If anyone had asked you to describe Apple’s pricing strategy in a sentence, this would – until recently – have been extremely easy to do. Apple aims to sell premium products at high margins to upmarket demographics. The company had shown almost no interest in more affordable products pitched to those on tighter budgets.
But Apple has long recognized that you need a way of building your long-term customer base, and one good way to do that is to get them when they’re young. Apple has made considerable efforts over the years to get its computers into schools and colleges, and to make them more affordable to students through its education discount.
The MacBook Air line too has been priced at a level where it is just about affordable for those who would otherwise buy cheaper Windows laptops – again, in no small part because Apple wants to attract younger buyers whose lifetime value to the company will be substantial.
But as one analyst recently observed, there is now evidence that Apple is aiming to offer lower pricing across a broader range of products. Yesterday’s announcement of a low-cost 9.7-inch iPad was a good example of that new approach …
Neil Cybart wrote a week ago that Apple is pricing some of its products at a surprisingly inexpensive level, and gave AirPods as an example.
As Apple pushes deeper into luxury brand territory, the company is making its products more accessible through lower pricing. At $159, Apple is underpricing AirPods […] It is very difficult to find a pair of wireless headphones priced lower than AirPods. In the run-up to Apple unveiling AirPods this past September, the wireless headphone market consisted of the following players [with all but one of the eight products priced at $199 plus].
Cybart went on to write that, on like-for-like basis, the Apple Watch’s starting price of $269 also makes it one of the cheaper wearables available, comparing it to competing products ranging from $275 to $599. (There are of course many cheaper smartwatches that don’t compare in quality or functionality.)
The Above Avalon writer suggests a few different theories for what might be behind this. It could all be designed to sell more of Apple’s primary product, the iPhone. It might be simply to take advantage of Apple’s bulk-buying power to make money from lower-priced products. Or it could be a desire to transition from a premium brand into a truly mass-market one, with luxury products only one element of its business.
AirPods and Apple Watch pricing demonstrate how Apple is looking to own not only the premium segment of the wearables market, but rather the entire market.
While I don’t think Apple has any desire to own the entire market – both Tim Cook and Steve Jobs before him have always been clear that Apple aims to make the best products possible, and is not willing to compromise the user experience to hit particular price-points – I do think Cybart is right that what the company does want to do is bring new customers into the Apple ecosystem. And – just as it did with the MacBook Air – providing a more affordable entry point is the most effective way to do that.
Yesterday’s iPad launch provides good evidence for that view. The iPad model it launched isn’t a great one. As we noted yesterday, in some ways it’s a little worse than the iPad Air 2 that previously served as the entry point for those who wanted something larger than an iPad mini.
But it’s still a good one. You get something which, while a little thicker than its predecessor, is still very portable. You get a Retina display, decent cameras front and back, Touch ID and an A9 processor. And most important of all in terms of attracting new customers into the ecosystem, you get a 9.7-inch iPad for as little as $329. That’s a price that is going to get the attention of anyone looking for something better than the cheapest disposable Android tablets.
It’s also important to remember that while 9to5Mac readers naturally gravitate toward the latest and greatest models, we are not representative of the tablet market as a whole. We’re not even representative of the iPad market.
Localytics yesterday reported that both iPad Pro models combined – the 9.7-inch and 12.9-inch models – amount to just 8% of all iPads in use. That’s in large part, of course, because the Pro models are still relatively new and people hold onto their iPads for far longer than they do iPhones, so you’d expect to see a lot of older models still in use. But it’s still worth bearing in mind that just because an iPad isn’t exciting doesn’t mean it isn’t appealing to a lot of people.
Then there’s the iPhone SE. Sure, some of us bought it because we prefer the size and design, but it’s undeniably the case that many bought it because it’s the most affordable way to buy a new iPhone. Apple yesterday made its cheapest iPhone even more appealing by doubling the storage capacity.
So no, I don’t think Apple has any desire to turn itself into a true mass-market company, covering all price levels from budget devices to luxury ones, but I do think it wants to bring more people into the Apple World. Its pricing of AirPods, the Apple Watch, the iPhone SE and now the new 9.7-inch iPad are evidence of that – and of a willingness to have some lower-margin products in order to allow new customers to experience the Apple ecosystem.
Once locked in, a proportion of those new customers will later buy the more expensive products the company really wants to sell. Some of those initially attracted by the affordability of the MacBook Air will later end up buying one of the eye-wateringly expensive MacBook Pro models. Some iPhone SE buyers will later pay the rumored $1000-ish price of the iPhone 8. And some brought in by that $329 iPad will at some point upgrade to an iPad Pro.
Do you agree? Is Apple engaged in a deliberate strategy of having more affordable routes into the ecosystem in the hope that people will move up the price ladder later on? Or do one of the alternative explanations apply? Please take part in our poll and share your thoughts in the comments. You may think that two or more answers apply, but we’re interested in what you see as the primary driver, so you can only select one option.
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