For the past few years, Apple has benefited mightily for having the second most-valuable brand on the planet by charging a premium on its products. Apple products have been more expensive than others in the category and the implicit agreement was that customers would pay more to get the Apple name.
That's still true, but it may be somewhat less true in the future. The change isn't dramatic: Apple's gross margin in its fiscal fourth quarter was 40% compared to 40.3% in the comparable period in 2011. However, some analysts -- including Morgan Stanley's Katy Huberty -- are wondering if that's the long term trend. When Huberty posed the question during Thursday's call with analysts, Apple CFO Peter Oppenheimer pointed out that this is the "most prolific product period in Apple's history."
Many of those products are cheaper and provide lower margins. For instance, Apple slashed prices on the iPhone 4 and iPhone 4S and had cut the price of the iPad 2 by $100 back in March. Oppenheimer also pointed out that the iPad Mini is "priced aggressively," which, at $329, signals a still-lower margin.
The "flurry of products" argument doesn't address outside competitors, though. Google's Android has narrowed the quality gap with the iPhone to the point where it dominates the market, by units at least. In tablets, where Apple essentially had the market to itself for the first couple of years, the company faced its first serious challenger, Amazon's Kindle Fire, last year and now vies with other improved Android-based tablets. A wild card is Microsoft, whose Surface (starting price: $499) and Windows RT tablets will present more competition.
Hence the belief among many that the introduction of the iPad Mini was a defensive move designed to ward off new threats on the low end to its dominance. However, the iPad Mini is just $70 cheaper than an entry-level iPad, which means that Apple is betting that it can convince consumers to pay an extra $129 or so for the Apple name.
However, Apple's ability to ride on its golden brand name will depend on the real or perceived quality of its products and that will test its ability to dominate the market. For most of Apple's history, the company has held a relatively small niche where it positioned itself as a premium brand. Now, it is trying to be a dominant premium brand, which is harder, if not impossible to pull off.