Apple ignores the middle

The company refuses to relent on price and aims to make the best product out there. And it succeeds.

By Kim Peterson Mar 22, 2010 3:42PM
James Surowiecki at The New Yorker sets off on a well-traveled path, writing about how Apple (AAPL) succeeds because it ignores the middle of the market.

But the idea is worth revisiting as the company gears up to sell its iPad tablet next week. There are other worthy competitors out there, and their products are cheaper.

"Apple’s assumption is that, if the iPad is also significantly better, people will happily shell out for it," Surowiecki writes. It's an assumption that has paid off handsomely for the company, as people flocked to the iPod and iPhone, gladly paying a premium when they could have bought a sufficient competitor for less money.

Companies like Ikea, H&M and the makers of the Flip video camera do well by selling things that aren't horrible and cost less, he adds. These companies thrive by focusing on "well-priced adequacy."

As it turns out, both the high-end and low-end companies are taking more market share, Surowiecki writes. Apple and Acer are finding incredible success. Pricey sports cars and the lowly Ford (F) Focus are solid sellers.

The middle of the market, however, is stumbling. It used to be that the middle was where the majority of customers were. That's not the case anymore.

"The companies there -- Sony, Dell, General Motors, and the like -- find themselves squeezed from both sides," he writes. "The products made by midrange companies are neither exceptional enough to justify premium prices nor cheap enough to win over value-conscious consumers."

More information for shoppers also hurts the middle market, he writes. People are less reliant on name-brands because they can get more information than ever about the quality of specific products. They don't have to trust a gut feeling that Sony (SNE) will perform; they can go on Amazon (AMZN) and get specific reviews of that Cybershot camera they're eyeing.

What Surowiecki seems to be describing is a general demand for quality at every price level. Cheaper products that are still well-made bring in the revenue, as do premium products (like the iPad, presumably) of high quality.

Middle-of-the-road products of so-so quality are tougher sells, even in this recovering economy.

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