You know what’s sad? Today’s crop of smartphones, from Android models to expensive Galaxy-whatevers and iPhone X, have much in common. They’re flat. They have rounded corners. They run applications. What sets all those devices apart?
Price. Design. Camera. Storage. Platform. Quality. The list is endless. An iPhone X is not a $99 Nokia 2, but both have a price tag, similar design, cameras, local storage, iOS vs. Android, and varying shades of quality throughout. Otherwise, same old same old.
That brings me to diminishing returns. It’s a somewhat complicated and convoluted economic law in business comprised of math, logic, and reality.
A concept in economics that if one factor of production (number of workers, for example) is increased while other factors (machines and workspace, for example) are held constant, the output per unit of the variable factor will eventually diminish.
Make more of something with the same resources and the per unit cost should drop, but only to a point. Something like that, right?
How about this component of the law?
Although the marginal productivity of the workforce decreases as output increases, diminishing returns do not mean negative returns until (in this example) the number of workers exceeds the available machines or workspace. In everyday experience, this law is expressed as “the gain is not worth the pain.”
There we go. “The gain is not worth the pain.”
That explains why Apple does not go for marketshare as the most important business metric, although it may be the easiest to make up, and definitely gets more air time on the interwebs than it deserves.
Apple could aim solely for marketshare with iPhone, iPad, Mac, Watch, et al, but what’s the point? The way to achieve increased marketshare against the current crop of competition is to do what they do which is, 1) reduce prices, which impacts another law– math, by, 2) reducing gross margins, which brings about another series of numbers, 3) lower profits.
Reduced prices may increase sales units but that pesky law of diminishing returns tells us that revenue, gross margins, and profits will be impacted, so a company wisely works to achieve a sweet spot in the product spectrum which maximizes the most important numbers– and it ain’t marketshare. It’s profit. Oh, and shareholder value (stock price). Apple seems to go right up to the line of diminishing returns and sits there while its product lines suck out all the segment’s profits while competitors scramble to gather a few crumbs just to stay in business and pay the child labor they need to keep costs down.
Diminishing returns is a thing and Apple knows where to draw the line before it gets there.