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7-inch iPads and other Apple pricing decoys

Thursday, September 2, 2010 · 1:57 pm · 25 Comments

“Next time you’re sitting at an airport bar and hear two businesspeople debate whether Apple (AAPL) is a technology or design company, chime in: ‘Nope. What Steve Jobs sells is pricing,’” Ben Kunz writes for BusinessWeek.

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“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,” Kunz writes.

“Apple’s Sept. 1 announcement of new products was a classic example,” Kunz writes. “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. What gives? Watch Apple, and you can learn pricing tricks for your own business.”

Full article here.

MacDailyNews Take: An interesting article in spots, despite some obvious errors. For example: Kunz doesn’t seem to realize that iPhones don’t really start at $199. That’s the carrier subsidized price. $199 iPhone buyers pay the remaining $400 per unit over the term of their two-year carrier contracts.

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Comment Feed

25 Comments

Bizlaw

Thursday, September 2, 2010 - 2:02 pm · Reply

What a moron. The iPhone costs less because mobile service providers subsidize it. The iPod lineup has to pay for itself Period.
Chris

Thursday, September 2, 2010 - 2:02 pm · Reply

The iPhone costs considerably more than the iPod touch; it’s just that the phone carrier pays the bulk of that cost when the user signs on for two years. Right?
Orenokotodaze

Thursday, September 2, 2010 - 2:10 pm · Reply

What an absolute…. What Apple sells is – good products! For the most part. Just let quality, etc. go down and watch what happens to Apple. Steve was mostly right when he said, “… we don’t (or won’t) make junk”.
Mark

Thursday, September 2, 2010 - 2:12 pm · Reply

It’s not the carrier paying the subsidy – it’s the users paying it off over the length of their contract. Or do you really thing AT&T etc are in the business of giving away money???
HolyMackerel

Thursday, September 2, 2010 - 2:14 pm · Reply

I hoped the iPad would be ‘cheap’ at 699 i.e. less than the expected $999. I perceive it as a steal at $499, and so get the high-end!
Mark

Thursday, September 2, 2010 - 2:16 pm · Reply

Someone should offer to buy his house, for the price of one month’s mortgage payment.
Nick

Thursday, September 2, 2010 - 2:24 pm · Reply

Everyones in it for the money !! It’s all about the Benjamins
NCG598

Thursday, September 2, 2010 - 2:24 pm · Reply

Maybe someone can sale him some beachfront property in Arizona.

Facts, never let them get in the way of a good fictional article!
bon

Thursday, September 2, 2010 - 2:25 pm · Reply

It’s simply dumbfounding that these people are paid to write articles when they don’t understand business principles as simple as subsidies.

.
Randian

Thursday, September 2, 2010 - 2:27 pm · Reply

Another Theorem in The New Math:

Ben Kunz = Economic Moron
Nick

Thursday, September 2, 2010 - 2:28 pm · Reply

apple does make great products.
I love my iPhone 4. iPad and my I touch!! Thank you steve
North of 60

Thursday, September 2, 2010 - 2:29 pm · Reply

Here in a country where you can buy an unlocked iPhone, here are some interesting prices:

iPad, 3G, 16 GB: $679

iPhone 4, 16 GB, unlocked, no plan: $659

iPhone 4, 16 GB, 3 year plan, “subsidized:” $269

iPod Touch, 32 GB: $319

Should the unlocked iPhone really cost $340 more than an iPod Touch with more storage? Really? Should the unlocked iPhone cost just $20 less than a comparable iPad, which is much bigger?

The pricing of a device is driven by a lot of things, only 1 of which is the cost to manufacture it.
reeeee

Thursday, September 2, 2010 - 2:29 pm · Reply

I didn’t really agree with anything that guys said in the article. The gleaming unibody machined aluminum found on iPods and MacBooks is most certainly not “the stuff you wrap fish in”.
reeeeee

Thursday, September 2, 2010 - 2:32 pm · Reply

And as for the iPad’s “competitors”…they can add as many bullet-point features as they want to put on their checklists, but unless what they come up with is as thin, light, and easy to use, and has as long of a battery life as the iPad, and has a 250,000+ app store, it’s not a competitor to the iPad. The iPad currently has no competition and probably won’t for at least another year or two, and by then they’ll be chasing the tail lights of the iPad 2 and the iPad 3.
MacBill

Thursday, September 2, 2010 - 3:07 pm · Reply

What an idiot. I will pay $3,079 over the life of my iPhone. $229 for an iPod touch is only 10% of that cost.
His Shadow

Thursday, September 2, 2010 - 3:35 pm · Reply

He’s even m ore of a moron because in addition to pretending the subsidised price is the price of the phone, and that an unsubsidised and subsidised price can be compared, he believes that moronic rumours are an Apple ploy. All one has to do is notice that the price points remain but features, speed and storage steadily improve. But that kind of analysis is beyond a bozo like that.
Alasdair

Thursday, September 2, 2010 - 4:47 pm · Reply

His name is Kunz. Tee-hee.
Altivec Guru

Thursday, September 2, 2010 - 6:09 pm · Reply

Take it easy, Beavis.
Al

Thursday, September 2, 2010 - 8:28 pm · Reply

He could not be more wrong. It is the IPhone that is over priced. It should only be $100-125 more than the Touch.
nounshooter

Thursday, September 2, 2010 - 10:01 pm · Reply

hey al
i agree, the iphone should cost less.
I will bet that when it gets out from under ATT and other carriers have access, it will be
ron

Thursday, September 2, 2010 - 10:39 pm · Reply

He’s a real Kunz.
byronic

Friday, September 3, 2010 - 3:55 am · Reply

Moral: Brain engaged, mouth open. Not the other way around…
Ben Kunz

Tuesday, September 7, 2010 - 5:57 pm · Reply

The author responds: Thanks for the comments. If you read the entire column, which apparently most did not, you’ll see I wrote “almost every mobile handset, for instance, has some of its costs buried in future monthly data fees over a two-year phone contract.” That seems pretty clear if you missed it. Yes, the iPhone is subsidized with fees buried downstream in monthly bills that come from another company — and that exactly proves the point. By promoting a $99 or $199 price on Apple.com for an iPhone, and not clearly disclosing the additional costs hidden in the service contract (those additional costs are not detailed at Apple.com, just that you need a plan or the phone costs X instead), Apple creates a perception that the iPhone has a low price. It’s a clever pricing gambit, and one many businesses could emulate. Thanks again for the feedback.
His Shadow

Tuesday, September 7, 2010 - 7:45 pm · Reply

and not clearly disclosing the additional costs hidden in the service contract (those additional costs are not detailed at Apple.com, just that you need a plan or the phone costs X instead), Apple creates a perception that the iPhone has a low price. It’s a clever pricing gambit, and one many businesses could emulate.

No. Wrong. Fucking Wrong. The claim is that Apple is involved in some kind of bait and switch, and misleading people on prices.

This is bullshit on the face of it. For one, you can’t get an iPhone unlocked in the US and you can only get it from AT&T. It’s perfectly reasonable of Apple to put the pricing info on the website, because, unless you were just hatched yesterday, that’s the fucking reality of buying an iPhone in the US. Second, if you stop pretending for a moment that the USA is all that matters, you can go to a page from another country and discover the following…

That’s right, the full price of the iPhone.

So no, this isn’t some “strategy” that other companies can follow as if it’s a secret pricing system. It’s the gods damned fact that an iPhone is sold in the USA with a contract attached and the subsidy is an aspect of that fact.
byronic

Wednesday, September 8, 2010 - 4:11 am · Reply

@Ben Kunz

I have read your whole piece. You have attempted to apply a “Marketing 101″ approach to Apple, as though pricing was “the main game”. In your opening statement you suggest that Apple relies on pricing games, rather than product design or strategy and then you go on to use the unfortunate example of a subsidised iPhone price without referring to the subsidy. You lost the audience of this site as soon as you did that – so the rest of your argument was dismissed as lacking credibility.

Although pricing is important in any marketing strategy, and I have no doubt that Apple builds products with pricing in mind, Apple is only able to command the pricepoints that they do (compared to the others: eg the Archos and the Dell streak) because of their design and technology leadership.

Also, Apple products have a longer life cycle than those from other products – witness the continued sales of older model iPhones. Older models can be sold at a lower price because, throughout the manufacturing cycle, the initial design and setup costs have been amortised over the initial run of the product. Apple continue selling these products, at a lower price, because a) they can; and b) they bring new customers to the Apple platform.

Your argument that a smaller iPad will act as a “decoy” has no foundation. Apple are selling all the iPads it can make – and it is still to be released in many parts of the world. A smaller iPad, if such a device is actually on the drawing board, will have a different function and fit a different market niche. One look at iPad sales illustrates that Apple needs neither a decoy, nor is facing any serious competition in this market.

Your assertion that Apple released the iPhone at a deliberately high price only to be able to lower it to create the illusion of value runs counter to the admission from Apple that they got the pricing wrong, along with the sales forecasts. In short, when the phone was a bigger hit than anticipated, Apple were able to rework their pricing based on the amortisation of their startup costs (which were enormous since this was their first phone ever) over a much larger run rate. Simply put, if you can lower your price because you are going to sell more product than you expected, and a lower price means more customers converting to your platform, then you do it. Given the potential to upset customers who have paid the higher price, a marketing plan that included a deliberate overpricing/large price reduction for the launch of such an important product would have had no chance of getting past Apple management.

Similarly, your argument that older models are needed to justify a high price for the new model is unsustainable – the original iPhone sold beyond anyone’s expectations and there was no old iPhone… Forward orders for the iPhone 4 were enormous – well before the 3GS was reduced in price.

Do consumers consider the price of the old iPhone prices when weighing up the value of a new iPhone model? I doubt it. The new iPhone costs the same as the model it replaces – consumers know what an iPhone costs, and if they want one they will buy the current model, or wait if a new model is around the corner.

Your article is written from the point of view of someone who does not see what makes Apple’s products different from the rest. They are different. Better. Hugely better. That is the driver behind Apple’s marketing, not pricing games.

Your article is a good example of what is wrong with American journalism. It is under-researched, and poorly constructed. It is an “opinion piece” written by someone who does not fully understand the subject. It adds nothing new to the body of knowledge about Apple, and is entirely wrong in its major thrust.

Journalists like to write about Apple because it is a high profile company. Unfortunately, many articles about Apple are written by journalists who don’t know their facts. Perhaps you will do more research before you consider doing so again…