Is Apple the Louis Vuitton of Technology?
Apple (AAPL) recently announced that the new iPad mini will be priced slightly higher than the current iPad mini, while the price of the original iPad will remain the same. Is Apple making itself less competitive in the wake of the release and lowered prices of its competitors’ tablets or is Apple maintaining a luxury brand image by keeping its prices above the market?
Defining the Value
Apple sets itself apart from competitors by keeping prices above the market rate and never offering sales or discounts (with the exception of its educational discount for teachers and students). Apple therefore continues to define and reinforce the idea that it in fact produces a better quality product, and this brand image results in customers continuing to purchase at the higher prices. When consumers believe something is better than its (alternatives) substitutes, they are willing to spend more.
Another critical hallmark of Apple’s success over the past dozen years has been self-branding as the trendy must-have brand. The younger generation of Americans does not want to be seen in the coffee shop with a PC. Like any luxury brand, Apple has discovered that one key to success is to maintain a position of status by keeping prices high. Women happily spend thousands of dollars on Christian Louboutin shoes because they want to be seen wearing the firm’s trademark red soles. Are these shoes actually more valuable than other stilettos? According to my friends that own them, the answer is no, they still hurt your feet. So why pay such a high price? Status. Owning a brand that other people recognize as luxury makes a consumer feel good, and what is the proper price tag for the feeling of superiority? When Apple recently released the new iPhone 5s and 5c, people were waiting in line outside of the store to get their hands on the iPhone 5s. Phones sold out and were on backorder for weeks but the cheaper 5c did not do as well, even though it was half the price. People are not as excited about owning the plastic, cheaper version of their beloved iPhone. Consumers place a lot of value on status and Apple is simply cashing in on this.
Is Apple really worth more?
Whether a product is actually worth the extra money or not is completely subjective. A product’s value is defined by the individual consumers making the purchase and therefore the specs and features do not always add up to a higher price tag. Ask Apple’s competitors, who offer arguably better products at a lower price. Unfortunately no brand has been able to gain the cult-like following that Apple has and therefore Apple can continue to keep the price tags high and retain their share of the market.
Louis Vuitton’s signature handbags are not even made of leather (okay, the handles are leather), yet the price increases every year and the demand is still there. People want to feel important and they want to show off these tokens of success.
Owning a luxury brand signals to other people that you are in fact successful, even if you have drowned yourself in credit card debt to obtain these status symbols. So will the higher price tag cause Apple’s iPad sales to slip? Consumers already know that less expensive options exist, but they also have a notion that they won’t appear as hip and trendy toting around a tablet that is not made by Apple. Time will tell if this price increase will do any harm to Apple’s share of the tablet market, but if I had to bet on it I would go ahead and say Apple will be just fine. Trends may change, but being trendy never goes out of style.