Apple - Don Roy, Ph.D.

Apple iPhone 7 and Status Quo Resistance

A game that has emerged within the consumer tech industry is predicting development trends for the next generation of popular products. Will the next Samsung Galaxy have a larger screen? Weigh less? Include marked improvement in camera capabilities? This speculation and more is repeated for any product yet to hit the market, especially successful ones.

It was Apple’s turn to take center stage of new product reveal this week. The company unveiled the iPhone 7 nearly two years to the day that it first presented iPhone 6. Surprisingly, opinions about the new iPhone had more to do with product design than its price (starting at $649 for iPhone 7 and $769 for iPhone 7 Plus). While some design features like the dual camera lenses (one wide-angle and one telephoto) were widely lauded, others were questioned and even ridiculed. The feature ridiculed most was one not included in the design: headphone jacks. No more headphones tethered to a phone. Instead, iPhone 7 features wireless, rechargeable AirPods. One pair is included with the product, and they retail for $169 if bought separately.

Change for Good?

Let’s face it- a smartphone without wired headphones is a feature many of us might struggle to wrap our arms around at first. A user who is shall we say, organizationally challenged, could easily misplace their AirPods. Change sparks uncertainty, fear, and even mockery as evidenced by some of the reaction to iPhone 7 on social media (see a few examples below).

Is elimination of the headphone jack in the iPhone 7 meaningful innovation? Or, is it change for the sake of change? Will the new feature add value to the user experience. Or, is it more of a design feat driven by internal decisions at Apple instead of users’ needs and wants?

Status Quo Resistance

A recent study of US iPhone owners found 51% are interested in upgrading their iPhone to the latest model (although the study was conducted prior to unveiling of iPhone 7). This finding suggests people are open to upgrading if they can be persuaded to make the commitment to the latest iPhone. The decision whether to adopt this product is no different than it is for any other purchase decision. It comes down to a marketer’s ability to shake up the status quo. Will prospective buyers be convinced that upgrading to iPhone 7 will result in a better, more satisfying smartphone experience? If yes, owners could be open to upgrading. If the answer is no or don’t know, the safe course of action is to stand pat and keep their current phone.

The marketing challenge of overcoming status quo resistance reminds me of an often-told story about a family holiday meal. Three generations were gathered in the kitchen preparing the meal. As the mother cuts off the end of a ham before placing it in the pan, her daughter asks why she always cuts off the end of the ham. The mother’s response was “I cut off the end because that’s what my mother always did.” She was in the kitchen, too, so the question was posed why she always cut off the end of the ham. Her response? “I cut off the end of the ham because my mother always cut off the end of the ham.” Fortunately, the family matriarch was also in attendance, so the younger generations asked her the same question. She revealed the secret: “I cut off the end of the ham because my baking pan is too small for the ham to fit.”

What does this story have to do with the Apple iPhone 7 or any other new product? It is reflective of consumer behavior. Many people do what they always do, perhaps even influenced by the behavior of a parent or friend. The behavior becomes rote; we continue it without evaluation of whether it is optimal. Better alternatives could exist, but hey, that would entail change and do we want to deal with the hassle of change?

I recall times when Facebook made significant changes to its user interface. Some of my friends proclaimed “I don’t like the new Facebook, so I’m out of here.” And they were… for a few days. Then, they overcame status quo resistance and adapted to Facebook’s new look. While there is a difference between adapting to a free online service and a smartphone costing hundreds of dollars, the underlying force of resistance is the same.

Time Will Tell

Time (and sales) will tell whether innovations in the latest iPhone resonate with consumers. Some skeptics have been waiting for Apple to fall on its face in the five-plus years since Steve Jobs stepped away from the company. It could happen with the iPhone 7. Or, we could be looking back in a few years laughing at ourselves for the times we walked around with white wires hanging from our ears.

Let Product Set Price

One of the worst kept secrets in the tech world was confirmed this week. Apple is adding the iPad mini to its tablet lineup. It’s 7.9 inch screen will combat Amazon’s Kindle Fire and other smaller tablets.

An area in which Apple is not targeting competitors is price. At $329 for the lowest priced model, the iPad mini is priced above comparable products… And that is OK. It runs counter to pricing strategy used by late entrants, but Apple is not the typical latecomer.

Apple does not have to obsess over competitors’ prices because price is set by product quality and customers’ perceived value of quality. Price for the iPad mini was set by the successes of the iPod, iPhone, and iPad. Users understand Apple!s value proposition; they need not be enticed by price to try the product.

Let your products and services set price instead of it being defined relative to other brands. To do that, a commitment to delivering a great experience is a must. The value you create today sets the stage for profitably pricing products tomorrow.

Textbook Industry: Game Over or Game On?

Apple made its expected announcement that it is venturing into the textbook market. A combination of factors makes the situation ripe for Apple. First, Apple has demonstrated capability in simplifying the user experience to consume music and entertainment via iPods, iPhones, and iPads. Customer expectations would be that Apple will deliver a similar experience through the planned iBooks 2 platform. Second, customer dissatisfaction abounds in the textbook industry. While iBooks 2 will target K through 12 textbooks it seems inevitable that solutions for the higher education market will follow.

Should the textbook industry be hiding under a rock? Some cynics would say that publishers are already there, and that is why Apple is rising with a challenge. Years of maintaining status quo by publishers along with advances in technology have attracted Apple and other firms to explore how to innovate in the textbook industry. It would be unfair to suggest that traditional publishers have not attempted to innovate in response to changes in technology and students’ book consumption preferences, for they have made strides in responding to students’ needs. But, there is a great deal of work that remains if publishers want to be competitive in an environment in which new entrants are intent on changing how students buy and read textbooks.

Firms have two response options when disruptive innovations make their way into an industry: 1) Game Over or 2) Game On. The Game Over response may not be an immediate surrender. Rather, it can be a gradual decline in a prolonged battle to maintain relevance (see Kodak). In this case, textbook publishers are too heavily invested to cede control to Apple or anyone else. The response has to be Game On.

As a college professor and textbook author, I have great concerns about the costs students must bear to gain access to important learning resources, costs that are in addition to constantly increasing tuition. We cannot price students out of the opportunity to prepare to compete in the job marketplace. The innovation gauntlet has been thrown down for textbook publishers- Game On!

The Meaning Behind Price

A product’s price is more than the dollar amount required for purchase. Price contains meanings that influence our perceptions of a brand. For instance, high price typically sends a signal of high quality, while a low price may elicit connotations of value, basic, or even low quality. So, it would seem that if a marketer is going to err on setting an optimal price it would be better to be too high than too low. If you subscribe to that belief, you may want to check out how HTC has destroyed that myth.

HTC is aiming at the high end of the tablet market with the Jetstream, perhaps named because its price is sky high! Jetstream is priced at $700 for a 32GB model, plus it requires a two-year contract with AT&T. The price is comparable to the Apple iPad 2; its Wi-Fi +3G 32GB model retails for $729 on the Apple website. The key for taking market share from the leader is to differentiate- in this case, offer something that the iPad does not have. HTC does not succeed in differentiating on benefits or price. It is a high-end offering in a category that has an entrenched high-end brand.

Unfortunately, the HTC Jetstream fails to position itself for success using price. Its “me too” price at the upper end of the market gives no compelling reason for tablet shoppers to pick it over iPad 2. If HTC intended for its price to position Jetstream as a premium competitor to iPad, it appears to have not worked. Is it just a matter of time before the price drops?

What meanings will customers uncover when they encounter the prices of your products or services? You should never have to apologize for the price you set, but be certain that it represents fair value and is consistent with your brand’s identity.

Fast Company – “Forget That iPad, What’s It Gonna Take To Put You In This $700 HTC Jetstream Tablet?

The App Store: Fad or Fixture in E-Commerce?

Apple has made the app store a seemingly must have addition to the business model of firms that sell software via online channels. It is believed that Apple has gained more than $1 billion in revenues from its apps store. Now, Amazon will try to replicate Apple’s success by marketing apps for the Kindle e-reader. It is a dream scenario: software with low price points, no physical inventory, and no shipping costs. Do the success of Apple and the launch by Amazon signal a significant shift toward app stores sprouting across the Internet?

According to an article by Farhad Manjoo in February’s Fast Company magazine, software developers and brand marketers should probably refrain from looking to app sales as a prime revenue source in the future. The reason? The history of software development for interactive communications has been based on the idea of open development. That philosophy has clashed with the tight control Apple has exercised over the content created by developers of apps for the iPhone. Apple is obliged to control content associated with its brand, but it comes at a price- creating a disincentive for some programmers to innovate.

Certain brands will likely thrive selling apps. Apple has already proven that it can succeed. Amazon seems to be a good candidate given the success of Kindle. Adding more capability to the product via apps should make it even more attractive to current and prospective users. Otherwise, apps revenue will be a modestly small part of revenues for most firms. But, as the long tail of the Internet has shown, revenues will not always come from “home run” products. Niche markets exist; its is up to software developers to create apps that meet the needs of small customer segments.

Fast Company – “Why App Stores Are Not the Business Model for the 21st Century”

Can Any Smartphone Competitor Upset the Apple Cart?

Apple is enjoying tremendous customer loyalty among users of the iPhone. A Crowd Science report reveals 82% of iPhone customers have indicated loyalty to the brand for their next phone purchase. Moreover, 40% of Blackberry customers, Apple’s chief rival in smartphones, expressed a desire to switch to the iPhone with their next purchase. That figure towers over the 14% of non-Blackberry customers surveyed who indicated a desire to switch to Blackberry. The Crowd Science survey figures, coupled with the astounding sales performance of Apple’s new 3G iPhone (1 million units in the first week on the market), suggest Apple’s momentum in smartphones will be difficult to stop.

Can anything derail Apple at this point? Many consumers have been deterred by the high price of the iPhone. But, with models as low as $99 today, price is less of an obstacle. The exclusive partnership with AT&T is more of a challenge to overcome. Consumers that are either locked in to contracts with other carriers, have concerns about AT&T service quality, or have loyalties to their current carrier remain elusive customers for Apple. How long will the exclusive arrangement with AT&T last? The deal is lucrative for Apple, and strong sales of the iPhone suggest it is not a major impediment to customer acquisition.

In the long run Apple must expand its distribution beyond a single carrier if it intends to become the dominant smartphone brand. For all of the hype and attention the iPhone garners, Apple is third in global smartphone market share behind Nokia and Blackberry. Apple may be a niche player in the personal computer market, but it dominates the portable music category. Now, it may be driving it toward achieving dominance in the smartphone category, too.

Marketing Daily – “Carrier, Pricing Leave iPhone Slightly Vulnerable”

iTunes Tiered Pricing is Right Move

Apple made two noteworthy announcements in conjunction with the annual Macworld event this week. First, Apple is dropping Digital Rights Management from the library of songs on iTunes. This move will enable easier song sharing, which you can view either as piracy or creating more exposure. Second, tracks sold on iTunes will now be priced using a three price points: .69, .99. and 1.29. This change is a significant departure from the flat rate price of .99 that iTunes has had since its inception.

The time is right for both moves, especially the tiered pricing system. Setting prices for all tracks at .99 in the beginning was instrumental in gaining consumer acceptance of paying for music by the song. The three-tiered system acknowledges different values for different songs. If you are looking to add an obscure disco song from the late 1970s, it should cost less than a top hit from today. Now that Apple dominates the music download market, it has the leeway to institute tiered pricing. The change in strategy returns some pricing power back to the music companies, who have fought hard for having a voice in how their products are priced.

Link: Fast Company Technomix Blog – “Apple iTunes Dropes DRM, Adds Tiered Pricing, 3G Downloads”