Apple product pricing, accountants, and zen strategy
Labels:
Business,
English,
Financial,
International,
Investment,
Statistics,
Strategy,
Technology
Steve Jobs has posted an open letter to the iphone fans that he has disappointed.
It is quite interesting what he has to say, but i find it even more interesting to look at what he didn't say.
In the west, pricing a new product is a very difficult decision and is usually based on cost plus a margin. The decision is made all the more difficult where the product is groundbreaking and there are no real points of reference.
Ask the accountants to prepare a forecast of expected annual sales their forecast will likely be conservative. Ask the Marketeers for the same forecast and theirs will be on the optimisitic side. This is the nature of business.
The cost per unit is a very subjective measure when you can't be sure of the forecasted sales levels. Use the accountants estimate and the cost per unit will be much higher than using the marketeers estimate.
In truth Apple is not daft and they will have also done research to see how much a customer might be willing to pay for an iphone. My guess is that that research corresponded well with the accountants conservative estimates of sales levels and costs. That set the initial price of $599.
Two months in and the impact of iphone sales has been staggering. Now it is clear that the Marketeers were right with their estimates. Apple had been far too prudent in setting prices for its iphone.
It is quite interesting what he has to say, but i find it even more interesting to look at what he didn't say.
In the west, pricing a new product is a very difficult decision and is usually based on cost plus a margin. The decision is made all the more difficult where the product is groundbreaking and there are no real points of reference.
Ask the accountants to prepare a forecast of expected annual sales their forecast will likely be conservative. Ask the Marketeers for the same forecast and theirs will be on the optimisitic side. This is the nature of business.
The cost per unit is a very subjective measure when you can't be sure of the forecasted sales levels. Use the accountants estimate and the cost per unit will be much higher than using the marketeers estimate.
In truth Apple is not daft and they will have also done research to see how much a customer might be willing to pay for an iphone. My guess is that that research corresponded well with the accountants conservative estimates of sales levels and costs. That set the initial price of $599.
Two months in and the impact of iphone sales has been staggering. Now it is clear that the Marketeers were right with their estimates. Apple had been far too prudent in setting prices for its iphone.
- What to do?
- Lower the price or continue with the same pricing policy? That really is a rock and a hard place. There will be negative and damaging publicity in both cases.
- Lower the price and face a backlash now, or continue making megabucks short term?
The megabucks option has its advantages, it delays the negative publicity for a while but does not maximise the iphones potential market share. Apple as a new entrant in the mobile phone market needs to make a big impact. Nokia and Eriksson have the global market stitched up already.
Apple needs to hold off the big guys long enough to get established. It is clear that Apple is positioning to be in this market for the long haul, by sacrificing the short term megabucks.
This strategy also disrupts Nokia and Erikssons response, they thought the were competeing with the iphone on one price, but now Jobs has moved the goalposts, and that will buy him some more time. Time equals long term market share in a multi billion dollar industry.
So Apple got its initial pricing policy wrong, that happens to a lot of companies. By lowering its price Apple has shown a strength of character and its long term strategic ambitions.
No comments:
Post a Comment