Brian's Brain

With all due respect to those of you out there who architect and implement great hardware and software designs, having a solid product is only one of the four 'P's frequently cited as critical to business success, the others being pricing (how much you sell the product for), promotion (how you make potential customers aware of the product's existence) and place (the means by which customers can purchase the product).

Using Apple as a case study, I covered promotion (specifically, poor promotion) in my last post, and I'll discuss product in my next post. Place is an always-interesting coopetitive tension between Apple's two self-managed retail channels (the website and network of stores) and the company's network of retail partners. The primary purpose of this post, however, is to focus on price, an area where Apple's marketeers are often quite clever (or shrewd, or bloodthirsty, or pick your favourite adjective).

I recently grappled with Apple's pricing proficiency when shopping for a new laptop computer, but as you'll soon see, plenty of other examples exist in Apple's product line. Look first at Apple's first-generation MacBooks, introduced in mid-May. You're able to upgrade both the HDD size-and-speed, and the amount of system RAM, in any of the three base models listed. And the starting price, $1099, is eye-catching....granted, it's a $100 increment from the lowest-price version of its iBook predecessor, but well worth the markup.

However, if you want a SuperDrive (a drive that both reads and writes both CDs and DVDs) instead of a Combo Drive (reads and writes CDs, but only reads DVDs), you're stuck paying a minimum of $1299 even if you'd be content with the 1.83 GHz CPU in the $1099 MacBook version. Apple plays the same ComboDrive-only game with the lowest-priced versions of its two other mainstream computing platforms, the iMac and Mac mini. And what if you want a black MacBook? Well, then, prepare to pay for the $1499 high-end version, whose only difference from the $200-cheaper model, aside from its paint job, is a 20 GByte larger HDD. If you option-upgraded a 2 GHz white model to the same 80 GByte HDD capacity, it would only cost $1349. C'mon, Apple, a $150 markup for a black paint job?

With the second-generation MacBooks (and iMacs, for that matter), based on Intel's Merom dual-core CPU, the differentiation got even more subtle. 2 GHz and faster system variants employed the Merom variant with 4 MBytes of shared L2 cache, twice as big as the L2 cache on the first-generation iMacs' and MacBooks' CPUs. However, the entry-level 1.83 GHz SKUs not only ran at a slower clock rate, but also contained CPUs with a 2 MByte shared L2 cache, a fact which was deeply buried in the systems' technical specifications. Granted, they still offered other Core microarchitecture advantages such as 64-bit support, a more intelligent cache controller and a four-wide instruction queue, but the cache size in the second-generation 1.83 GHz iMac and MacBook is exactly the same size as that in their first-generation precedessors' Yonah CPUs.

Color-defined pricing isn't restricted to Macs. Quoting from Apple's mid-September iPod nano press release, with bolded emphasis by yours truly:

The new 2GB iPod nano model in silver is available for $149 (US), the new 4GB models in silver, pink, green and blue are available for $199 (US), and the new 8GB model in black is available for $249 (US).

Want an iPod nano? Don't like silver; prefer black? But only need 2 GBytes of capacity? Sorry. That'll be $249, please. Or, if you'll tolerate pink, green or blue, you'll only need to pay $50 more than your capacity needs would otherwise extract from your wallet. Apple subsequently released 4 GByte and 8 GByte red models, whose promised $10 donations to the Global Fund were a soothing balm for guilt-ridden first-world materialistic consumers.

Other company decisions raise my eyebrows even further. I've already mentioned the $99 iPod cases and $349 'boom box' that the company attempted to excite me with back in late February. What you may not realize is that Apple also extracts a royalty stream from each third-party iPod connector-leveraging accessory sold. And, when the company rolled out the second-generation iPod nano, it shifted the connector by 2 mm and redesigned the case from rounded to square corners. Maybe this was simply due to mechanical design constraints, or cosmetics considerations. Or maybe Apple was ensuring that first-generation iPod nano owners would, when they upgraded their players, also need to buy all-new dock-inclusive accessories?

Finally, let's look at that iPod Hi-Fi I mentioned in the previous paragraph. Courtesy of a firmware upgrade, latest-generation iPods can, when docked, adjust the speakers' EQ settings directly from the players' configuration menus. Do you think Apple will be offering this same API to other iPod sound system manufacturers? This sort of leveraging doesn't bother me too much, as long as it isn't taken to an anti-competitive extreme. But if Microsoft were to attempt it, folks would scream bloody murder. Embrace and extend clearly isn't a Redmond-only invention, no matter what the Apple faithful might prefer to believe.

Digg This | Slashdot This