On iPod pricing, competition and the value of a full package
I've noticed a couple reports from analyst firm Gartner Research that claim Apple's pricing on the new iPods betrays an increased interest in profit margins at the expense of market share. These reports focus on the iPod nano's pricing of $199/4GB and $249/8GB as being a bit high, given their estimated materials cost of $90 and $130, respectively. Admittedly, similar players from competitors such as Creative do beat out Apple in pricing; the ZEN V 4GB player is only $159.99 – but what rulebook dictates that a higher price on one particular member of a product family (by and far the most popular member) definitively means the company doesn't care about market share?
These reports don't seem to mention anything about the nano's big brother (unless MacNN and Playlist used some sneaky cut and pasting techniques), where Apple is competing quite well: they dropped their 30GB iPod price to match that of Creative's 30GB ZEN Vision:M ($249), and the 60GB ZEN Vision:M (if you can find it on their site), is reportedly $399 – a full $50 more expensive for 20GB of less storage.
Gartner's claim that competitors like Creative and Microsoft's new Zune could start chomping at the iPod's market share, based solely on the profit margins of one member of the family, also doesn't seem to take into account the value of the full package that Apple's iPod offers, such as seamless, 'it just works' integration with a leading digital media store (maybe Gatner simply forgot that the existence of Apple's margin-thin digital store leans fairly heavily on the popularity of the iPod).
While there are plenty of consumers out there to whom a $40 difference between an iPod nano and a ZEN V can (understandably) make or break a purchase, the are still other important factors consumers can evaluate for a DAP purchase. Unfortunately, some of these elements aren't capable of being factored into an analyst's equations, but Apple is clearly still banking on their weight with a consumer's dollar.