What if Apple cut iPhone and iPad prices by $100?

“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.

29 Comments

  1. Apple’s biggest reason for its success (huge profit margins), is also the main reason it does not wipe everyone else off the map. The prices for Apple products have never come down, at least not in any appreciable way. As markets mature like the iPod market as an example, margins need to come down also. There is a fine line between ripping the public off and maintaining industry leading profit margins. At some point a market matures and the saturation point is hit. Apple’s inability or unwillingness to respond with substantially lower prices has always perplexed me. And I think has been the one thing that holds Apple back. I believe Apple could be three to five times the size it is, if it would market a lower cost alternative in many of its mature markets. There are many ways it could double sales such as in laptops and or desktops by providing a loss leader or a lower end product. It does not have to be the newest technological advanced product but it still needs to be viable in the market. If Apple had priced the 5c at similar levels to Samsung flagship phones it could have dominated even in those countries that the top of the line products do not. Just my two cents, I have been an Apple fan since the Lisa days, and that has always been Apple’s drawback is they refuse to compete on price ever. And that leaves breakthroughs in Technology markets as the alternative. Time will tell if Apple eventually evolves, continues to find new technology break throughs or if it dies a slow death. I for one would hate to see the latter.

  2. Yea but isn’t the number Apple makes like 60% on its items? No reason to markup items that much if true! They have the money now, they can ease up and grow marketshare by dropping the prices and winning over other users who would buy the cheap crap and maybe spend another $100 to buy the premium product.

  3. Apple have only ever made 1 product
    Remember the orininal mac, Steve jobs ranting about no fans, portability etc…
    The original mac is just a big bulky ipad. All we see year after year is the technology catching up to the vision of a small portable computer that Steve had all along.
    Apple is a one trick pony. It’s a nice trick though.

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