Three Guys and a Podcast: Apple News & Analysis
Apple, Inc. is selling products cheaper than its competitors? Not possible many might say, but the truth is Apple has slowly shifted into the price leadership position with many of its product offerings.
Apple waded into the smart phone market with iPhone starting at $599, but within two months it was reduced by $100. The price reduction didn't last long either, as Apple quickly jumped into the subsidized game.
The iPhone being subsidized put it on parallel pricing with its high-end competitors. The move marked Apple's first foray into pricing a flagship product that was at least price neutral to their competition. Samsung's Galaxy S3 hit the market at $249 through many carriers, and Verizon is currently offering the Galaxy S4 for $249, with $50 mail-in rebate.
Earlier this month at Apple's world wide developers conference, Apple showcased a new MacBook Air lineup, featuring amazing battery life, with a $100 price drop across the board. And while the MacBook Air is at the high-end of PC pricing, as far as the ultrabook market is concerned Apple is now cheaper than many of its competitors. Sony's new Vaio Pro 13 runs $1,249, while Samsung's Series 9 AO5 retails for $1,299, with hardware specs that come in sub-par to the MacBook Airs.
Apple has been consistently winning awards for their Mac hardware reliability. The MacBook Air lineup is built with superior materials, strong performance and amazing battery life over its ultrabook PC rivals. Once starting as an enthusiast product at $1,799 can now be had for $999, boasting best-in-class performance and price.
The mystery of it all is wondering how Apple can pull off an amazingly high quality product while having high margins that consistently eat PC market alive. According to analyst firm Asymco, at the end of 2012, Apple was making more profit off its Mac sales than the top five vendors combined (Dell, HP, Lenovo, Asus, Acer). Of those on the list, Apple's operating margin was 19%, while the rest of the industry averaged 3%.
Clearly, Apple is leveraging something right, and it just might be its cash. Apple has been pouring tens of billions into capital investment, and it is clearly paying off. Apple's decision to purchase massive volumes of production equipment that hone their products have resulted in large margins. Early adoption of sold state storage for every product Apple makes, gave them tremendous economies of scale vs its "price is king" competition that still clings to low-cost hard drives.
The PC market is being forced by Apple to turn towards solid-state storage, leaving Apple firmly in the lead with its use in the MacBook lineup. More consumers are moving towards fast, powerful, all-day battery life in their laptop quest, at a price that justifies. This movement continues to lead more consumers to the Apple watering hole of the MacBook Air. While Apple is in the top echelon of the the laptop product mix, its pricing in that space has become industry leading. Perhaps Walmart could stand to learn a few things from Apple's pursuit of quality at market leading prices, and so could just about everyone else.
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