly got it subsidized and down to $200, and then have kept the 3GS around to sell at $99 and $49 price points... Clearly they are competing on price.
People seem to underestimate what a unique product the iPad is: a consumer product that has been build to the highest standards of engineering and design, and would have been totally credible as a high end luxury product at three times the price.
I think that's probably why it worked. It's a category of device that hasn't previously really worked, so it had to be priced for people to risk buying it. If it were priced as a luxury item, you'd have the Apple fanbase buying it, but it probably wouldn't reach wide adoption.
Yeah, it's probably more accurate to say that they're competitive while preserving their margins.
Apple will never sell a device for which they can't keep a healthy margin. They've optimized their supply chain and component procurement in such a way that they can make absurd margins on an iPad 2 and competitors still have a hard time beating them on price. They have to compromise with smaller screens and pretend that's part of the design strategy.
When I say Apple doesn't compete on price, I'm talking about pricing aggressively as the OP suggested: "they can do so with price cuts deep enough and long enough to drive most potential competitors out of business."
When a company has profit margins of 24.27%, as Apple does for the last quarter, they are not competing on price. Companies that compete on price typically have profit margins down around 5% (see Dell, Walmart).
Apple will not cut into those margins to make market share. They never have. That's not to say they won't do whatever they can to gain market share. But deep price cuts is not one of those things.
BTW the iPhone is subsidized by the carrier, not by Apple.
Also, this is the first time I've heard that the iPhone "didn't take off" until the price came down. I kind of remember people lining up overnight to buy it when it came out -- no price drop necessary.
> When a company has profit margins of 24.27%, as Apple does for the last quarter, they are not competing on price. Companies that compete on price typically have profit margins down around 5% (see Dell, Walmart).
The iPad is seriously competing on price. This both elated and worried AAPL investors, who are worried about gross margin as well as sales.
So, Apple can and will compete on price in one market (iPad) while being nosebleed premium in other markets (Mac Pro).
Regarding iPhone, there are no BOGO (buy-one, get-one offers) while every other manufacturer offers those, and the Average Selling Price (ASP) is a nosebleed $600+ and hasn't come down over 3+ years... this is money that Apple makes per unit.
Apple is both luxury AND competes on price - they're incredibly flexible for such a large company.
"Regarding iPhone, there are no BOGO (buy-one, get-one offers) while every other manufacturer offers those, and the Average Selling Price (ASP) is a nosebleed $600+ and hasn't come down over 3+ years... this is money that Apple makes per unit."
|Apple will not cut into those margins to make market share. They never have. That's not to say they won't do whatever they can to gain market share. But deep price cuts is not one of those things.
Then where are all the $200-$400 tablets that should be killing Apple like in your reference previously: A brief look back at the history of the PC clearly shows this.
So why isn't this happening now then? Also yes, AT&T or whoever the carrier is subsidizes the price, I thought this was obvious and didn't need clarifying.
"Then where are all the $200-$400 tablets that should be killing Apple like in your reference previously: A brief look back at the history of the PC clearly shows this."
My reference to the history of the PC was to point out that even when Apple had only 4% or 5% of the PC market, and was all but irrelevant, they still did not choose to compete on price.
I never said anything about "$200-$400 tablets that should be killing Apple", but since you bring it up, I would be surprised if they don't come eventually. And when they do, you won't see Apple matching those prices, let alone beating them.
"Also yes, AT&T or whoever the carrier is subsidizes the price, I thought this was obvious and didn't need clarifying."
If you know this, then why do you bring it up as an example of how Apple has dropped their prices?
I think you are both talking past each other. If I understand dean correctly, he isn't saying that Apple can't price a device aggressively, but rather that when faced with a choice of cutting corners to make a cheap device, or adding value to the product whilst maintaining price, they opt for the second choice.
To make things more concrete, where Dell might look at a Macbook Pro, and then figure that they can compete by using a plastic casing instead of unibody aluminium, thereby making their product $50 cheaper to make, so they can sell it for $50 less, Apple is more likely to try to compete by adding a thunderbolt interface, or introducing better screens that guarantee colour fidelity, or making a better OS, or whatever. That don't lower the price - have a look at the MacBook line, the prices have barely changed over 5 years, but the value of the models offered has increased massively.
Look at the iPhone it started out at $800, unsubsidized, and when that didn't take off they quickly got it subsidized and down to $200, and then have kept the 3GS around to sell at $99 and $49 price points... Clearly they are competing on price.