How Apple Sets Prices

An article in Bloomberg BusinessWeek breaks down Apple’s pricing strategy and identifies its key components. “Next time you’re sitting at an airport bar and hear two businesspeople debate whether Apple is a technology or design company, chime in: ‘Nope. What Steve Jobs sells is pricing,’” writes Ben Kunz. “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.” [%comments]

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  1. coldtusker says:

    The article/assumptions are flawed. The prices of iPhones are subsidized while iPods are not. With subsidies, it is not Apple’s call but includes AT&T’s input as well.

    For all I know, at a higher/expensive ‘plan’… AT&T would give you the iPhone for free!

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  2. Jim says:

    the article referenced says that bringing out a 7″ iPad later this year is a “decoy” to make the original iPad look better.

    I don’t get it. The iPad is selling faster than they can make them. Why is there a need to sell a decoy product to make the full size iPad look more attractive?

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  3. Joe says:

    I’m amazed at the comparison they are making. Do they have total idiots writing the articles over there?

    AT&T subsidizes the price of the iPhone when people buy it.

    If you buy it without the AT&T contract, the iPhone costs somewhere around $500.

    Not to mention that you when you buy an iPhone, you are also buying a little over $2,000 worth of cell phone service too.

    How did they write an entire article without realizing this?

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  4. Ken Edwards says:

    This article has a couple points that are off the mark.

    To start, saying the iPhone costs $199 in comparison to an iPod touch is totally disregarding the fact that the iPhone is only $199 when you commit to a multi-year, multi-thousand dollar contract. The true price of the iPhone 4 is $659.00 Canadian ($643 US today), so it is really not a case of the iPhone costling less and doing more, it’s over 3 times the price of the iPod.

    And to say the AppleTV has no competitors on the market seems to be a big slap in the face to Roku who’s had a set top box for streaming movies from Netflix and Amazon for a while now.

    I suppose there’s no better way to draw readers to an article about Price Decoys and Reference Prices then to slap Apple, iPod, and iPhone across the top.

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  5. Mike B says:

    I never thought Apple was anything but overpriced. You’d have to be some sort of artist with poor math skills to think otherwise. Oh wait….

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  6. Eva says:

    Frankly, I think their price comparisons are bogus – the up-front cost of an iPhone may be lower than for an iPod touch, but then you’re stuck with a 2-year contract with mandatory data tariff etc. So the comparison needs to be between the cost of the iPod and the present value of the total contract cost plus up-front cost of the iPhone.

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  7. Doc says:

    Kunz does a good job of analyzing pricing strategies but he downplays the basic kernel of truth about Apple, they’re a great technology company that consistently delivers breakthrough products. Why shouldn’t they pair that with pricing strategies that may extend their first mover advantage?

    As for being “fooled” into buying an iPad (which I haven’t) to replace technologies we’ve had for 30 years, it’s not a substitute for those things. Rather, it’s one of a few new products that represent the convergence of content from those many platforms into one platform. Content convergence will accelerate dramatcally in the next few years and I expect we’ll see Applie staying in front of that for some time.

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  8. Ghost says:

    Product bundling to disguise the specific price of each product included isn’t a new pricing technique. Why is this attributed to Steve Jobs?

    Apple invented touchscreen technology? I recall seeing touchscreens on bank ATM’s many years ago, before the release of the iPhone.

    The article compares the cost of an iTouch versus the cost of an iPhone, and its conclusion is that the iTouch is more expensive. However, the article purposely ignores the cost of the cell phone carrier in its comparison. Very convenient.

    Your next Freakonomics article should be about journalists, “bloggers” (whatever that is), etc., that make poorly conceived business analyses and articles.

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