Originally Posted by herbapou
The point is the competition is only able to sell at -50$ of Apple prices with comparable specs. The ipad is still doing well because at similar prices people go with Apple. The competition cant compete because with tablets they MUST have a good design, somethiing they are not used to do.
The same applies to the ultraportable, those require a good design. Apple should be able to offer something at similar prices. If competition figured out a way to beat Apple prices by more than 10%, then customers are going to go for windows machine in volume, just like the PC market. Apple need to be aggressive on prices if they want to keep that market.
Apple may have R&D expenses, but they also have so much cash flow the interest alone can pay for R&D and some. And Apple also have better prices for components because of there high volume. they should be able to still turn a profit when others are selling at cost.
With few exceptions, Apple does not lower their prices to meet the competition.
Rather, Apple establishes a top-quality solution at a strategic price-point and lets the others try to compete. Sometimes, Apple will trade-off (defer) some initial profits (margin points) to set the minimum bar and gain market acceptance -- recovering sacrificed early profits by gaining increased sales and economies of scale.
The most recent example of this was the 2010 iPad 1. Everyone expected Apple to announce a $1,000 tablet that was a ho-hum version of existing tablets. Supposedly, the competitors all had plans (frothing at their respective mouths) for their own ho-hum offerings at 10%-30% less than Apple's price. Instead, Apple defined a new category solution at a price that others could not even approach -- for almost 2 years now.
Today, Apple owns the tablet market, has high margins (read that as pricing flexibility) and follow-on product in the pipeline... with competition just beginning to emerge (if we believe what read rather than what we see).
The way Apple will match prices is to change the rules again! I suspect that they will introduce an iPad 3 at initially reduced prices (margin-points) and continue to offer the iPad 2 at a new lower price (to pre-empt competition).
The competition will have no product to challenge the iPad 3...and their just-emerging iPad 2 competitors will not be able to compete with the new iPad 2 price-point offered by Apple.
You see, Apple has a long-term strategy which allows them flexibility (features, pricing, timing, supply chain) in attaining their objectives.
Said in plain language, Apple has an iPad 3 that they can introduce any time they choose -- and they can choose to offer the iPad 2 at a [very profitable] new, lower, price if it serves their long-term strategy.
I believe the same strategy applies to other Apple products (Air, iPhone, iPod, AppleTV, Mac) as they are all part of the whole.
I believe that Tim has a market simulation (bigger than a Numbers spreadsheet) that has Apple's plans mapped out for the next 5 years in detail -- and the next 10 years in general. As part of that simulation, Apple models the effect of competition, disasters, world economy, unforeseen innovation, etc.
Apple needs not and does not make knee-jerk reactions to temporary conditions -- rather they incorporate the changes and refine their plans.