Apple's Price Cut Is A Symptom Of What's Wrong At The Company

retina macbook pro

Photo: Apple

Only four months after launching a new laptop with a high-resolution “retina” screen, Apple has chopped $200 off the price.

Apple’s 13-inch “Retina” MacBook Pro will now sell for $1,499 instead of the $1,699 original price.

This is a small move, but it’s symptomatic of the broader challenges that Apple (AAPL) is facing.

The most likely reason for a price-cut so soon after launch is that the product wasn’t selling well at the original price. And with the 13-inch MacBook, this would not be a surprise: Reviewers were underwhelmed with the laptop when it was released, arguing that, at $1,699, it was not a good value. Based on the price cut, it appears that Apple laptop buyers agreed.

The price cut reveals that consumers won’t rush to buy the latest greatest Apple product just because Apple made it. The price-value tradeoff has to be reasonable. And in the case of the MacBook Pro, it apparently wasn’t.

This problem — the price-value tradeoff — has become an issue for Apple far beyond laptops.

As smartphones become a commodity, Apple’s most important product line — the iPhone — is experiencing similar challenges. The explosive growth in the smartphone market in recent years has shifted to emerging markets, where price is a major factor in consumer decision-making. By not offering a cheap iPhone that is affordable for consumers in these markets — $100–$200 without a contract or subsidy — Apple has missed out on much of this growth.

Meanwhile, the competition at the high end of the smartphone market, where Apple once dominated the field, has become much more intense. And Apple’s premium product — the iPhone 5 — is no longer considered by some to be the best product on the market. Unless Apple can firmly re-establish the iPhone’s superiority, which does not look likely to happen anytime soon, the company may face increasing pressure to improve the price-value proposition for this product, too. And that might be devastating for Apple’s profit margin, which is currently extraordinarily high for a hardware company.

The same story is playing out in tablets. The price-value tradeoff of some recent tablet entrants has reduced Apple’s dominance of this product category — a category that Apple invented and, a few years ago, had to itself. The price pressure in the tablet market, in which consumers can now get excellent tablets for much less than Apple is charging, will likely force Apple to continue to improve the price-value proposition of its iPads. And this, in turn, will also likely begin to eat into Apple’s profit margin.

A few years ago, in phones and tablets, Apple was both the price leader and the product leader. Apple’s products were better than the competition’s, and they were cheaper.

Today, that is no longer the case.

And it probably means that Apple’s extraordinary profit margin will continue to decline.

SEE ALSO: And Now For Some Good News… Apple’s Stock Looks Cheap

Yahoo’s Jeff Macke and I discuss this live here:


Henry Blodget Jeff Macke Yahoo

Photo: Yahoo

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