How many people do you know who own an iPhone? iPad? Mac? Apple claims to have nearly 1.4-billion such devices in the wild; roughly 100-million Macs, perhaps 300-million iPads, and the rest are iPhones. Yet, in each category, Apple’s iPhone, iPad, and Mac are, arguably, the most expensive products.
That Apple gear occupies the premium end of the product spectrum is no surprise and definitely not news, but does not explain why Apple is an affordable luxury brand.
When we think of luxury cars which models come to mind? Mercedes-Benz? OK. Lexus? Sure. Cadillac? Probably. Rolls Royce? Definitely. Which of the luxury car models are consider affordable?
Not the Rolls.
Not everyone who can afford an automobile bothers to go for the luxury brands, yet Apple commands the luxury brands for smartphone, tablet, and personal computer, and that makes the company’s gear affordable luxury brands.
Yes, you can buy smartphones with good cameras and decent displays for half the price of an iPhone. Yes, you can buy tablets for less than $100 but with nowhere near the capability of an iPad. Cheap PCs are everywhere these days. I saw one for $149 in Walmart recently.
What is it about Apple’s products that make people pay more money?
The brand. Apple’s iPhone, iPad, Mac, and other products– including the newest hit product, Apple Watch– are affordable aspirational brands. A luxury brand, yes, but not so luxurious it has become unaffordable for a much larger share of the market than Lexus or Mercedes or others– all luxury brands; all aspirational– but with a different location on the product spectrum relative to less expensive models and brands.
Back in 2002 Volkswagen introduced a new, upscale, somewhat luxurious model called the Phaeton. Why? A heady mix of competition and hubris.
The Phaeton was conceived by Ferdinand Piëch, then chairman of Volkswagen Group. Piëch wanted Volkswagen engineers to create a car that would surpass the German prestige market leaders, Mercedes-Benz and BMW. The decision to release the Phaeton was, in part, a response to Mercedes’ decision to compete directly with Volkswagen in the European marketplace with the low cost A-Class.
Mercedes decided to compete with Volkswagen with a low priced car with a luxury brand. Volkswagen responded with an expensive car attached to an economy car brand.
Anybody see a problem there?
After a 10 year run, the Phaeton was discontinued. Why? Not enough people wanted to spend luxury dollars on a decidedly non-luxurious brand.
How does Apple succeed? Each hardware product is an affordable luxury. Few products top Apple’s products in brand status, which makes it easier for the company to have larger gross margins, which leads the iPhone maker to own the revenue share and profit share of their respective industry segments, without having to discount products or worry about marketshare.
Apple is an aspirational brand and an affordable luxury.