“While Apple may have fought back Carl Icahn and David Einhorn in 2013, it’s getting clearer that its $147 billion in cash will remain a tempting target for activist investors. It’s equally clear that the company has no real idea what to do with the money. One idea tossed around here in the past resurfaced again yesterday over at Slate,” Mark Rogowsky writes for Forbes. “In short, ‘What if Apple cut prices on its products?’ While it isn’t possible to know precisely what would happen to Apple’s financials, there’s no doubt that volumes would rise even as profitability fell. In addition, costs would come down too, as Apple would be in a position to negotiate even better supplier arrangements and, more importantly, would get better at making its products more quickly than usual. Does such a plan make sense?”
“Realistically, this is a thought experiment. CEO Tim Cook is not going to announce after the holiday that Apple is engaging in any such wholesale price cutting. But he is advised to consider the effect of phasing in such an approach,” Rogowsky writes. “Apple will likely never again match the gross margin highs it was seeing a year ago from either product line. But beyond that, gradually lowering prices makes it difficult for the strategies of competitors to remain effective. Amazon, Google and Nokia (soon to be Microsoft) all rely on using products priced with virtually zero gross margin to compete with iPad and iPhone. The large gap between no margin and Apple margin makes those competing products look very attractive on price. Every dollar of the gap Apple removes squeezes that strategy.”
Rogowsky writes, “None of this is to say Apple needs to price its tablets like the Kindle Fire or its phones like the Moto G. On the contrary, by keeping them priced at a premium, albeit a smaller one, Apple can still garner the lion’s share of industry profits and a bigger share of industry sales.”
Muchd more in the full article here.