

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

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charlieirish
Apple uses a fantastic array of social psychology when pricing their products.
You may have noticed a few more:

Price Anchoring

At most of their keynotes when they release a new product, they often anchor
the minds of the press and buyers. Apple do this by showing a price of £X00
and then saying it's actually much less than that. Look at the transcript of
the iPad release: "If you listen to the pundits, we’re going to price it at
under $1000, which is code for $999. Up on the screen comes a huge $999 price.
Then: "I am thrilled to announce to you that the iPad pricing starts not at
$999....but at just $499." The much cheaper price now feels like a bargain.
It's an excellent sales technique in action.

Decoy Effect

Similarly, when showing the pricing metric for the iPad, Apple went with
showing all the price dimensions together. This highlighted two things: 1) the
highest price of the WiFi+3G 64GB model; 2) more importantly, the relatively
bargain-worthy price of the entry level model.

Value Based Pricing / Emotional Benefits

Apple's marketing is mostly excellent. They rarely show the features of the
product and more often focus on the emotional benefits of using their
products. The famous example is of course using their iPad showing how
grandparents can have a video chat with their children and grandchildren.

Bandwagon / Social Proof

Apple's branding and unique design is perfect for social proof. When you use
an Apple product, it's fairly obvious that it's an Apple product. Therefore
when potential buyers see this, they think: "All these other people are buying
an Apple X, I should get one. They must be very good as so many people can't
be wrong".

The Nibble

Similar to warranties, apple care and other 'add-ons', Apple have employed the
wonderful 'Nibble Technique'. Once you've paid for a high price item such as
an iPad, a relatively low priced item seems inconsequential. That's why
tailors get you to purchase a suit before offering you a tie to go with it.
Apple use this technique at the checkout process offering you accessories such
as an iPad Smart Cover or an iPhone case. These tend to be low cost items with
very high margins - they seem cheap to you, the buyer, as you've just spent so
much on the something else. These add-ons can significantly increase sales and
more importantly profits.

~~~
pretoriusB
> _At most of their keynotes when they release a new product, they often
> anchor the minds of the press and buyers. Apple do this by showing a price
> of £X00 and then saying it's actually much less than that. Look at the
> transcript of the iPad release: "If you listen to the pundits, we’re going
> to price it at under $1000, which is code for $999. Up on the screen comes a
> huge $999 price. Then: "I am thrilled to announce to you that the iPad
> pricing starts not at $999....but at just $499." The much cheaper price now
> feels like a bargain. It's an excellent sales technique in action._

Indeed, with 2 caveat:

1) Pundits DID predict a $999 price for the iPad.

2) At $499 not only it REALLY was a bargain, but competitors had a hard time
for 2-3 years to offer anything as powerful for the same money. Competiting
tablets were in the $699 - $899 range.

~~~
UnoriginalGuy
1) I'm sure pundits predicted a lot of things. 2) That's nonsense. The only
thing the iPad had was its screen, otherwise it was already inferior when it
launched. Didn't stop people lapping it up.

~~~
ececconi
The iPad didn't just have a screen, it brought a whole new experience to
interacting with a large screen. This was also due to the software behind the
screen. Ever try to use a touch screen the size of an iPad before the iPad? It
was terrible.

It was more than just an object, it was an experience. It's an experience that
other tablet manufacturers and software developers are still trying to get
right.

The iPad was inferior for many computing tasks. It made interacting with the
internet and a computer feel totally different. It's hard to quantify that in
terms of megahertz and ram.

------
josephlord
Note that some of these approaches are not legal in the EU and rules in the
markets for some products such as TVs that discussion of MSRPs or RRPs
(Recommended Retail Prices) can be an indication of price fixing. ERPs
(estimated retail prices) need to be used for internal forecasting ideally
gathered from respectable information services such as GfK and if the ERPs
were all €x99 that would be suspicious. Routinely asking retailers what prices
they were selling at could be grounds for an investigation.

One approach sometimes taken (although I suspect not by Apple) is that if one
retailer discounts the product the manufacturer supports other retailers to
match the discount. This is illegal in the EU as it acts as a deterrent to any
discounting as it will get the initial discounter no benefit (market share
still ends up shared but they unlike their competitors have to pay the cost of
the discount).

Despite this Apple maintain tight control of the prices probably by thin
retailer margins with money made up by accessory sales and probably some
support/discount/payments for retailers who display Apple products according
to their guidelines. It is allowable to offer different terms for different
types of retailer e.g. dedicated Apple store, store with dedicated area with
demo units complying to guidelines or online although it should be non-
discriminatory in that any company that sets up to comply with the terms
should be allowed.

~~~
gws
Indeed in the EU a manufacturer can impose on its distributors a maximum
resell price to consumers but absolutely no minimum price.

"Price maintenance" is an antitrust offence in the EU, any attempt by a large
manufacturer to prevent consumer prices from being lower is an offence.

Still Apple prices in the EU are the same everywhere just as in the US, i
always wondered how they manage to accomplish that

~~~
josephlord
> Still Apple prices in the EU are the same everywhere just as in the US, i
> always wondered how they manage to accomplish that

If I had to guess I would say near zero margins and fixed payments for each
store with display areas meeting display requirements for design, size,
placement in store, network connectivity, device set up, trained demonstrator
availability, product ranging and possibly even store location. The rest would
come from accessory sales. You can get away with a lot of terms when customers
come into shops looking for an iPad or Macbook rather than just a tablet or a
computer. I imagine there may be minimum sales numbers to get the fixed
payments but that the profit would come from the fixed payments and the
accessories rather than any margin on the devices themselves.

------
Peroni
_Apple, however, extends only a tiny wholesale discount on its Macs and iPads
to your retailer of choice._

IIRC there was a discussion on Reddit involving a guy who has made an
incredible profit acting as Apple's sole distributor in certain SE Asian
countries. I'll see if I can dig up the link. His story tends to contradict
the authors statement above.

~~~
billwashere
The Reddit AMA is here -
[http://www.reddit.com/r/IAmA/comments/10tyhf/i_am_a_multimil...](http://www.reddit.com/r/IAmA/comments/10tyhf/i_am_a_multimillionaire_amaa/)

Even though he did supply proof to the mods there was some doubt on his
authenticity -
[http://www.reddit.com/r/IAmA/comments/10uy0x/the_answers_in_...](http://www.reddit.com/r/IAmA/comments/10uy0x/the_answers_in_the_multimillionaire_iama_are_the/)

~~~
Peroni
Thanks. I was really struggling to find the link! The comment that verifies
his profession can be found here:
[http://www.reddit.com/r/IAmA/comments/10tyhf/i_am_a_multimil...](http://www.reddit.com/r/IAmA/comments/10tyhf/i_am_a_multimillionaire_amaa/c6gmion)

------
Benferhat
The article fails to explain why the base _MacBook Air_ s are (shockingly)
fairly-priced.

~~~
cmatthias
The base MacBook Airs are not fairly-priced, though they might be less
overpriced than other Mac models.

For example, consider the Asus Zenbook Prime[1], which can be found for
$1100-$1150 configured with a Core i7 (faster than the base $1200 13" Air) and
a 1920x1080 screen (about 1.5 times more pixels than the Air).

[1] [http://www.amazon.com/Zenbook-Prime-UX31A-AB71-13-3-Inch-
Ult...](http://www.amazon.com/Zenbook-Prime-UX31A-AB71-13-3-Inch-
Ultrabook/dp/B00863L3K4/)

~~~
ImprovedSilence
I'm not going to get into the fair price discussion, cuz I think the MBAs are
generally more expensive. but I see sooo many people say the MBA is not as
good, cuz abc ultrabook has an i7 in it.

A.) Who really needs to do serious crunching on their ultra book these days.
Unless you are compiling very sizable programs, you're never gonna notice
processor speed.

B.) Think about how that "superior" processor eats power like it's going outta
style. Now combine that with a super thin computer that's light on volume to
hold batteries. Is that extra fast processor worth 2hrs less battery life?

C.) Given A and B, I'd rather have the slower processor.

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reubenswartz
This article either misses the point or just got the wrong headline. The
article is about the mechanics of how Apple maintains price discipline in the
channel. Apple sets its prices, and is able to maintain that channel
discipline, because they understand that price is determined by perceived
differential value.

They try to make things that people will find valuable. Since they have done a
great job in a number of categories, they can set the price, and effectively
dictate the terms to retailers. Other manufacturers use similar channel
pricing mechanisms, but lack the clout to make them stick as well as Apple.

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Adrock
The article doesn't mention one of the most interesting components of their
pricing strategy: the "price umbrella."

[http://www.iamconcise.com/main/the-reason-for-the-ipad-
mini....](http://www.iamconcise.com/main/the-reason-for-the-ipad-mini.html)

------
mikecane
He left out an important point: Apple invests marketing dollars that the
retailer shares in. When you see Apple products in a weekend flier, Apple
_paid_ for that placement (so did other brands). All of this also falls under
the banner of "co-op advertising."

