When we talk about business and successful companies, it is inevitable that the words “added value” end up entering the conversation . Although there is a very direct way to calculate it (sales price of a product – manufacturing costs), we often refer to it as something intangible.
Like everything important, added value has an opposite, a dark side or an opposite. It’s called commoditization and it’s a disease. It is the plague of any market, especially the technology industry. At the beginning of this post, we’re going to put ourselves at the feet of a hardware manufacturer and we’re going to take off the users hat . Then we will see how Apple does to fight this ailment.
A homogeneous picture
To understand what commoditization is, it is best to give an example: raw materials. Let’s take a kilo of wheat, as consumers we will not know at first sight if the wheat comes from Castilla La Mancha, France or from some place lost in the middle of China. Wheat is wheat here and everywhere.
As a consumer, we don’t care what the producer tells us about the wonderful properties of wheat grown with great care in the green hills of Italy or that they sing him a lullaby every night. We don’t notice any difference at all between one type of cereal and another. As a consequence, we will base our purchasing decision solely on the price. The kilo of wheat that costs the least will be the one we take home with us.
However, not all consumers base their decision on price. There are some who perceive the differences between wheat from one side or the other and are able to appreciate them enough to pay an extra. But they are not in the majority. The consumer’s pocket is the only one that benefits from this price war.
Technology is commoditized
In the technology sector it is the same as with wheat. Look at any category of consumer product: laptop, desktop, smartphone, tablet, whatever. You have identical products with features that look like clones. There is no clear differentiation between them, no matter how hard the smartphone manufacturers try to run a race against time to see who has the largest specifications:
- 294-core chips.
- 17 gigs of RAM.
- 1,000 pixels per inch.
- Slimline screens.
Or you have the other side of the coin: a battle to see who can put the lowest price . Selling a lot of something at very low prices is not a good strategy towards profitability. Not all manufacturers are able to make money when the price war starts. Some have gone under or are a shadow of their former selves:
Neither of them makes any significant money compared to the two titans of the smartphone market: Samsung and Apple. According to data from Q4 2013, between they both capture 32.2% and 87.4% respectively of the profits of the market (more than 100%), which means that the rest of the manufacturers lose money.
Why Apple is immune to price wars
Syringe, tarnish de Joe Flintham, lego armee de Rupert Ganzer, wheat field de Yamanaka Tamaki y Hess Gas Prices On Highway 64 In Bradenton Florida de Charles Rinehart.
Apple is aware of the disease that is commoditization for the technology industry. It has always known this. And it also has 3 ingredients to mix the antidote that fights it:
- The ecosystem, as we said at the time, is pure added value. You can put a price on the specs, the convenience of iCloud, the hundreds of thousands of apps, the vast catalog of music, books, and movies, and the fact that their devices understand each other so well, you can’t.
- Design. Technology is no longer a geek thing. Suddenly, its popularization has made millions of people worry about what a device they carry an arm away 24 hours a day says about them. Technology, fashion and taste are the key.
- User experience. Not worrying about how your iPhone works, forgetting about wasting hours and hours setting it up and having it ready makes the device work for you and not the other way around.
These three things translate into customers who are very satisfied and happy with their purchases , customers who buy their products again when it’s time to renew and with a repetition rate that is the envy of the industry. Loyal customers. Customers who do not even consider switching to another ecosystem.
Faced with such a scenario, Apple does not even consider entering a price war. You can reduce the storage capacity of your iPhone 5c, but you’ll never cut 100 euros off at the price just because it doesn’t sell well.
What other strategy could be better than this?