Apple – What Are They Thinking?

$24,000 for a watch. Repeat after me, $24,000 for a watch. I am a loyal Apple fan-girl, but I can’t help but think that this time, they have got it wrong.

Do you think Apple has overestimated their brand power and customer loyalty to warrant this kind of pricing? Do they really know their customer or do you think they are taking the Mickey here? mickey

What really baffles me is the disconnect between their image of being one with the people and then creating something SO exclusive and out of reach for what I would suggest would be a significant portion of their customer base.

Think of your local Apple store and the Apple geniuses working within. I picture scruffy, ultra casual and laid back; a bright blue t-shirt thrown over whatever they happened to be wearing that day – stylish or not. apple genius If you were about to purchase a luxury vehicle, or even your first Rolex… would you expect to be served by a hipster in a t-shirt? Most likely not.

So if you had $24,000 to spend on a watch, which experience would you prefer?

This: apple store Or this? rolex store Admittedly they have attempted to tailor the pricing structure to include a broader segment of their customer, but it is clear they have used the ‘high price’ structure – estimating the upper bound and pricing just below it. Have you ever paid $1000 for a watch, or even $500? I certainly haven’t, and had never considered it …until now. Apple have very cleverly created a need in the customer that we didn’t know we had, but how are so many people willing to spend an exorbitant amount of money on a technology we haven’t even tried yet?? The watch needs to be paired with an iPhone; not only does that add $1000 to the cost of the watch but we don’t know how long the battery will last, the subsequent battery drain on the iPhone, the excess data being used by the constant pairing, the current model becoming obsolete with future releases (probably within 12-24 months) etc. 2 billion pre-sales means people clearly don’t care. How do Apple do this?

 As a 30-something woman, style is important to me, and there is no way that I’m going to pay even $500 for a watch that resembles a Fitbit.

 fit bit    green watch

 However, I have caught myself calling it ‘the cheap one’. A $500 watch. Cheap. Although this model is closest to my price bracket (chuck me in the price-sensitive segment), not only is it not stylish enough for my taste, I don’t want to be perceived as wearing ‘the cheap one’. The next model up looks slightly classier, and if I were ever to purchase one, I suppose it would be that one. As much as I’d love a rose gold Edition, I certainly can’t fathom ever spending $24,000 on one either (and make that $26,3000 if you want the AppleCare warranty that goes with it). This is classic use of the compromise effect, the upper end is way out of my reach, the lower end is not my taste at all – and now I’m considering spending $1000 on a watch, that doesn’t even exist yet.

Apple have trained their customers to accept their prices without question. There are no blitz discounts, end of financial year sales or reduced prices for out of date models. This is how each product creates so much hype because there is no need to wait for a sale that is never going to happen. People want to be early adopters, for the prestige of owning the latest technology.

Except that this time, they lost me. I know that 2 billion other customers weren’t lost along the way… but were you?

Have you pre-ordered an Apple Watch or did the hefty price tag deter you too?

 

Iacobucci, D 2013, Marketing Management, 4th edn, Cengage Learning , Mason, OH, USA.

 

 

 

 

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18 thoughts on “Apple – What Are They Thinking?

  1. Hi Erin

    I enjoyed reading your post. I think Mickey is a cool character! but the watch maybe not so. I mean it’s nice looking but at that price tag, I certainly won’t be even considering it unless of course I pass my MBA course and get offered a $300k job overnight but that’s not going to happen either.

    Apple would surely have done comprehensive marketing research on this? you would think or hope to sell and market a watch at $24k, it’s gold plated and I would agree with you that it belongs in a more traditional setting as per the photo you had posted. I for one fail to see the value in purchasing the watch and I think it’s in the wrong market. A watch like the Rolex is a timeless classic, it doesn’t need software to keep itself updated and it doesn’t power down after a day of use or get replaced by it’s bigger version 2.0 brother, the “iWatch Air” I personally would never spend that much on a watch unless it were in the $150 range, it’s a gimmick and not a necessity like a phone has in become.

    I read this article below, the other day and I wondered what effect this would have on the market in general. In one way we have potential demand/supply for the iWatch and in other ways, the world’s gold supply would become interrupted and and create supply issues for other organisations.

    http://www.news.com.au/technology/apple-set-to-buy-a-third-of-worlds-gold-for-luxury-apple-watch/story-e6frfrnr-1227239444734

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  2. It is interesting that in the video within the link that Raymond Scott just posted, the commentary says that apple are attempting to make the most successful smart watch and that won’t be achieved unless they cater to a mass audience.

    In 2013 around 3.1 million smart watches were sold, with a total market volume of 700 million USD (Smartwatch Group, n.d), so it would seem that the market for smart watches is relatively large and growing. Smartwatch Group state that 90% of smart watches are “companion devices”. So it would seem obvious that Apple as a leader in smartphone technology could charge more than the average price for their smartwatch product, as an iPhone user is more likely to want to purchase an apple smartwatch for compatibility reasons.

    So my question is, had you considered to buy a smartwatch before apple decided they were entering the market for smartwatches? Smartwatch Group state that the main market segment for smartwatches is for it’s ability to track physiological parameters, predominantly used for fitness trackers. I personally have no need for a fitness tracker and haven’t considered purchasing one. However, as an iPhone user IF I did purchase a smartwatch it would probably be an Apple product for compatibility reasons.

    Reference:
    Smartwatch Group n.d, ‘Overview of the Smartwatch Industry’, Smartwatch Group, date retrieved 30 April 2015, .

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  3. I know there are some smart watches already existed in the market such as the LG smart watch and Samsung smart watch. However their price are between $300 and $500. So why is Apple make a such expensive model which is $24000? I think this is a just a stunt, Apple just want to show the world that they are the leader of technical market, since there are only few people will consider this most expensive model, most of the customers only buy the normal model with the cheap price, it’s a kind of advertisement strategy to attract people’s attention.

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    • The pricing of the Apple Watch speaks volumes about how they want it to be perceived – and who they believe their competitors to truly be. The other major competitor in the smartwatch space is of course Android Wear, and products with this OS generally don’t retail above $400. By comparison, the Apple Watch *starts* at $500 and climbs rapidly. The pricing disparity suggests Apple isn’t trying to compete with Android (the two watch OSes aren’t really cross-compatible with their smartphone counterparts anyway), but with the premium classic watch market. A high-quality mechanical watch can easily run into the thousands of dollars, and the three Apple Watch versions (with all the attendant accessories such as different straps) cover the gamut for anyone looking to cross-shop.

      It seems a strange move, but it reflects their strategy for the iPhone. They would rather keep margins high than release low-margin models to fight with Android at the lower end of the market, a pricing strategy that has certainly served them well so far.

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  4. I’m not an apple person, so it makes it even easier, not even thinking about it. I like Erin’s comparison to Rolex – that is an exclusive timepeice (sucked in by margeting again). Like Raymond, even if I passed my MBA & got a $300K job – not a chance. There are people with more money than brains who are into status symbols, who won’t blink an eye at $24,000 for a watch. Probably those who paid over $2M for an aprtment in The Block, South Yarra! Are Apple preying on “brand loyalty” to a degree & hedging their bets with the models and corresponding price tag? What does the $24,000 watch do that the $500 watch doesn’t? Or is it the Rose Gold, etc? Do you want a watch or another gadget that does who knows what? Once upon a time, your phone was only for phone calls, look what it can do now! Nathan makes a valid point about Apple’s pricing strategy, it does speak volumes about perception.

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  5. I think nkrashov may be on to something in questioning whether its a watch or another gadget. If its another gadget – another way to use you smartphone well – twenty four thousand dollars (see what I did there) is a real lot. On the other hand if its a watch – a fashion accessory then whilst still expensive for most of us a $24k price tag is not unusual for an exclusive time piece. Is the iwatch a new product line or a new category for Apple. Perhaps its both, with different segmentations and pricing to match. The models staring in the $500 range maybe about the brand loyal early adopters (their current customers) and the upper price about a different category all together. Making technology a fashion accessory rather than an gadget may be Apples biggest triumph.

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  6. Well – if I had the MBA and a $300K job – I also probably wouldn’t even think of parting with $24K for a watch. And if I did – it would need more than just gold-plating. I agree on Nathan’s point of Apple’s pricing strategy – I do wonder if they have overstated this one though. And Raymond makes a good point – surely Apple would have done all their marketing research and know how to position their product – one expects pricing to have been a part of that research. Generally speaking I see the iPhones being priced at a level that is just a bit out of reach for many to pay for upfront, but brought within reach on the “plans” the telcos sell us. So it does make one wonder why the iWatch has been priced at a more extreme end of the market – perhaps they are cultivating a new exclusive market segment? One that doesn’t include me 😦 or by the sounds of it many of you who have commented above.

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  7. That is ridiculous! I am a big apple fan too- i’ve gone right through the ipod/iphone stages, and still now whenever my phone contract runs out i just renew one with the newest version of the phone available at that time! But there is 100% no way i will ever ever ever pay $24,000 for a watch! You could buy a whole car or renovate your kitchen for that amount of money!
    If i were to buy the watch i would want some serious benefits to come with it- like can i teleport with it? Does it have some kind of super crazy modern technology that will make me float or something?! I see no value in that amount of money being spent on a watch – especially when you have a phone to do the same thing!
    Even if i had that kind of money – apple prides itself on customers wanting to be early adapters of trends/technology (hence the constant hype about the iphone 5/5s/6/6s) – but to pay that kind of money with no reviews possible – how do you know it’s flaws? – what happens when the next model is released in 12 months thats better?

    I think apple are trying to break into a new market – obviously with an extreme disposable income! But i have to wonder- will these types of people with these kinds of money like the product/be interested?
    Just because you have the money to spend doesn’t guarantee a purchase.
    Apple have appealed to a wide range of customers over the last few years- but never such a high end market! And furthermore, If the new target market has never engaged with apple products, won’t they just think ‘thats that cheap phone/electronic company’? Why would they pay that price for a brand thats always been seen as “lesser” to them compared to high-end brands?!

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  8. The Apple Watch is advertised on the Apple Store for prices between $799 and $1,629, and the gold limited edition Apple watch is $24,000.

    The price $799 for an Apple watch will most likely appeal to Apple advocates, who want some technology on their wrists. I’ll wait for the second or third generation, before consider purchasing one, I’ll be happy buying from the Apple Store and having it bulk shipped from China.

    For a luxury watch, my preference is something made in Switzerland, with a long heritage, sold to me by a smartly dressed sales person.

    So possible Apple are thinking of using the $24,000 gold watch, to stimulate interest in the Apple phone, it’s a novelty item, to differentiate it from the other smart watches on the market.

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  9. Good post, thanks…

    As a Apple fan and a proud owner of many of their products I can honestly say that I will ‘pass’ on the iWatch purchasing. Yes, it looks stylish although slightly bulky in my opinion, however they have had to get themselves into this market and; as with the above mentioned comments, they need to cater for a broad market. I have no doubt that they have customers out there that have the kind of disposable cash to spend the +$24,000 price tag and the lower cost models will appeal to a broad market group also, so it’s a safe bet for Apple, it will sell…

    But it’s not about selling or the numbers in demand.. It needs to be much more than that..

    I am sceptical about this product as a technological revolution, as I can’t really see the purpose to it, why would I want to strain my eyes on such a small screen? And considering that the watch has to be in such close proximity to the phone to work, what am I doing that restricts me from just getting my phone and looking at it! I also cringe at the idea of getting a message pop up simultaneously on my iMac, iPhone and then iWatch.. Urgh!

    Here’s one of my favourite top tech reviewers is echoing my thoughts…

    So as a product I think it may fail as ‘the next big tech toy’, even though it’ll no doubt get great sales. It should go ok as a dress accessory but as you point out, there are a lot of options out there for basically looking good on your wrist. Sports fanatics are sure to like it for the general monitoring of heart rate and sporting activities but again there are lots of options out there and I think the only person that may go running with a $24,000 watch is Bill Gates! Though I’m guessing he uses a different operating system 😉

    Sorry Apple but I’m not buying.. It has to do something different from being an extension of my phone…

    However I never say never because when it is thinner and if the AppleCar ever comes out..

    http://www.bloomberg.com/news/articles/2015-04-29/fiat-ceo-s-proposal-for-apple-car-deal-isn-t-as-crazy-as-it-sounds

    I may need both relive my youth… I mean.. Who doesn’t want to talk to their car!

    Liked by 1 person

  10. Hey enjoyed reading your post and even after being an apple fan i feel apple products have always been overpriced as compared to their competitors but this time i don’t understand what were they thinking….like $24000 for an apple watch seriously? I just want to ask Tim cook that is he trying to compete with rolex,hublot,etc and i dont think so even after being a mba and earning $300k a year i would buy a $24000 watch made by apple.

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  11. Really good article. I think that apple has introduced the apple watch for its loyal customers along all segments and it is certainly making an impact. According to me apple’s perception of and brand strength is driving the sales and maybe they would come up with something new as they always do!

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  12. https://encrypted-tbn2.gstatic.com/images?q=tbn:ANd9GcQncqdgbDouF9XFF8i7lUZMrZWFf34TGzHV-_dZ0YxhECBNfycz

    I really get peeved at Apple’s pricing strategy and then watching so many people get sucked into it too. For this reason, I am an anti-apple product person. Sorry all you Apple fans out there, but I can’t stand the hype that goes with the latest Apple product. But one thing I do admire, is they have been smart in how they appeal to people’s buying habits through psychologically making the consumer feel they HAVE to buy it, because it is the latest new technology. I also believe they are smart enough to not only do there research before pricing the Apple watch so high, but they are probably willing to take the risk and from it conditioning the market (once again) that if they want the best (perceived best), they have to pay top dollar.

    Smart really. But I still wouldn’t give them my money.

    Liked by 1 person

  13. Very interesting post!
    It makes me think about when the iPhone was first released. Now, back then I was only about 15 years old, so the thought of paying over $200 for a phone was outrageous, let alone over $600, but as technology progressed, and as it continues to progress, this price increases and so too does our willingness to pay more and more money for the new models that are released. We are so used to having to pay high costs for new gadgets that many wouldn’t blink at paying $1100 for a new phone (iPhone 6 plus for example). But would you have 10 years ago?
    It frightens me to think that this is how our world is progressing. $24,000 for a watch is an extortionate amount to pay for a watch (especially an Apple watch), regardless of whether it’s gold plated or dripping in diamonds. If something like the Apple watch becomes the new norm, rather than a high-end option, then the prices they set will be considered the new norm as well. I shudder at the thought!

    Liked by 2 people

  14. 24000 seems ridiculous price for gold apple watch, however I though it is one of apple strategies to increase customer’s perception. 2 years ago, when iphone5s was be introduced, they also launched iphone5c to market. People ask why apple was trying to keep both of them while iphone5s was considered as key product. In fact, Apple was good at selling their product which use iphone5’s accessories with cheaper price in stead of killing their old product. They also don’t have to decrease price of product. There are always low-end markets for their products. In this case, Apple can offer gold apple watch to high-end customers, who have enough budget pay for it. They are using Macbook, iphone and now is the most expensive product from Apple store: Gold Apple Watch

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