The Apple Tax

 

STICKER SHOCK
We have all set out on the arduous journey of trying to find a new car that meets our needs, budget, and hopefully, taste. We have dreamt of being able to purchase one of the beautifully designed and engineered German or Japanese offerings only to be shocked by the sticker. Still, when comparing the engineering and design of these imports with many of their lower cost counterparts from around the world (US included), there is indeed a gap that exists. How can one account for the difference? Could it be that the added attention to design, engineering, and in many cases, superior materials, adds no value to the final product? Is there no real difference between the two types of vehicles that would justify the elevated cost in the marketplace?

Does the attention to design and engineering add value to the product, or is the higher cost just bloated pricing added by the manufacturer to shake a little more money out of the unsuspecting and uninformed lemmings? Many have used the term, “Apple Tax” to describe their belief that the design, engineering, and software choices of Apple Inc., do not add value to their computers but are instead an unjustifiable “tax” levied upon buyers of Apple products. This article will attempt to delve into the heart of the issue regarding the “Apple Tax.” Does Apple suffer from an inflated view of its products, or has Steve Jobs and company added real value to their products through a unyielding and relentless pursuit of harmony through precision engineering and beautiful industrial design?

THE ECONOMICS OF ECONOMICS
There are many costs associated with the production of any modern day product. Every manufacturer must invest heavily in research and development, manufacturing equipment, materials, labor etc. We have all seen the many articles online which break down the latest piece of technology into its component parts subsequently arriving at a component part value of said product. If we are honest, we find it hard to justify paying more for that device than its cumulative component part value. Obviously, we understand that the manufacture should be entitled to receive some compensation for their trouble, but how much is fair?

The Market Value for any product, good, or service is determined by the various Market Forces impacting that product, good, or service. In other words, the price people are willing to pay will vary based on these forces. For instance, the Nintendo Wii has been popular and in short supply since its introduction. Therefore, some entrepreneurs who have been lucky enough to purchase one, have been able to turn around and sell them on sites like Ebay for a very nice profit. This market force is called Supply and Demand and can dramatically impact a product in the marketplace either negatively or positively. Because the Wii has been in such short supply, people have been willing to pay more than the suggested retail price to own one.

Perceived Value is another market force that can impact what people are willing to pay for a product. Perceived Value is the “perception” that a product has a certain level of value, quality, features, or even caché which can lead people to purchase said product. Whether or not the product actually possesses any of the perceived value, quality, features etc., is irrelevant to the discussion of perceived value. A good example of this principle is the Motorola Razor. When introduced, it was very thin and sported a simple and somewhat elegant exterior design. Because of its outer beauty, there was a “perception” of an inner beauty in terms of its hardware design and engineering. How many times have we made this same assumption socially only to realize that beauty, in many cases, is only skin deep. I can remember how enamored my daughter was with the device. Her contract was up for renewal, so we purchased the phone and brought it home. We realized very quickly that perception can be a slippery slope. The hinge was flimsy, the keys were inconsistent, and the reception was horrible. Taking that unit back for a replacement did not rectify the solution, but instead revealed additional problems with the product. Finally, my daughter gave up and went with a different phone from a different manufacturer.

Brand Recognition is arguably the most important market force in terms of the success or failure of a product, good, or service. As the accumulation of design, quality of manufacturing, advertising, user experiences, and media accolades, brand recognition is the symbolic embodiment of that which is known regarding a company, product, good, or service. The pinnacle of brand recognition is the establishment of an instantaneous, automatic, and associative response to a corporate identity. For example, I can remember the days when I would accompany my father to the local electronics store to purchase a new family television, he would always look at the Sony products first. I would ask him why and his response would always be the same, “We will start with the best and work our way back.” I can remember the restless nights in my bed unable to sleep the night before a family outing to Disneyland. My insomnia, was the result of an associative recognition of the name Disney which equaled fun and entertainment in the unsophisticated psyche of a young boy. The associative response of beautiful design and precision engineering races into my mind whenever I see the familiar badge adorning the Stuttgart Coat of Arms (insert Porsche badge), or the three-pointed star of Mercedes-Benz. This response stems from my knowledge, both first hand and through extensive research, of these companies which consistently produce vehicles of the highest standards of quality, design, and engineering.

DOES SIZE REALLY MATTER?
At the end of the day, it matters not which market force delivers the world to your doorstep, the product must deliver. Companies like Sony and Microsoft have seen their market values and shares decline because of failures in the marketplace (Can you say PS3 and Vista?). However, for those companies which focus on delivering great products combined with an enjoyable customer service experience, there will indeed be a “Pot of Gold” at the end of their rainbow. The marketplace will reward beautiful design and precision engineering. Companies like Mercedes-Benz, BMW, and many others have proven that there is a global segment of customers willing to pay a premium for design and engineering.

It is this very paradigm that has been the impetus driving Apple Inc., to their success in the personal computing marketplace. For nearly thirty-three years, Steve Jobs has relentlessly pursued the perfect union of form and function. Whether he was leading the charge at Apple or Next, Steve has brought his uncompromising sense of smithsonian worthy design and style to every project under his all-seeing eye. Concerned with every aspect of a product’s design and implementation, Steve once responded to an Apple engineer who felt that no one would care what the PC board inside of the case looked like,”I’m gonna see it! I want it to be as beautiful as possible, even if it’s inside the box. A great carpenter isn’t going to use lousy wood for the back of a cabinet, even though nobody’s going to see it.” Channeling the real Steve Jobs, I think the fake Steve Jobs was very insightful when he said, “We march to our own beat. We think different. We’re not one of those companies that’s all driven by marketing and spin and hype. We just go to work each day and make the best products we can, the products that we want to use ourselves, and when those products are ready we put them out to the market and hope that other people love them as much as we do.”

THE COST OF REVOLUTION
The proof has been in the proverbial pudding. This paradigm has produced such revolutionary products as the original MacintoshiPodiPhone, and MacBook Air to name a few. All of these products either established new revolutionary product categories, or revolutionized established categories. Revolution does not come cheap. While it is hard to place a specific value on design and engineering, I think it best to borrow a phrase penned by Justice Potter Stewart, “I know it when I see it.” To this day, I can’t quantify that feeling of awe and amazement as I gazed upon the beauty of the iPhone for the first time, or the quizzical wonder of, “How did they do that?” as I held the razor thin MacBook Air in my hand and felt its superior build quality in all of its feathery lightness. How about the sense of, “This is how it ought to be!” brought on by that first symbiotic experience of OS 10? I can’t place an exact dollar amount on these feelings of complete satisfaction. The bottom line is that these feelings and sensations resulted in my willingness to pay a little extra for something superior.

Not everyone may see the value in superior design and engineering. Companies like Dell, Sony and the many other PC manufactures are hoping and banking on that very fact. There is indeed room for everyone on the digital dance floor of life. As with every other purchase decision, a simple formula will be calculated in our minds prior to every purchase, cost plus features equals value. When one considers the long list of features included in every Apple product, the price becomes a very competitive value. But are we really comparing Apples to Apples? If all of the hardware specifications are the same, then it comes down to design and engineering. Let’s be honest, how many people stand outside in a long line for the chance to happily plunk down their hard earned dollars for the latest offering from Dell? Beautiful design and engineering inspires fanatical passion! As to whether the added cost of an Apple Inc., product is bloated pricing or a design and engineering premium, we will let the ever growing market share speak for itself.

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