Horace Dediu: ‘The Value of a Customer’

Horace Dediu, writing at the newly refreshed Asymco:

So the picture becomes clearer. The iPhone customer is 7.4 times more valuable than the Android customer. This is more impressive than the 4× rule I had 10 years ago. The reasons are mainly that my anecdotes were from developers who sold products in the US or EU whereas expansion of smartphones to 7 billion global users has drawn in more lower spending customers.

But Apple’s base has also grown to over 1 billion users (650 million store users). This highlights that Apple has effectively grown and discriminated customers effectively. It obtained not just 1 billion customers but the best 1 billion customers.

How to discriminate effectively is the holy grail of marketing. The naïve approach is to keep prices high. But that usually only results in a “luxury” branding and a small base that tends not to grow. The alternative “premium” approach is to offer functionality and multiple tiers and distribution options and financing and merchandising. There is no simple formula.

I really enjoyed this piece, but I will quibble with “There is no simple formula”. It’s the execution that is difficult and complex. But at a high level the formula Apple has applied to make the iPhone (and iPad) the unprecedented success that they are is remarkably simple.

First, make something people care deeply about. Computers are the biggest advance in human society since the industrial revolution; revolution is a strong word but it applied then and applies again today. People care about their computers and what they do on their computers very much, and they care most about the most personal of personal computers: their phones. They use them for communication, photography, entertainment (music and video), games, and more. They carry them almost everywhere they go, all day every day, and sleep next to them.

Second, make the best version of that thing people care deeply about. The people who care the most will perceive the superiority of your product, and gladly — not begrudgingly — pay a premium for it.

Third, keep iterating, tirelessly and continuously, to improve that product year after year. Focus on aspects that cannot be copied or imitated. In the iPhone’s case, those are things such as custom chips, superior hardware components and manufacturing techniques, software frameworks decades in the making, a culture that prioritizes great design, and an ever-expanding ecosystem that keeps customers in the flock by making them happy. Build a luxury resort they don’t want to leave, not a prison they can’t leave.

Don’t prioritize being first or being cheapest. Prioritize being the best. That’s a simple strategy. It’s the execution that’s hard as hell.

Tuesday, 5 September 2023