Growing Profits and Preserving Brand Value

A simpler, cheaper, or more convenient product that targets overserved low end consumers, or that creates a "new market" of new users or new use cases/contexts, isn't always successful, even if the product maker has an asymmetric business model that creates early profits. Early profits are necessary, but these profits must grow so the product can be improved at a rate sufficient to stay competitive. See Concepts page and discussion of Clayton Christensen. Otherwise the new product is never going to see wide adoption, especially if more profitable competitors, often with different business models, keep making meaningful improvements while holding price or moving downmarket. 

Apple moves downmarket -- while preserving its brand image/cache -- by reducing the price of older products that were formerly state-of-the-art. An older Apple product, just like a used Porsche, still communicates status because (1) it used to be state-of-the-art and (2) because an onlooker can't tell whether the product was bought used/old or new. 

With new products Apple holds prices fairly constant, waiting for low and mid end consumers to move upmarket rather than aggressively chasing these consumers downmarket. Apple waits for consumer purchase power to rise over time, skating to where the puck/money will be. At the same time Apple keeps trying to make meaningful improvements, and the occasional technological leap, to prevent overserving and to keep raising consumer expectations of what's "good enough." See Concepts page and discussion of Clayton Christensen.

It's interesting to compare how Apple and luxury car makers like BMW and Mercedes try to preserve brand value. Apple releases one state-of-the-art iPhone each year, and then reduces the price of this phone the next year. All of Apple's product releases are a big deal, with ample press coverage, because Apple has few products and few product releases. As a result lots of people know the name and appearance of the latest iPhone model, and they know it's at least arguably a best-in-class product. 

By contrast, BMW and Mercedes release dozens of car models every year, with many variations in trim, car size, engine size, price, and so on. Because of all these models the typical onlooker doesn't know the cost and functionality/performance of a BMW or Mercedes he sees on the street. BMW and Mercedes don't seem to consider any one model particularly special -- otherwise why release so many versions? They can't all be best-in-class, and if the typical onlooker can't discern which is best-in-class then why should he care about the brand or aspire to own the vehicle?

The author owns stock shares of Apple.