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HOME TRENDS - LOOK AT APPLE FOR SUCCESS IN ECONOMIC DOWNTURN

Yesterday, I went to the mall to buy my son a new iPod for his 14th birthday.  It was around dinnertime and a beautiful day so maybe that's why the mall was so empty.  Maybe, but I really don't think that's the reason.

 

According to AIM's recent Internet survey of consumers across the country, the economy is significantly affecting consumer behavior and priorities.  65% of those we surveyed said that current conditions are affecting their spending for the home. Since AIM specializes in the home and home furnishings products, we were especially interested in home spending, but we also found that the economy is affecting personal budgets for food, clothing, and travel as well as for home improvement, furnishings, and entertaining.  Next week we will have more of the statistics from our survey on the Blog, but today I wanted to address my trip to the mall because I saw something else at the mall that gave me room for optimism.

 

As I said, the mall was empty.  All except for one store - the one store where I was headed - the Apple store.  And it was packed.  The customers in the store were mostly young, but not entirely.  Some of them were Baby Boomers like me and they were buying computers, iPhones and iPods for themselves (not just for their kids).  Apple has created and exploited a business model that other American companies should be emulating.  They have concentrated on design, innovation and brand marketing.  As a result, they are the acknowledged leader in their product categories.  According to Fareed Zakaria's new book, The Post American World and an Atlantic Monthly article by James Fallows, Apple is operating according to the "Smiley Curve" and they are generating substantial profits.  "The 'Smiley Curve,' named for the U-shaped smile on the simple 1970's cartoon of a happy face, illustrates the development of a product, from conception to sale."  At the top left of the curve are the idea, the high level industrial design and the engineering.  At the bottom of the curve are manufacturing, assembly and shipping.  Rising up on the right side are distribution, marketing, retail sales, service contracts, and sales of parts and accessories.  Companies like Apple that concentrate on the high sides of the U are operating where the profits are, while those that concentrate on the low part in the middle have a much lower potential for profit.  Like Apple, a lot of US companies are manufacturing overseas in low cost countries, but many of these companies are only concentrating on the low end of the curve.  Most of them are not very good at the high sides of the curve - especially design and innovation - where the process begins; nor have they concentrated on brand identity and reinforcement of the brand at retail.

 

If companies want to make it through this downturn or recession or whatever it is, they are going to have to differentiate themselves by concentrating on both of the high sides of the "Smiley Curve."  They can't survive by just concentrating on the low middle, by finding a lower cost source of supply.  As the cost for fuel and raw materials rises, the cheap sources of supply are drying up.  And they can't succeed by concentrating on only one high side of the curve.  Like Apple, to survive and succeed, during not only this period but also in the global marketplace of the future, will require an emphasis on both high sides of that "Smiley Curve."

 

Wall Street analysts are concerned that Apple may be vulnerable to slowing consumer spending in the United States because of its stronger presence here than overseas and because many of its products carry a premium price tag.  But if the crowds in the stores are any indication, I think they will weather this economic storm just fine.  Our AIM consultants report that the Apple stores in New York, Washington and LA are packed with foreign tourists, buying multiple iPods and Macs to take home.

 

As I said, my local Apple store was full of shoppers yesterday and they, too, were spending money.  When I purchased an iPod for my son, I was surprised to be asked for my email so that they could send me my receipt.  Of course, I understand that I will now forever be bombarded with emails from Apple.  And I was also faintly uncomfortable walking out without a paper receipt, but I couldn't resist the urge to join the paperless world.  I am now a loyal Apple consumer and I might even consider a Mac for my next laptop!  (More on this for another day...)

17 Comments
Posted on May 08 2008 by Robin
by kitty on May 12 2008 03:31 pm
I agree! Who would buy anything else (if they have the budget)? Apple has the products that everyone wants. The iPod is the "kleenex" of mp3 players--it's now the generic term for the product. As long as Apple can keep ahead of competitors in the fast paced category of personal consumer electronics, they will continue to win--even if their prices are at the top of the scale.
by Caitlin on May 29 2008 10:52 am
Although I suppose I am considered to be a member of this technological generation, I have to agree that I too feel somewhat uncomfortable in a paperless world. I was reading an article in the New Yorker the other day about the new hit TV show on the CW called Gossip Girl - which the magazine cited as "the best show ever", surprisingly enough. THe magazine stated that originally producers were concerned that the revival of the TV drama would not hit as hard as it once did, given the recent popularity of "reality TV". And, in fact, the show had a fair number of viewers its first few weeks, but not nearly as much as previous TV teen dramas such as the O.C. However, while the O.C. was able to boast big numbers of viewers, the Gossip Girl audience was almost entirely online. They were blogging, chatting, and even viewing entire episodes online, which left me a little uncomfortable.

As young as I may still be, I feel out of touch with this whole generation of communicating online. Aside from my generic screen name and the playfullness of facebook, I've always been cautioned about the dangers of chatting on the internet with strangers, and therefore the concept never appealed to me. However it seems as though the world is becoming more and more paperless, and I'm wondering if I need to jump on the bandwagon. It's truly amazing that a 19 year old can feel so out of touch.
by Terri on May 31 2008 09:43 am
I was also at the mall and it was pretty scary. Not many cars were even in the parking lot on a weekend. But it is true, people are still purchasing electronics, cell phones and gadgets for themselves and their children.

Some of us try to stay out of the mall setting because of the high and marked-up prices. Stores at large malls are really suffering right now due to the times.

Some people prefer to shop at home at home parties or have a home party themselves to save money on items that they would love to purchase. Home Decor Parties have done especially well in the home party business. Companies such as Private Quarters, for whom I am a consultant, give great hostess discounts, free and half-price items so shoppers can still purchase an awesome high-end product without breaking the piggy bank.

Some other home party businesses include Tastefully Simple, Pampered Chef, Lia Sophia Jewelry, and even passion parties - women just love to save money!
by Diane on May 31 2008 11:38 am
I think that a lot of people are really paying attention to where their products come from. When purchasing at big box stores or at the mall, you don't always know--and we are a society who requires answers. More and more store employees act like they just don't care!

For example, mall stores are full of cosmetics--they are the first thing you see when walking in, because that's where they make their big money. But because now people care about the source and physical origin of products more then ever, and we care about the values of a company behind those products we purchase, we want to purchase on a more personal level than before.

I find that women are happy and feel good about their purchases with me (Arbonne consultant) because I take the time to listen to them and their needs. Our company takes care of the earth throughout the whole process, and the products naturally take care of the end users.

You can save money over mall prices, use green products and packaging, and feel good about your purchase. I think people enjoy a more intimate purchase setting and benefit, I have educational information to share with them, and they know their purchase is helping a family here at home in the USA, as well as charities.

We are just becoming more aware as a society, and that's a good thing!
by sue on Jun 01 2008 11:41 am
I have to agree. I have a small import business and my customers want to know where our gifts and collectibles come from and what they are made of. We are very "green" thinkers, so we look hard at where and what before we add a new item. I am a baby boomer and started using cloth instead of paper, reuse everything and recycle, recycle back in 1975. I feel it is the one thing I can do to make a difference. Every part of our dorm petsR is recycled. Thank you for doing all YOU can.
by Dick Gillespie on Jun 03 2008 11:10 am
RE Apple- This is true in every mall I have visited and explains why their computer sakes are up 25% in first quarter when everyone maker was down. It is design and showmanship and they will continue their growth regardless of the economy.
by Jena on Jun 13 2008 10:20 am
I really enjoyed your Apple post. I thought you were right on and I wanted to share this short video about Apple Brand products and their employee philosophy with you that a friend sent to me. Click on this link to view the video: http://www.youtube.com/watch?v=VhCtj2DXTJc Please feel free to share it.
Jena Ritchie
by Veronica on Aug 22 2008 07:09 pm
Hello, You (the author) are quite correct. I have been watching my spending this summer very closely but I did purchase an iPod for myself back in July and I simply love it. Even though it was pricey, I bought it anyway. This was probably because I have been watching it for a while and wanted to buy one before the price increases....
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