Free Engraving and Occam’s Razor
I read an article this week asking the question “Why does Apple offer free engraving” on it’s iPods, iPads, etc. The conclusion the article came to was that it is to reduce Apple’s secondary market. While an interesting thought, I suspect it’s far off the mark.
People look at buying used gadgets about the same way they do at buying used underwear. People do it, for certain, and you can probably find a host of used iPods on sale on eBay, but only because they either can’t afford new ones, or they’re extremely thrifty. The number of people who buy a used iPod instead of a new ones is probably negligible.
The way mp3 players work is more or less the following, ranked in order of frequency.
Can afford a new iPod: If so, buy a new iPod.
Can’t afford a new iPod and aversion to buying a used gadget outweighs brand loyalty: Buy a Sandisk Sansa or some other mp3 player.
Can’t afford a new iPod but really want one: buy a used one.
The reason Apple.com gives free engraving is pretty simple, it’s so you’ll buy from Apple.com. There’s often no other reason to buy anything from them. Apple’s website is probably the highest-priced place to buy an iPod online. They sell almost all Apple products (other than refurbs and occasional sales) for MSRP. Amazon, a much more widely-used online merchant, sells almost all Apple products below MSRP.
Apple also is forced to charge sales tax in any state in which they have an Apple Store, which by now means most people. Amazon charges sales tax in only 5 states. For comparison, I added an iPod Classic 160gb to my cart on Apple.com. Total cost (with free shipping) was $265. On Amazon the same item (also free shipping) is $228. That’s an extra $40. The price is about the same at Wal-Mart, though they may have to charge sales tax too, I’m not sure.
Apple, of course, doesn’t get to keep the sales tax but they are getting $249 from the sale. Presumably when Amazon sells it they do so at some markup (probably a small one) meaning that every iPod sold on Amazon probably nets Apple less than $220. I wouldn’t be surprised if Amazon is buying them for something like $200.
Apple’s “free” online engraving is thus not free to Apple. It nets them probably at least $30-$50 every time someone chooses to buy their iPod from Apple directly rather than through Amazon. The cost of engraving is probably on the order of a buck or two.
Apple doesn’t need any nebulous and possibly inconsequential reasons like reducing the size of the secondary market to offer free engraving. They do it because it makes them money.