Posts Tagged ‘iPad’
January 30th, 2010
This week Apple announced their much-anticipated iPad, a tablet-like device which has been described as a supersized iPhone, a shrunk down (or new form factor) notebook, or a competitive product with Amazon’s Kindle and other e-readers. At a base price of $499, the iPad has hit a price point to give people who want to purchase an e-reader time to ponder their purchase decision. From a market perspective, I believe their timing was excellent. There was a good article in the Washington Post , Top 10 Reasons The Apple iPad Will Put Amazon’s Kindle Out of Business that has more fact than fiction in it. Truth be told, Apple is going to revolutionize yet another category and give many a competitor angst and a run for consumers’ purchasing dollars.
As a pundit of the high technology marketing, I would be remiss if I did not try to look at this and break down some of the key things that make Apple’s entry into new market so formidable. So I am going to comment on a few marketing strategies I have observed that make this such an interesting case study.
- Great Pricing Strategy. Everybody knows that Apple has a premium pricing strategy. At $499, Apple surprised the market and priced the iPad $10 higher than the Kindle DX. For $10 more of course you would want to buy the Apple over the Kindle. Why not? Well to begin with the iPad display is color while the Kindle is monochrome. Think it will cost you $499 over its lifetime? Think again. If you want 3G wireless, it will cost you an additional $130. More memory – an extra $100. Want a data service to run the 3G network capability and connect to the internet beyond basic Wi-Fi connectivity? That could easy cost you $500 a year. So the total cost of ownership (TCO) of the iPad is going to be pretty high – probably over a $1000 for the first year. And don’t forget the e-books at $9.95 each. The point is that Apple has created a pricing strategy that will lure buyers in. With desirable extra features and services, many buyers will leave a few hundreds of dollars poorer than they expected. Will customers be unhappy? No, because they will have created as product that has delivered an excellent customer experience vs. what the competition can offer.
- Excellent Customer Experience. Much of Apple success can be attributed to developing products that are game changing – not first to market. Did Apple develop the first e-reader, smart phone, or MP3 player? No they did not. What Apple is brilliant at doing is creating a unique product experience that is so engaging and fun, that they can significantly differentiate themselves from any other competitor. Michael Porter, in his book, Competitive Advantage, would call this a differentiated advantage. Differentiation advantage is aimed at the broad market that involves the creation of a product or services that is perceived throughout its industry as unique. The company or business unit may then charge a premium for its product. This specialty can be associated with design, brand image, technology, features, dealers, network, or customer service. With Apple, this differentiated experience comes in the form of its industrial design, cool factor, brand name, Apple retail stores, software user interface, application widgets, iTunes/App store and synching software. In addition, Apple has figured out how to wrap a business model around it and make money as well! There are many models on how customer experiences can be defined and delivered. HP used a model called ACOILUSD and it will be the subject of a future post. By delivering an excellent product experience, Apple hopes to increase customer loyalty and preference for its products – now and in the future.
- If First You Don’t Succeed, Copy. If I was an executive at Apple, I would enjoy watching how the competition responds to my new products. In fact, most companies that compete with Apple just try to copy the features and capabilities of the Apple product, in hopes that it will make them a closer compare to the Apple device (and most likely sold at a lower price) at the time of purchase. Now this can be a respectable strategy when applied properly. After all, Microsoft has Zune, Samsung introduced its Galaxy i7500 Android phone, and RIM announced widget support for its Blackberry. To be honest, I would find new marketing executives in these companies, if that is the best they can do. Instead of trying to up the ante and create better, alternative, and differentiated experiences that delight customers, these vendors decide that following Apple is better than trying to beat them the old fashioned way – by developing and delivering innovative new customer experiences and products. Have they conceded to Apple? Don’t have any better ideas? Do they believe following/copy cat strategy is better than the status quo? I have no idea, but there must be a better way. The question is which company can do it? Take Apple to the mat, to use a wrestling metaphor.
- Scarcity of Value. Probably the most important idea here is that Apple depends on a “scarcity of their products” in markets of high demand. What does this mean? What I am trying to say is that when Apple goes into a new market, the markets are relatively big, can be big, or converging into a big market. The scarcity of supply simple means is that there are no other competitors out there delivering a comparable product value or customer experience. Using MP3 players as an example, this means you will pay more to enjoy the Apple experience vs. the competition – even in a market where there is tons of competition. Because there is not a direct replacement product – hence scarcity! The best examples of this concept are people who bought another brand of product, perhaps due to budgetary constraints, and wished they had bought the Apple product instead!
Taking a high road product and pricing strategy is not the only strategy a company can deploy. If you are not in a commodity market, most markets are stratified into different price points and volumes. A company can build a value proposition in the low end, the middle or top end of a market. I think what the Apple example illustrates is how delivering great marketing through excellent product value and customer experiences, a company can become a dominant market force and game changer in the market, even though they might not always be the volume leader.
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