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The ideal customer is not only one that keeps coming back, but that buys more expensive items over time.

Is Apple the best in history?

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We are winding down the end of the year, just a few podcasts left to go. As we hit the holidays,

I bet there are a lot of Apple products on people’s lists:
– I’ve been predicting all year that the iPad is going to be the #1 tech gift of the season (along with the Kindle)
– iPod music players are always in demand
– The laptop elite will be lusting for the Macbook Air
– Digital entertainment geeks might long for the $99 Apple TV

Today I want to talk about the near-perfect upsell path that Apple has perfected. I’ve covered this topic a bit in the past, for example in Episode 107, Can the iPad be beat?.

In that post, I told the tale of how I went from using a PC for 21 years before switching over to a Mac in 2007, and since they buying an iPhone in 2008 and an iPad in 2010.

The reasons why I switched from a PC to a Mac for me were obvious and quite simple:
a) I wanted a laptop and operating system where didn’t have to worry about viruses
b) I wanted ease of use for syncing my existing iTunes library and playing podcasts
c) It would be nice to be able to bring it to Apple retail store if anything went wrong

But I was at the Silicon Alley Insider Ignition conference last week, and Gene Munster, an analyst from Piper Jaffrey started talking about it. Here are some of the predictions he talked about, answering the question

What is Apple’s place in the future of various media?

Tablets: In terms of the iPad, he said they have 90% marketshare now, but because of the increased competition, that would drop to about 45% by 2012. He did say they did studies between the iPad and Galaxy and 85% of people preferred the iPad (although I found out later that it was a small sample size of 65 people). Just reported on Wired as I post this, is that the Galaxy Tab has already sold 1 million units.

Mobile phones: In the mobile phone business, he said that there would be two top players that dominated, and that would be the iPhone and Android. He said the losers in the phone space, would be Windows phones, Blackberry, and Nokia.

Music, movies, and TV: He said that Apple would continue to be ‘the gatekeeper of music’ because the iPod is the digital music player with 90% market share. However, with movies and TVs, it’s going to be more fragmented. He says they have about 45% market share, but there are too many content players and apps to compete with. I’m thinking Amazon, cable TV, Hulu, Netflix, and a few others is who he is referring to.

But then the next thing he said, and don’t quote me because this part was live and I was jotting it down so I am paraphrasing, was something to the effect of:

‘Apple does such an amazing job with their upgrade path. They start them young, they get them in cheap, and then they graduate them up the ladder. From the iPod to the iPad to the iPhone. No other company has this ability.’

Since I’ve been preaching this, and living this, the first part made sense to me.

– They have 90% of the digital music market, and that means the iPod. They can get pre-teenagers to buy in at a very low price of $49, for a bright, fun, colorful iPod shuffle. Or maybe they get a holiday gift, or save some allowance, and it’s the $149 Nano or $229 iPod touch.

The point is, they see fun, happy commercials, their friends have iPods too, and they want one. But what’s the main key? Many times, this gets them into the Apple Store. So what happens there? They’re greeted with a super-friendly, super-knowledgeable staff, and everything in the store can be used and tested… computers, phones, iPads, you name it.

- Now a few years later when the 9 year-old turns 13, they want a phone. Of course there are many on the market, but a $200 iPhone — plus long term contract — has a familiar interface, can play all their songs immediately, and is available right in that store.

– And when 18 comes around and they’re headed off to college, it’s a toss up between a Mac and a PC.  The HP or Dell or Toshiba at Best Buy is always going to be cheaper, but that slick Macbook is going to have a lot of appeal. Next thing you know, Dad is pulling out his credit card and sending Steve Jobs another grand.

– Then along comes the iPad and Apple TV, and I think you get my point. A fanboy is born.

But it was that last line Munster said, that as a marketer, got my attention.

‘No other company has this ability.’

So I started thinking of other companies, not only in consumer electronics, but in all other industries, that could do what Apple does, along those two key criteria:

1) Bring a consumer in at a young age and keep them all through adulthood

2) Start them with a product under $100 and graduate them to spending thousands

In the end, I could only come up with four decent examples, and none quite as smooth as Apple:

1) Personal products.
There’s a marketing research question that says ‘What kind of toothpaste do you use?’ and the answer is invariably the one that your parents used. Because there’s not a lot of differentiation, most people stick with the brand that they grew up with.

However, while the long-term repurchase rate is spectacular, there’s not much of an upgrade path besides going from mint paste to total control whitening with baking soda for an extra 50 cents.

One argument you could make is razors. If Gillette can suck you to the sample Fusion Power razor for a mere $9 and you stick with them, at $4 a freaking blade, the average man will spend thousands in cartridges over his lifetime.

Another one my female friend suggested was makeup. I can’t be too helpful with specifics, but I’m sure each brand has a lower priced teen line, and then keeps you all the way through, from sexy eyeliner in your 20s, into fire engine red lipstick as a cougar, and $75 wrinkle removal cream past 40.

2) Clothing
One company that could outfit you from cradle to grave is the Gap. Think about it, you start out wearing cute Baby Gap outfits as a toddler. Then you go to cargo pants and graphic T’s from Old Navy. You move on to khakis and a hoodie from The Gap, before dropping $1000 on a suit, dress shirt, a tie, shoes, and overcoat at Banana Republic. Of course, when you hit the downside of old age, you probably revert back to sweatpants and fleece jackets from the Gap again.

However, I’m not sure how many people really link those three companies together, and they really don’t push you hard from one store to the next.

3) Cars
It’s no coincidence that you have to walk through a new car showroom to get to the service area at your local dealer. If you’re bringing in your old Honda Civic for a new muffler, they want to make darn sure you see the 2011 Honda Accord Coupe. If you’re in there enough times, you’ll eventually get the speech that it’s not worth it to keep repairing your old vehicle, so why not take a test drive in the latest and greatest.

From there, the hope is that you’ll make the connection between Honda and Acura, and climb your way even further up the luxury ladder. While you’re not getting into a decent-running Civic for under $5000, let alone $100, the potential for a car company to keep you for life and extract tens of thousands from you is there.

While we’re on the topic, what about car insurance? Geico runs so many ads, they can’t decide if they want to use cavemen or geckos or the guy that says ‘Could switching to Geico really save you 15% or more on car insurance? Did the little piggy cry wee wee wee all the way home?’

The hope there of course? Get you in at a great rate on one car, then get your whole family, then upsell to home insurance too. Definitely could add up to thousands.

4) Credit cards
This one fits the criteria, if only for the evilness. I know I’ve read studies that show most people spend the most money on the first credit card they got in college. So now you know why all those tables with the freebies are set up during orientation.

The average undergrad has $2,200 in credit card debt. So it’s easy to see that by giving students a free t-shirt or gift for under $50, eventually they’ll be ringing up purchases that will being thousands to credit card companies.

Hey wait a minute, I bet they’re using those cards to buy stuff from the Apple store…

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