Should Apple Reduce The G4 Cube's Price? Well, it already has more or less through the $300 rebate on a Cube/Display bundle. Steve Jobs mentioned in Wednesday's financial telephone conference that most Cube buyers have also bought a display so, yes, effectively the Cube's price has been reduced. Will Apple sell more Cubes if the price is decreased? Of course, that's a no brainer and what everyone is calling for. However, the real question is: Will Apple make more money if it reduces the Cube's price? Only Apple knows enough to answer the real question, not those who are clamoring for Apple to lower the price.
The first issue is in order to make money Apple has to sell the Cube for more than it costs. No one knows how much the Cube cost to develop nor how much a Cube costs to produce, except Apple. No one knows how much of Apple's common services overhead (advertising, management, legal, etc.) the Cube has to bear. Is Apple taking a loss with the $300 rebate program to clear inventory? My guess is no because it is bundled with a display but I don't know that for sure.
The second issue is that the Cube can not cannibalize other products unless its profit margin is higher than those that get cannibalized. Does anyone think that the Cube has a higher profit margin than an upper end iMac or lower end PowerMac G4? I don't. Both have been around long enough to have very healthy profit margins.
Steve Jobs said the Cube was pitched at high-end consumers and professionals. We called it the executive niche. With its small size, quiet operation, power and knockout design, the Cube is clearly aimed there. Most importantly this group is less price conscious than others. Other factors would likely have had more effect on expected sales to the target group.
There are factors other than price that led to lower than expected sales in the quarter ending in September. Steve Jobs mentioned two: the touch switch problem and the flow lines. He said the first has been fixed and the appearance of the flow lines reduced. There are three factors that he didn't mention. The Cube didn't ship in real quantities until late August, many people held out buying a Cube for the Radeon graphics card and some for gigabit ethernet. The Cube can be easily obtained, the Radeon can now be purchased with the Cube and gigabit ethernet has been eliminated as an option. These three issues are now "fixed". All fixes should help Cube sales even with a bit of a lingering "bad taste" to live down.
Our view is that Apple is doing the right thing to reduce channel inventory and test whether having fixed the other factors will result in greater sales to the target market before moving the Cube more squarely into competition with products selling well in other market categories, which themselves will be revised in the future, or dropping it altogether.