It’s not the Shiny Box that costs Extra
Everyone wants a cheaper Mac right? You never hear someone say "Man, I bought this Mac for $2500 but I really wanted to spend $2700. I'm feeling a bit disappointed." Of course the same thing can be said about any product. No one walks out with a bottle of Liquid Plumbr wishing it cost them $84.99 instead of a five bucks. Point A is now established: People want to pay less for everything and the Mac is no exception
You already knew that. But the whole "I wanna pay less" truism gets more complicated when Macs get involved. When it comes to Mac pricing people look at a Dell or a home built machine and wonder why there is a difference. This is something they don't do with Drano even though you can make gallons of Drano for a fraction of the cost of the branded stuff. Once the seeming price disparity is noted people start looking for reasons that Macs cost more
Allow a brief digression at this point. First off, Macs don't always cost more. Sometimes they are much less expensive than their PC counterparts. For evidence of this try configuring an HP to match the Mac Pro, the Mac Pro wins every time. So throw the Macs always cost more than PCs canard out of the window. And make sure you hit a passerby, nothing is funnier than being hit with a canard
Once people start looking for reasons cost more the always seem to come to the conclusion that it is the industrial design, the minimization and the engineering. Those three reasons are really one reason: Macs cost more because of they look cool. In some ways, the idea makes sense. Take a look at the new MacBooks, carved out of a single piece of aluminum that case simply has to cost more than a plastic PC case. And what about the Macbook Air? So tiny! It must have cost a lot of dough to shrink something down to that size! The most often cited example is the mini. The belief being that because the mini has all that mini goodness crammed into a small box it must cost extra to achieve the mini's form factor. If only, the reasoning goes, Apple would skip the interesting design Mac users would reap the benefit of a competitively priced machine
It is an easy thing to believe especially when Steve Jobs says "We don't know how to make a $500 computer that's not a piece of junk; our DNA will not let us do that." but it just isn't true. Starting at the beginning: the Mac mini has been out for 3 years any cost incurred in designing the form factor has long since been paid for. Any costs of miniaturizing the machine are long since paid for. In fact, the mini has been around long enough that it should be substantially cheaper now than it was when it was introduced if the miniaturization of the box was the primary factor of cost but it isn't, it is more expensive
Couple the mini's price rise and the earlier example of the Mac Pro being absurdly competitive and it is established that you're not paying extra for the aluminum or for the engineering. As obvious as the conclusion is the argument remains unsatisfying, we're talking about the dregs of Apples line up when everyone else is falling in love with the new MacBooks. So, for the sake of completeness, a look at the MacBook's transition from cheap plastic to beautiful aluminum is in order
Apple isn't making the MacBook out of just any aluminum, the company is carving the case out of a solid brick of the stuff. No deep drawing here! The manufacturing method is to take a solid block of shiny metal, carve it up like an intricate pumpkin and shove the guts of the machine into the newly hollowed out piece of aluminum stock
No mortal with a whit of economic sense would tell you that it is cheaper to make a case out of a solid piece of aluminum than a bit of molded plastic. But just how more expensive is it? Well, first you'll have tooling costs. In the case of the MacBook you have a raft of knives, coolant and associated problems. With the plastic Macbook you've got relatively cheap tooling. Tooling quotes (which I've done plenty of times) are an iffy business so we'll just take a stab at the costs and put the new MacBook tooling at 3 million dollars and the old MacBook tooling at a cool 500,000 grand. Spread that out over the first million MacBooks sold and you're looking at $3 per machine
As noted before there are also raw material costs. Aluminum trades at about a buck a pound. Plastic runs (depending on the type) somewhere between .72 and a buck fifty a pound. That's not a big difference but just to be sure that aluminum is pretty cheap remember that they make soda cans out of the stuff. Not just plain aluminum but plastic coated aluminum. If aluminum is cheap enough to make cans out of…
The raw material cost isn't the whole story. The biggest part of the difference is the cost to work the material. Plastic is cheap to mold and so forth, aluminum is cheap as well, but not nearly as cheap as plastic. If a plastic part cost a dime, a steel part cost .30 cents and an aluminum part probably costs a buck
Let's sum up the numbers: You pay three hundred extra for aluminum. Apple gets to not give you a FireWire port. You get a glass track pad. Apple gets to skip the button. How much more should the new MacBook cost over the old design just by the numbers? About, and being super generous here, fifteen or twenty bucks per machine
That number doesn't remotely resemble the price increase. But don't get carried away. Go and heft a MacBook, try out the track pad. Take a look at the gorgeous design and decide if the better case and improved looks are things you are willing to pay for. If they are then you know how Apple really prices products. The company prices Macs by how much people think they are worth rather than by how much they actually cost. That notion that Apple just slaps the highest number on their machines that people are willing to spend infuriates some people. They want a cost + X% pricing model. That model is pretty rare for business in general and makes absolutely no sense for Apple who is selling notebooks like crazy
Infuriating or not at least it has become clear that you're not paying for engineering, miniaturization or clever case design. When you buy a MacBook or MacBook Pro the price includes demand (the Mac Pro features a demand discount) and as long as demand for the best notebooks around stays high so will the prices. Or, from Apple's perspective, why charge less if you don't have to?
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This article was very intellectually honest. Good job.
Reminds meof a recent conversation I had with a guy who has, for the last 35 years, been a business mentor to small business operators.
On the subject of hourly rates, we all get taught, of course, to work out your costs add desired profit and divided by the number of hours you expect to work.
However, he said you simply charge what the market will pay - which is often much higher than the above formula.
Good article, Chris.
“The company prices Macs by how much people think they are worth rather than by how much they actually cost.”
Know-nothing anti-mac propagandist creep.
Thanks Chris and simo66. Oh, and thanks zato. But I thought that was a pretty pro apple article. People can complain about the price all they want but when Apple is selling record numbers of Macs, growing faster than the competition and so forth it is almost to impossible to argue that Macs are over priced.
In this day and age where globalization takes place left and right and where OEMs are everywhere. I believe at least some of us want a product no matter it is a computer or a piece of accessories that is “more” unique and special and not just another cheap rip off or assembled using different parts from different places that don’t “really” match. I for one though not truely an Apple fan are very glad to see that apple is do well with their product which means they can have the money to develope more interesting product. Furthermore, I believe consumer should pay for the design on these consumer products. Else, look at the PC market. It is at best a better bang for the buck. Not to mention about the software that apple put in to the OS X. But that is another story all together.
“The company prices Macs by how much people think they are worth rather than by how much they actually cost. That notion that Apple just slaps the highest number on their machines that people are willing to spend infuriates some people.”
The truth often does.
Seems you missed the :-
LED Display
Illuminated Keyboard
Larger Hard Drive
2GB Memory
They don’t come for free
You’re right Parky, the new MacBook does have all those things. However what I generally hear is: it is the case, the design, the engineering. Which I find ridiculous.
Still, you are correct those upgrades (except for the illuminted keyboard which is accounted for in the tooling cost) don’t come for free. But they cost much either. I’d bet the biggest cost is the screen. Still I suspect none of those changes add up to anywhere near the 300 dollar premium over the white MacBook (and don’t forget the graphics card).
Still, it isn’t $300 worth of goodness. But seeing one and hefting it it does seem $300 better. At least.
In business you price products at a price you think people will pay to sell the numbers you want to sell. It is called supply and demand. If the price is too high then people will not buy it. If the price is correct then people will buy the product in the numbers you expect and therefore it is the correct price to sell at. It is about worth and value to the customer NOT about what a device costs to build. Many things cost next to nothing to make or certainly no more than a cheaper competitor, but people buy them because they are what they want. Good design and more expensive manufacturing and materials may not cost $300 more than the old version but if people are happy to pay for the MacBook then Apple have got the price right for them and their share holders.
Quite right Parky, that was kind of the point of the article.
“In business you price products at a price you think people will pay to sell the numbers you want to sell.”
That’s exactly what the article is about. That makes your previous comment pretty much irrelevant, doesn’t it?
“People can complain about the price all they want but when Apple is selling record numbers of Macs, growing faster than the competition and so forth it is almost to impossible to argue that Macs are over priced.”
I think the notion of ‘over priced’ is becoming somewhat misleading, you can construct a notion of value whereby anything is priced correctly.
Its much safer to say that Macs are expensive. Yes you might like it if they were cheaper, but Apple has the right to price their laptops as they see fit, and you have the right to purchase something else.
If Apple were in the position of say, Microsoft, their pricing scheme would be less defensible.