

How Apple Plays the Pricing Game - emilepetrone
http://www.msnbc.msn.com/id/38980367/ns/business-bloomberg_businessweek/

======
terrellm
I'm not sure the author did enough research when he says:

 _The popular iPod Touch media player has been revamped at three price points
- $229, $299, and $399 - all costing more than the iPhone, which does
everything the Touch can plus make phone calls._

Articles have stated that Apple is paid for each activation by AT&T "up to
$325 per phone"[1] or "$18/month ($432 over 2 years)"[2]

[1] [http://www.zdnet.com/blog/mobile-gadgeteer/at-t-may-pay-
appl...](http://www.zdnet.com/blog/mobile-gadgeteer/at-t-may-pay-
apple-325-for-each-iphone-3g-sold/1211)

[2] <http://news.cnet.com/8301-13579_3-9803657-37.html>

~~~
byoung2
Exactly...buying those phones without a contract:

 _For those who are not eligible for an early upgrade or who wish to buy
iPhone as a gift, the prices are $499 (8GB), $599 (16GB), or $699 (32GB)._

Source:
[http://store.apple.com/us/browse/home/shop_iphone/family/iph...](http://store.apple.com/us/browse/home/shop_iphone/family/iphone)

~~~
megablast
I question the sort of person who thinks that signing a 2 year contract is
free? I have seen people do this before, as if what only matter is right now,
worry about the future payments when they are due.

~~~
Elepsis
I think the sort of person who thinks that signing a 2 year contract is the
same person who would be paying $50-60/month for cellular service anyway. If
you need (or just want) data and text messaging, plus relatively basic phone
service, you will likely pay close to that amount no matter whether you are or
aren't under contract.

Given that assumption, and if you expect that your life won't change in a
dramatic way that will require you to drop your cell phone plan in the next
two years, there's really no downside to getting a subsidized device.

~~~
ZachPruckowski
For 90% of the market though, that adds a $200 cancellation fee to buying a
device which requires a contract (or forces them to delay their purchase for
months). So that $299 Dell Streak actually costs me $499 (because I have to
get out of my current contract), and I won't be able to get it at $299 until
like next June or something, by which point the market may (will) look
different.

Phones and non-phone personal electronics are different market niches, because
they attract different clienteles. Maybe in a decade when unlimited data is
like $10/device that'll change, but for the foreseeable future, most non-
upper-class people aren't going to have more than one phone contract per
person.

------
rictic
There is a great article to be written on this topic. I lost all confidence in
the author however, when they repeatedly compared prices with a contract to
those without.

For context, a new iPhone 4 without contract is $700.

~~~
gamble
I suspect the process that assigns official contract-free prices to phones is
entirely based on telco politics. The goal for telcos in the US and Canada is
to lock you into a long-term contract, and high prices that no one is intended
to pay help ensure that.

For example, Rogers (my wireless provider in Canada) offers a 3G USB modem for
$250 without contract. I bought a near-identical prepaid modem from Vodafone
in Germany this summer for 40 EUR. Or alternatively, take the iPod Touch.
Apple sells the new 32GB model for $300, whereas an equivalent iPhone 4 is
$700 off-contract. Does the 3G radio _really_ add an extra $400? I think it's
just there to make AT&T happy and give Apple a piece of the subscription pie.
If phones weren't subsidized, the list prices would be quite different.

~~~
DavidSJ
_Does the 3G radio really add an extra $400? ... If phones weren't subsidized,
the list prices would be quite different._

No doubt it does not cost an extra $400, but don't make the mistake of
assuming that in the absence of long-term contracts suddenly all prices will
be based solely on production cost. See software for example. Does Photoshop
really cost Adobe $X00 more than Photoshop Lite? No, they're both free.
Companies will charge what they can, sometimes with highly varied pricing for
products of similar cost, especially when the marginal cost of production is
low but the cost of R&D is high. This is the price discrimination necessary to
run a successful business.

~~~
gamble
Sure. They'll charge what they can. If phones were sold at list price without
a contract, they'd have a price set by the market and not solely by backroom
negotiations. I'd expect a contractless iPhone 4 to run a ~$150 premium over
the iPod Touch, similar to the way the 3G iPad adds about $150 to the Wifi-
only iPad. Certainly not $400.

------
Groxx
> _The popular iPod Touch media player has been revamped at three price points
> - $229, $299, and $399 - all costing more than the iPhone, which does
> everything the Touch can plus make phone calls._

Oh, bullshit. From the Apple store:

    
    
      Can I buy an iPhone without an AT&T contract?
      No. iPhone requires a two-year AT&T wireless service contract.
    

And how much will that two-year service contract cost you? Minimum of
$40/month for voice, and $15/month for data * two years = 55*24 = $1,320.

Next time you're sitting at your computer and hear Microsoft's news network
say they have insight into Apple, chime in: "Nope. What you have is FUD."

~~~
whatusername
16GB iPhone: A$ 859.00
([http://store.apple.com/au/browse/home/shop_iphone/family/iph...](http://store.apple.com/au/browse/home/shop_iphone/family/iphone))

8GB iPod Touch: A$289 (<http://www.apple.com/au/ipodtouch/>)

~~~
kgermino
I think the discrepancy here is stores for different countries. Go the the US
store [1] and it says

    
    
      Can I buy an iPhone without an AT&T contract?
      No. iPhone requires a two-year AT&T wireless service contract
    

as Groxx pointed out above.

I believe that AT&T (the only iPhone carrier in the US) prevents people from
buying unlocked iPhones new so that people can't buy them and use them with a
cheaper plan or carrier.

[1]
[http://store.apple.com/us/browse/home/shop_iphone/family/iph...](http://store.apple.com/us/browse/home/shop_iphone/family/iphone#faqs)

~~~
whatusername
Oh I know --- I was just pointing out that there are countries where that
isn't the case -- and you can do an apples-to-apples comparison of prices.

------
kwamenum86
"You may gladly spend $229 to get a hot media player [8 GB iPod Touch],
thinking it's a deal compared with the highest-priced version and not blink
that you could instead buy an [16 GB] iPhone 4 at the lower price of $199 with
more features."

The author writes off any remaining credibility with this line. $199 is the
price of the iPhone with a service contract. After paying for one month of
service you will have easily spent more than $229. It's hard to take any of
this seriously considering this was the foundation of the argument for this
first half of the article!

------
ben1040
The comparison between the iPod Touch and the iPhone is an apples-and-oranges
issue, but there's clearly some psychology involved in the price difference
between the $229 8GB and $299 32GB version.

The $229 model seems to serve as an anchor price at the bottom end of the
range that makes the $299 or $399 look more attractive. $299 sounds like a
great price for a 32GB model, a "way better deal" than the 8GB one, especially
because I'm sure most people compare the price of an iPod in terms of dollars-
per-gigabyte rather than the incremental cost of more flash.

You also see it with AT&T's smartphone data plans -- you feel you're getting
some kind of a deal with a $25/month 2GB plan, because the $15/month 200MB
plan is utterly terrible in comparison.

------
jsz0
Seems a little silly to compare the 9.7" iPad to the 5" Dell Streak as though
they were equal devices. He mentions the Streak has a camera and a phone but
fails to mention it's nearly half the size?

------
code_duck
This article has so many lines you can pull up as ridiculous, I'm not sure
where to start...

Apple doesn't sell 'pricing', they sell very high quality software and
hardware. I've noticed the pricing has a psychological aspect to it, too - so
what? Almost every business does that, surely every smart one.

The line about aluminum being used to 'wrap up fish' - well, it's also used in
the construction of aircraft and medical equipment, because it's strong and
lightweight. I guess that didn't sound like some clever, somewhat negative
insight, so he left that out of the article.

I'm sure Apple hopes or plans for people to buy the more expensive iPad, but I
find it really, really hard to believe the idea that they have created the
smaller one purely as a psychological measure. Seriously.

They charged more for the first iPhones probably because they knew some people
would pay that much, and most likely wanted to make sure they got their
investment back quickly. Also, production was likely to be more expensive on
the first models, in lower quantities. This guy seems to ascribe EVERYTHING to
his pet theories about price psychology.

I really don't see how using an iPad to type a message and read a magazine is
the 'same stuff we did 30 years ago', except in the most literal and narrow-
minded sense.

~~~
code_duck
This site sure does have a lot of unexplained downvotes on substantive posts
lately. If I want that, I could always go to Digg and Reddit and argue with
idiots. This post clearly isn't degrading the value of the discussion here,
unless the rest of you are totally amazing.

------
xutopia
This kind of article is the reason why Apple is doing so well. Competition
does not understand why Apple works so well.

They see that Apple has good design so they add colours or mimic the shape of
the product they try to emulate. It comes out half-assed because design gets
tacked on as an after-thought.

They see Apple as a marketing company so they put millions in marketing a
product. The products are what market themselves for the most part.

At the end of the day when nothing else works they decide to add stickers to
every laptop to show people how superior their laptops are over the
competition. "Made for Windows 7" "Intel Inside" these stickers say. But they
all look ugly and on laptops they get in the way.

Marketer: "Sir the stickers haven't been very effective!" CEO: "I know! Emboss
them so they're more apparent!"

Now competitors will start saying that it's a pricing company. I love how this
is going.

------
bonzoesc
_Apple also obscures references by making its products look like nothing else,
from the first iPod with a unique scroll wheel to the current iterations
wrapped in gleaming aluminum. Apple seems wondrously unique, until you
consider aluminum is the same material you wrap leftover fish in and then it
hits you: Apple is disguising itself so you can't compare prices. Is the new
$99 Apple TV box a good deal? Who knows? It looks like nothing else on the
planet._

These points are kind of ridiculous. Aluminum cases aren't a Jobsian
conspiracy to make it difficult to evaluate the costs and benefits of Apple
products; they're because aluminum allows you to make a nicer-feeling computer
case.

And anybody who knows about Rokus, Boxees, and all the other streaming set-top
boxes can evaluate the price of the new tv.

------
some1else
Every sane salesman practices the so-called "pricing game"

This guy's comment objectively criticizes the articles apples-to-oranges
comparisons between unsubsidized iPods and subsidized iPhones, as well as the
reason for a 7 inch iPad:
[http://business.newsvine.com/_news/2010/09/06/5056176-how-
ap...](http://business.newsvine.com/_news/2010/09/06/5056176-how-apple-plays-
the-pricing-game#c17234778)

------
danilocampos
Count me in with the "Are you kidding me?" crowd. The iPhone's $199 price tag
can only be compared to another device that also has a two year contract and a
data subscription that increases TCO by $720.

My bozo bit for this Ben Kunz is permanently flipped.

------
Qz
Random UI note -- those jump to links next to the scroll bar seemed pretty
useful.

~~~
cstuder
But why hide half the text first? Do you think the readers will get tired
after two paragraphs and won't read the rest anyway?

~~~
Qz
Yeah that part was weird... but its better than pagination?

~~~
winthrowe
Yes it's better than pagination, IMO.

------
lzw
Another thing that he ignores and that most of these seemingly cookie cutter
"Apples more expensive" articles ignore is that Apple is a software company.
They always talk a out the a hardware and then compare it with random, usually
not even similarly equipped hardware to try and pretend like apple is
overcharging.

But at least half of the value of apple products comes from software. Even of
one of these iPad competitors is comparable in batery life and other
qualities, these other manufacturers seem to be always way behind apple in
software.

I don't mind buying spell products because I've never been disappointed with
the value they deliver.

But apple doesn't make everything and when I have to buy someone elses digital
camera, for instance, I'm constantly being let down by the terrible quality of
their software, at least in comparison to apples way of doing things.

~~~
code_duck
Agreed, the software makes a huge difference and is always overlooked.

Even the hardware is exceptional quality, though. I've seen people comparing
MacBook Pros to Alienware laptops or Sony VAIOs, and upon closer inspection,
it's pretty clear the MacBook is much more refined and luxurious in it's
appointments. Not to mention the style aspect - the other two are intended for
an entirely different market and look the part.

Mostly, people that complain about Apple products are not the target market,
have never actually used them, or are surly because they can't afford one.

