Pricing – The Apple Way!

Okay, so we all know what ‘Price’ is (apart from the fact that it is one of the most dreaded words). In simple terms, it is the money charged for a product or service. Fair enough, right?  So what’s the big deal, you ask? Well the answer, or rather the question is how do companies go about this process of pricing?

As one would imagine, it definitely is not a cake walk, with a lot of factors coming into play. You’ve got your objectives, strategy, organisational considerations, nature of the market, demand, economy, government, etc.

Competition is one of the key areas of concern for any organisation and pricing has to do a lot with it.

Despite all the fuss, one of the companies that continues to astound us is our good old Apple Inc, based in Cupertino, California. The company designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players, and Apple sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications.

With all the competition around, one wonders how Apple Inc. manages to survive and enjoy premium pricing as well! The answer is a simple strategy – price maintenance.

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It dwells on its popularity and exploits the market by controlling the way retailers advertise their products. Although, the price tag is very much there, the retailer is free to set a price.  So, a laptop with a price tag of $999 might cost $699 to the retailer and carry a retailer price tag of $799  along with a bold discount of $200. Life’s good, Isn’t it? All of this is possible because of the large difference between wholesale price and Apple’s price tag. Another retailer could lower the price tag still further and attract more customers. But does this actually happen? Well, the actual numbers, of course, are a secret between Apple and the retailers.

However, there is a catch though! Apple gives a tiny wholesale discount on its products to retailers. In reality, there’s a narrow gap for the retailers to play with and offer discounts to customers. This means, retailers have little incentive to sell apple products or to dedicate advertising space, given that potential profit is not up to the mark.

Just when we start scratching our heads, wondering what on earth is so fascinating about this strategy? This is where Apple’s game plan kicks in – monetary incentives. These incentives are provided to retailers only if they advertise the products above a certain price – the minimum advertised price. Sounds evil? Nah! Retailers are now able to make more out of each product sold, also preventing them from giving huge discounts to customers. So what does this mean, well, we pay almost what Apple wants us to pay! Well played Apple! You’ve avoided competition against low prices by your own re-sellers!

Having said that, we must agree to the fact that this pricing strategy has ensured high-quality goods. It is hard to come across a faulty Apple product!

Bibhav Bisaria

Goutham Gopikrishna.

References

http://www.knowthis.com/pricing-decisions/internal-factors-marketing-objectives

http://www.knowthis.com/pricing-decisions/internal-factors-marketing-objectives

https://www.yahoo.com/tech/s/apple-premium-pricing-strategy-product-191247308.html

http://marketrealist.com/2014/01/apple/?utm_source=yahoo&utm_medium=feed&utm_content=read-prev&utm_campaign=apples-premium-pricing-strategy-product-differentiation

http://www.macworld.com/article/2024257/how-apple-sets-its-prices.html

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24 thoughts on “Pricing – The Apple Way!

  1. Indeed Apple has managed to develop its own cost model and stave off any competition, most importantly prevented a price war between their retailers which is an achievement all on it’s own.

    What is interesting is the re-selling of Apple products, it is actually an investment as after you purchase an Apple product; be it phone, computer or accessory, it has a reasonable secondhand value. After years of watching Apple develop this value, I myself began to purchase their ‘tried and tested’ products.

    The same cannot be said for my Toshiba laptop that has no value, comparatively over a similar length of time to its Apple equivalent.

    A simple exercise is to look at iPhone or iPad sales on Ebay compared to similar competitors products.

    Liked by 2 people

    • @simongpotts You have raised a very good point of resell value. The Brand builds their value which builds a image of good quality as they are able to invest into quality processes. This builds the resell value which in turn build more value in the second tier of used goods purchasers! Vicious cycle must say.!

      Thanks for this view point.
      What do you think about luxury good instead which are also priced high but don’t have resell value like clothes?

      Cheers,
      Saurabh Pandit
      Blog: https://mpk732.wordpress.com/2015/05/01/loius_vuitton/

      Like

      • Good point Sam.. Indeed, clothes do not have quite the same ROI, even if they do also maintain a ridiculously high price-tag.. Unless worn by someone famous!

        But never the less, with tech you can take it back to factory settings and clean it up like new… Clothes wear and tear easier and fade, so not a strong ‘like for like’ comparison.

        Certainly a good point you raise though…

        Liked by 1 person

    • Resell value for apple is high because of their strong and loyal customer base which they have built over a long period of time through high quality products and innovations. Comparing the same to Toshiba which hasn’t really stood out in terms of innovation even if they have been in the tech market for a long time is unrealistic. Moreover, apple produces high budget products with new age technologies where as Toshiba concentrates on low end products or cheaper variations.

      Liked by 1 person

      • Fair point you made there gggopikri..

        So which tech firm would you say is a fair comparison for the bases of this point? I honestly can’t think of anything remotely close to Apple in this regard.

        Like

  2. It is a really interesting topic in the IT world. Gone are the days where apple created most of it’s own hardware. The gradual shift away from making hardware others can make cheaper and bear all the risk. I guess consumers were not aware that their products which they would poised to believe was unique hardware is now mainstream hardware just with apples aesthetics and software layer.

    Is that look and tweaked O/S worth the premium you pay? Well if you look at an ICT capability Gap model certainly not. So how have they managed to achieve this seemingly black magic pricing inflation ? As you have described in your post very well the incentivising of the consumer interface to hold a price monopoly by dis-incentivising large price cuts is certainly one cunning strategy.

    However this alone couldn’t account for the longevity of this questionable angle but is there a possibility that the illusion of quality coupled with the price positioning creates a very strong but false sense of a higher quality product even though they are essentially the same parts ?

    We know they have flexibility with pricing as production costs are always declining but there ability to hold that perception of value is incredible especially given the availability of cost to manufacture data along side the negative PR of their factory conditions.

    I guess the questions is really will this flip if they loose that 55% share ? and would they ever price adjust and what would that catalyst look like in the environment ? Very interesting stuff.

    Liked by 1 person

    • Yes that a good point, due to apple’s strong brand name creates a market for their products even with a higher pricing range.
      In order for apple to lose their market share it needs to get decent competition from other manufacturers in terms of innovative products that can bring a new sense of excitement among the consumers and at the same time be robust enough in its performance to build up the trust in the brand that is necessary to take away market share from apple.

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  3. Yes indeed apple products are amazing . Another thing that apple manages to create in the minds of the customers the perception of its high quality. High price is often associated with high quality. as we know pricing helps in creating a segment too. so apple does that effectively by having high prices with a good quality. if apple products are priced equal to other brands the might not be perceived as the high quality brand anymore and may loose its prestige.

    Liked by 1 person

  4. I sometimes wonder just when Apple is going to lose its prestige though. With brands like Samsung coming along and performing just as well at lower prices… One day, surely, they are going to go downhill?

    Liked by 1 person

  5. I am a samsung person..Always was and most probably always will be. . but one thing I must admit that, had there been a samsung phone with an apple logo I would have killed for it, as the brand apple denotes “premium” (you won’t find one apple poduct that is cheap) while samsung gives you very cheap mass products to the latest classy S6 Edge phones and hence Samsung might gain in market but looses its premium tag.

    Liked by 1 person

  6. Wow! Always wondered how apple manages to sell its obnoxiously priced products in this era of price wars. So this is the strategy. One more thing as someone rightly mentioned in comments about the resale value is that apple itself increased the value of its resale products by two ways:
    1. Less Supply, so the products (especially holds true for MAC) are always in demand.
    2. High price, so the only way you can own a cheaper apple product is by buying a used one.
    It has been said that Apple products are generally worth about twice as much as other devices at the same period in their lifecycle.

    http://www.makeuseof.com/tag/apple-tax-macs-hold-resale-value/

    Like

  7. Interesting Article,

    Obviously this strategy can’t be admired by many competitors in the market place but more importantly Apple has been very cleaver indeed to stablished this trend in the market place with good quality and reliable products.

    The price that apple gets away with it is due its reputation and quality products. Not just perception! Other companies like Dell, Toshiba, Sony to mention a few are companies that are well stablished in the market place and serve a particular segment.

    Apple now is enjoying big market share but lets no forget that it has not been this all the way since they started at the beginning they were criticise for having their own software system and not using the microsoft one! but slowly this has paid its dividends for Apple and now some people perceive this as an advantage and reliability too hence the price these products are ‘worth’.

    Like

  8. Is Apple really a prestige brand when it’s products are everywehre? The pricing strategy explains a lot. And they’re always the first to launch iPod, iPhone, IPad etc. Samsung seem to be playing catch up. My son had a faulty iPhone a few years ago, took it to the Apple store & was given a replacement as it was still under warranty. Having said that, haven’t heard much about faulty Samsung products either.

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  9. Apple’s expensive because it is the starting point is high, his advertising strategy and pricing strategy is very successful. There is now a widespread phenomenon that no matter Apple developed a new product, like Apple’s all people will blindly buy, and even some people have not considered the level of prices, just to show off to have a new product than others. Of course, there are some people because there are already accustomed to using Apple products and not want to replace.So the same price Apple, Samsung or any other brand of products, people may prefer apples.

    Like

  10. The reason why Apple company attract huge number of customers is due to its unique system and the brilliant quality. In the competitive market, establish a strong brand needs a strong foundation. some time i am confused that why so many people purchase the apple products one by one even though the price is high. the thing is i still use apple products and cannot stop myself to purchase it. that is the appeal of brand and the innovation of products.

    Liked by 1 person

      • Yes ravoshi the brand image, quality and features of apple differs from androids for instance you cant download any applications from a third party or untrusted source in apple but in android you can download applications from third party or unprotected source.It is more likely that an Android phone will be exposed to malicious software than a non-jailbroken iPhone over its lifetime, because the Android market is not as controlled and the user can download applications whenever he/she pleases.

        Like

  11. Nice blog 🙂
    I would like to mention one more strategy used by Apple which makes it unique and attractive towards consumers. This strategy is called differential strategy. This strategy distinguishes apple from other competitors. No doubt ,Apple features stand out in the market as compared to Android features. This differentiation strategy optimizes the pricing strategy which furthermore attract consumers to pay more.
    Hope this was helpful . Looking forward to some comments. Thanks:)

    Like

  12. Steve Jobs was proud of the fact that Apple didn’t engage market research and stated “It isn’t the consumer’s job to know what they want.” It was Apples’ job. We now know that this, in fact, was not true and that Apple spent, and continues to spend, hundreds of millions of dollars on market research.
    One thing you can be certain of is that Apple would be acutely aware of the price elasticity of demand for their products and setting pricing accordingly. With the quality (perceived or real) of their products and the willingness of a loyal army of consumers to pay, Apple are simply adopting the principle of “Price as high as you can”.
    On top of this there is rarely any room for retailers to discount given the notoriously low margins applied to their products. Marketing Brilliance 101.

    Like

  13. Interesting and successful pricing strategy . Apple keeps reseller pricing stable. While it’s illegal to set dealer pricing (to its customers), Apple still manages to keep retail pricing remarkably stable. It probably does that by keeping dealer margins slim, offering no volume discounts, and keeping terms consistent between resellers of the same product

    http://www.cbsnews.com/news/how-to-sell-like-apple/

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  14. “Once an Apple user, always an Apple user.”, thats how they say it. Infact this belief and trust in apple users is adopted and taken advantage by the company and in return gives out its customers the best possible product. So even if you argue about how high the price maybe,people are going to omit that fact because that is the satisfaction Apple gives to its loyal customers.

    Like

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