Apple’s iPhone pricing strategy

10 04 2010

When the iPhone was first released in 2007 Apple charged its customers $599 for the 8gb version. Only 66 days after the initial offer at the end of June Apple dropped the price to $399 for the exact same device, which led to heavy protests among the innovators and early adopters…

The huge amount of complaints about the price drop made Apple give away $100 store credit cards to all who bought the new device right after its launch.

Looking at this behavior from the marketing perspective, it is obvious that Apple incorporated several different pricing strategies at the same time. Clearly there is a certain buyers’ expectation linked to Apple’s pricing, because the company has created a high quality image with a relatively high price level. The target group Apple addressed with their former product line is said to have been used to this image. The selling price of $599 (which is more about $380 higher than the manufacturing costs) turns out to be extremely well chosen, because just fit in with the rest of the product line, met the customers’ expectations and underlined the quality expectations. Considering Apple’s company image again, prestige pricing obviously played an important role in the pricing decision, too.

If looking at the immediate price drop after only two months, the initial price can also be seen as a skimming price used to recover from high development costs, because the device featured all kinds of new technologies, that had not been used in consumer products before. At that time there were no competing products in the market, which also contributes to the skimming price decision.

In the last years Apple seems to have moved away from the idea of selling an extremely prestigious and exclusive phone, as the price has been lowered with all future iPhone releases. In my opinion this is due to the growing competition in the touch-controlled smart-phone market, especially because Apple is known to improve its other products in relatively short intervals adding new features or improving performance while keeping the prices constant rather than dropping them.

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5 responses

10 04 2010
tpaluczak

In hindsight, I think you are absolutely right, Apple’s pricing strategy might have seemed like a massive debacle at the time, but in reality it was most likely a very smart move. They were able to take advantage of the all the hype created by their marketing plan and charge consumers well over what it cost to manufacture the device. After they sold about as many phones as they could at that price they dropped it in order to create more buzz which in turn caused consumers to get the, “Oh my gosh, what a great deal I can’t pass this up!” mentality.

With the newer iPhone generation it seems like they have a different pricing strategy. The new phones are far less expensive, even when they are first released which seems like they are trying to target a broader market from the get go. This could be in large part because Apple is trying to place the iPhone as the most superior smart phone, and if this is the case it needs to be a viable option for almost all consumers, especially business persons who need a smart phone.

11 04 2010
Sanjeev Ranabhat

Apple is very good at crating an image of being the most “superior quality” and creating a whole idea that in order to have a quality product we, the consumer need to pay high.
Apple’s quality is pretty high in the products, however, they are being famous (or infamous) for being notorious to the customers after selling their product. Example is the youtube video of a man who destroys his macbook even after he purchased an extended apple care, but doesn’t get any support from the Apple after his macbook is broken.

There are other companies which are high quality and even better than Apple’s product. like Microsoft’s Zune for an iPod, google’s phone is even better than iphone in many ways. I think its the whole idea, that Apple people are successful to create an image and the brand being so powerful.

you will see, after a couple of months, they are going to reduce the price of an ipad, and they will come up with better one too.

11 04 2010
tomspire

Good example and well analyzed!

13 04 2010
mattmaggiolo

I believe that Apple was smart in the way that they skimmed prices when the iphone first came out to cut down on their marketing costs. The company knew that their product was going to be extremely popular and that most people would be willing to pay the $599 to be one of the first the get the phone. When Apple droped the price by a couple hundred dollars this allowed for all those who have seen or heard about the iphone from others to be able to buy it at an affordable price. This price was still over the production costs and the phone gained praise from those who owned one already. What Apple did by giving those people who a $100 dollar credit was smart to satisfy those who were unhappy. Apple was giving the consumer what they wanted and allowed the consumer to purchase more of their products which would most likely lead to repeat customers in the future for Apple.

18 04 2011
Naveen pusala

Iphone price strategy was debacle at that time..

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