Apple's edge: fewer choices

TalkBack 5 of 44:

Next »

« Previous

• Thread View
• Flat View

I Think You're Onto Something Here...

This is actually one of the most intelligently conceived articles I've ever read on ZDNet. Apple's business model shares more with Honda's than Derek Moeller's article describes, but he nailed the most essential principles -- the ones that provide the keystones of a more thorough analysis.

One of those keys is provided by Ronald Coase's brilliant, Nobel prize-winning work on transaction cost theory. In discussing the cost of learning enough to make the initial buying decision, the author zeroed in on the cost of acquisition part of the equation. It's true that information is not free -- ever; there is always a cost of acquisition associated with finding the right information and interpreting it for one's own specific purposes.

But I'm not sure I agree with the suggestion that those who buy Honda's cars or Apple's computers characterize a market of relatively unsophisticated users whose principal buying decision criterion is the lower transaction cost associated with having fewer choices. There is another factor Involved in the buying decision: cost of ownership. Though it's not strictly a transaction cost, it can easily be accommodated in the buying decision by simply anticipating its impact on the overall experience in owning and using the product. Honda and Apple both share the low cost-of-ownership characteristic; Honda's cars are consistently at the top of the ratings in reliability and lowest frequency of repairs, and Apple's computers are well-known (at least among their users) for their low-maintenance, low-downtime operability.

Buying decisions that anticipate low cost of ownership are, in my experience, typically made by more sophisticated users, not less. It's not a matter of their being less well-informed than more technically savvy users; rather, it's a matter of their being BETTER informed as to the suitability of the products they buy for their purposes.

The key factor that ties it all together -- and, to be fair, the author nailed this one -- is QUALITY. Honda's cars and Apple's computers sell at the high end of the price range because it costs more to design and manufacture them. Their higher quality results in higher durability, longer usable life, and therefore less frequent purchases, which is also part of the lower cost-of-ownership equation.

The author asks:
"So the question is this: Is there a significant market of customers for whom the transactional cost of accumulating knowledge about brands is so high that they simply prefer having fewer choices?"

Perhaps a question that more accurately reflects the characteristics of the two markets -- Honda's and Apple's -- that the article addresses would be:
"Is there a significant market of customers who are sufficiently knowledgeable about the available products that they NEED (not prefer) fewer choices?"

There is certainly a transaction cost (i.e., acquisition cost) factor associated with such buying decisions, but the cost of ownership seems more likely to be the principal factor, especially given the unusually high brand loyalty among Honda's and Apple's customers.

Techies who want the newest new box every 6 or 12 months just to stay on the bleeding edge are sufficiently well-informed to minimize their own cost of ownership. They have relatively low transaction costs because the time they invest in staying informed about technical details isn't something they consider to be a cost at all. It's part of their pursuit of happiness, and they constitute a significant market too. They have more choices because they NEED more choices, and the market accommodates them by filling that need.

But there are many others whose interests are not in the the technology itself. They're interested in its use as a tool to accomplish other tasks. Honda users want reliable, high-quality transportation, and Apple users want a reliable, high-quality user environment in which to perform their computing tasks. They know which products provide what they want, and they're willing to pay for them. There's nothing unsophisticated about that.

And there's nothing new or surprising about it, either. There's an old maxim: "People who don't have a lot of money can't afford to buy cheap stuff." For people who make their buying decisions based on low cost of ownership, Honda's cars and Apple's computers make good economic sense.

Posted by: native alien   Posted on: 10/18/04 You are currently: a Guest | Members login | Terms of Use

Alert moderator to an offensive message

Subscribe to this discussion via Email or RSS

SponsoredWhite Papers, Webcasts, and Downloads

• Five Steps to Determine When to Virtualize YourServers VMware Server virtualization isn't just for big companies. Entry-level ... Download Now
• Virtualization: Architectural Considerations And Other Evaluation Criteria VMware Of the many approaches to x86 systems virtualization available in the ... Download Now
• The Impact of Virtualization Software on Operating Environments VMware Today's use of virtualization technology allows IT professionals to ... Download Now