Assessing When Affordability is Good Enough

If you don't have the resources/processes to make meaningful product improvements that consumers will value, then you're forced to compete based more on affordability rather than differentiating functionality.  

Integrated companies are better positioned to compete based on meaningful improvements to functionality, usability, and aesthetics.  More modular companies lack the resources/processes needed to make innovative, meaningful improvements to functionality, usability, and aesthetics.  Companies that rely on modular components are effectively forced to compete more on price because it's difficult for them to functionally differentiate their products.

And different segments of the market value different things.  The average or high end consumer values a balance of affordability, functionality, and aesthetics. The low end consumer values affordability above all else.  The problem is that it's difficult to make a truly beautiful, great product that prioritizes low end affordability.  Apple, for instance, drops price when it can, but not at the sacrifice of making something great, or something that will "put a dent in the universe."

The more complex the product (the greater the number of functional variables), and the more visible and intimate the product, the easier it is to continue making meaningful functional/aesthetic improvements that consumers will value.  In this context, it can take a long time for functionality, ease of use, and/or aesthetics to overserve the average consumer. 

The more relevant product aesthetics are, the less relevant pure price is.  GM damaged Ford's price-focused Model T business by offering higher priced cars with better aesthetics/looks.  Aesthetics explain a lot about why luxury cars continue to sell at high prices, and why luxury car makers like BMW and Mercedes have stayed in business for so long.

The author owns stock shares of Apple.