Thoughts on Premium

A lot of people use the work “Premium” to explain Apples iPhone strategy, and/or their strategy in general. Apple’s products tend to be priced at the high-end of the market. On the other hand, Apple tends not to sell products priced at the lowest-end of the market. This tendency is strongest for the iPhone lineup, which constitutes only of phones in the high-end; Apple does not introduce new models targeted at the lower-end, although they do sell previous-year’s models at lower prices.

Some people have suggested that Apple has a broader product range for their iPods and their Macs, and hence they are not idealistically opposed to selling products at a range of price points, going from maybe the mid-range to the high-range. My opinion is that this is not the case. My understanding is that Apple produces the absolute best product they can for a specific customer, and only provides some minor configuration options (like RAM, HDD).

Take the iMac and the PowerMac for example. It is tempting to say that the PowerMac is the high-end model whereas the iMac is the mid-range model. However, this is not the case. For the vast majority of people who buy iMacs, the PowerMac is not only an overkill. It is actually less suited for the required jobs-to-be-done. The PowerMac is designed for creative professionals who require the very best in computing power, and who will also add extra hardware to the core PowerMac. The iMac is for normal people who do not need so much power, but instead value convenience of setup and ease-of-use. The iMac and the PowerMac are not high-end and mid-range models; they are two different products targeted towards two different markets with very different needs. Hence this is not an example of Apple selling a premium product.

The same goes for the MacBook product line up. The current retina display MacBook Pro is great for creative professionals but sacrifices portability. For people who want to carry their laptops with them, the MacBook Pro is actually a worse fit than a MacBook Air. Hence the MacBook Air is not a lower-end model of the MacBook Pro, but a different product for a different segment of the market.

The exact same goes for the iPod lineup. There was never two products in the iPod line-up that targeted the same use-case with one being the premium product and the other being an entry level one. The only “premium”-ness of a product in the lineup were products with maxed-out storage.

Now let’s apply this to the iPhone. Smartphones tend to have the same jobs-to-be-done for almost every person (except those who use smartphones as a feature phone replacement). Smartphones are used for communication, taking photos, playing some games, viewing maps and sometimes watching movies or listening to music. There is no segment like the creative professionals using PCs, who use their smartphones for very different purposes that require much higher processing power and/or expandability. On the other hand, there are no smartphone users who would be content with a device without a display, like the iPod shuffle. It’s even very difficult to make the argument that the variation between the MacBook Pro and MacBook Air is necessary for smartphones, because everybody highly values portability and because retina displays are necessity even for mid-range phones.

Regarding the iPhone, the only segmentation that would make any sense is a small variation in screen size. This would be similar to the 11-inch and 13-inch MacBook Airs. The current 11-inch an 13-inch model only have $100 price difference and choosing either is more about personal preference than premium/mid-range targeting.

Looking at what Apple actually sells and the markets that it’s targeting, selling a mid-range iPhone and a premium iPhone in parallel appears to be very uncharacteristic of Apple, and I doubt that it will ever happen. I sense that Apple doesn’t ever segment markets by “low-end”, “mid-range” or “premium”. More likely, they simply segment by “junk” and “best”. Any product variation in their lineup is a result of simply targeting different jobs-to-be-done.

If you believe that this is how Apple thinks, then the evolution of the iPhone lineup is pretty obvious. They may introduce a slightly larger (or maybe slightly smaller) iPhone in the same way that they have 11-inch and 13-inch MacBook Air models. That is, specs other than the screen size will remain mostly the same. The price difference would be small and choosing either would be totally a matter of personal preference.

For the lower-end, selling previous-year’s models at discounted prices seems to be a working in developing countries.

In fact, it’s a shame that there are very few companies that take the same approach as Apple. That is, market segmentation by “junk” and “best”.

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