Apple’s Remarkable Customer Base

Last week I participated in the UBS global technology conference where I talked broadly about Apple but also had some fascinating conversations with many of Apple’s key investors. In the course of these Apple focused conversations, many where I was sharing quite a bit of our recent research, a theme stood out to me that is worth exploring. This theme centers around Apple’s user base but focuses more on how subtle yet significant behavior changes happen within Apple’s customer base which we don’t see around other products.

A Remarkable Customer Base
Anyone paying close attention to the broader analysis will know that Apple continues to gather the most profitable group of consumers around their ecosystem. It is no secret that Apple’s customers are the most valuable group of customers ever assembled in mass around one ecosystem. Amazon, Target, Microsoft, all app developers, even Google itself, will all admit their customers who own Apple hardware are their most profitable by a large margin.

Services providers will tell you that customer coming to them from an Apple device are more profitable by a significant ratio of ones coming to them from Android. In fact, according to our data, an Apple customer is three times more likely to be a subscriber to a specific service than a non-Apple customer.

But we discovered a fascinating nuance about Apple customers that remains fundamentally underappreciated. Through a series of studies we did over the last year, we confirmed that customer behavior changes once a person joins the Apple ecosystem. As a customer comes from Android over to iOS, they end up spending more money in the iOS ecosystem than they did in Android. Similarly, the longer this customer remains in the Apple ecosystem, the more then end up spending in year three or four is more than the amount the spent in year one.

I learned another interesting insight from talking with specific investors at the UBS summit which added to this angle. Some investors, who do or have internal research departments, also found that while an Apple customer may be more likely to spend money in and around Apple’s ecosystem, thus being a high-value customer to Apple, they don’t necessarily mean high-value customer to other companies or ecosystems.

I can’t share the full details of their data, but it correlates to Apple customers being valuable and spending money on Apple’s ecosystem, but that high-value customer profile doesn’t always translate to other ecosystems. For example, an Apple customer may be a high-value customer in Apple’s ecosystem, but that same customer may not be as highly valuable in Amazon’s ecosystem.

This point added some fascinating nuance to this discussion that changed my thinking and helped me realize it is not Apple’s base that is remarkable.

Remarkable Products (or product experiences) Make Remarkable Customers
I used to think Apple just had customers who in general had higher disposable income and thus made them more likely to spend money and thus be more profitable as a customer base. That is true of a small chunk of Apple’s base but not the vast majority of their customer profiles. As a whole, Apple customers tend to act like more profitable customers and be more willing to spend money, even if that is not a characteristic they employ in other places and ecosystems.

Which leads me to conclude there is something about the overall Apple product experience that lends itself to a behavior change toward more valuable customers. My friend Horace Dediu of Asymco was also participating in this UBS event, and he and I got to talking about this observation. He made an excellent parallel to high-end retail stores. Whether it is Nordstrom, Harrod’s, Tiffany, Burberry, etc., it is the environment, the fit and polish, the customer service, it is the entire experience that can turn a customer who normally does not spend high-end dollars anywhere else to act as a high-end customer when they go into these stores.

This seems an apt parallel, but I’d add another that may be more mainstream than some of the retail outlets I explained. The example that nails it to me is Disneyland. I say this because you know at Disneyland/Disneyworld gathers the widest range of demographics to their parks yet when people are there they act differently than they would on a normal basis. They may spend more money sure, but they also maybe act more like kids, more free-spirited, more relaxed, and a host of other things. Essentially, the environment and experience Disney provides create a behavior change among customers that seem only to be exhibited when they are in the Disney experience.

My main point here to take away, is simply that an environment, when done right and designed a certain way, can create a set of experiences that make these customers stand out as remarkable, or highly valuable, when in reality it is not anything special about this customer but rather the products themselves that are special.

This viewpoint clears up a lot of questions for me, as it did for many investors I spoke with when you look deeper at the Apple customer base. For a category like Apple’s services, for example, the upside is not because Apple simply has high-value customers but rather that Apple creates an environment where they act like high-value customers. This insight means these customers will continue to engage in Apple’s services, and the services of third parties to which Apple gets a cut, simply because Apple creates an environment that causes consumers to feel as though they are getting more value from these services.

What I outlined here is more than just anecdotal data but empirical and measurable examples where an environment is unique and thus makes consumers look more valuable while in certain situations even though as a whole they are not specifically “high-value” customers, which many associate as high-net-worth.

This is truly where Apple has a unique advantage that keeps deepening and building as they focus on the totality of the customer experience around their hardware, software, and services in ways many other companies do not.

Published by

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

One thought on “Apple’s Remarkable Customer Base”

Leave a Reply

Your email address will not be published. Required fields are marked *