How perceived value factors into Apple’s pricing strategy

Daring Fireball: Pricing and Profit Consistency and the Halo Effect:

The conventional wisdom is to pursue profits by maximizing market share. Apple pursues profits by specifically targeting only the high-margin segments of the overall market, and effectively forgoing market share in the low-margin segments, no matter how large those low-margin segments are.

Under Apple’s current pricing strategy, the “perceived value” of a given product line increases while the nominal price stays the same. Consider:

The previous Apple owner has had her $1000-ish white MacBook for years now. It makes funny sounds when it boots, loads a movie, or if you pick it up in a way it doesn’t like that morning. The new MacBook Air that Apple sells for about the same price seemingly weighs *nothing* and performs most of what she does 10x faster. That $1000 suddenly looks like a bargain compared to what it got you 2-4 years ago.

With this in mind, let’s look at how Apple has gone after lower margin-segments in the past:

  • Music player market: smaller, less functional, equal quality devices.¬†
  • Phone market: last year’s phone, new low price.
  • Tablet market: smaller, equally functional, equal (in many respects, higher)¬†quality device.

If Apple decides to go after a higher- or lower-margin market segment, it’s going to be by releasing a higher- or lower-margin product, not by changing prices. Apple doesn’t need to chase $1,200 laptop buyers by lowering the price of the Retina MacBook Pro; there are a variety of Airs and non-Retina Pros at that range that would satisfy most users’ needs. In this way, Apple doesn’t have to settle for taking less from people who’d be willing to pay more.

Share Button