Is it a faltering economy? Is it because Apple’s prices are too high? What’s causing all the turmoil among the villagers with pitchforks trying to storm the gates of Apple’s walled garden? It’s that old foil; price vs. cost.
Some look at price and consider it the cost of a product. A $10,000 car has a price tag half that of a $20,000 car, but what is the latter worth in five years vs. the cheaper one? More. Subtract the resale price from a more expensive vehicle with higher trade-in value and you get closer to the real cost. Then, add in fuel charges, insurance, repairs, and so on, and suddenly price is much different than cost, and often less expensive to use and own than cars with a lower price tag.
Does that make sense?
Let’s look at iPhones as another example. The Week:
Why are Apple’s iPhones so expensive – and will they get cheaper?
Quality products cost more to make than inferior products, and usually cost more money to manufacture than products with lower price tags that also cost more to own.
Why don’t technology or business writers know that? Back in 2017 Apple changed how it handled prices with local currencies in countries around the world. Now Apple plans to go back to the old method which, ostensibly, should results in lower prices; and, as everyone knows, lower prices spurs demand, so more sales.
Although Apple has never explained publicly why it hiked iPhone prices in the UK two years ago, the Daily Mail says it may have been a result of the weakening of the pound following the Brexit vote.
I thought it was greed. I’m pretty sure I read that Apple’s prices on everything were because the company is greedy.
Yet, Apple CEO Tim Cook gave a laundry list of reasons why iPhone helped to drag down APPL and revenue. Funny thing. True story. Profits were not bothered at all. Pfft. Meh. Who cares about profits? What’s the most important metric to gauge a company’s success?
Chinese device maker Oppo has also seemingly emerged from nowhere over the past 12 months and now holds a 20% market share in the country… Huawei leads the way with 27%, while Apple only has a 9% share in China
But if iPhones are priced three times higher than the average Chinese smartphone maker– as it is elsewhere around the world– then wouldn’t that give Apple a lead in revenue and profits? The pricing paradox here is less difficult to understand than you might imagine.
It costs a certain amount to design, build, manufacture, market, and support a piece of hardware. Subtract that amount from the selling price and you get gross margins; or, a version of profits. Apple makes a profit on iPhones, iPads, Macs, Watch, AirPods, Beats headphones, AppleCare, Apple Music, Apple Pay, accessories and pretty much everything else it makes.
Hey, you know what? Samsung, the other big hardware maker in the industry, also makes their own smartphones, and components for competitors, including Apple. Guess what else? Apple and Samsung combine for about 80-percent of the entire planet’s smartphone revenue and about that much in profits. Oppo, Huawei, Xiaomi, and lesser makers of such gear feed on the remains of the day.
That tells me that Apple’s profit strategy on an aspirational brand is a good one, and those who scramble ahead for loses to gain marketshare don’t understand how business works.
Who else doesn’t understand how business works?