20 February 2015
In a conversation with the BBC, Motorola president Rick Osterloh had some words to say about Apple’s pricing.
We do see a real dichotomy in this marketplace, where you’ve got people like Apple making so much money and charging such outrageous prices. We think that’s not the future.
I would love the opportunity to understand why Osterloh views Apple’s prices as “outrageous”. What does outrageous mean — unfair? And what makes them outrageous — because Apple earn so much profit?
When Motorola develops a new product and sits down to figure out economics, I wonder if they determine retail pricing by adding a “fair” profit margin on top of their cost, or whether they go the more traditional route of setting a price which balances demand with supply? Of course they do the latter, and it seems almost silly to even be having this discussion.
Osterloh wouldn’t be in his position without knowing there is no such thing as “fair” pricing. Price functions as a rationing mechanism—whenever resources are particularly scarce, demand exceeds supply and prices are driven up.
What are the resources in this case? They are products that are extremely well-designed and work together seamlessly within a growing ecosystem of related devices, services and content.
The scarce resource here is the overall experience—the total package—that Apple, and only Apple, delivers. That resources isn’t becoming less scarce, so don’t expect to see lowering of Apple prices anytime soon. (And that resource isn’t easy to achieve, which is why I remain an Apple investor.)