Is plastic the future?
In the movie The Graduate, a minor character tells Dustin Hoffman that the future is in plastics. Strong, cheap, and light, the miracle material seemed to offer endless possibilities. That line may have been parodied endlessy since the 1967 film first came out, but many manufacturers have used plastic to make their products cheap and light.
The problem is, a premium product that uses plastic may just seem cheap, and fail to justify its premium price. That’s what may be happening with Apple’s iPhone 5c. Rumors are swirling that Apple is cutting production of the model, even while boosting output of the 5s. Apparently people don’t want to pay over $500 for a plastic phone.
There’s always a risk when companies develop a down-market model that over-exposure can tarnish the image and hurt sales of their premier product as well. That doesn’t seem to be happening to Apple, as sales of the 5s seem to be doing just fine. And Apple may be expanding its product line in order to begin segmenting the market and learn about consumer price-sensitivity.
In any case, it appears that Steve Jobs’ strategy to focus on high-end consumer products that carry cachet is still working. It’s branding—not plastic—that continues to be the future.
Douglas R. Tengdin, CFA
Chief Investment Officer