By Richard Menta 5/3/09
In 2006 both my car and my wife's car were badly due for replacement. We were doing pretty well, two very good incomes, no kids and money in the bank. Most people in our situation would have put half down on a Lexus, half on a BMW and thought nothing of it.
Now my wife comes from a working class family where her grandparents were children of the depression. They lived quite modestly on meager retirement money, but that didn't seem to phase them. They were used to tough times and tight funds and long ago dispensed with the frivolities of our rabid consumer culture. "What do you need?" is what they used to always say to me.
There was a seasoned logic to that phrase and it struck a chord with me. Nice things are nice, but when you compare a regular apple with an extraordinary orange the apple still tastes pretty good. Just as important, they both equally fill the stomach.
When I was researching cars "What do you need?" reverberated through my mind as the spouse and I compared specs between fun upscale autos and pragmatic family wagons. In the end, "What do you need?" just made the most sense. I selected a Honda Accord for myself and she chose the Chrysler PT Cruiser as her mode of transportation. We didn't load them up with extras either as commutation was our key need. Both cars cost us under $20K after negotiations and I bought them both outright.
Now, there are a lot of people in this country who view buying one, let alone two, cars for cash as nothing more than a wonderful pipe dream; something great for the affluent, but far out of their reach. I'm very fortunate I had this option and very thankful as we have since added a child and subtracted an income. But in my neighborhood at that time this was clearly not enough for many of my neighbors. Keeping up with the Jones' ensured for many years that the families around me always had a hefty car payment.
Me, I find tremendous value and peace of mind in the fact I don't have to send a check every month for the privilege of going to work. I drive an apple, but with a manual transmission it does do 0-60 in 7.5 seconds, so it's a darn satisfying apple. A 28 MPG average didn't hurt either when Katrina rolled into New Orleans two months after I bought the car.
Now it's 2009 and times (and attitudes) have considerably shifted. That Hummer H2 must feel like a lead weight to those on the five year payment plan. Meanwhile, MacMansions are still unsellable, because monstrous property tax hikes are checking plummeting prices. The mantra of "What do you need?" is in vogue again.
How this affects Apple Co.
Needless to say, with an expertise is in digital media my mind drifted to the many families who already have several Apple iPods in the house. Is the love affair we have with our pricey toys coming to an end? In the world of "what do you need" it is hard to justify replacing a perfectly good iPhone or iPod touch just to get the latest model. Portable music and video hardly qualify as necessities in life.
Apple makes truly compelling equipment and, for many, upgrading to the latest greatest means that they are an active participant of the mobile revolution. The myriad of useful and relatively inexpensive applications on the new iTunes App store alone have proved to be a compelling reason to invest in one of Apple co.'s high end mobile devices. But once you already have one, and it works fine, do you need to replace it so quickly? This particularly goes to the first generation iPhone buyers who paid between $500 and $600 to Apple on top of the highest average monthly service charges of any smart phone user.
The rise in technology in this country was fueled this past decade by the fact that rapid change incited, rather than discouraged, consumers to buy more. But, the contraction in the economy is pushing each and every consumer to look closely at where their dollar and cents are going and then use this information to make sober decisions on future expenditures.
This doesn't mean a company like Apple is in any serious trouble. It just means it has to be quick to adjust. Apple and any company hawking $300 entertainment items need to be clear-eyed to thrive in this economic malaise. As I think more about it, it demonstrates how important the iPhone is for Apple and how that importance will grow over the coming year.
Remember when I said earlier that portable music and video hardly qualify as necessities in life? The truth is there are a lot of people out there who will say they would die if you took their mobile phone away. It doesn't matter that they survived this world quite adeptly before they owned one; mobile phones have become a critical necessity (at least in their minds) to a sizeable segment of this country's consumer population. We as consumers have wrapped the mobile phone into our daily routine so thoroughly that it partially insulates the phone industry from the slowed economy.
Some consumers have a downright emotional connection to the conveniences the mobile phone has brought us and that makes it easier for them to justify continued upgrades in both service and device. It helps that the phone companies have already trained a generation of users to upgrade their unit with each new contract. And let us not forget Apple co's brand power? That elicits additional emotional resonance.
I suspect this will keep the Apple iPhone train chugging along reasonably well, even if Mac and iPod revenues drop. Still, cautious consumers will look to save money. That is why everyone will be glued to Apple co's next product announcement, expected in June. Many are expecting the introduction of multiple iPhone models at tiered price points and possibly a newer larger iPod touch (or iTablet if Apple decides that a bigger iPod touch requires they define a new niche that sells to a different audience).
Rough times can be a challenge for the introduction of new products, even if those products do have an Apple logo on them. If Apple indeed has an iTablet on the horizon how will that fare in today's economy?
I suspect it will mostly depend on how Apple differentiates it from their existing products. I do considerable web surfing on-the-go with my iPod touch and while a larger screen would be easier for reading, a bigger footprint makes it harder to fit in the pocket. Also, a bigger iPod touch falls closer to frivolity than necessity for those who already own one the first two generation Apple touchscreen portable.
But, what if the iTablet is much more than a pumped-up iPod touch? While it's highly improbable it will ever fall under the "necessity" category a strongly compelling product could transcend cautious consumerism. Again, Apple needs to adjust their strategic goals from everything from pricing to feature set to anticipate as best they can what the market will cater to. There is nothing new to that statement, all product makers are doing the same. It's just a matter of doing it intelligently under adverse conditions. Those who do it best will do OK.
Objects of Desire v. Mindset of Necessity
"What do you need" is the mindset in today's economy. That does not have to mean feast or famine. It just means all manufacturers have to make doubly sure they deliver to consumers that sense of value. Apple is very adept at delivering perceived value as a walk through their Apple stores demonstrated back in March. It will certainly help if Steve Jobs is healthy enough to man the next product unveiling come summer.
When talking about films of the depression a famed critic astutely pointed out that while 25% of working population was unemployed during its worst moments, 75% still had a job. Still, conspicuous consumerism was considered reckless by those who still had their money. Conspicuous consumerism is how they mocked Wall Street fat cats in films of the 30's. White earbuds dotting the landscape qualify as conspicuous, but does an iPod come across the same as a mink coat or a Duesenberg?
I would also like to point out that consumers turned to entertainment as an escape from troubled times. The radio industry had its biggest growth during this era, so Apple's dominance in digital media can keep things moving along even as Microsoft continues to position $500 Windows machines against $1,500 Macs.
Apple products clearly fall in the "what do you want" category, but their best products fall under the "what do you desire" heading. Desire and need are not the same, but desire does help with the up-sell. The trick for Apple is to fine-tune that recipe of brand, price, service, and features to keep the registers ringing.
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