Chris commented to the previous post that whenever there is a company such as Apple with a huge mark-up on manufacturing costs, there will be a frenzy of low (er) cost manufacturers competing downstream.
But this is not the entire picture. Simply looking at the markup on manufacturing is only a part of the picture. Two questions demand an answer:
- Why are people willing to pay the mark-up?
- What enabled say Apple to be in a position to charge the mark-up?
Let’s begin with #2:
Apple invested for decades in the Apple brand – which by the way is not just a pretty skin, it is an Apple world view applied consistently over time to all aspects of design and manufacturing. Core to the Apple world view is a relentless focus on user experience. None of these is reflected in “manufacturing price”, yet all of these had to be established and executed with almost pathological discipline to get to the point of manufacturing. Incorporate this in the price and the Apple markup is not nearly as outrageous.
Which goes to answer:
People are willing to pay for this mark-up because of a superior user experience. And don’t come with the easy interjection about a boosted user ego. Sure, that is part of the mix. But much more important is the fact that the user feels valued because their experience was paramount in the design.
Personally I don’t feel ripped off by iPad or iPhone prices, because I know how difficult, energy sapping the branding process is when it delivers real value and not merely a pretty skin.
It is not so much that the other providers such as Samsung, Google, Microsoft and Amazon are willing to take a thinner margin, seeing wide open low cost spaces opening up, it is that they are forced into this position because they cannot catch up with decades of focus on consumer experience and relentlessly, pathologically relentlessly focus on designing from the point of view of the user.
I am often involved in project where I must help my client to see the world from the point of view of the end user. Not an easy job! Full marks to Apple who initiate it all on their own and keep at it.
Lesson if you want the ” fat,” ” outrageous” margin on your products, you better now begin to focus on your branding, branding with a real value proposition, and then not any value proposition at that, but user experience! Maybe in a decade you will be able to charge the outrageous markup!