Price cuts are not a marketing strategy
06/15/09 07:02 AM Filed in: Marketing
Strategy
Last
week Apple lowered prices of some Mac Books as well
as announcing that the price for the next OS
upgrade would be only $29. This move seems to have
some analysts worried as Apple has always made
really great margins on products but is this the
right move for Apple and are price cuts a good move
overall?
First let me say that Apple’s marketing and brand strategy has always been outstanding. Their products never disappoint and people even post “unboxing” photos of new Apple products on the Web. Recently however Microsoft has been hammering Apple over the price of their laptops compared to Windows based laptops. Most Apple users have blown this comparison off as they know that OSX is a better OS than Windows but Microsoft now is saying that Apple’s latest price cuts show that the company is “worried” about price.
Apple products are usually more expensive than competitors but time and time again research shows that people are willing to put down good money and pay more for products that are superior. Apple has maintained healthy margins for quite awhile and I am sure that now the economies of scale are allowing Apple to lower prices at a time when consumers are really looking to save some money. But what about other products and brands, will a price lowering strategy work?
Well, first that is a dangerous road to travel. Once you start to lower prices you usually can never raise them again without a substantial drop off in sales. It also erodes brand and product marketing because you’re saying that your product is the same as competitors. Recently private label sales have spiked because people realize that they are paying more for advertising and marketing than for product quality and difference.
It really comes down to a philosophy of business as well: are you willing to sell less but make more or do you want to sell more and make less? Apple has chosen the path to sell less and make a lot of money but competitors, like Dell, go for market share and are losing money even with really cheap components like keyboards.
Price cuts need to be thought of as a long term marketing strategy not a tactic that could get your brand in trouble. Weather the storm and you’ll come out in the sun.