Apple and price hikes: classic dilemma

I sympathize with everybody involved in this CNet story about Apple hiking pricing on the new iMacs by $100. It’s certainly easy to feel sympathy for the customers and the retailers. It’s harder to feel sympathy for Apple, but they’re really caught in a classic bind.

In my system dynamics class, we were talking about the rise and fall of the low-price airline People Express. My professor suggested that they made a product that was so attractive and cheap that their growth spiral grew out of control. They didn’t have a large enough supply of qualified staff, so their product kept getting worse and worse until they started racking up massive losses since they lost all their customers. A conclusion was that a price hike might have made the product less attractive and given the company more breathing room to fulfill expectations.

The iMac price hike shows the other side of that story. Sometimes hiking prices just pisses everyone off.