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Business Random Thoughts

Is that luxury or high-end utility?

I think everyone’s got an economist inside of them, at least when it comes to product classifications. I’m sure you’ve had your share of rants, raves, and complaints about a product’s value versus its utility. Why do we have to get into an argument that’s based on our perception than facts in the first place? I wish I knew the answer.

Heck, I’ve had my share of debates with friends, family, and foes on an iPhone’s utility compared to its rivals. In fact, I got so sick of it that I ditched the product for a better alternative last year*!

But the real question is if Apple and similar brands in other industries really into selling “luxury products?” Believe me, the answer isn’t that simple but there sure are debates and assertions all over the internet. Including the most famous ones (alright, I’m sure there are many but these are the ones I followed):

  1. Seth Godin’s rant on Apple being a luxury tools company. He thinks the company is losing out on utility.
  2. David Terrer, digital & social business evangelist, believes that the company caters to the mid-range and luxury end of the market, particularly its “watch” division. (In response to Seth. And I think David just might be right. Particularly about the watch market.)
  3. Bob Garfield based on his experiences thinks that in pursuit of being a high-margin luxury brand, Apple must eventually be less functional. (I disagree with this fundamentally, but Bob’s emphasis is on the “pursuit of becoming a high-margin luxury brand.” And if that’s true, anything’s possible.)

I think they are all right in one way or the other. But it might be useful to review what does it take to be a luxury good. Here’s a definition:

In economics, a luxury good (or upmarket good) is a good for which demand increases more than proportionally as income rises, so that expenditures on the good become a greater proportion of overall spending.

https://en.wikipedia.org/wiki/Luxury_goods

Going by that definition and the fact that millions of iPhones and other Apple products are being purchased every year, I can only think of three possibilities:

  1. most people are rich enough to afford a luxury product or two; or
  2. the products happen to be in a range (end-range, perhaps?) of being afford, so while people can buy it for most it can be a stretch.

Of course, I don’t have to spell out which one actually makes sense. I believe companies like Apple position themselves well and wouldn’t take the risk of catering to just one class of customers. Just review their latest iPhone line up ranging from the cheapest to the most expensive: iPhone 11, iPhone 11 Pro, and iPhone 11 ProMax.

Now, you don’t have to get an iPhone 11 ProMax if the cheapest alternative would work for you. But if your purpose is to flaunt and use it as a tool for sending signals (that you’re rich and belong to a particular class of the society), then may be the iPhone for everyone wouldn’t make the cut.

I think Apple caters to the high-end utility market, which means they’re expensive compared to similar products that offer utility. Being “high-end” almost always means expensive. For Apple, the core focus would always be to create products that offer utility.

Of course, how you look at Apple depends a lot on your purchasing power but that doesn’t have anything to do with the market that the company intends to serve. If you’re still not convinced, let me give you a glimpse of what a luxury phone will be like (source):

  1. The Virtue Signature Cobra sells for $300,000 and up.
  2. The Falcon Supernova iPhone 6 Pink Diamond (as you can tell they took the iPhone 6 and coated it with twenty-four-carat gold and smashed in a massive pink diamond on its rear) which sells for $48.5 million dollars.

Now, that’s luxury, and I’m sure you can tell there’s a difference between being expensive and exorbitant.

I think of product classifications in differently. In four specific terms and while I think it’s pretty much universally applicable, I’m listing a few examples from major mobile phone and car brands for relevance:

TypeMobile PhonesCars
UtilityXiaomi, OnePlus, Samsung, LGToyota, Honda, Suzuki, Ford, Chyrsler, Nissan, Volkswagen
High-end UtilitySamsung, Apple, Google Pixel(The entry-level models of) Land Rover, BMW, Audi, and Mercedes and (almost all of) Toyota and Honda
LuxuryVirtuePorsche, Land Rover, Acura, Lexus, Genesis, Maybach, BMW, Audi, Mercedes
High-end LuxuryFalcon SupernovaFerrari, Lamborghini, Aston Martin, Rolls Royce, Bugatti, Bentley, Maserati,
Source: yours truly

If you notice, there are overlaps. There’ll always be one because marketers are aware of the perceptions people have and the signals they want to send to their peers, colleagues, and the society at large. They’ll try their best to maximise their reach and penetrate into seemingly unprofitable segments (Apple iPhone SE, Pixel 3a, Samsung S10e).

So, the crux is simply this — just because a product is expensive (or perhaps you and I can’t afford it) doesn’t make it a luxury. While high-end utilitarian products are often used as a means to send social signals, they actually are pretty awesome tools and should be treated as such.

At the end of the day, what you buy is a choice driven by several considerations and while finance (aka affordability) may be one of them, it’s not the be-all-and-end-all of everything. You don’t have to alienate a company just because it’s products are expensive. It is okay. The company understands and so does the society. That said, you don’t have to go out on a limb to be able to afford it either. And if that’s you, product classification is least of your problems.

P.S. * Well, I switched to the iPhone again early this year. My trusty Samsung S9 broke. Literally. This one’s a company phone and I’m quite happy with it. I bought the iPhone 11 — the one for everyone — and have no regrets.

P.P.S. Still feel Android’s so much capable but lacks the finish and refinement that iOS has. If I were to buy something myself, I just might go for the iPhone again (perhaps, the cheapest of the lot) because I don’t have to think a lot.

P.P.P.S. I don’t feel part of the “tribe” anymore. The iPhone is just another phone. It sure doesn’t make me overthink about the tool I’m using and helps me get done. Period.