Apple Drop Your Prices & Make More Money

Posted by on January 26, 2012 at 4:24 pm

Apple, you are super rich. You just announced that you made $13 billion in profit last quarter. It almost sounds like I’m just throwing out a random number every time I say it, but it’s the truth. I want you to try something that may sound crazy — drop your prices to 50%. Of course, I’m just throwing something out, but thin your margin a little bit and see what happens to sales in a quarter.

Right now, the only Apple product I own is my iPhone and it’s not because I’m a Windows fan boy. I can’t justify or afford the cost of a MacBook Pro. My HP laptop I purchased for about $1,100 where as a comparative MacBook Pro with a smaller screen would cost $2,800. Why the big difference? I know there are people that can easily pay for them, but imagine dropping the prices so other people like me that want one, could finally afford it. People that own them would buy new ones because they can now afford more than one! You could gain huge market share over Windows and game developers would make games for Mac, OMG!

I’m not pulling these completely accurate stats out of my ass. Gabe Newell, the co-founder of Valve, talked about how they are constantly doing experiments with pricing to see what sales are like.

Now we did something where we decided to look at price elasticity. Without making announcements, we varied the price of one of our products. We have Steam so we can watch user behavior in real time. That gives us a useful tool for making experiments which you can’t really do through a lot of other distribution mechanisms. What we saw was that pricing was perfectly elastic. In other words, our gross revenue would remain constant. We thought, hooray, we understand this really well. There’s no way to use price to increase or decrease the size of your business.

But then we did this different experiment where we did a sale. The sale is a highly promoted event that has ancillary media like comic books and movies associated with it. We do a 75 percent price reduction, our Counter-Strike experience tells us that our gross revenue would remain constant. Instead what we saw was our gross revenue increased by a factor of 40. Not 40 percent, but a factor of 40. Which is completely not predicted by our previous experience with silent price variation.

Hey, if you can increase sales of video games by decreasing prices, why couldn’t you do that with computers? Apple, just try it out. For me at least. Please?

[Transcript: GeekWire, Image: Phil]

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