In this world, you can do many things in the market. But one thing I will suggest you do not do is to assume that your customers and consumers are stupid. Yes, we get into that phase where we think we can do anything and get away with it. People, it does not work that way. The last time Apple reported earnings, it was the most capitalized private company on earth. Today, it has lost hundreds of billions of dollars on market value.
What was Apple’s problem? It misfired on its pricing. And when that happened, customers revolted, leaving the one oasis in the company (the iPhone) and sales dropped 15%. Apple made an increasingly commoditized product category a fashionista product, putting the cost of iPhone out of the reach of many people.
The drop on iPhone sales was not going to hurt just on monetary terms, the planned transition into services (which grew 19% to a record $10.9bn for quarter ended 31 December) depends on more people using the devices since services win on volume. That explains why Apple wants to lower prices so that it can get many devices out of the stores. In most markets, Apple had already re-priced iPhone to make the device affordable for customers.
Apple boss Tim Cook has hinted it could lower iPhone prices in some places in an attempt to boost falling sales. Revenue from the iPhone, responsible for most of the firm’s profits, fell 15% in its latest financial quarter. Overall the firm’s revenue was down 5% from a year ago to about $84.3bn (£64.5bn).
But chief executive Tim Cook said customers were also struggling with the firm’s high prices.
He said a strong dollar, which makes its products comparatively more expensive, had hurt its sales in emerging markets.
Mr Cook said the tech giant had started this month to re-price its phones to shield customers from the impact of currency fluctuations.
Apple made a mistake here – its price modeling was off. Typically, companies do all to make pricing fixed in ways that they do not lose customers. I expect the numbers to adjust (i.e. sales to move north) now that Apple had started re-pricing its phones. Apple remains the leader on making the best smartphones in the world, and despite the competition, it has a clear moat on its strategy of proprietary hardware powered with exclusive software. Provided the pricing makes sense, many will still congregate into that Apple world for a long time.
Yet, the firm needs to make affordable phones for the services future:“And do not count out the possibility of $300 Apple uPhone (u for “universe”, lol) to help on that service volume; I suggested that last August.”
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