Why you do not yet see a MacBook Air with Retina Display

There are enough tech blog posts on rumors about MacBook Air getting Retina update and on desires of many to get a MacBook Air with Retina display. The latest MacBook Air refresh from Apple did not include Retina display. Well the MacBook Pro 13″ version has it. The 15″ version has it. Why not the MacBook Air?  The right answer is customer value perception and Apple’s value capture.

A recent CNET article on  why MacBook Air still does not have Retina display makes its argument based on technical limitations and cost,

 because the technology is still being perfected it will take time to bring production costs down, she said. And that’s important for Apple, she said. Costs need to come down enough so Apple could use the display in a MacBook Air-class product without jacking up the price too much.

Technical issues are not limitations, if it is important Apple can workaround those limitations. And costs? Anyone can compute what the costs are (Henry Ford), but price always comes first. Since when did Apple  price its products based on the cost to make them?

As a marketer (or product manager or a startup founder) we should ask –

  1. What jobs does Apple want customers to hire MacBook Air for?
  2. What jobs does Apple want customers to hire MacBook Pro for? (could be same customers different jobs, different customers different jobs)
  3. How does Apple think those jobs fulfillments are improved by adding Retina display to the product? (what is the incremental value add to the two different customers?)
  4. Is Apple able to capture its fair share of the incremental value created in the form of price premium?

To answer (1) and (2), after misleading you to think that these are really two different segments and two different jobs I posit here that it is really the same segment and same job. Apple is simply offering two different candidates for the same job, making the customer choice be between its two products rather than between Apple’s and a competitor’s product.

Given this segment and job – Some prefer the lighter weight and  longer battery life and are willing to give up faster CPU, others prefer the CPU horsepower and are willing to compromise on weight and battery life.

Now to answer question (3)- Is there incremental value add from Retina screen?

Let us look for clues in how Apple is pricing MacBook Pro 13″ and 15″ versions for this. Because price is a function of value and looking at pricing we can approximate  customer value perception.

Here is the 13″ MacBook Pro version. I normalized with same 8GB RAM for comparison. The Retina version comes with 8GB RAM and only SSD disk. This indicates these customers see no incremental value from Retina.

MacBook Pro 13"

Here is the 15″ MacBook Pro version. Here the Retina costs $100 less indicating ever worse value perception by customers.

MacBook Pro 15"

Apple’s data must indicate customers hiring MacBook Pro 13″ version see little incremental value from added feature of Retina display and those hiring 15″ version see their total value decrease. Hence the prices.

So what does this say about incremental value from adding Retina to MacBook Air? Take a look at the comparison of 13″ MacBook Air and MacBook Pro

Comparison

Apple seems to be able to capture almost all value it can from MacBook Air with its current pricing and by positioning it as  better portable with longer battery life. There is not much value gap left between the two models that Retina display can fill

The price difference (hence minimum value difference) is $300. That can be explained by

  1. Gain a processor with almost double the speed (which does not translate to double the application performance). Apple offers CPU upgrade to 1.7GHz at additional cost of $150. There goes half the price differential for still lower CPU speed.
  2. Gain retina display – which we saw did not get any value in the 13″ and 15″ versions.

 

Which implies that if MacBook Air Retina is wedged between these two versions it stands to get no price premium or worse will erode current prices. Apple pretty much will have to offer  Retina only MacBook Air model, replacing current models, at the same prices as current models.

If there is even minimal marginal cost to delivering Retina display in MacBook Air but  if it adds no incremental value  to customers or offers no opportunity to capture that value as price premium, why bother delivering that extra value? (Like not adding earphones with iPad.)

If you do not see MacBook Air with Retina it is because of value and value capture reasons and not technology hurdles.

 

 

 

The New MacBook Air Pricing – Not just the iOS UI is seeing flattening

Two years ago I presented you with the following analysis of MacBook Air pricing.

In summary, there are two prominent choice dimensions – screen size and disk capacity. There are minor differences in CPU but the two dimensions Apple wanted customers to focus on were clear. I showed you why there was a 11″ MacBook Air in the pre-configured models.

One thing you would have noticed in the last line up was the multiple levels and gaps.

Perfect Price Diagonal

With yesterday’s announcement at WWDC there is a new much cleaner product lineup.

Slide12No more 8 possibilities with 4 holes but a complete 2×2 with no gaps. This is a result of two standardization decisions

  1. No more 64GB model. With prices of SSD continuing to fall, Apple found they cannot maintain their price premium. Instead of keeping 64GB version and lowering ASP they simply moved to 128GB that protected their ASP and likely their gross margin (due to decrease in SSD costs)
  2. Single CPU model – 1.3GHz, dual core Intel I5 processor. While this likely reduced the ASP because of elimination of $1599 model, they likely kept their margin because of lower marginal cost.  The $1599 model was likely losing volume anyway as it shoots past  13″ MacBook Pro that offers Retina display ($1499).
    Furthermore for those who wanted customization they do get to capture $150 in incremental revenue from CPU upgrades.

Another point you would have noticed in the previous line-up is both the 11″ models were priced below the lowest priced 13″ model. That is no longer true. Gone is the perfect price diagonal and in its place a zig-zag pattern.

This is because of the price premium they were able to charge for the 13″ over 11″. It dropped from $200-$300 to mere $100. And this is something they likely found using conjoint analysis (don’t believe those who say Apple does not do customer research).

The perfect price diagonal is now replaced with another simple pricing rule

– Move along X axis, price changes by $100
– Move along Y axis, price changes by $200

So not only is the iOS seeing design simplification (or flattening), their pricing is also going through simplification. Every model that is there now is there to serve a specific segment and not as a ploy to sell another model.

Compare this to MacBook Pro models (HDD models configured as 8GB RAM for comparison)

13-retina 15-retina

 

If I make a prediction for what is ahead for new MacBook Pro models, similar model flattening and simpler pricing.

MacBook Pro

 

Why I Think Google Chrome Pixel Pricing Is Wrong

chrome-pixelWhen Google unveiled its new touchscreen laptop, Chrome Pixel, Chrome executive Mr. Pichai said

the high price tag was justified and argued that the Pixel stands up very well against a MacBook Air

It is usually a bad sign when a brand uses words like, “the pricing is justified”, let alone  comparing against market leader with established track record in the category. Last time we heard the price tag justification it was from then Motorola executive on Xoom pricing. We know how it ended (agreed, one data point does make evidence).

If you are going to justify your price tag the best path is to use cost arguments, signaling to customers that you were doing it only because of your hardship and appealing to their “good will”. Classic example is Starbucks. While you set the prices based on customer value (and definitely not on costs) you do not communicate so explicitly to your customers.

This is how head to head comparison of MacBook Air and Chrome look like (after upgrading MacBook Air to 8GB RAM).

Macbook Air - Chrome Pixel Comparison

Let us assume, for now, that indeed Chrome Pixel is packed with features, compares favorably against MacBook Air. But does that mean Google can set the price point to match value delivered (or perceived)? No. The reason is the Value Waterfall.

Value Waterfall

Several factors are at work here that cause value leaks, bringing down the price customers are willing to pay. In case of Chrome Pixel, the value leaks are

Credibility Discount: It is from a brand that isn’t known for making premium hardware. Nor is the Chrome operating system as mature, full-featured or have supporting App ecosystem as Apple’s OS X.

Selection Cost: Customers are told the additional value comes from touch screen feature (which may not be relevant to them) and from the extra 1 TB of Google Drive storage for 3 years. This isn’t as obvious to customers who have to do the math to see value of 1TB of Google Drive.

Cost of Doing Business: Operating System, Apps, buying experience, support, user experience – everything comes into play here knocking down value delivered.

Risk Aversion Discount: This isn’t the first attempt by Google in making hardware but there isn’t much track record for customers to see. For all practical purposes this is version 1.0 from an upstart laptop maker who does not have integrated hardware-software design.

Reference Price Difference: While Google wants the reference price to be that of MacBook Air, customers will most likely use previous Google Chrome models sold at $299 and tablets with same storage ($499 for Nexus 10).  Despite the additional features and the value Google would want customers to focus on, customers will see the price jump from $299 Chrome to $1,299 Chrome Pixel an unpalatable (and even unjustified) price increase.

So it is not a surprise we see several media reports knocking down Google’s pricing. In his review of Chrome Pixel, Om Malik wrote,

Pichai and I argued a bit about the pricing strategy: my belief is that they need to sell a lot more devices so the price has to be much much lower. Pichai argues that one needs to be able to open our mind to the possibilities of a cloud-based machine. He said that one shouldn’t look at the 32 GB of storage, but instead focus on the terabyte of storage space that comes as part of Google Drive.

Google is not only trying to justify its pricing but also its measly 32GB storage by signaling value from its 1TB cloud storage. But the Google Drive cloud storage comes for only three years and costs $50 a month. On the surface it would appear the 1TB space is good value – if you were to get it separately it costs you would pay $50 a month and hence a value of $1,800.

But that depends on a customer segment that values cloud storage over additional flash storage on their laptop. Besides after that three years it is going to cost customers $50 a month because with all their data on Google Drive there will be significant switching costs. This goes back to the value leaks I discussed above.

Finally, is it possible that they uncovered a segment that values this product at the current price point and we are not the target segment? Mr. Pichai replied to Om,

“The device is for a segment committed to living to the cloud, and who really want a good, high-end laptop, and we believe we have built the best laptop for that experience,”

If true then they should have controlled the messaging channel and the messaging to communicate the pricing and value proposition to just that segment with proper product positioning.

They are not clear in their product positioning to that segment – they are positioning Chrome Pixel against MacBook Air, asking customers to hire Pixel for the same job customers hire MacBook Air for and for the same price. That contradicts their segment definition of “committed to living in the cloud”, because that segment may be hiring different cheaper alternatives and not $1,299 MacBook Air.

Furthermore even if such a segment exists, their willingness to pay will probably go down when they see the media reports on Google getting its pricing wrong.

At this point it is safe to drop likelihoods and probabilities and go on record to say, “Google got its segmentation, targeting, positioning, product and pricing wrong”, with its Chrome Pixel.

 

What is it you are paying for with different MacBook versions?

Let us normalize on 13″ screen size and 8GB RAM.

Let us configure a 256GB MacBook Air, MacBook Pro with 500GB ATA drive and a MacBook Pro with 256GB SSD.

This is the pricing distribution. Can you see how Apple is pricing based on our willingness to pay and not on their cost to make it.

For instance, if the price of MacBook Pro goes up by $500 for going from 500GB ATA drive to 256GB flash, what is contributing to the $100 (1,299 – (1,699 – 500) = $100)  extra being charged for MacBook Pro?  The faster CPU? Optical drive?

None of the pricing is based on cost to Apple, it is highly likely based on their number crunching – knowing how many customers value what at the respective price point.

The real magic and amazing thing is in the pricing – pricing driven by analytics and segmentation. Focus just on the fact the numbers end in 99, you LOSE.