As Apple's (AAPL 1.37%) business continues to grow, reaching a point where some investors are nervous revenue could eventually become difficult to sustain, it's a good time to review two of the company's competitive advantages: brand loyalty and pricing power. Not only has the company demonstrated both of these facets of its business consistently, but they also both work hand-in-hand.
Brand loyalty
Apple's products are known for achieving high customer satisfaction ratings with customers. Consider some recent customer satisfaction surveys for Apple's products:
- ChangeWave measured a 97% customer satisfaction rate for the iPad Air 2 in August.
- Corporate buyers have reported a 95% satisfaction rate for iPad in general, according to Apple (via the company's most recent earnings call).
- The new Apple Watch has a 97% customer satisfaction rate, according to Wristly.
Apple's consistently high customer satisfaction ratings undoubtedly play a role in helping bolster the company's brand loyalty. Combining the Apple's industry-leading customer satisfaction to its products with a robust and "sticky" ecosystem of hardware, software, and services, the company is very good at driving customers back to its business for more products and upgrades.
Earlier this year, Kantar Worldpanel ComTech measured Apple's average customer loyalty across the U.S. and Europe at 87% -- well ahead of Samsung at 62%. Kantar analyst Carolina Milanesi said she believes this discrepancy in brand loyalty is crucial in the competitive smartphone market.
As the opportunity to attract first-time smartphone buyers in developed economies diminishes, retaining loyal customers is becoming as important as winning them over from competing platforms. Apple's average customer loyalty of 87% across the US and Europe certainly looks promising.
In theory, as long as Apple's brand loyalty is higher than peers, the company is likely to steal market share from competition over the long haul. Apple CEO Tim Cook noted he is seeing such a trend during the company's most recent earnings call, saying the tech giant is seeing the highest rates of Android switchers it has ever measured for iPhone sales. Meanwhile, Apple's global and U.S. market share are both increasing, according to multiple sources, including Strategy Analytics, Counterpoint Technology Market Research, and ComScore.
Pricing power
Arguably Apple's most prominent competitive advantage is its pricing power. And this is being demonstrated particularly well recently. Sales of Apple's iPhone, which represent the company's largest business segment by far, are defying industry trends as average selling prices of the devices are actually increasing on a year-over-year basis.
Apple iPhone 6s and 6s Plus. Image source: Apple.
Samsung's smartphone pricing is headed in the opposite direction, with sales of its high-end phones accounting for an estimated 40% of the South Korean company's total smartphone sales in its most recent quarter, down from 55% in the year-ago quarter, according to Counterpoint. Even more, sales of Samsung's smartphones priced at $200 or below now account for an estimated 38% of Samsung's smartphone sales, compared to just 30% in the year-ago quarter, Counterpoint notes.
Together, Apple's continued brand loyalty and pricing power paint an optimistic outlook for the company's business. With such a consistently strong relationship with its customers, the company is likely to keep doing what it's been doing for years: attracting new customers while also retaining the vast majority of its loyal customer base.
These competitive advantages are likely to drive more revenue growth over the long haul. At worst, they will likely help Apple sustain its current levels of revenue. And, fortunately, this is all Apple really needs to do since its current levels of cash flow leave plenty of room for aggressive share repurchases and a meaningful dividend to drive the per-share intrinsic value higher.
