Alright, I’ve always felt justified in the premiums Apple charges for it’s equipment. As the adage goes, you really _DO_ get what you pay for. I’ve always felt that Apple’s added value more than makes up for the prices they charge. If a couple of products, like the PowerMac and PowerBook line seem a bit high, That’s usually a minor concern.

The Price hikes on the iMac and iPod concern me, for several reasons.

First is simply a matter of perception. The primary complaint about Apple systems has always been the price, and the new high-margin items making their debut at MW Tokyo certainly don’t fall into that category. While this does have the opportunity to tweak the noses of the pundits once again, it’s likely to cause some short term grumbling and stock drops.

The price increase on the iMac is understandable, but bound to be unpopular. As I’ve already said in another forum, I’m concerned about the buyers who have already paid money for a system at the promised price but never received it within the promised period of time. This is also bound to affect the dealerships as well: who may or may not be forced to fill those back-orders with higher priced inventory. Between this, and the rumors of Apple supplying it’s own shelves first with the cheaper iMacs, I doubt apple will make any friends with their retail community. There has already been a lot of complaints as is with third-party retailers when dealing with Apple, and this isn’t likely to help. It might also make for possible lawsuit material in the future, which is never good for stock values, regardless of merit.

EDIT: The above paragraph was before I found information regarding Apple’s policy: Apple is apparently going to honor the price on all customer and reseller orders for iMacs placed before the 21. That’s a huge relief to me!

The iPod pricing is the final concern. I think the issue of price has always been a major sticking point with the iPod. Even though (IMHO) it has offered more than ample value for it’s cost, the price has simply been out of the range of many potential customers. By releasing a 10GB iPod for $100 more, rather than any sort of discount at all on the 5GB, I think Apple is marketing to a much smaller audience than before. I think much of the consumer base that the 10GB iPod targets already own iPods, and does nothing to increase the range of potential customers. The addition of the Address-book storage helps, but will it be enough? If Apple had dropped the price on each of them by $50 I wouldn’t be arguing this point.

If these succeed, Apple is in an excellent position: able to maintain high margins and prove it’s business strategy of aiming for the higher end consumer is a viable alternative to the Dell and Gateway style price warfare. However, I think the risks for Apple are substantial, and could significantly affect both their public image and bottom line.

Comments? Flames? Rebuttals?

_________________
-Jon Roth

Instant Philosopher; Just add hot topic and stir.

<font size=-1>[ This Message was edited by: KitsuneStudios on 2002-03-21 00:11 ]</font>

On 2002-03-21 00:06, KitsuneStudios wrote:

If these succeed, Apple is in an excellent position: able to maintain high margins and prove it’s business strategy of aiming for the higher end consumer is a viable alternative to the Dell and Gateway style price warfare. However, I think the risks for Apple are substantial, and could significantly affect both their public image and bottom line.
_________________
-Jon Roth

Instant Philosopher; Just add hot topic and stir.

<font size=-1>[ This Message was edited by: KitsuneStudios on 2002-03-21 00:11 ]</font>

Jon:

I believe you answered the question with that insightful paragraph. Apple is not in the cheap box market. This is not a game of market share per se, but a contest of profitability and long-term sustainability. If Apple cannot maintain its margins, it does not have the resources to fund R&D and product improvements.

This is an easier decision for Apple than its hardware competitors. Faced with rising component prices, they have only two choices: Flow down the river of Red Ink or abandon market share by increasing prices. The “anti-technology” companies (Dell, for example), cannot sustain their margins nor produce results that satisfy their business model when component prices rise. The days of cheap market share gains by cutting prices alone are over now that component prices are rising and margins will pressured even more.

Whatever analysts and consumers might think of Apple’s decision in the short-run will long forgotten a year from now when Apple is still in a position to deliver new and innovative products to the market. At the same time its hardware competitors will be explaining to shareholders why cheap boxes don’t make for good profits.

Whoops!

That was my post! Too busy writing to remember to sign in

“One more thing”

Think of the situation Apple’s competitors are in: Unwilling or unable to increase prices, they face a double-whammy – no margin on the products they do sell, and short supply of components in order to make product.

The low-margin model is based on quantity sales. Without quantity sales, they lose big dollars.

Exactly!  The low-margin / high volume model is vulnerable because it depends on that volume to keep costs low.  Once volume falls, the cost of components skyrockets as discounts dry up, which impacts the price, which impacts sales, which impacts component costs, und so weiter until the company disappears up its own tailpipe.

Like a shark, it must keep moving to survive.

Pashtun Wally:

I didn’t know you spoke our finance “language”

You’re right. The next several months will not be easy ones for budget PC box makers.