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Apple's New iPod Priced for Profit

Posted by MonkeyClaw on 18 September 2006 - 15:36 · 38 comments & 13807 views

Apple's recent introduction of several new iPods shows the company is looking for better profit margins, not gaining market share, according to researcher Gartner.

The top sign Apple is going for the green is its lack of aggressive pricing, according to Gartner analysts Joseph Unsworth and Jon Erensen in a Monday report. The second-generation iPod shuffle, for example, could have been priced closer to $49 to stimulate demand from users, since the cost of materials going into it amounts to only $30, the analysts said. Instead, the shuffle is priced at $79.

The company could have also priced the new 8GB nano product lower than $249, since its materials only cost $130, Gartner said, the same with its 4GB, which at $199 is far higher than the $90 worth of materials inside, and the 2GB version, which is $149 and is made from materials costing only $70.

The two Gartner researchers even lamented Apple's decision to discontinue the 1GB nano, which they say could have been a nice mass-market item for around $99.

"Apple is in a secure position atop the portable media player market and has decided to strategically focus on its margin this time," the analysts said.

Indeed, Apple continued to lead the US digital music player market in the second quarter with a 75.6 per cent share, according to the NPD Group, followed at a very distant second by SanDisk at 9.7 per cent and Creative Technology in third with 4.3 per cent of the market.

But a lack of revolutionary new functions in the latest lineup of iPods coupled with just a small price reduction could give rivals, Microsoft and its new Zune in particular, room to gain market share this year, the analysts said.

For one thing, Apple's rivals may not be affected by strained component supplies, since Apple won't be taking as much as it could, according to Gartner. The market researcher had predicted a shortage of flash memory chips in the fourth quarter due to strong sales of portable media players, USB (universal serial bus) flash drives and other products requiring the chips. While it still forecasts a shortage, the situation won't be as severe as previously thought, the analysts said, perhaps a 3 per cent shortfall rather than the 4.6 per cent shortage originally predicted.

Flash, one of the key data storage components for iPod nanos and shuffles, is 60 per cent cheaper than last year on average, and with Apple's huge investment in flash memory manufacturers, it could have priced its iPods more aggressively to keep its market share, the analysts said.

In addition, Apple's rivals won't have to work so hard this year to keep up with the iPod because the new lineup does not redefine the portable media player market like it did last year, Gartner said. And finally, the company only trimmed nano prices by $50, different from the past when the company's aggressive price cuts forced competitors to lower prices and increase storage capacity to compete.

Jill Than, a spokeswoman for Apple in Hong Kong, declined to immediately comment.[/extended]

News source: Macworld UK

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#1 Posted by sagy on 18 Sep 2006 - 16:00: I guess apple would have fetched a lot of market then!

#2 Posted by xploit1030 on 18 Sep 2006 - 16:05: Seriously how much more market share do you think they need? 75.6% if you increase your profit margins while maintaining or even losing a little market share you can still make more money, which is what it is all about.

#3 Posted by BBinder on 18 Sep 2006 - 16:12: purges apple from everyones memory

(4 replies) #4 Posted by RAID 0 on 18 Sep 2006 - 16:18: Like the way Apple prices their computers/equipment has been a secret. They've ALWAYS wanted the money. That's why their equipment has no upgrade path besides memory and maybe a hard-drive. I want one example of Apple "not pricing to get more money". Besides, the more money you dish out... the more smug you can be! :-)

(3 replies) #5 Posted by Garry on 18 Sep 2006 - 16:28: God forbid a business try to make money.

(2 replies) #6 Posted by NI3NOR on 18 Sep 2006 - 17:25: Go People Go! Go People Go! Go People Go!
Buying feature-lacking iPods make you cool!

I hope people will finally conclude that Apple is tricking with them to get their money....

#7 Posted by couture on 18 Sep 2006 - 18:14: Ugh, not again. How long have they been speculating the dimise of the iPod? Like post 6.1 said, there isn't that much of a demand for a player that does... well everything. The average consumer just wants music and the sheer quality, design, and function of an iPod.

If you use this logic, say for example, Sony releases a player, it has Wifi, Wide Screen display, radio tuner, tv tuner, games, bluetooth, bluetooth headphones, HD output, ability to print pictures directly to printer...wirelessly, digital 5.0 mp camera that can video conference, slide show presentations, 1.2tb harddrive, list can go on and on. Would this mean Apple has to answer to that? I think not. Apple knows what they're doing. They are a hardware company first, people so often forget that.

(2 replies) #8 Posted by C_Guy on 18 Sep 2006 - 18:31: Good thing those labourers are so cheap! If Apple had to pay a fair wage they'd never make money off their ipods.

#9 Posted by Jack31081 on 18 Sep 2006 - 18:41: Seems reasonable.

You can either increase your profit margin with your installed user base, or drop prices, reduce the profit margin on your installed user base and hope that the lower prices translate into a larger market share to make up for it.

(1 reply) #10 Posted by noktulo on 18 Sep 2006 - 19:41: It makes sense to me. The iPod nano and shuffle are aimed at non-technophiles, who will have a lot smaller library, and don't know what to do with a 30gb or 80gb iPod. These are people who will buy the iPod because they know they can use it with iTunes and the iTunes music store. Many of these people don't know anything about mp3 players, referring to them simply as "iPods." I personally know a lot of people in this category. They see the iPod as the only choice, and are unaware of any competitors. They will go to the Apple store and buy what's there and what they can afford, and assume that that's the choice they're given. They won't shop around. It makes sense that Apple would create a bigger profit margin from these people, because they don't know they can get the same thing for cheaper somewhere else.

No one seems to be noticing that the regular iPods are priced very competitively. The 30gb is the same price as a Creative's Zen Vision:M player the same size, and you get an 80gb iPod for $50 less than Creative's 60gb Zen Vision:M. These Apple knows they need to be competitive on, because someone with 20-80gb library is going to be much more knowledgeable about the mp3 player market, and they'll be a lot more inclined to buy a cheaper competitor's product.

(1 reply) #11 Posted by Osprey on 18 Sep 2006 - 21:18: This is why everyone, including iPod users, should be glad that Microsoft is entering this market with their Zune. Apple is raising prices like this because they have no real competition at the moment. They want to milk their market dominance of extra cash for 3-4 months before they have to produce competitive prices in response to Zune. This is nothing egregious on Apple's part, but it exemplifies the need for competition. Perhaps the Apple fans that are deriding the Zune will now actually welcome the competition, which brings with it price-cutting and innovation.

#12 Posted by DomG on 18 Sep 2006 - 22:03: Oh. My. God. A business wants to make money? What a travesty! I'd never have thought something so mind-boggling would ever occur.

(2 replies) #13 Posted by Ferret on 18 Sep 2006 - 22:09: I have never like the ipod (Never even used one), and I am even less tempted to buy one now !

#14 Posted by Shadrack on 18 Sep 2006 - 22:45: ooooookkkkkkkk....

Comparing actual material costs to the retail price of an electronic product is pretty stupid. If we were talking about Jewlery then maybe it would make more sense. Comparing the price of the iPod to a comparible competitor's product with similar or same features actually might add up to a good article. But there are no references to any other products in the article. For shame.

#15 Posted by kak on 18 Sep 2006 - 23:49: I bought a 5gb a few years ago for almost $300. I just got the 8gb Nano for $250. Its flash based, won't scratch, and has great battery life. Sure the EQ presets may not be as good, but I don't need them. I don't need my MP3 player to work as an alarm clock, a PDA, a portable video player, microwave, etc. The iPod may not be as priced as low as it could be, but what successful company ever prices things as low as possible?

The player is great.. so what if I spent a few extra dollars on it.

#16 Posted by warr on 19 Sep 2006 - 01:56: OK. Microsoft's Zune will knock their price down, as hoped.

(1 reply) #17 Posted by joysleeper on 19 Sep 2006 - 02:58: Apple is about fashion. if you are the only fashion maker in town, everybody will follow it, sure thing you can get a bigger profit margin. Apple's biggest threat now is that they could lose its fashion leadership. they give MS a chance because they are unable to deliver big new fashion features in the new product line. Imagine if everybody is sharing a funny video or a song in a gym, then what are you going to do with your iPod? It's all about fashion, if this Zune marketplace thing had got popular like Youtube or myspace, that would be realy bad news for Apple. Next line of iPod could be at least one year away from now, and one year is enough for someting to get popular. iPod is more than 50% Apple's profit. and Apple has to post good numbers on its balance sheet to please Wall Streeet. but once Vista is out, MS again begins to print money, while burning money on its Zune. Even with the worst senario, Apple still will be standing, but its growth rate will worry investors. Microsoft has a habit to attack other companies' cash cow, those fattest fast-growing little ones, while seems nobody can cut a piece from MS's biggest cow. Thats unfair.

Last edited by joysleeper on 19 Sep 2006 - 05:08

#18 Posted by 12Iceman on 19 Sep 2006 - 05:21: Wait... Let me get this straight.

Apple lowers the prices on its whole iPod line while adding a few new features and more importantly increased the battery life, and people are now complaining because... they didn't lower it enough? I would like a $150 Hi-Capacity iPod as much as the next person, but I can certainly understand Apples current strategy. They know Christmas is coming and a lot of iPods are going to be sold, now is not the time to cut their margin to the minimum. The sales are already pretty much guaranteed to be coming in (and they did do a small price drop as well to further boost them), now is the time to just sit back and let the cash roll in. Personally, I am still waiting for the roumored Video iPod that has a screen covering the entire iPod face (maybe January to go with iTV?).

#19 Posted by rob.derosa on 19 Sep 2006 - 07:57: Hopefully there will be a bit more competition when zune comes out
so the prices will go down a bit. i wouldnt mind an 80gb ipod to compliment my nano lol

#20 Posted by freeeekyyy on 19 Sep 2006 - 09:20: yep, and we all know there isn't much labor cost in there.however, as much as i may not like apples choice to manufacture inferior quality, sweatshop chinese goods, they are free to charge what they wish for their product.

#21 Posted by Foub on 19 Sep 2006 - 10:27: Apple shoots itself in the foot yet again.....

#22 Posted by Neomac v6 on 21 Sep 2006 - 13:07: Zune has already caused Apple to cut its prices - it undercut the Zune's intended price with the 30GB iPod.

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