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Shocker, this just in, successful companies use: - value-based pricing instead of cost-based pricing for products and upgrades - set lower gross margin prices

by tpurves 13y ago

Shocker, this just in, successful companies use: - value-based pricing instead of cost-based pricing for products and upgrades - set lower gross margin prices on a base model product in order to attract customers and upsell and cross sell to high margin add-ons and premium versions btw. Apple has sometimes been described as a flash memory distribution company. All the other stuff, the devices, itunes, the media business, the app store, serve primarily to help sell more flash memory. The lion share of apple revenue is attributed to hardware sales. Mostly iphone and ipad. Within hardware sales the BOM and markup for flash memory chips is the largest driver of gross margin.

seandougall 13y ago
Indeed. Back in the now-lamented good ol' days of build-it-yourself PCs, I recall learning that Intel made all their Pentium processors exactly the same, artificially limited the clock speed on some, and sold them cheaper. So the difference in manufacturing cost between, say, a 400 MHz processor and a 433 MHz processor was exactly $0, but somehow nobody seemed to get quite so up in arms about paying more for the extra value.
- CJefferson 13y ago
  I think you are mis-remembering history. People were extremely annoyed by this, and put quite a bit of work into figuring out how to clock the processors higher, and figuring out which processors could be safely overclocked.
- tpurves 13y ago
  You are essentially correct. Even today, all chips fresh off the fab (of the same family) cost essentially the same to make for the same die area. However, do to natural variance in the process they don't all perform the same. So chip makers 'bin' the chips for different speeds and very different prices, essentially based on scarcity. But then with each lot and stepping the FAB starts to get better and better at making the top bin chips, and variance reduces. That's where the marketers take over, down-binning perfectly good fast chips to serve low-end customer segments, under-clocking, fusing off perfectly functional areas or features of the the chips to protect their segmentation strategy etc. Intel, AMD, Nvidia do this all the time. That's how they get dozens of SKUs out of only a couple of chip designs in production at one time. That's why, at many points in history, you'll find bargain priced intel chips, that if you unlock them, turn out to work exactly as well as 'extreme' or luxury-priced chips, that had just been artificially down-binned and handicapped to meet demand for lower priced PCs, and to be able to sell a chip at every price point for maximum price discrimination. TL/DR - Yes, all chip makers basically price their products like airplane seats.

by tpurves 13y ago

seandougall 13y ago

Indeed. Back in the now-lamented good ol' days of build-it-yourself PCs, I recall learning that Intel made all their Pentium processors exactly the same, artificially limited the clock speed on some, and sold them cheaper. So the difference in manufacturing cost between, say, a 400 MHz processor and a 433 MHz processor was exactly $0, but somehow nobody seemed to get quite so up in arms about paying more for the extra value.

CJefferson 13y ago
I think you are mis-remembering history. People were extremely annoyed by this, and put quite a bit of work into figuring out how to clock the processors higher, and figuring out which processors could be safely overclocked.
tpurves 13y ago
You are essentially correct. Even today, all chips fresh off the fab (of the same family) cost essentially the same to make for the same die area. However, do to natural variance in the process they don't all perform the same. So chip makers 'bin' the chips for different speeds and very different prices, essentially based on scarcity. But then with each lot and stepping the FAB starts to get better and better at making the top bin chips, and variance reduces. That's where the marketers take over, down-binning perfectly good fast chips to serve low-end customer segments, under-clocking, fusing off perfectly functional areas or features of the the chips to protect their segmentation strategy etc. Intel, AMD, Nvidia do this all the time. That's how they get dozens of SKUs out of only a couple of chip designs in production at one time. That's why, at many points in history, you'll find bargain priced intel chips, that if you unlock them, turn out to work exactly as well as 'extreme' or luxury-priced chips, that had just been artificially down-binned and handicapped to meet demand for lower priced PCs, and to be able to sell a chip at every price point for maximum price discrimination. TL/DR - Yes, all chip makers basically price their products like airplane seats.