Apple appears to be attempting a low-cost coup by introducing a low-cost Mac – the 1.25GHz G4 Mac mini (a snip at only £288 excluding VAT) and iPod shuffle (£69 including VAT). Hats off to it – but what if Apple went beyond cutting the cost of a bare-bones model and actually slashed prices on the higher-end models? Surely the economy of scale Apple could tap into is such that a price reduction is possible now.
We all know that Apple is a premium brand. The company likes us to think of the Mac as the high-end BMW of computers – both have low market share, but offer high performance at a premium price. However, dropping that price a little could do a lot to grow Apple’s market share.
This kind of strategy is being heralded by marketing gurus as “Masstige”. A new word to most, it’s a classic marketing invention that you’ll undoubtedly hear more of. Oh goody, I hear you cry. It means Mass Prestige and it describes a market sector between the mass market and the prestige brands. Apple is currently a prestige brand; a drop in price could make it a masstige brand – and make more money.
Unfortunately, it seems doubtful that Apple will move to a lower-priced, bigger-market business model. The mass-market appeal of the iPod hasn’t seen prices drop on the top models, despite selling in their millions. Instead, Apple offers low-end versions, with low-end prices. So, will people be happy to buy a high-end brand but a low-end product? It’s a possibility, but I think more people would buy across the Mac product range if it were more affordable.
Not cheap, not cheerful
People may question Apple’s ability to build a cheaper Mac; after all, somebody has to pay for all that research and development. I certainly don’t want Apple to skimp on the R&D, but the advantages of the masstige approach is that you sell so many more products that the economy of scale kicks in. Developing a computer like the iMac G5 costs a lot of money, but the development costs are the same if you sell a
Apple has a tiny market share. If it wants to grow, it needs to compete with Wintel PCs. The historical issues of processor speed and compatibility aren’t as important as before: all computers are fast enough for most uses, and OS X has made Macs friendlier with PC networks. Price is probably the biggest issue facing would-be Mac buyers.
Look at your average PC: you can pick up a 2.8GHz Pentium 4 Dell, with 512MB RAM, a 160GB hard drive, 17-inch LCD screen and a DVD-R drive for £531. That includes VAT, delivery and a one year warranty. Now look at what you need to spend to get those features on a Mac: more than double the price if you match the specifications for memory and hard drive, and there isn’t even a DVD-R option on the low end iMac.
I realise the two machines aren’t comparable – the G5 iMac is better in every possible way – but is it twice as good, worth double the cash price? I think so, but arguing the case to a non-Mac-fan is a different matter. Offering a potential low-end PC buyer a low-end Mac is one way to approach the problem, but it would be better to offer a great Mac at a great price. Make it ten or even 20 per cent more expensive than a PC and you’ll still have a sale. Make it double the price and even the most Mac-envious PC user will feel comfortable sticking with what they know, safe in the knowledge that they weren’t ripped off and didn’t pay over the odds for the Apple badge.
I do think that there’s reluctance among PC users to buy a Mac due to the perceived extra cost of the badge. I’d like to think the extra cost is due to the expensive components, extensive R&D; even expensive packaging. But if I thought I was actually paying money for the badge itself as a way to impress people or to show off, I’d be mortified. I wonder if Porsche owners suffer the same crisis of conscience? Are they comfortable that every penny is spent on fine German engineering, and none is just randomly slapped on as a Porsche tax for the badge?
I think Apple can claim that its computers are more expensive to make, and to design. If, however, they really are twice as expensive as the equivalent PC to build, Apple should be looking to trim down the extravagant designs.
Another way to trim costs would be fairness with international pricing. The weak dollar means UK consumers should be able to buy US goods at great prices – but Apple isn’t as keen to pass these would-be saving to the UK customer. We pay approximately 15-20 per cent more for Apple equipment, and that’s before you add VAT. Dell customers
pay over the odds too, but only by roughly 5 per cent.
Steve Jobs very proudly cut the Apple inventory when he first re-took the reigns in Cupertino. That means that Apple keeps as little inventory as possible in its warehouses so that it can react quickly to technology updates and, of course, money-market fluctuations. Its efficiency there doesn’t appear to be doing the UK customer any good. If you happen to be buying in Euros, it’s even worse.
I suppose it must be difficult for Apple to keep certain costs down as so many parts are imported and the dollar is weak. But if you think paying for an Apple logo on your computer is distasteful, how about subsidizing US computer buyers with inflated European prices? That’s something that nobody wants.
So come on, Steve – you have an opportunity to bring the Mac to a wider audience. You’ve removed the last excuse for PC users not to buy a Mac – now all you have to do is finish what you started. MW