Apple Watch: Segmentation vs. Skimming

Apple is segmenting the market early with the Apple Watch, offering different product versions and prices right up front instead of using a single product to skim the high end and then moving downmarket with additional versions later on. This approach allows Apple to take full advantage of the technology head start they have with the Apple Watch. If software/hardware integration gives a new Apple product a big head start over competitors, why not take full advantage of that head start by segmenting the market and locking up market share (rather than skimming the market and making it easier for competitors to break in with a late entry)? Segmentation makes even more sense given Apple's ecosystem lock-in: if a new product helps lock people into Apple's closed ecosystem, it makes sense to get the product into the hands of as many people as possible as early as possible.

With the original iPhone segmentation probably wasn't possible. Apple didn't have the supply chain and capital infrastructure needed to meet the huge demand that market segmentation might generate. Enter Tim Cook, the supply chain expert, ramping up capital expenditures and leading the development of multiple iPhones and Apple Watches.

Limited market segmentation -- I'm talking just a few product versions, not the Samsung approach of dozens of product versions -- helps Apple: (1) reduce the threat of new entrants (one of Porter's five forces); and (2) avoid exposure to low end disruption. See Concepts page and discussion of Clayton Christensen and Michael Porter. Single product skimming encourages low end entrants. Limited market segmentation discourages low end entrants without sacrificing product focus.

The author owns stock shares of Apple.