Pricing has always been one of the staples of management, and Apple has been unique in leveraging Apple's pricing strategy as a branding tool. In a world where most businesses strive to maximize profits and competitiveness, Apple's strategy has been a revolution, merging luxury branding with luxury product pricing.
Apple, being a luxury brand, has long catered to the apex of the consumer pyramid. The tech giant, unlike other luxury brands such as Chanel or Gucci, doesn't heavily rely on celebrity endorsement to create a strong brand image. Instead, it banks on its Apple pricing strategy, captivating design, and comprehensive ecosystem, all contributing to a luxurious allure.
Understanding Apple's pricing strategy entails looking at how the brand prices its products at a premium. To illustrate this, let's consider the exhibit below showing an iPhone's price relative to its cost (please note that these are for older models):
Source: The Economist
The luxury product pricing strategy of Apple becomes clearer when you look at the current models' actual build costs:
The profits accrued from Apple's luxury product pricing, resulting in vast margins on each product sold, have been invested in building a powerful world-class ecosystem of software and hardware products. This ecosystem increases switching costs for consumers, making them think twice before considering alternatives like Windows/Android.
Apple's Apple pricing strategy serves as a stellar marketing tool, attracting premium customers, thereby setting in motion a virtuous cycle. This strategy helps build aspirational brand loyalty among middle-class buyers who aspire to own Apple products seeing them used by more affluent customers. Apple's success in developing markets, where an iPhone's cost can be several times the average citizen's income, validates this approach to building an aspirational brand identity.
In summary, we can conclude that:
Pricing can be a brand statement in itself, creating a powerful allure when setting high and practical, relatable brands when set competitively.
A lower price is not always the best strategy - both margins and a premium perception are lost when a product is priced competitively or low.
Price alone is not sufficient to stay competitive; businesses must synchronize their pricing game with marketing, branding, position, and quality to ensure that the offering is desirable in the long run.
The real money lies at the top of the pyramid - selling even a handful of units can be enough to make substantial gains. Apple has become one of the wealthiest entities on the back of its brand, user experience, and easy-to-use technology, but above all, on the back of its pricing strategy.
Celebrities and style icons from all over the world would be more likely than not to be seen with an iPhone - it would be worth pondering over how its premium price made this reality possible (Source: https://techunwrapped.com/why-do-almost-all-celebrities-use-iphone/).
Here are some other useful links that show how a range of brands have mastered pricing, often in tandem with other competencies like branding
(Source: Think School)
Breakdown of iPhone production cost: