Apple faced a problem – how could they reach new customers without tarnishing the Apple brand, which commands a huge premium that has driven Apple’s growth?
Answer #1: Launch a cheaper, more colorful iPhone! Call it the iPhone 5c. Give people different color cases to let them express themselves and personalize Apple devices more than ever before.
Once the product is ready, advertise the 5c using a different message (“for the colorful”) and channels, hoping that a new generation of young customers flock to the 5c the same way the Apple faithful flock to every new version of their products.
But 8 months later sales of the iPhone 5c have been lackluster. It turns out that people preferred the 5s to the 5c. It could have been the price, it could have been the product, but either way Cook & Co. were forced to revisit their strategy to grow Apple not via new products, but via new markets.
Answer #2: Buy Beats
It’s the brand, stupid!
Apple learned from the 5c that they needed to rethink the pros and cons (yes, cons!) of their premium brand as they tried to expand their customer base.
Beats is an edgier, mass-market brand that appeals to a younger crowd. Their products were marketed using savvy product placement in music videos and major sporting events. I’d guess that Beats appeals to teenagers more than Apple does.
Best of all, Beats commands a big brand pricing premium just like Apple. Meaning that applying Apple’s operational know-how and scale to Beats would result in not just revenue growth, but high-margin revenue growth! The type that Apple investors are used to.
And one last prediction – the next generation of the iPhone 5c will be rebranded Beats (as suggested by @investomundo). There won’t be a number after the phone either, perhaps it’ll be called the Beats Phone. We might see Beats by Apple in small letters on the back.
But I’d venture to guess that Apple keeps the brands separate. Because in this case 2 premium brands are better than 1.