Apple Links Higher Sales with Higher Prices 26 comments
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Today's Note From Anywhere is inspired mostly by the Green Monster sign outside our office noting the opening of the world's largest Apple Store here in Boston next week.
Elementary economics says that you build volume by cutting prices on products. But Apple's (AAPL) latest 10-Q filing, where it provided details of its latest record-breaking sales quarter, has a nice counterexample to that so-called wisdom. You have to dig a bit to find it, but look for page 23 of the 10-Q, which has a table titled "Net Sales". But if you don't want to look at the original, here are the lines that are of interest:

So let's walk through this line by line. Between 2007 and 2008, desktop Mac revenues increased 48% while portable Mac revenues increased 58%. At the same time, desktop units sold increased 37%, while portable unit sales went up 61%. And the average net sale per Mac? Despite the fact that Apple was selling many more desktops and notebooks, the average net dollar amount sold per Mac increased 2%. Said another way, despite the fact that consumers paid 2% more per unit, consumers bought nearly 50% more Macs year over year.
Now the sharp-witted readers will note that this increase in average selling price can be explained nicely by the fact that Apple sold more notebooks than desktops. Since notebook computers have slightly higher selling prices, that change in product mix almost entirely accounts for the increase. But even so, average selling prices for desktops went up year over year, not down. And if you look at the original 10-Q filing, you'll note that average net sales for iPods went up as well, almost certainly driven by iPod touch sales.
So what's the takeaway here? It's that innovation and marketing -- creating unique products that customers want -- trump price elasticity with consumers. The elementary economic wisdom that you increase volume by cutting prices assumes that you are selling a commodity. Apple isn't selling commodities; it is selling differentiated products that only it makes. And that means that Apple's economic model is one that is anything but elementary.
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This article has 26 comments:
20smoney.com/2008/05/0.../
(snicker, snicker)
Not to say that AAPL will overtake MSFT in computer applications, but that as the products become more ubiquitous, they will gain more fans.
Macs aren't more expensive. It's a myth. Configured feature for feature, they cost exactly the same as PCs. Factor in premature obsolescence of PC hardware and the ten year cost of a Mac is probably half that of a PC.
only in your dreams this year.
I am happy with small gains and small profits.
only in your dreams this year.
I am happy with small gains and small profits.
i see 300, 400, 500... But give it through Xmas, 2010. Why? Well, here's aapl's strategic advantages which are unmatched today and unmatchable over the next 3 to 5 years:
220 > 260 hugely successful retail centers
Leopard OS clawing Vista or XP
iPhone/touch/SDK/iApps... dominating SmartPhones like the iPod/iTunes dominates .mp3 players
iPhone/touch/SDK/iApps... dominating pocket PCs (MID)
Music in Apple's pocket
Movies/TV in Apple's pocket and living room
Google as a strategic partner
MacBooks winning college and public school eyeballs
Macs entering SOHO and big enterprise mkts
Developers are abandoning Windows to work within xCode (free, elegant, easy)
Whatever the next new gadget phenomenon is, it'll probably be invented in Cupertino.
The iPhone, itself, will match today's earnings level of $5 by 2011.
Thanks to the author.
Blah-blah - your credentials please