A New York Times article appeared on Sunday with the title: “So Far Rivals Can’t Beat iPad’s Price.”
The iPad 2, unveiled on Wednesday, offers several sleek improvements over its predecessor. But its most attractive feature is perhaps the same one its predecessor had: the price tag. And what makes that feature even more compelling is that so far, Apple’s competitors in tablets cannot beat or even match it.
There are some good points raised in this article, but the title needs to be changed. The title of the article should read: “So Far Rivals Can’t Beat iPad’s Costs.”
Businesses compete on value and on cost. Value is the benefit to the customer (value proposition) and cost is the fixed and variable expenses to the firm for producing that value (cost structure). Value and cost are strategic, and price is a tactical choice that follows from your value-cost position and the competition. If a business offers more value at a given price, relative to a competitor, it will gain market share. If a business has a lower cost at a given price, relative to a competitor, it will have higher margins.
Confusing price and cost has caused the downfall of established companies. For instance, in 2003, Delta launched its Song subsidiary to compete with Southwest Airlines and JetBlue. Delta conceptualized Song as a “low-fare airline,” while Southwest and Jet Blue are low-cost airlines. What happens when you compete with low-prices, but are burdened by the high-cost structure of a legacy airline, such as Delta? Song was disbanded in 2006, after considerable losses.
