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Android Tops 50% Share of Smartphone Sales, But Apple Still Dominating Profits
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Again, in a free market, pricing is based on supply and demand. Google the term "free market". Costs are managed to maximize margins, not pricing.
I'm not arguing that margins are not considered in developing a product. They absolutely are. I'm simply saying that pricing is based on supply and demand, not costs or margins. It's part of the definition of a free market!
For Apple, things work a bit different
1. Steve Jobs thinks of a product
2. I-forgot-his-name thinks of a few prototypes
3. Sits down with SJ discusses the potential cost of different prototypes
4. Then it is decided if the product is scrapped, kept for later or just kept.
5. When production starts, SJ sits down with investors and based upon their reactions, he comes up with the price that best suites
Notice how I did not mention market research, Apple does not care about market research. SJ knew that people would buy the product no matter at what price it was let out. (Of course, he knew not to exaggerate)
http://www.pragmaticmarketing.com/publications/magazine/6/4/you_cant_innovate_like_apple
One of many links to prove what I just said.
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Apple does not follow the market of supply and demand. Don't tell me to google free market, I clearly know a lot more about business than you do.
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If that were true, there would be no manufacturing business bankruptcies. In fact, many business have to take a loss and price stuff below production costs just to clear the warehouse.
A product is priced to sell against the competition. The profit margin is merely the game score about whether one was smart or stupid to build the product (in that quantity) in the first place.
Apple is smart, so their game score is really high.
We are talking about the price when the products come out, not clearance price.
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If Apple followed the rules of supply and demand, there would not be an iPad today nor the iPod.
There was little demand for both.
Correction. The competition thought there was little demand for a non-Windows tablet. The ones capable of volume production were wrong until too late. A few competitors thought there was a demand for a music player with a cr*p user interface. They were also wrong. Apple correctly guessed the actual demand for the correct product.
HP thought they could price their tablet with similar margins to the iPad. They were wrong. Sold most of them at massively negative margins.
That's not what supply and demand means. Supply and demand is part of a system for determining the correct pricing and manufacturing rates for a particular product. It does not refer to producing what the market is supposedly demanding. So many people don't get that very simple distinction.
Basically, Apple said that if they could produce x number of units at y price (with z margin), they expected to maximize their profit generated. They probably went lower on the price than really necessary, based on the fact that demand outstripped the supply for a long time, but they have definitely hit a good mark and I doubt they're disappointed with the decision.
EDIT: Oh, and BaldiMac was not only spot on, but did not contradict himself, except to some people who can't seem to grasp some very basic concepts.
jW
The law of supply and demand does not work on guesses, it's based on actual numbers and graphs. And as I previously mentioned, Apple does not care on whether the product is desired by the consumers or not. If they like it, they sell it. So once again, Apple does not follow the supply & demand economic theory when releasing a new product.
I do not know which tablet you are talking about here, HP probably already released dozens of tablets by now, please specify.
No one can know precisely in advance supply or demand figures based on numbers and graphs, especially not for a product that's brand new and doesn't have any historical data at all. Apple, like any other company, has to make guesses. They base those off of information available to them, and they've typically done a good job of that, but it's a guess, nonetheless.
Once again, you show an absolute lack of understanding of the mere terms supply and demand.
jW
You are right about my mistake on the concept but BaldiMac was using it on the wrong context too. His point is that Apple saw a demand from consumers for their products and based on the demand, they would determine the price, which is false. Because that version of the demand did not exist for the iPad.
Where you are wrong is saying BaldiMac has a better understanding on concepts. Most of his arguments are assumptions.
And as I previously mentioned, Apple does not determine their price based on what you said. Yes, the theory behind it still work and does apply to the pricing of Apple's products but they do not care as they do not conduct market research.
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As you have a lack of understanding the difference of how Apple operates when releasing a product.
Once again, I took this approach based on what BaldiMac was saying.
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Why do you contradict yourself here? I never they would have the precise demand. The information available to them comes from consumer research and study of similar or past products which at the end are graphs and numbers. For which it was not available for the iPad. Once again, Apple does not follow those numbers.
Some people deluded enough to think these graphs can predict the future think so.
The evidence is that most people who trade stock on the predictions of these graphs lose money. To see if businesses do any better with their numbers and graphs, I suggest you study the national annual numbers of business bankruptcies and failures. Things change and those graphs are often wrong.
All guesses. Some companies guess better than others. For manufacturing companies, it shows up in their P&L.
Of course some people fail at predicting using graphs, hence some analysts are paid higher than others based on how they can interpret those numbers. Graphs are not meant to be always right but to show a graphical illustration of numbers.
Let's go back the initial argument shall we? BaldiMac assumes that Apple knew about the demand of the iPad so they priced the iPad accordingly based on the information they had on the demand.
Since you and BaldiMac have such a better understanding to this than I do, please enlighten me. Based on what study did Apple successfully manage to set the base price of the iPad at $549 (Correct me if I'm wrong on the price). There was no market research and no similar product to compare it to. So please, enlighten me. If they guessed it out of thin air, they did not follow supply and demand. Supply and demand is an economics theory, not fortune telling.
Shorter version of the question: How did Apple guess demand?
No, they based it on a market analysis that considered supply and demand. Just because the iPad market was new, does not mean their are no indicators that they could consider in other markets.
My examples were based on assumptions. The main point was based on participation in and an understanding of a free market economy.
You are confusing market research (focus groups and product surveys) with a market analysis.
You are not answering my question, for one to use supply and demand, they need to know what the demand is. How does one analyse the market if they do not have any indications on demand? Please go consult a supply/demand graph to see how they work. You say indicators when there are literally no such a thing and there was no consumer research.
Yes at the end, those are just assumptions whereas my statement is a proven fact. Apple does not conduct market research or go through supply/demand.
Economist are often wrong. I could read you some pretty funny things from some old econ theory textbooks. LTCM was founded by a bunch of Nobel Prize winning economists. How well did they do?
Successful businesses, such as Apple, keep their market research methods quite secret. Helps let the competition keep on making incorrect guesses.
Of course many economists makes mistakes and Apple makes mistakes too.
There are only limited amount of research methods and it has been said many times that Apple follows a very different approach than its competitors and yes they are successful at it, I am not denying this and never did. So instead of saying that I do not understand the concept of supply and demand, ask yourselves if this is really applicable to Apple.
http://www.msnbc.msn.com/id/3898036.../t/how-apple-plays-pricing-game/#.Tsrf-bKVjxQ
You mean the question that you asked in a later post than I responded to?
I already started replying to your previous post before you posted the question.Do you really think the iPad market was created in a vacuum? I'd bet that Apple was able to look at the netbook (and low end laptop) market and the iPod touch to get an idea of an appropriate price for their manufacturing level goals.
Short answer: They didn't. They underestimated demand.
Once again, you are confusing market research (focus groups and product surveys) with a market analysis.
You mean the question that you asked in a later post than I responded to?
Do you really think the iPad market was created in a vacuum? I'd bet that Apple was able to look at the netbook (and low end laptop) market and the iPod touch to get an idea of an appropriate price for their manufacturing level goals.
Short answer: They didn't. They underestimated demand.
It's a bet, another assumption. Steve has very specific demands when he starts a new product. There is no way for anyone to guess the price of a product out of Steve's head. One must contact manufacturers to know the cost first then apply the acceptable profit margin on top of it considering the subsequent revenue it can bring (iTunes purchases).
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I was quoting firewood
As I said, none of us are privileged to information on Apple's actual process.
Again, that's exactly opposite how it works. Consumers will not pay more for a product simply because it costs more to make. If two companies manufacture the exact same pencil in the exact same market and one company has double the costs, they can't double the price of the pencil to compensate. There would be no demand!
If an iPad cost $10,000 to make, you don't price it at $15,000. You simply don't make it. Until it was possible to manufacture the iPad to sell at the $500 price point at acceptable margins, it wasn't going to get made. They weren't going to make a $2,000 tablet.
Steve Jobs, personally, himself, did market research. There are many stories of him hiding and watching people handle various products.
And thinking that Apple does not do any other market research shows that you have not been following Apple's job listings over the past decade.
Even given all this market research, no business can provably always predict the future. The price is a guess. If you miss by a little, you adjust. If you miss so badly that the actual clearing price is below your production costs, you take a loss (such as with the HP touchpad). If you want to buy market share, you price at or below costs (*cough* Kindle Fire *cough*). If you underestimate demand, but have iron fist control over your supply chain, you ramp and reap industry leading profits.
Not true, Steve decided what you wanted, what you just said are stories and nothing but stories
http://www.psychologytoday.com/blog...nd/201110/how-steve-jobs-knew-what-you-wanted
The Touchpad was priced low mainly because HP was getting out of the market.
Kindle Fire was priced low, the same way the regular Kindles are priced low, because Amazon's revenue does not come from selling the Kindle hardware but through DRM protected digital files.
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Read Steve's bibliography and watch many of his interviews, he's not hiding it.
And I never said the contrary, this is about how Apple prices their products and not people's reaction to the price
And I mentioned this before, through the creation process, if the product is too expensive based on what Steve thinks, the product is scrapped. This too, irrelevant to the argument.