The craft into the Apple brand is a topic that business analysts, marketing gurus, business observers and wider society remain in awe, as the brand characteristics are flexed in ways that keeps the brand relevant as the industry continues to rapidly evolve. Recently, Apple Inc. announced that it would be producing an iPhone named iPhone SE that targets the cheaper price segment of the smartphone industry. Over the course of the last few years, Apple elevated its brand status into higher priced segments with a degree of success. As iPhones became pricier, enthusiasts continued to buy newer models as Apple targeted China to substantiate its growth pillars over the years. Newer iPhone models experienced a gradual downtrend as the Android platform grew in its importance with cheaper yet effective smartphone devices. The strategy Apple adopted over the years in the smartphone space sought to exploit the Veblen effect (the higher the price, the higher the perceived value) on prospective customers.
The Apple brand became more than simply an iPhone producer but rather a status in itself. Covid-19 resulted in a change in strategy for Apple as the disruption will provide at least a short term economic shock which would dwindle overall demand for its product portfolio. Indeed, Apple proactively launched its iPhone SE over the past few day which has a starting price of $399. This price range competes in a segment of the market which is dominated by the Android smartphone producers. Indeed, a war will be raging in this price bracket as prospective smartphone buyers may be intrigued by the possibility to enter or re-enter the Apple cosmos. Apple intends to offer this cheaper model in order to compete against its own second hand market whilst also increasing its customer base for Apple services.
Despite the current closure of Apple stores due to Covid-19 around the globe, they still represent one of the key assets for Apple, making them the most profitable retail stores per square foot. A scientific form of art behests Apple stores as Apple Inc. CEO, Tim Cook refers to Apple stores as the place to discover, explore and experience the use of newly developed products. Through their big glass walls, Apple stores seek to create a sense of belonging and desire for customers entering their space. Apple stores seek to factor in the coolness through its product portfolio by creating a form of an Apple paradise for enthusiasts and less-enthusiastic prospective customers. Apple has proved that letting people physically interact with products and providing the perfect ambience works wonders in persuading people to switch from one product to another. The sales formula is simple; the longer people stay in the store and enjoy themselves, the more likely they are to dig into their wallets and make a purchase. This couples with tactics like, keeping the price tags small in order to reduce the importance of the higher prices, as well as, forfeiting clearing sales strategies in order to help preserve the Apple brand value. The psychological pain of paying a high price is reduced in Apple stores by eliminating queues and cash registers.
Over the years, Apple remained at the top tier as a hardware and software manufacturer for loyal customers and a darling for investors as Apple continued its strategy to consolidate its market share. As challenges accrue during this time period, companies with a strong balance sheet like Apple will find it opportune to win over market share from weaker placed competitors given their size. Early stage companies may struggle to keep the financing options available in a time where capital is limited and more expensive for these types of companies.
This article was issued by Jesmar Halliday, CFA. Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.
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