3 Ways Apple Crushed the iPhone 5 Pricing Strategy
Ever since Apple unveiled the iPhone 5, Apple followers have been in a fervor about the new elongated design, the wretched quality of Apple maps, and even about the price. Although I’d love to add more fuel to the fire by speculating as to how my house is now in the middle of a river, we’re all about pricing here, so let’s get back on topic.
In the past, Apple has received a lot of criticism for how they price their products, particularly how high they price their products and then how quickly they drop those prices. How slyly the late Steve Jobs answered the outrage of a dramatic price drop in two months is a post for another day, but looking at Apple’s pricing can teach you an enormous amount about your pricing. After all, depending on the day, they’re the largest company in the world. I reckon they know a few things about pricing. If not, Tim can give Patrick a call and chat about our price optimization software.
Therefore, let’s take a look at how Apple shifted their prices this time around before pulling out three lessons from Apple to guide your pricing strategy.
iWant a new iPhone: How much and what do the plans look like
As we saw with previous iPhone releases Apple has slowly found the sweet spot of bundled iPhone plans (price for the phone with a mobile contract commitment) at $199. What’s fascinating about today’s release though is that you now have three devices that don’t have drastic hardware difference (the 5, 4S, and 4), and two devices that are identical in software (5 and 4S). The result is a fairly tight race between the 5 and the 4S for individuals that aren’t Apple fan boys and girls (waiting in line, owning six ipods, etc.), because the 4S is only $99 with a contract. Darrell Etherington put together a phenomenal graphic over at TechCrunch showing just how close these three devices are to one another. We completely agree with him, from a bundled perspective, the iPhone 4S looks exceptionally appetizing when weighing the value of the different features and benefits.
On the unlocked front, Apple is following suit with previous generations of products and putting a hefty premium on network freedom. Yet, the price structure is exactly what Apple set up with the iPhone 4S, $649 for a 16GB phone, $749 for a 32GB, and $849 for a 64GB. They’ve since pulled back the unlocked offer, but are rumoured to re-release it in the next few weeks after scalpers are deterred.
This all seems pretty standard, why should I be impressed?
1. Apple brilliantly charges more for a reduction in wait time to the consumer
For some customers, being the first to have something is a badge of honor. For others, we’re fine having an older model or waiting a few months. Apple knows this, and as such, prices their products at a higher rate at launch, while quickly dropping the prices within months, especially with the looming holiday season. The result: Apple can capture as much cash from the table as possible while gaining different segments of customers through price reductions on older models. Plus, since they’ve been through a few rounds of price drops within a short amount of time before, they have their PR and customer service flywheeels churning and ready to go for any unhappy early adopters.
For your business: Figure out how you can create maximum urgency for a new product release or “expedited service” and charge a premium for access. You can always slowly lower the price over time.
2. Apple tiers prices along a value metric
The base model of every iPhone generation has always been the same with higher tiered models only existing with additional memory space. In this manner, Apple has taken IBM’s approach to hardware sales, in addition to ensuring different segments of customers bring them extraordinarily large profit margins. Some folks just want more storage, and those individuals will be paying hundreds of dollars more for something that costs Apple around $32 to provide. Their approach ensures every segment stays happy with a solid product, but also makes sure they capture cash from power users or those that can afford a more expensive model without providing a “trigger feature” that costs them an extraordinary amount.
For your business: Make sure your base product provides a lot of value (and that you’re charging enough for it), but also ensure your pricing follows an understandable trajectory up individual tiers. Essentially, it should make sense as to why the premium tier is so much more expensive than the starter tier.
3. Apple creates a fervor for their products
Apple churns the rumour mill every time a new product is coming down the pipeline. They keep everything “super secret” which pushes individuals to speculate, and then inevitably something leaks (possibly purposefully), which causes even more speculation. Finally, Apple unveils the product, which far exceeds what everyone is expected (typically), and then make you wait a bit before the actual release. Tension much? All of their existing and potential customers become entranced, and when the product is finally released people line up around the block and Apple inevitably runs out of a product (which causes more fervor).
For your business: This isn’t something that has to be unique to Apple. Yes, I’m not promising people will line up around the block for your software or service. Yet, creating tension for your customer on a new product release through dropping hints or offering exclusive demos can help you push demand in your direction.
Where can you find out more?
Apple continues to execute on a phenomenal pricing strategy. For more tips and tricks, check out our Pricing Strategy ebook or sign up for a price optimization assessment. They’re free, and we can help you keep the most important aspect of your business in check.