Contrary to some opinions, Apple doesn’t do loss leaders

“I read two articles this morning from mainstream news sources that made me realize most people writing about Apple don’t really understand its marketing and how it sells its products. Secondly, both articles show a remarkably poor understanding of product businesses overall,” Carl Howe writes for Blackfriars’ Marketing.

“First, I read TheStreet.com claiming that because of the upcoming recession, Apple should slash prices on iPhones to guarantee it makes its sales goal of 10 million phones by the end of 2008. The second bit of fiction I read was from Silicon Valley Insider claiming that at current prices, Apple is subsidizing Apple TV purchases through movie rentals, because iSupply claims the parts cost of the 40 GByte device is $237 and the device now sells for $229,” Howe writes.

“Based upon these articles, an uninformed reader might conclude that Apple has a new strategy of selling loss-leading devices and relying on revenue from services to keep its profits aloft,” Howe writes. “That uninformed reader would also be horribly wrong.”

“So where do these analyses claiming that Apple is doing stupid marketing come from? Well, theStreet.com seems to lay the blame at the feet of ‘some analysts,’ although the quotes cited are more muted about price cuts than the title implies, only claiming that there is room for a price cut. And in an attempt to balance the coverage, the second page of the article does note that the sales to date don’t imply there’s any lack of demand,” Howe writes.

Full article here.

[Thanks to MacDailyNews Reader “Linux Guy And Mac Prodigal Son” for the heads up.]

This is why we headlined our coverage of TheStreet.com’s article with “Analyst: Apple iPhone sales are nothing short of remarkable,” as, after reading the whole thing, it made more sense than the hit whore headline they tacked on.

22 Comments

  1. Contrary to some opinions, Apple doesn’t do loss leaders

    The hell they don’t.

    iTMS for example. Apple isn’t making squat margins on that in order to sell iPods, AppleTV’s etc.

    Who the fsck would buy a $399 device to buy $21.99 cd albums and $45 BluRay DVD movies to play on a tiny 3″ screen?

    Who the heck these guys think they are jacking around here?

  2. iTMS for example. Apple isn’t making squat margins on that in order to sell iPods, AppleTV’s etc.

    For iTMS to be a loss leader, Apple would have to be charging less per item than it costs them to offer the item for sale. This is not the case. Even if they’re only making a half penny on each song, that’s still profit. As such, iTMS is not a loss leader.

  3. Yep, the Street and Forbes are both hitwhore websites. Forbes loves creating top-10 lists, so that you are forced into more page views. The Street does the same thing. It’s short articles are always broken into 3 pages or more, creating more pageviews. Avoid their nonsense, if you know what’s good for you.

  4. I think all of this analyst talk is rather funny – very few of them are ever right, and if they are, it’s because they simply regurgitate data given to them by the companies they’re talking about.

    Apple isn’t influenced by these analysts. Apple has its strategies set up well before any products are announced, and can adjust when necessary, but only after careful consideration of the pros and cons.

    These analysts don’t understand that Apple is about producing electronic tools with great user experiences, not moving computer hardware like Dell, hp, Gateway, etc. Very different take, and one which makes Apple a superior company than the others.

  5. But … the iTMS and the B&M;Apple Stores were initially expected to “not lose too much” in exchange for making non-Mac owners more familiar with “the Product”. Both have succeeded remarkably well and are significant sources of profit – but that wasn’t the original intent. Which they also succeeded at, BTW. As for the AppleTV, it wasn’t intended to be a loss leader and – all revenue sources considered – may not (quite) be one, but … what’s the history of profit in that sector? Dismal?
    Those still in the loss leader category:
    QuickTime (Windows)
    iTunes (Windows)
    Safari (Windows)
    the MBA (to date, at least)
    Still, each of these is expected to generate residual profit … either by letting the shy pre-switcher dip their toe in to see if the water is as fine as fine as claimed or by working the kinks out of new technologies before they go Prime Time.

  6. Jim Cramer heads up thestreet.com……for those that don’t know he’s a hype artist that rants about stocks & is wrong about 70% of the time. His goal is to keep Apple stock volatile so he can make quick money buying & shorting it. Supposedly he’s not allowed to buy stocks, but there’s no way that shyster hasn’t figured out a way to play the market through his wife, kids, distant uncle, loser friends, etc…. NEVER listed to thestreet.com!

  7. Apple makes what $0.09 cents a song, with all fees and overhead they may only make $0.01 song of net profit. but at $0.01 times 3 billion odd songs sold is $30 million in just profit. Sure it’s not much but it isn’t aloss leader.

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