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Apple Makes a Smart Pricing Move

In the wake of statements from Apple CEO Tim Cook that the company seriously considers ways to lower prices, they did just that. In an unexpected move on Tuesday, Apple cut the price of the entry-level 13-inch MacBook Pro with Retina display by $200, to $1,499. The 15-inch version remains at $2,199, but gains a more powerful processor, with the high-end $2,799 version receiving 16GB of RAM. That used to be a $200 option.

While it’s not unusual for Apple to beef up a Mac over time for the same price, actually making it cheaper doesn’t happen very often. Sometimes a price cut can really boost sales. But a substantial price change didn’t do much for the Power Mac G4 Cube, which expired in 2001, weeks after Steve Jobs denied reports that this model would be discontinued. A few years ago, Apple rejiggered the MacBook Air, not known as an especially big seller, into a thinner, lighter product that started at $999. Sales really took off, and Intel established an Ultrabook platform spec to get PC makers to compete; a move that failed, by the way.

With the MacBooks, I suspect Apple is merely taking advantage of the lower cost of production to cut prices on certain models or configurations. I expect Apple wants to make the Retina display standard across the lineup, but the price for those higher resolution flat panels makes this difficult for now. But as the costs of raw materials comes down, that’s going to change. I am also hopeful that prices for solid state memory will also decrease enough so Apple can pump larger quantities into MacBooks for the same price, or make them cheaper as well. As the single largest consumer of flash memory on the planet, Apple is in a position to control the direction of the industry. Wouldn’t it be nice of an SSD could be purchased in large storage capacities, say 1TB and higher, for not much more than traditional mechanical hard drives?

Now when you look over Tim Cook’s comments at this week’s presentation before Goldman Sachs, you get the strong impression he is quite sensitive to pricing questions. He made a big deal of the fact that the entry-level iPhone 4 is free with a two-year contract, and that this offer was so popular that Apple couldn’t build enough to satisfy demand. He reminded us how the iPod started at $399, but you can buy one today with similar storage capacity for $49. At the same time, Cook repeated the Apple mantra that they won’t build junk, and the iPod shuffle surely isn’t junk.

Perhaps Cook has given us a subtle hint to the arrival of more lower cost gear from Apple in the years to come. Maybe this is a tacit admission, for example, that a new entry-level iPhone is under development. Don’t forget that the iPhone 4, without a contract, is still over $400, but you can get an unlocked Google Nexus 4, with the same 8GB storage, for $299. If Apple could beat or exceed that price, the presumed iPhone mini or nano could be a huge success, but not just for people who cannot afford one of the existing models without a subsidy. And, once again, it doesn’t have to be cheaply made.

One possibility is that the rumored iWatch could be the key to building a cheaper iPhone-type gadget. An iWatch could be available with basic phone functionality, the storage capacity of an iPod shuffle and perhaps Wi-Fi and Bluetooth. But some of the other iPhone hardware features would be absent. Having a much smaller screen would help reduce the costs of production, and power requirements. Imagine one of these for, say, $199. I’d toss my chronograph in a heartbeat.

However, claims that Apple is simply leaving lots of money on the table, or potential market share growth, by not building cheap gear won’t persuade Cook and his team. Apple never played the cheap PC game through all the years where sales of Windows computers totaled hundreds of millions of units, while Apple was lucky to sell a few million copies.

They could have gotten a much higher market share, but they didn’t move in that direction, any more than they expect to compete with $199 tablets. That’s not Apple’s game, obviously. If the company began to concentrate on selling as many units as possible in as many markets as possible without regard to making a difference in the market, and not earning huge profits on every sale, it would be the beginning of the end.

In the meantime, if this week’s unannounced move is an example, you will see more value-added changes to existing products over time. Some prices may come down to take advantage of lower component costs, while some products will simply get refreshes to provide more performance, and perhaps more storage capacity. Consider the 128GB iPad, which makes the tablet more usable in a business environment. That new model was clearly conceived with careful planning, although it’s a costly beast as far as tablets go (outside of the Surface Pro). But as the price of solid state storage declines, expect greater capacities for the same price across the board in the rest of the iPad lineup, not to mention the iPhone and even the iPod.