An article in Bloomberg BusinessWeek breaks down Apple’s pricing strategy and identifies its key components. “Next time you’re sitting at an airport bar and hear two businesspeople debate whether Apple is a technology or design company, chime in: ‘Nope. What Steve Jobs sells is pricing,’” writes Ben Kunz. “Pricing? You bet. Jobs is a master of using pricing decoys, reference prices, bundling and obscurity to make you think his shiny aluminum toys are a good deal.” [%comments]
How Apple Sets Prices
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Apple obeys the rules of market psychology. $99 dollars or 99 cents is a bigger driver of overcoming buyer’s reluctance than a Billion Dollar ad campaign.
You buy a an iPhone for $199….but that is NOT the price. You are locked in for a 2 year contract with a $100 per month subscription service. But you cannot come forth and say, the cost will be $2400.oo plus tax.
Technically Apple can give away Chinese made iPhones for free, as long as you have a credit card, sign up for an automatic payment plan and lock in for several years.
So move out of the Product business, and move into the Service industry.
Apple also cultivates an image, much like Jackie Kennedy Onasis, Marilyn Monroe or James Dean. But they distilled it, bottled it, put a price tag on it, so you can own it and carry it in your pocket.
What comes after White Minimalism……..
After the Beatles White Album they delved into the fantastic over the top, color, over decorated and psychadelic imagination of the Yellow Submarine.
And also, I think it’s marginal pricing that’s more important than the “decoy” thing when it comes to choosing which iPod to buy.
iPhone and iPod are distinct product categories. If you want a phone, you’ll buy the iPhone. If you don’t, you’ll buy the iPod, as a dedicated music player or gaming device or a toy for your spoilt children.
I don’t think the decision is really between the iPod and the iPhone, then, because that’s already been made. So, when looking at the prices, you see that you get an iPod with very little storage for $229. But for an extra $70, you can double your storage! And for another $100, you can double it again!
The marginal cost of storage is lower in the highest-price iPod, and that makes it more attractive compared to the $229 model. On the other hand, storage costs Apple very little, so the profit margin on the high-storage device is probably even higher.
Apple isn’t as smart as they think. I went into their store to buy an iPhone and an ipad. I couldn’t because they would not take cash. I was totally disgusted with this policy. I didn’t have a debit card because I just returned from Iraq and was I’m the process of getting resettled and had not yet gotten my bank cards.
So, I took a look at Apples competition. I now own a Droid and a Streak. Apple has lost me forever as a customer.
The article is flawed from the start. The iPod Touch is more expensive than the iPhone only if you completely ignore the two year contract that you are required to buy along with it.
He also ignores usability, functionality of a product, reliability, and total cost of ownership.
in 2 years henceforth,
the ny times will institute a similar pricing strategey
1) $2.99 per month for unlimited access
2) stripped down version for free
based on the analysis from the artlcle, consumer choice dictates that option #2 is chose.
thus, what is the optimal pricing strategy for Ny times? Well, probably no free content at all. then, I will have more time and no acccess whatsoever.
The man writing this article is dumb. For example, my family shops mainly at Kohls for clothing. We know this about Kohls pretty much everything is on sale at Kohls, so one would never pay full price there. Then if you get their store credit card they will send you 15-30% deals all the time. It doesn’t really make me feel better thinking I some great deal because a shirt was 30% off and then I saved an additional 20% for using their card. I have a brain and know what things are worth and at Kohls 30-50% off MSRP is the true value.
At least with Apple they don’t have their products go on sale. Only one time with the first iphone has the prices been dropped. Nothing is more annoying than having to try to time purchases to save money. At best buy a Sony TV might be $799 today, but by Monday the price will go back up to $899. Apple as of late sets a price and that price sticks. The IPod Touch had been $199 and it pretty much stayed there unless Wal-mart had it maybe $10 cheaper. There was no oh now this is $149 and you idiots that bought it for $199 are just dumb.
I have an IPad and at the time I purchased it no other product on the market did things like they way it does them.
As others have noted, the article ignores carrier contracts in pricing. By this guy’s logic, if only Appke would sell iPod touches for $1 (with a two year $50/month contract), it would be a great buy.
The article also assumes there is no value in design, usability, or platform network effects. Heck, aluminum’s used to wrap fish, so it can’t add value!
And the article neglects to mention the failure of the $599 price point for iPhones, the resulting PR debacle, or the refunds paid to the first customers. An intentional strategy that was not.
Reagardless of one’s opium of Apple, this is a terribly reasoned article.
It looks like the NY Times website won’t let me un-recommend an article.