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Apple recently reached $ 1 trillion, the first company to do so. It sounds like a powerful accomplishment, but a glance below the surface reveals a disturbing signal about its future.
The performance of the action was boosted by an exceptional earnings report
The iPhone X (source: Apple.com)Apple.com
, and this report was in turn fueled by a huge increase in the average selling price (ASP) of Apple devices, with an iPhone showing an ASP of $ 724 against $ 606 a year ago. This is the iPhone X effect; the company has the audacity to charge about $ 1,000 for its flagship device, and consumers – out of love, lock-in, or a combination of both – have highlighted that. At the same time, its unit volume grew by 1% and it was surpassed as the # 2 smartphone provider in the US by Huawei, a Chinese company that manufactures much cheaper but still high quality devices.
Where does this path lead? Can Apple raise its prices by these amounts, forever? Of course not. As consumers become very attached to Apple's suite of applications, and it becomes difficult to abandon the iPhone for a less expensive device, those who have not yet adopted the iPhone will become more and more more suspicious if the brand is so expensive. In addition, another positive point of Apple's growth has been the increase in its service revenue, but if users do not enter the ecosystem with iPhones, they will not buy these services . Apple risks being caught up in the high-end market, offering loyalists a constant premium, but ignoring new consumers who can generate long-term growth. The company's leaders have certainly read the book, but they remain stuck in Clay Christensen's work. Dilemma of the innovator.
Apple is certainly not the only company to take up this challenge. While financial measures are guiding companies towards more and more advantageous offers and flagship products generate the kind of buzz that fuels managers' careers, companies are chasing their most lucrative customers into a dead end. These customers will pay a lot, but their ranks will decrease.
The solution is to turn innovation tools into costs, not just to produce new offers with high-end prices. Companies can benefit from massive growth by creating low-cost, high-quality offerings targeting clear customer segments.
Consider Planet Fitness, an extremely popular gym chain that has just surpassed 10 million members. He leads the fitness industry to the extent of customer satisfaction, but the cost of a subscription is only $ 10 a month. That's 80% less (at least) than some competitors. How it works?
Planet Fitness knows who it is. The company focuses on casual users and offers them what they want, and nothing more. There are rows and rows of cardio machines in gyms open 24/7. But there are few staff, few intricate additions like personal trainers, and little weight to satisfy serious gym enthusiasts. The company has a simple business model, perfectly suited to a clear target market.
The same goes for Trader Joe's, JetBlue, Dollar Shave Club and many others. They understand who their customers are, how they can meet them inexpensively and what long-standing assumptions they can give up.
Apple needs this kind of thinking. It could use a $ 500 device consumed by customers, as well as offers of $ 1,000 for the high-end market. Could they get that price by tying consumers to more services, saving consumers money by paying over time for content that they really want? Could they offer a less powerful, less battery-intensive phone that offers customers a long life, even if the game does not work very well? Society has many opportunities, but it needs the courage to break with a formula that has served it well in the years leading up to the arrival of its products at these stratospheric prices.
Innovation on business costs may not have the sexual sense of new jazzy products. But that is half of the equation of a successful business. Taking big steps forward on costs, not just high-end products, allows businesses to stay relevant, affordable and growing.
You can download the first chapter of my book Costovation (HarperCollins, 2018) on www.costovation.com
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Apple recently reached $ 1 trillion, the first company to do so. It sounds like a powerful accomplishment, but a glance below the surface reveals a disturbing signal about its future.
The performance of the action was boosted by an exceptional earnings report
The iPhone X (source: Apple.com)Apple.com
, and this report was in turn fueled by a huge increase in the average selling price (ASP) of Apple devices, with an iPhone showing an ASP of $ 724 against $ 606 a year ago. This is the iPhone X effect; the company has the audacity to charge about $ 1,000 for its flagship device, and consumers – out of love, lock-in, or a combination of both – have highlighted that. At the same time, its unit volume grew by 1% and it was surpassed as the # 2 smartphone provider in the US by Huawei, a Chinese company that manufactures much cheaper but still high quality devices.
Where does this path lead? Can Apple raise its prices by these amounts, forever? Of course not. As consumers become very attached to Apple's suite of applications, and it becomes difficult to abandon the iPhone for a less expensive device, those who have not yet adopted the iPhone will become more and more more suspicious if the brand is so expensive. In addition, another positive point of Apple's growth has been the increase in its service revenue, but if users do not enter the ecosystem with iPhones, they will not buy these services . Apple risks being caught up in the high-end market, offering loyalists a constant premium, but ignoring new consumers who can generate long-term growth. The company's leaders have certainly read the book, but they remain stuck in Clay Christensen's work. Dilemma of the innovator.
Apple is certainly not the only company to take up this challenge. While financial measures are guiding companies towards more and more advantageous offers and flagship products generate the kind of buzz that fuels managers' careers, companies are chasing their most lucrative customers into a dead end. These customers will pay a lot, but their ranks will decrease.
The solution is to turn innovation tools into costs, not just to produce new offers with high-end prices. Companies can benefit from massive growth by creating low-cost, high-quality offerings targeting clear customer segments.
Consider Planet Fitness, an extremely popular gym chain that has just surpassed 10 million members. He leads the fitness industry to the extent of customer satisfaction, but the cost of a subscription is only $ 10 a month. That's 80% less (at least) than some competitors. How it works?
Planet Fitness knows who it is. The company focuses on casual users and offers them what they want, and nothing more. There are rows and rows of cardio machines in gyms open 24/7. But there are few staff, few intricate additions like personal trainers, and little weight to satisfy serious gym enthusiasts. The company has a simple business model, perfectly suited to a clear target market.
The same goes for Trader Joe's, JetBlue, Dollar Shave Club and many others. They understand who their customers are, how they can meet them inexpensively and what long-standing assumptions they can give up.
Apple needs this kind of thinking. It could use a $ 500 device consumed by customers, as well as offers of $ 1,000 for the high-end market. Could they get that price by tying consumers to more services, saving consumers money by paying over time for content that they really want? Could they offer a less powerful, less battery-intensive phone that offers customers a long life, even if the game does not work very well? Society has many opportunities, but it needs the courage to break with a formula that has served it well in the years leading up to the arrival of its products at these stratospheric prices.
Innovation on business costs may not have the sexual sense of new jazzy products. But that is half of the equation of a successful business. Taking big steps forward on costs, not just high-end products, allows businesses to stay relevant, affordable and growing.
You can download the first chapter of my book Costovation (HarperCollins, 2018) on www.costovation.com
