So what can Apple learn here? Not much, as they are the most successful consumer electronics company in the world. Instead this commercial should be playing over and over in the headquarters of companies like ASUS, LG, Motorola, Samsung, Sony and Toshiba. These companies need to understand that they are not premium manufacturers, and as such shouldn't be pricing their devices inline with companies like Apple.
The problem all comes down to margins. Apple is able to mark up their devices over 300%, but these margins just don't exist for the other companies, especially if they want to compete. For example, lets say that it costs Apple roughly $200 to produce a typical iPad that they turn around and sell for $600. Now if you are Motorola you don't produce nearly as many tablets as Apple so your production costs will be greater, say $250. In order to get the 300% margin Motorola would need to price their tablet at $750. They know that they can't do that so they falsely assume that because their device has more features they will be able sell it at the same price point as Apple. This is wrong, wrong, wrong. Given the numbers above, a better strategy would be to "value" price their tablet and make up the difference in increased sales and brand recognition:
Profits = Units Sold *Margin (Margin = Selling Price - Cost)
Here's our fundamental question in story form:
It costs Motorola $250 to build and market each tablet it sells. If Motorola sells 1 million tablets priced it at $600, how many units would they have had to sell to be more profitable if they had originally priced their tablet at $350?
Answer:
3.5 million tablets (plus 1)
