iPhone Hype Obscures Apple Pricing Strength

If you’re lucky enough to be living under a rock, you may not know that Apple is introducing its iPhone today. Although I had hoped not to be part of the hype onslaught, I have been meaning to write a post about Apple pricing for some time.

Just like when Apple introduced the iPod, many people are claiming that the iPhone’s price tag is simply too high. These people will not be buying iPhones. Apple doesn’t care. If anything, it has historically under-priced new products, leading to shortages. (Pricing author and consultant Rafi Mohammad has argued that the iPhone is underpriced, and I side with him.) Apple is selling to people who want to spend $500 dollars so they don’t have to carry a phone and an iPod, or perhaps even a computer in many cases.

Returning from a pricing conference (what else?) this spring, I walked through first class on my way to my seat in cattle class. Half of the first class passengers had cellphones and iPods out. I counted. How many others had a cellphone? All of them. How many had an iPod or other music device? Most of them would be my guess. The ability to get rid of devices without sacrificing user experience is really important. If the new uber-device is actually a status symbol, so much the better.

Which brings us back to Apple pricing. Apple recognizes that pricing is part of the user experience, just like the product, the store, whether physical or virtual, or even the packaging. Therefore, pricing must reflect Apple. It must give a sense of quality and simplicity, both on its own and in relation to other products. For example, the Macbook Pro laptop line has 3 models, priced at $1499, $1999, and $2799. You can configure each base model, but there is a simple, “good, better, best” approach to the model line. How does Apple keep up with constant advances in technology? Not by lowering prices on older models to make way for the new ones, but by simply incorporating updates in the existing line. The price points stay the same. (Apple does some discounting to get rid of older inventory, although the clearance bin is the back of the retail stores, not given the prominent placement it receives when people want to sell on price.)

Compare this to Dell, which has a philosophy of letting the customer configure and order whatever they want. They have more model lines, more models, more prices points, and far more promotions. They have been working to reduce reliance on promotions, but they still have a way to go.

Should everyone price like Apple? Not necessarily. And not everyone can. But having simple pricing plans and selling value instead of price are tools that almost everyone can use.

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