I've noticed a couple reports from analyst firm Gartner Research that claim Apple's pricing on the new iPods betrays an increased interest in profit margins at the expense of market share. These reports focus on the iPod nano's pricing of $199/4GB and $249/8GB as being a bit high, given their estimated materials cost of $90 and $130, respectively. Admittedly, similar players from competitors such as Creative do beat out Apple in pricing; the ZEN V 4GB player is only $159.99 - but what rulebook dictates that a higher price on one particular member of a product family (by and far the most popular member) definitively means the company doesn't care about market share?These reports don't seem to mention anything about the nano's big brother (unless MacNN and Playlist used some sneaky cut and pasting techniques), where Apple is competing quite well: they dropped their 30GB iPod price to match that of Creative's 30GB ZEN Vision:M ($249), and the 60GB ZEN Vision:M (if you can find it on their site), is reportedly $399 - a full $50 more expensive for 20GB of less storage.
Gartner's claim that competitors like Creative and Microsoft's new Zune could start chomping at the iPod's market share, based solely on the profit margins of one member of the family, also doesn't seem to take into account the value of the full package that Apple's iPod offers, such as seamless, 'it just works' integration with a leading digital media store (maybe Gatner simply forgot that the existence of Apple's margin-thin digital store leans fairly heavily on the popularity of the iPod).
While there are plenty of consumers out there to whom a $40 difference between an iPod nano and a ZEN V can (understandably) make or break a purchase, the are still other important factors consumers can evaluate for a DAP purchase. Unfortunately, some of these elements aren't capable of being factored into an analyst's equations, but Apple is clearly still banking on their weight with a consumer's dollar.
Reader Comments (Page 1 of 1)
9-18-2006 @ 1:17PM
Jon said...
Don't forget that other factors affect the price too, such as marketing, R&D and legal issues (e.g. safety standards testing). It's not just based on material costs.
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9-18-2006 @ 2:53PM
Billy K said...
"Full package?"
[snort!]
Don't talk about "full package" when it comes to iPods. My 3rd Gen iPod came with a (real) case, software CD, firewire cable (plus adapter), earbuds (with sponges), power brick - all in the most amazing packaging ever. Later, they came with both USB and Firewire cables.
Now you get earbuds, USB cable and a dock insert. That's it.
Price then: $399. Price now: $349.
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9-18-2006 @ 2:57PM
Tony said...
$249 for an 8GB Nano is very competitive.
Plus, keep in mind that Gartner is basically a shill for Microsoft.
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9-18-2006 @ 4:28PM
jonas said...
"(...) like Creative and Microsoft's new Zune could start chomping at the iPod's market share, based solely on the profit margins of one member of the family"
No solely. It actually reads like this:
"But a lack of revolutionary new functions in the latest lineup of iPods coupled with just a small price reduction could give rivals, Microsoft and its new Zune in particular, room to gain market share this year."
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9-18-2006 @ 5:12PM
Bruno said...
I'm surprised those comments came from Gartner. Schill or not, pricing a product at $250 when materials cost $130 seems like a bargain to me. I'd be surprised in fact if the nanos carried even that high a meterials cost. The $90 could be close, but the $130 has to be lower given the retail pricing.
Selling price typically rises by at least double from manufacturing to distribution. And then possibly double again to retail. Take Harmony remote products that sell retail for $120-$300 with manufacturing costs of between $18-$50.
Perhaps one needs to look at Creative who are likely scraping for all they can to push out the lowest price in order to grab even a tiny fraction of Apple's market share.
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9-18-2006 @ 5:16PM
GadgetGav said...
Go go Gartner ANALysts... What thoughtful insight. How about looking at Dyson who introduced the most expensive vacuum cleaner the UK market had ever seen and wiped the floor with the competition. (Don't know how they're doing with US market share). Up to a point, people will pay more for a better product, be that ease of use, features, design or all of the above. It's not all about price.
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9-18-2006 @ 7:55PM
Jason said...
The other factors, like Jon mentioned, play the biggest cards. In addition, you're paying for the brand, not just a music player. Apple can still push a few more bucks out of people because they are willing to pay it. They know it's a superior product. Until solid competition comes along, there's not a reason to reduce its price.
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9-18-2006 @ 10:09PM
shaninho said...
well, lest we forget that the 30 GB iPod video is definitely ... the same price as the 8 GB nano. Something seems wrong there.
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9-18-2006 @ 10:38PM
Ken said...
Nothing wrong.. some people need the ability to play videos, games, or need as much storage space as possible, while others prefer an ultra-slim light device that plays totally skip-free music (and is black, too).
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9-20-2006 @ 2:54AM
Sam said...
I love the fact Microsoft consider they can compete with their Zune garbage... the one thing they (Apple's competitors) fail to consider is the reason the iPod is so successful isn't cos of loads of features and big colourful screens... it's cos it looks gorgeous and has the funky name that has basically become the noun for portable music player. When you mention portable music now about 99% of people will say iPod, even if all they mean is an mp3 player. Best self-replicating advertising ever.
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