Kenny Hemphill
By carefully pricing its product range, Apple has pulled off the trick of getting consumers to part with more money than they had planned.
Much has been made in recent weeks of Apple’s stellar set of financial results for the three months ending on 30 September. And rightly so. Any company that continues to not only be profitable, but to sell record numbers of its products and achieve record earnings in the current economic climate, is clearly doing something very right.
The question is: what is it that Apple has got so right and others have got wrong? Sure, Apple makes great products. And it has clever adverts. It’s also created a strong brand associated with some very desirable attributes. But it also charges a premium for those products, often refuses to give its users what they say they want – like an iMac with a Blu-ray drive, and seems to go out of its way to do public relations very badly.
Having a brand associated with being cool and stylish will only take you so far. And making products that are easier and more fun to use, as well as being more reliable than the competition, won’t take you that much further. You can, after all, do anything that can be done on a Mac on a PC, usually at a lower cost. Yet while PC manufacturers struggle to stay in the black, Apple, seemingly effortlessly, drives forward with oil tanker-like momentum.
The glib response is that Apple makes products people want and are prepared to pay for, and does a good job of advertising them. But that doesn’t account for quarter after quarter of record results. There’s something else, an extra ingredient that pushes Apple beyond the rest. That ingredient is the technique it uses to persuade us not just to buy a Mac, but to buy a better, more expensive Mac than we were planning to.
Consider the example of the current iMac range. Let’s say you are happy with the 21.5in screen and only need 500GB of hard drive space but want a better graphics processor than Nvidia’s GeForce 9400M which, after all, is the minimum spec for taking advantage of Snow Leopard’s Open CL technology. The obvious decision would be to buy the cheapest iMac for £949 and add a better graphics card at the build-to-order stage. Sorry, no can do. You can upgrade the processor (£160 for an extra 300GHz) or the RAM (£160 for 4GB) but not the graphics processor or the hard drive. So if you want that ATI Radeon HD 4670, you’ll have to stump up the extra £250 for the next iMac in the range. On that version, you can upgrade the memory and processor, but this time you can upgrade the hard drive, too. There is no technical logic behind preventing you from upgrading the 500GB hard drive in the cheaper model, while allowing you to switch the 1TB model for a 2TB drive in the more expensive one. It merely ensures that if you want more than 500GB, you’ll choose the next iMac in the range.
Likewise, if you opt for the more expensive 21.5in model, but fancy a Radeon HD 4850 with 512MB RAM rather than the 4670 with its 256MB, tough. The only way to get that card is to buy the 27in iMac, on which you can upgrade RAM (to 16GB rather than the 8GB maximum in the 21.5in model), hard drive, processor, and graphics card.
And it’s not just the iMac. If you choose the cheapest Mac mini because you decide that paying for an extra 270GHz of processing power isn’t worth it, it’ll cost a total of £160 to upgrade the RAM and hard drive to match those of the more expensive model, bringing the total to £659. That’s £10 more than the more expensive Mac mini.
While most companies, Apple included, do their best to sell you upgrades and accessories at the time of purchase, Apple takes it a step further. By constructing its product line-up and arranging upgrades and pricing very carefully, it creates triggers to persuade you to move up one or more steps in the line-up. It’s like having someone on your shoulder whispering in your ear, telling you that you may as well spend a few pounds more. Selling you upgrades is profitable, especially at the prices Apple charges, but it’s more profitable to sell you a standard model that costs the same or more, and doesn’t require a technician to unbox it and add extra RAM or a different hard drive.
That’s why the recent study that found that Apple takes 90% of all the revenue spent on PCs that cost more than $1000 in the US needs to be read carefully. The way it’s often been reported would lead you to believe that Apple has a 90% share of the market for personal computers costing more than $1000. Apple doesn’t sell 90% of all the computers costing more than $1000, however, where other manufacturers take $1049 or $1099 per sale, Apple has developed the rather neat skill of relieving us of significantly more than that.
That’s a very clever trick, and one which will help ensure that Apple’s balance sheet goes from strength to strength.
