John McGee: 'Behavioural economics key to the success of Apple iPhone'
My name is John and I am an addict. Ever since I received a present of an Apple Powerbook 100 (which was actually made by Sony) back in the early 1990s, I have been addicted to Apple products.
From the first iPod and iPod Mini right through to the first iPad, the iPad Pro and, of course, the first iPhone, I have gone through every different iteration of these sleek, loveable and deliriously intuitive devices, while I have downloaded more iOS upgrades than you can shake a Nokia 8810 at.
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When I transitioned from CDs to digital audio files, it took me nearly a month to upload and save my entire collection to iTunes which, to this day, remains my go-to music library.
But I also subscribe to Apple's streaming music service, I buy and rent movies from iTunes, while I regularly watch catch-up telly via my Apple TV.
Next month, I will once again face my addictive demons when Apple unveils its new iPhone 11 range, which will likely come with a price tag in excess of €1,000 for the high-spec 265GB models.
Thankfully, however, I am not alone in my addiction and there are hundreds, maybe thousands, of people around Ireland - and millions around the world - who are eagerly counting down the days until the release of these bad boys.
Apple, of course, knows this and the hype that surrounds the build-up to all its new product launches has become an integral and very effective part of its overall marketing strategy.
It's a marketer's dream to have people talking about their product eight months before it has even hit the shelves. But there's a lot more to it than just hype.
Apple's understanding of how we humans think and behave has been central to the success of iPhone sales over the past 12 years, and it is one of the reasons why it has remained the best-performing company in the world for the last number of years.
This understanding of how customers behave owes a lot more to behavioural economics and psychology than to any slick advertising campaigns. As behavioural economists like Daniel Kahneman have shown, the human decision- making process can be broken into two parts: system one (reflexive and impulsive) and system two (deliberate and logical).
While most of us like to think we act logically and deliberately, very often system one is calling the shots. We just don't know it at the time.
This is very fertile ground for marketers flogging highly desirable and expensive products like top-end cars and, yes, top-end iPhones.
But it also knows that the majority of its fanbase and brand evangelists are reluctant to rush out and buy the latest iPhone. Instead, the often hefty price tag becomes the 'anchor' for what they think other, slightly older, iPhone models are worth. According to behavioural economics, this cohort makes decisions based on 'substitutability', and weighs up the costs and benefits of upgrading from one iPhone to the next. For many, the marginal benefit of upgrading to the latest model doesn't outweigh the marginal benefit attached to their current phone.
This, however, changes once the price for older models starts to drop, and the marginal benefit of upgrading will eventually be greater. Boom, this is when people switch. So, once the new iPhone 11 phones are launched next month, the big business for Apple will come not from the sales of the iPhone 11 but from the iPhone XS or XR which were launched in September 2018.
If you don't believe me, visit your local mobile phone store and see how much prices have dropped for the XS and XR over the past six months. With a 24-month contract, all of a sudden that sleek iPhone XS you had been drooling over looks like a steal at €500.
It would be wrong, however, to suggest that cynically tapping into the frailties and intricacies of the human mind is the only weapon in Apple's marketing armoury.
Unlike many of its rivals in the tech space, it has also built up a seamless and intuitive experience ecosystem across all of its different devices.
Meanwhile, the sleek and minimalistic design of much of its products reinforces their allure among its fanbase, most of whom are blissfully happy to be locked into this walled ecosystem.
It should also be remembered that Apple didn't invent the smartphone, nor did it invent the MP3 player; it just made them better and more desirable.
Through the powers of scarcity and social proof, backed up by innovation and clever design, it also convinced customers that it can fulfil their needs, even though they may not have a need. And that's what great marketing is all about.
Which reminds me; my old vacuum cleaner has given up the ghost and I think I might need to buy a Dyson this week!
- With the Irish rugby world focused on the Rugby World Cup in Japan during September and October, back home, Leinster are losing no time in shaking up their communications and marketing squad by appointing a new creative agency. Following a competitive pitch, Leinster Rugby settled on Chemistry, the agency headed up by Ray Sheerin. The appointment will see the agency take responsibility for all creative and digital development across all elements of the Leinster Rugby brand.
- They say there's no substitute for experience. To prove it, IAPI, the body that represents advertising agencies, together with the organisers of the Cannes Lions, have launched the Cannes Grey Lions. They are aimed at those over 50 who work within the advertising and wider media industries, which, let's face it, are dominated by a younger cohort. The winners will get an all-expenses-paid trip to Cannes next June. The deadline for entries is the end of September.
Sunday Indo Business