Apple’s Value Pivot
By: Scott Allison Si
Tags: Tech, MacBook, Apple, iPad, Strategy

Apple’s Value Pivot

In a surprise twist, Apple is now playing the value game. Competitors should be worried.

Apple.com

Today, Apple just released its new 13" Macbook Pro. Yes, you read that right — it’s still a 13" laptop, not the 14" that most people were expecting. It may have come as a surprise to most people, but if you look more closely at Apple’s moves in the last 6 months, the story has been one of iteration and value, rather than innovation and change.

Yes, 2020 is the year of the ultraminor update, but consumers have a lot to be excited about the way things are going with Apple’s recent product launches.

The 2020 Macbook Air and 2020 iPad Pro were announced on the same day last March — signifying their equal footing as everyday computers, albeit with different form factors. The Macbook Air stole the headlines by touting a new 10th-gen processor, improved graphics, better keyboard, and double the storage for $100 less than the previous model. Hitting the $999 sweet spot marked the return of the Macbook Air as the everyday computer for the value-conscious.

Although the 2020 iPad Pro was overshadowed by the announcement of the Magic keyboard cover, it did come with a fancy LIDAR camera, improved graphics, and 128 GB as base storage instead of 64 GB, all for the same $799 price as the previous-gen iPad Pro. Another value play.

The 2020 iPhone SE announced in April was the exclamation point. It recycles the same old form factor of the iPhone 8 but is now powered by the top-of-the-line, desktop-class A13 processor of the $1000 iPhone 11 Pro.

From John Gruber’s review:

So, yes, a $400 iPhone SE bests a $3,000 top-of-the-line MacBook Pro in single-core CPU performance.

And another spot-on tweet from MKBHD:

A new iPhone priced lower than the Android phones of a Chinese phone manufacturer yet faster than a top-of-the-line laptop, let alone any premium Android phone. It’s a gamechanger.

And today, the refreshed 13-inch Macbook Pro:

The trend here to observe here is a gradual reversal of Apple’s usual inclination to charge more for less. Instead of outright lowering prices though, Apple chooses to offer higher-tier specs at the same price point for the same body. The value proposition is compelling — it’s more for the same.

Apple does not have to play this game. It lives in its own universe and plays by its own rules. You either get a laptop or a Mac, a smartphone or an iPhone, a tablet or an iPad, a smartwatch or an Apple Watch. It can afford to play in the category it created and craft its own story without subjecting itself to comparisons with equivalent devices.

Why the pivot, and why now?

Apple is beginning to understand that the high-end is getting saturated, and it needs to capture value from more segments. It’s not a response to competitive pressure, but a drive to increase the size of the pie. Apple is widening its value spectrum — taking over not just the high-end segment but increasingly, the mid-tier segments as well.

How does Apple play this value game without compromising its premium brand image?

First, it tends to reuse old form factors, extending the effective lifecycles of its designs and creating incredible efficiencies in manufacturing that no other competitor could pull off. This also means that Apple can differentiate its product lines not just with specs but with materials and form factors. An iPhone 11 Pro has the same specs as the iPhone 11 but can charge a $300 premium because of its OLED screen, extra camera, and stainless steel housing. An iPhone SE, on the other hand, is justifiably cheaper because it uses an old shell – it doesn’t cannibalize the huge base of Apple customers who seek for the latest and greatest.

Second, Apple has a clear branding strategy to differentiate its device tiers. Each major product line now has a Pro and non-Pro distinction. The ‘Pro’ branding builds on Apple’s heritage of empowering creators, naturally creating an aspirational halo effect. The non-pro (or ‘Air’) branding extends Apple’s products to the everyday consumer territory. These devices are positioned as the default choices, not the poor man’s choices — optically similar to Starbucks’ designation of ‘Tall’ as its smallest drink size. ‘SE’ is another mark of brilliance — it doesn’t directly signify cheap, simply different, even though it’s clearly positioned at the lowest pricing tier.

Third, the products at Apple’s highest-end and specialized tiers are getting more expensive. Look at the $349 Magic Keyboard cover, or the $999 stand for the $5000 XDR Display as some examples. These products underscore that Apple is still the ‘luxury’ tech company and reinforce that premium halo effect even while it captures value from the lower-tier segments with its other offerings.

The value pivot lets Apple have its cake and eat it too. It’s a formula that reflects Apple’s shift from a design-led enterprise to an operations-led one. It’s an outcome that may disappoint Apple purists, but is proving to be a win-win for shareholders and regular customers alike. Apple maintains its traditionally high margins even while more customers can enjoy the Apple experience at far more accessible prices. Think about this — you can now buy a new iPhone plus a new iPad for less than the price of a OnePlus phone. I would be worried if I were competing with Apple on any front right now. The value equation has shifted. This pivot could also be a harbinger of Apple’s grander plans to evolve from a devices company to a services company, but that’s another story for another day. Exciting times lie ahead.