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Apple's New MacBooks, Old Margins

MacBook familyAfter much anticipation, Apple announced its new MacBook lines. The pricing has managed to create diametrically opposed views: Apple cut prices and Apple held prices. The reason is that Apple pretty much achieved both goals at the same time, using some new technology to reduce cost and old-fashioned pricing strategy.

On one hand, Apple technically did cut its prices on the entry-level model from $1099 to $999. How you react to the news depends on whether you look at the reduction as being only $100 or taking MacBooks under $1000 for the first time. It was a clever approach. There have been numerous studies done over the years of consumer perception of prices and responses to them.

Apple is likely betting (or, even more likely, working from some consumer research) that technically getting the number for one of its laptops under $1000, even if only by a dollar, drops perceived pricing to a new threshold. No, it's still not down to an entry-level non-Mac laptop, but it's a big change.

Furthermore, Apple has led with this number early in the shopping season, which is smart. Consumers thinking of a laptop as a gift don't need to wait and see what sales come up at computer resellers. They already know the new "low" price of the Macs, putting the sales momentum in Apple's favor. And, according to analysts that the Wall Street Journal interviewed, keeping the laptops moving is critical to the company:

Analysts have said Apple sorely needed to upgrade its family of laptops -- its most crucial product line in terms of its immediate financial contribution. Apple's laptop sales reached $2.24 billion in its fiscal third quarter, which ended June 28. That represented 62% of the $3.61 billion in total Macintosh sales. Laptops brought in more revenue than any other business at Apple, exceeding the $1.68 billion in iPod sales and $419 million in iPhone sales for the quarter.
The new process for making the aluminum cases adds another factor -- lower costs. Look at some of the advantages that 9to5Mac pointed out along with the manufacturing cost benefits that would logically follow:
  • Carving out of aluminum eliminates the need to bend the metal and create weak spots or microfolds and rifts. That shortens the numbers of manufacturing steps and likely decreases problems and waste.
  • Screws aren't needed to tie the products together. Again, reduced assembly lowers manufacturing costs.
  • The shell is one piece of metal so it is super light, super strong and super cheap. Super cheap is super cheap.
That got me wondering whether Apple could be saving enough money in the manufacturing process for the more expensive machines that it could at least partly, if not completely, offset the price decrease on the low end and maintain its overall margins. And, for Apple, it's all about margin. That's the basis of the company's historic approach to product design and control as well as pricing.

The question is whether it can continue to take market share from PCs at these prices, especially as the economy sags and people get a lot less comfortable with spending. Clearly there's some sweet spot for Apple, where adoption and price meet for optimized returns.

MacBook family image courtesy Apple, Inc.

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