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Can Apple break out of the luxury product ghetto?

Just how much hard-earned recession-era money would people part with just so they can proudly open (preferably in a starbucks or some other popular public place) a gadget with a lid that has the silhouette of a popular fruit item? This is the question many tech industry observers are asking as quarterly sales figures continue to show Apple choking in the fumes of Google’s Android as Android sales continue to explode and Apple’s market share continues to shrink. Well, it appears that Apple has safely ensconced itself in a luxury ghetto. People are willing to gladly fork over several hundred bucks more for hardware that has the same functionality as a cheaper Android equivalent just because the gadget has the Apple logo. This might seem ridiculous but it really isn’t. After all, the only difference between high-quality leather goods is whether some have the Gucci, Hermes, or Louis Vuitton mark or not. That mark can mean a price difference in the hundreds if not thousands. And the companies behind these awesome luxury brands aren’t exactly going belly up. This means that there is money in luxury goods so why not luxury computer goods? Still, is this the place Apple wants to be in? The discussion below gets into the heart of the luxury approach, its promises, and its perils.

The Cult of Mac: A sustainable business model?

Let’s make one thing clear: in terms of money, Apple isn’t going anywhere anytime soon. However, anyone who pays attention to the tech industry knows relevance, power, and strength in this industry is not just about money. More importantly, success in this industry often hinges on the ability to call the shots in terms of technology direction. By ghettoizing itself as a luxury brand, in effect, Apple reduces its ability to call and direct the direction of technology. Sure, it can come up with all sorts of hardware features but this is leading from behind if it doesn’t get to control the majority of the market.

We’ve been here before

Sadly, Apple is no stranger to being a luxury product. The Mac’s been a marginal luxury product for much of the period since the late 80s. In fact, it was only until the ‘halo effect’ of the iPod, iPhone, and iPad rubbed off on the Mac that Mac sales started to explode. Still, despite this improvement-its high price and rear guard action to other Intel/Windows boxes means it’s still a marginal personal computer marekt player. What lessons did Apple learn from the Mac? Very simple. You can do quite well being a secondary or marginal player as long as you have a cult following. You pay for this marginal market presence by charging a premium over comparative hardware. Since your cult will pay the price, you have a fixed revenue base and you can function in autopilot.

Forever a prophet?

Is being an innovator and market pioneer enough? Is this sustainable? One of the key tenets of marketing is that you have to create a perceived value. If you do this, people will pay the price you want to set since people will pay based on their perception of value. Steve Jobs put Apple on the path of marketing itself as a visionary-and appealing to people who think of themselves as visionaries. This ‘for us cool kids’ shtick works and earns Apple billions yearly. It’s a winning formula. As long as Apple is able to convince people that it is an innovator, it doesn’t have to own its markets. It only needs to appear like it is leading the technology and people will pony up several hundred dollars in premium just to be members of the Apple cult. Solid marketing. Sustainable if Apple can keep the hype machine going and showing people that its incremental changes (outside of the iPod, iPad, and iPhone, of course) are ‘revolutionary’ enough. Yawn.

The problem with believing your own press is that you eventually build an ‘unreality field’ around yourself. You get so stuck with the idea of your personal greatness that you fail to see the opportunities and dangers around you. You eventually paint yourself into a corner that is very hard to get out of. This might not necessarily be a bad thing since luxury brands do quite well despite having relatively miniscule followings. Still, this might not be the way to go for technology brands.