Understanding Apple's positioning: Part 1 - a premium brand at a premium price

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Jun
04

By: switchtoamac at: 12:00 PM on June 4, 2009 | Comments (4)

It's widely understood in strategy that a firm that is known for delivering a certain value may end up confusing customers (or perhaps undermining its own credibility and reputation) if it attempts to deliver alternate value.  The attempt to simultaneously deliver inconsistent offerings will not serve a firm's strategic position.  Many continue to criticize Apple's premium positioning and pricing.

0903imac_angle.pngThis criticism is sourced from the press, customers, and competitors.  In recent months Microsoft has unleashed a PR campaign in which they call out an "Apple tax", that is the premium paid by consumers who choose Apple's Macintosh computers.  This is the first post in a series that analyzes the Apple product strategy with a specific emphasis on the Macintosh.

At its most basic level, competitive strategy is deeply rooting in being different from rivals.  For years Apple used the phrase 'Think Different' (video), a marketing slogan that not only shaped consumer perception but also represented the company's internal activities.  Today, these internal activities remain aligned with that slogan despite Apple dropping it in 2002.  The 'Think Different' mindset is firmly embedded in the company's culture and is clearly evident in Apple's approach to product  and software design, integration, and ease of use.  In order to understand these activities, we need to take a look at Apple's strategic positioning.

A premium brand that meets a need
It is widely recognized that Apple is a premium brand that demands and earns a price premium.  This price premium spans the entire Apple product lineup encompassing the Macintosh, iPod, iPhone, software, and accessories.  Apple's positioning is aligned with targeting a less price sensitive customer.  As a result, Apple's culture and internal activities are structured to meet the needs of these customers, strategists call this needs-based positioning.  Apple has thus created a culture and a set of activities to differentiate itself from rivals in order to meet the needs of their target customers.  

If Apple were to attempt to compete for all customer segments, it would have to lower product prices.  The danger with such an approach is that it would not only undermine and erode the company's premium brand image but it would also undermine the company's culture and internal activities.

So what has Apple done in recent history to the Macintosh product line to demonstrate this premium positioning?  Each new Mac revision has either maintained or been subjected to modest price increase while Apple has simultaneously improved product features.  A few examples include the introduction of the unibody MacBook and MacBook Pro, larger displays on the iMac, and the replacement of the $499 Mac mini with a higher priced ($599) model.  The motive is clear, protect the brand position via a tradeoff.

In the part 2 the series (to be posted tomorrow), we'll analyze this tradeoff.

Other Articles in the Series

4 Reader Comments

It's true that Apple differentiates itself from other PC manufacturers by producing premium products at premium prices, but there are downsides to remaining a premium niche brand:

At some point a niche market becomes saturated. Apple currently has up to an estimated 10% of the PC marketplace. It's unlikely that much more than 10% of consumers want a premium PC at a premium price. Using BMW as an analogy, BMW makes great high end cars but unless they ever start producing cars and trucks that are salable outside their niche market they will remain a niche player, with limited growth potential.

Some Mac users might say "So what? Apple is doing just fine as a premium PC manufacturer.". These are the same people who keep hoping that Apple's market share will continue to grow. The problem is that Apple's market share growth is limited to the available market for its products. Because of this, Apple's market share may be already reaching it's limit.

In the personal computer realm being a niche player is not sustainable in the long run. Mac users have always been second-class citizens compared to other PC users when it comes to everything from businesses workplace preferences, to available hardware upgrades, to just general acceptance. The Mac community is strong, but it has always been a small minority of the world.

And Apple has not been adapting to recent changes that affect consumers choices in buying PCs. The economy is putting a strain on everyone's wallets so the niche market for premium priced computers (as with everything else that is premium priced) is shrinking. New categories of PCs like netbooks, nettops, and UMPCs are now in the marketplace and grabbing more and more share of what used to be the established domain of other types of PCs. The longer Apple resists entering these new markets, the smaller it's overall market share will become.

Apple sat back for a while before entering the media player business with the iPod, and the mobile phone business with the iPhone. In both cases it has had successes. Apple needs to do the same re the burgeoning PC categories, but since these new types of computers are not within the premium niche, Apple will have to do what it's management has been saying they can't do. Apple will need to produce non-premium computers to meet the growing demand, and to increase its market share.

Apple has previously shown that they can adapt to new business models when they produced the iPod and the iPhone. Now they need to do the same in the PC arena.

Oh, Please, Harvey! It is inappropriate to measure success entirely by market share. Leadership, innovation, and creative direction are also important. Apple exudes those qualities in spades.

I've been a Macintosh and PC user since the mid-1980s. I use the Mac because I want to, and the PC because I have to run a few proprietary corporate apps. I used to have one of each in my office. Actually, now I run Windows on my Mac all the time because it runs better than it would on all but more expensive PCs.

I have never, ever, for ten seconds, considered myself to be a second-class citizen because I used a Mac! If anything, the reverse is true. DOS always sucked. Windows has always sucked. Its peaks were Win 3.11, Win 95, Win 2000, and Win XP SP 2 and SP 3. Vista is a major step backward. Win 7 will make up for that, to be sure, but it still isn't a Mac.

The Mac most definitely is a long-term player! It's been around for over 25 years, which is an eon in the life of the industry. It knew some dark days under the reigns of Scully, "The Diesel," and Amelio, but Jobs got it back on track.

I'm not one of those who would suggest that Apple will dominate the industry. I'd rather NO ONE did. Competition and variety ensure creative innovation.

Look to Apple to do something big in the industry within the next year or two... As they did with the Apple II, the Mac, the iPod and iTunes, the iPhone and the iPod Touch, the APP Store, they will likely introduce another "category buster." HINT: When they tell you they don't like Netbooks, they're telling you they don't want to make a cheap POS netbook...

It's a mind set, a way of life, a privilege, and a pleasure to use a Mac. Get over it.

It's not necessary to have the most market share.
What were the numbers for the high end notebook market? Apple had something like 30 or 40 percent of the market share, but 70% of the revenue.

Dell sells a good size multiple of what Apple does, but makes a fraction of Apples' profit.

Harvey,

The BMW analogy is a good one, but let's use it properly. In the early 60's Barvarian Motor Works was on the brink of bankruptcy. How did they survive? They introduced a new model which became wildly popular in the United States. The BMW 2002 was a premium model, one which served to create the "sports sedan" category of automobiles. By creating a market for a premium product and then catering to that market, BMW was able to recover its profitability. Do you think that they were overly concerned about "limited growth potential" or market share? If so, thy could have produced an econobox to compete with the Toyotas and Datsuns which were the rage during the early 70's oil crisis. But then they would not be BMW. To call BMW a "niche" product is to demonstrate a lack of understanding of BMW and their history as a company. Same thing with Apple. There is a tremendous difference between a niche and a market segment. There is nothing wrong choosing to cater to a particular market segment and doing your best to meet the needs of that segment.

If you evaluate Apple based on its share of the market IT CHOOSES to target, you would see that they have greater than 60% share of the market for computers over $1000. This is why they continue to be profitable, while others who can boast greater overall market share are suffering financially.

This is the first article I've read which attempts to address the damage Apple could do to its brand by slashing prices in order to mitigate short term fluctuations. I've always felt that their strategy of establishing static price points and then adjusting the offerings at each point is a great way of emphasizing value over price in their product line.

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