Tuesday, December 8, 2009

Dell Suffers Budget Box Blues

Dell, a commodity box maker lacking durable competitive advantage, has suffered what Jaded Consumer predicted: price competition leading to crushed margins. As Dell has scaled down its component expenses, though, it's suffered a quality problem: warranty costs have blossomed even as retail prices collapsed. Apple, by contrast, is using its high ASP to support highly-reliable product shipment. Thus, even though Apple's historically stable and relatively high average sales price has declined, it's profit has increased.

The lesson? First, it's an illustration of the price paradox: cheap things often aren't. Second, it's an illustration of the value of product differentiation. There are doubtless other lessons to learn, among them not to count Apple out.

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