Mercury News: Apple soon to unfurl iPod strategy: sell more at little less profit

“In the coming months, Apple will begin to unfurl its strategy of making a little less profit on the average iPod, but selling a lot more of them. A Hewlett-Packard branded version of the iPod is due in a few weeks, and HP will pocket some of the profit from that version. The new iPod mini will bring Apple less profit per sale than previous iPod models, because its parts make up a larger portion of its $249 price tag,” Jon Fortt reports for The Mercury News.

“Success for Apple will mean selling so many of the music players that the slimmer profits don’t matter, and paying lower prices for the iPod’s building blocks. Apple will begin to show success or failure in the spring,” Fortt reports. “So far, Apple has struggled to make enough iPod minis to meet demand, though that is common for a new product. And as for wrangling lower prices out of its parts suppliers — Richard Doherty, director of research for Envisioneering Group, doesn’t think that will be a problem for Apple’s chief executive.”

Fortt reports, “‘There’s the laws of economics and there’s the laws of Steve Jobs negotiation,’ Doherty said. ‘He has been known to get components at cost, or sometimes below cost.'”

Full article here.

22 Comments

  1. Now do the same margin-cutting with a headless eMac with swappable GPU ” width=”19″ height=”19″ alt=”smile” style=”border:0;” /> Take a loss until volume spikes?

  2. I think Apple is trying to avoid the same mistakes that they made with the Mac (and let Windows become ubiquitous ). Just think, the iPod will become the Windows for the rest of your life. Very smart.

    Dude

  3. Well, since they’re selling enough, they can do it, look at walmart (they make it up in volume). Powermacs aren’t exactly the awesome sellers that the iPods are, so Steve “blow” Jobs prices them higher to maintain a comfortable profit margin. With the iPod selling like hotcakes (ironically, you don’t hear about hotcakes selling really well anymore) apple can afford to price them lower…when a price drop comes, that’s when I might consider getting one.

  4. The article never suggests that prices will go down below what they are now. It says that MARGIN per iPod will be lower on the HP-branded iPod because HP will take a cut of the profit. Similarly, it’s saying that the iPod mini at the CURRENT price results in a lower margin for Apple because parts make up a bigger part of the price than on the larger iPods. Apple is hoping to dominate this market (unlike computers) through a smaller margin, but that is already baked into these deals. Hopefully, Apple will find further cost reductions that allow it to reduce prices as well.

  5. The MINI is already priced using this newer margin formula.

    All the clueless dolts that have been whining about Apple needing to lower the Mini’s retail price below $200.00 are demonstrating their complete ignorance for the build cost of the product and the true market potential at the current $249.00.

    I expect other models will come down a bit, but you are not going to see a Mini in the sub $200.00 price range for some time to come.

  6. Actually you are the dolt. It was priced at $250 because it’s new and early adopters will a premium. It was always meant to have a unit price of $199.

    You will see a 199 mini by May.

  7. My wallet of course is hoping that reductions in price come through but it will remain to be seen if they do. With the current demand outstripping supply, the economics would not dictate a decrease yet. However, because it is Apple, I am certain that improvements and innovation are on the way.

    Apple also has the strategy to license out Fairplay after they have thoroughly dominated the market to lock in AAC/Fairplay as the industry standard and assure that they will be involved and making a profit no matter what.

  8. “It was always meant to have a unit price of $199.” – Perry

    Can you support your statement? Do you know anything about Apple’s internal pans? Unless you are an insider or someone who knows Apple’s plan, your attack is unjustified.

  9. <<You will see a 199 mini by May.>>

    Hmm, do you care to wager on that? I think you’re in for a disappointment if you believe that is going to happen that quickly…

  10. Apple has said very clearly–in their financial conference call–that each Mini costs more than $200 to make. $199 is NOT possible until something gets cheaper–the HD being the likely candidate.

    Meanwhile, Apple’s selling as many as they can make and are running out. So why would they have wanted to take a loss?

  11. This topic continues to make me laugh everytime it’s brought up. Please tell me a reason WHY Apple needs to cut prices on iPods, especially the mini, when they can’t even keep up with demand as it is right now? There isn’t any way cutting the price will increase sales because they’re already selling every one of them as quickly as they’re manufactured at their current prices.

    For those of you that keep saying a price cut is necessary, you will remain a dolt until you can explain that one for us…

  12. Some of you need to go back to school and take an Economics 101 course. You don’t cut prices on inventory until you have a situation where the supply greatly exceeds the demand. That’s why you see clearances at stores on items that have been collecting dust on the shelves for 6 months. iPods on the other hand are flying off the shelves and their demand greatly exceeds their supply. You obviously don’t cut prices when that is the case.

    Just because “you” don’t want to pay $249 for a mini doesn’t mean Apple needs to cut their prices so “you” will buy one. They’re having enough trouble keeping up with current demand at $249 as it is. Get a clue people.

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