Is Apple's competitive pricing a threat to its success?

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.


    Topics: Mobile Strategy & Operations
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    Reader comments (7)

    1. Avatar-blank-50x50 Gregg

      7:37PM on 26th October 2011

      "Nobody goes there anymore because it's too crowded." -the great Yogi

    2. Avatar-blank-50x50 MichaelC

      8:35PM on 26th October 2011

      You lost me in the second paragraph with "fairly unique"—"unique" is an absolute, not a comparative, term.

    3. Avatar-blank-50x50 Kevin

      10:06PM on 26th October 2011

      If he really only bought Apple products for that reason, then good riddance. I don't for a moment believe that is true for anything more than a tiny proportion of Apple's customers.

    4. Avatar-blank-50x50 James Katt

      1:03AM on 27th October 2011

      If you add an Solid State Drive to an Ultrabook, it will cost as much or much more than the MacBook Air.

      The current ultrabooks are competitive with the MacBook Air only if they are sliced to the bone in features and capabilities.

    5. Avatar-blank-50x50 Phil Mckeith

      11:16AM on 27th October 2011

      I would say Apple risks loosing it's professional customer base due to it's product range not it's price positioning.

      Me as many other designers are becoming frustrated with Apples focus on consumer needs as oppose to our professional requirements.

      Apple's decision to drop the matt screen option on display screens is a good example of this. Glossy looks good in dim lit bedrooms but is terrible for starring at 10 hours a day in brightly lighted studios.

      Having said that Apple is a business not a designer democracy and we professional are a small part of the market now :)

    6. Kevin Cureton Kevin Cureton

      Managing Partner at hindSight Ventures, Inc.

      4:04PM on 27th October 2011

      Look at Apple's Gross Margins - they continue to be the even of their competitors despite the change in hardware pricing. The strategy they open state is one of an integrated user experience - which creates many more dollars per laptop sold or iPhone sold from media products, software, are similar services. In addition, Apples "thin" product line allows them to leverage common components which gives them the opportunity to have excellent cost positions without compromising component quality. Of course, they have to stay true to the model - and they success of their products in part were built around addressing the needs of the most challenging users - the professional market such as designers that rely heavily on the tools. However, that issue has little to nothing to do with pricing and more to do with their strategy

    7. Avatar-blank-50x50 Hoipolloi56

      11:08AM on 2nd November 2011

      I find this article very interesting. Particularly this point:


      I've been an Apple fan since the G3 days, I bought into the 'Apple club' because a) I preferred the software and b) I felt 'different' albeit rather smug and cool by owning it. Now everywhere I turn it's Apple this, Apple that, Apple ads consistently in your face, everyone seems to own an Apple device, singing the Apple song and it's become an incredibly saturated brand. I feel we're getting very close to it being 'different' to not use Apple and use another manufacturer sporting Win7 or the latest Andriod OS, complimented with the manufacturers own software. This I suppose happens when a brand gets saturated - the user is no longer unique, follows the crowd, thinks the same etc. What happens with Apple over the next 3 years will be very interesting indeed. Now with Jobs gone, could the brand value drop and it turn into a grey faceless company like most other large corporates? I still like Apple, but there are so many other great options out there at less cost.

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