Gartner: Apple’s new iPods priced for profits, not market share

“Apple Computer Inc.’s recent introduction of several new iPods shows the company is looking for better profit margins, not gaining market share, according to researcher Gartner Inc. And the move could boost its rivals,” Dan Nystedt reports for IDG News Service.

“The top sign Apple is going for the green is its lack of aggressive pricing, according to Gartner analysts Joseph Unsworth and Jon Erensen in a Monday report. The second-generation iPod Shuffle, for example, could have been priced closer to US$49 to stimulate demand from users, since the cost of materials going into it amounts to only $30, the analysts said. Instead, the shuffle is priced at $79,” Nystedt reports.

“The company could have also priced the new 8G byte product lower than $249, since its materials only cost $130, Gartner said, the same with its 4G byte, which at $199 is far higher than the $90 worth of materials inside, and the 2G byte version, which is $149 and is made from materials costing only $70,” Nystedt reports. “The two Gartner researchers even lamented Apple’s decision to discontinue the 1G byte nano, which they say could have been a nice mass-market item for around $99.”

Nystedt reports, “Apple continued to lead the U.S. digital music player market in the second quarter with a 75.6 percent share, according to the NPD Group, followed at a very distant second by SanDisk Corp. at 9.7 percent and Creative Technology Ltd. in third with 4.3 percent of the market.”

Full article here.
While everyone would like lower prices for everything, Apple new iPod pricing looks good. Apple’s pricing certainly seems to have thrown competitors like Microsoft and SanDisk+Real for a loop, as they can’t even seem to produce suggested retail prices for their announced-but-not-shipping iPod wannabes. Obviously, Apple doesn’t need to go after market share and, if pricing were the sole determiner of market share, then Apple’s iPod certainly wouldn’t own over 75% in the U.S. today.

35 Comments

  1. If they are going for profit then so what? They’re still (more than) competitive with other players and if anything it leaves them room for further price cuts if Microsoft choose to run Zune at an even bigger loss. In the meantime, Apple are still selling iPods at a huge rate so why should they make them cheaper? They’ve had problems meeting demand as it is.

    [catering students are attending a lecture – a sign on the desk says “Cake Department”]
    Cake Chef: So, in conclusion, these cakes really are selling extremely quickly. They’re selling like nobody’s business. They’re flying off the shelves, these cakes. Maybe it’s because we warm them up first, I don’t know, but they are being bought at a tremendous rate. In fact, I don’t think I’ve seen anything sell with such speed as these warmed-through cakes. People are snapping up these cakes like, well, like they’re going out of fashion.
    Catering Student: [coughs] Sorry. You could say they were selling like hot cakes.
    Manager: Well, I think that’s as good a place as any to end the meeting, so thank you very much, Steve, and thank you, everybody.
    [students get up and leave]
    Manager: Peter, Can I have a quick word? I’m afraid I’m going to have to let you go.
    Catering Student: You’re… You’re firing me? But why?
    Manager: Because you’re a smart alec, Peter. You can’t help making glib remarks about cakes, and I’m afraid up here what counts here is how you make cakes, and not what you say about them.
    Catering Student: Don’t… Don’t fire me, please. I’m committed to cakes.
    Manager: OK, look, it’s clearly not working out for you in this division, so I’m prepared to give you another chance. I’m gonna move you to another section. But I want you to cut out the smart remarks. OK? It’s down to you, Peter.
    Catering Student: OK.
    [another room of catering students, only now the sign says “Broth Department”]
    Broth Chef: And so, to recap
    [points at diagram of many chefs surrounding a pot]
    Broth Chef: this represents the vat of broth, and these figures represent the broth makers, or cooks, if you will. There’s a lot of them, isn’t there? And it’s this surfeit of cooks that’s having such a negative impact on the broth. There’s too many cooking staff, and it’s ruining to product. You’d think wouldn’t you, that having so many cooks would make it better, but no, it’s making it worse. So, to put it in simple terms, the ratio of chefs to the amount of food being prepared is proving detremental to the broth.
    Catering Student: [coughs] Um…
    Manager: [glares at the student]
    Catering Student: You could say… that you’ve… bollocksed it up.
    Manager: [smiles]

    Of course iPods are the cakes and other machines are the broth.
    It doesn’t really fit but this Big Train sketch popped into my head. Made me laugh.

  2. Well if Apple has a good margin and is STILL selling more, then that’s great.

    It also means that others trying to enter the market will just get nowhere as Apple will just lower prices/up the specs when new models arrive (it just did this !).

    The competition will be playing catch up for quite some time.

  3. As an AAPL share holder I like this. AAPL has proven that demand for the iPod is largely in-elastic (meaning lowering and raising the price doesn’t drastically effect demand). Therefore, Apple should get the better margins now while it can.

    These dollars can then but reinvested into R&D and also provide a cushion to further lower prices should Zune/whatever actually begin gaining traction (though as stated above, it appears the market is rather in-elastic for iPod pricing).

  4. I guess Gartner wants Apple to price them the way the PC box makers price PCs, with zippo margin.

    Actually, the 8GB Sansa e280 is priced at $249 and its still not shipping at Amazon. The 4GB and 2GB are cheaper at 149 and 109, respectively.

  5. OK, last year a 1GB shuffle was $149

    Now it’s $79

    And THIS is proof that Apple is sitting back and profit-taking?

    Note to idiot analysts:

    1) Healthy margin is essential to re-investment
    2) Re-investment is essential to continuous improvement and innovation
    3) Continuous improvement and innovation is essential to maintaining lead

    The zit-faced kids fresh out of MBA-school who churn out these “reports” while their masters take 85% margin on their per-diems just don’t get it. They think all businesses should be run like GM.

  6. They just dropped the price of the top end iPod to $350, AND bumped it to 80G. Most nanos have improved their price for feature value over the first generation as well.

    I dont know what this guy wants, but Apple doesn’t neccesarily need market share, and now that all the day traders are on to them (and ready to tear them apart if they don’t show 20% growth every quarter), they NEED to focus on profits.

    After all, they are a BUSINESS.

  7. Remeber the original $399 5Gb iPod? The analysts claimed that it was too expensive and nobody would buy it. Looks like they were wrong then, too.

    Honestly, what is it with these guys who are so against Apple making money? I hope Apple makes TONS on these. That way, we get better Mac hardware and software.

    You would think the financial experts would take a look at what’s happening to Dell and think to themselves, “Golly – maybe a company needs to make a profit to be viable!”. I know, I know… not gonna happen.

  8. He’s a moron. Raw materials are only a portion of the costs involved in developing, manufacturing, marketing, shipping, and selling a product.

    Does he really think there’s $15,000 of materials in a $25,000 car?

  9. Macatheson: Perfectly stated.

    My oldest daughter works at the campus computer store, and came home with a blue nano yesterday–waaaaaaaay cool little device. Her 82 years young grandmother had no trouble operating it, and wants one for xmas. I love this company!

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