bestkungfu weblog

iPod mini and price points

Filed in: Apple, consumerism, Thu, Jan 8 2004 19:53 PT

A number of people — everybody, actually — has been complaining about the cost of the iPod mini announced on Tuesday. $249 is too much, they say, when the regular-sized iPod is $299, and has almost quadruple the space. But this is a classic price-point game. It’s not about manufacturing cost, or proportionality to disk space. It’s entirely about what the market will bear.

There is a magic number for consumer products: $300. The story goes, $300 is the most an individual is usually willing to pay before they consult with their partner. Look around at what you can get for $300: From PocketPCs and phones to Calphalon cookware and decent gas grills, you’ll see a sweet setup for $299.99. Which is where the original iPod was positioned. Then they pushed upmarket with bigger devices. Easy enough for them, since nobody else could tackle that market.

What they didn’t have, and probably will never want, is a foothold in the low end of the market. At $100, they have a million competitors, from Sony all the way down to cheesy knockoff artists. And with the unit price for the 2GB drive everyone anticipated such a device would use at $70, it’s a loss leader, too. You don’t just pour plastic over a drive and ship it, after all.

Then there’s the question of cachet. Apple has it. More of it than any other electronics company. Apple has never, never, never attempted to compete on price in the consumer market. (Okay, there was that once with AirPort at $299, but that was to create a new market.) The iMac was reasonable at $1299, but PCs could be had for $600 at the time. PowerBooks are consistently among the most expensive notebooks available. And how many Microsoft users would cry bloody murder if they had to pay $129 a year for updates to Windows? With all this in mind, it’s not hard to see why Apple would never release a $100 player: it’s a high-risk, tiny-margin endeavor that runs counter to their own value proposition and would ruin the brand power they have at $300 and up.

So, what to do with this little goody, the iPod mini? They could have priced it at $199, but that would have put them head-to-head against the 256MB devices Jobs snickered at during his presentation. Better products attract a premium, and it’s completely reasonable to place that premium at $50 above what is already there. So there it is, at $249.

As for the huge gap between the 4GB mini and the 15GB iPod for $50 more, that’s a selling point. Here’s the inner monologue they’re looking for in users: “$249 for the iPod mini. That’s not so bad. It’s only $50 more than this flash-based player. But then, if I’m going to spend $249 for the mini, I could just spend another $50 and get 15GB, if I trade up in size. But then, that one doesn’t have the remote and dock, and that’ll cost me another $78 if I want it. And for that much, I might as well buy the 20GB iPod for $399.” And there you have it. Filling that gap in the price spectrum opens up a whole new set of new users who walk in hoping to spend $200, and walk out spending $400. If you’re ready to hate Apple for this technique, again, look around. Everyone practices this approach, from the leather cases on the handhelds to the 12″ saute pan to the rack that goes with the grill.

And yes, it does make me feel a little dirty to know how all this works, but I manage to live with myself.

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