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. 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

    Actually we don’t quite know exactly, Apple didn’t give us a breakdown of their costs.

    Also is the factor of scale, problems arise that were unforseen with the large upscale of iTMS downloads and content.

    Apple may very well be in the hole on iTMS.

    But yes, a loss leader is something purposely sold at a loss to attract/create customers.

  2. Actually…

    QuickTime makes decent residuals from licensing.

    Safari for Windows makes money from Google ad referrals (not huge money, but more than enough to cover development).

    And iTunes makes money from the iTMS. Do you think most iTMS profits come from Mac users? Get real.

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