Pricing Strategy Apple never wants you to know
October 13th was a magical day for Apple as it was the first for them to launch 4 smartphones at once.
This time, they are offering a wide product depth in terms of the models including the iPhone Mini 12, iPhone 12, iPhone 12 Pro and iPhone 12 Pro Max. Despite the delay in the much-anticipated launch due to the pandemic interrupting their manufacturing and supply chain, this launch is recognised as one of their most ingenious launches in a long time.
The main discussion up in the air surrounds the announcement regarding no charging adapter and EarPods included in the box anymore. The rationale given was simply customers already have them and to play a part in the environment conservation effort. This decision could reduce carbon emissions and avoids the mining and use of precious materials.
Going back to 3 months prior to this launch, Apple announced that they committed to be 100% carbon neutral for its supply chain and products by 2030. In other words, it means that they will be reducing the output of carbon dioxide by the equivalent amount as the input they generate.
When we scrutinise from the investor or investment’s standpoint, this is an optimal move to expand their attainment in the Environmental, Social and Governance (ESG) criteria. Hence, it would be a win-win situation for them to espouse strong environmental practice, creates value for investors and reducing the cost.
In the circumstances where the message of environmental value overwhelms the removal of charging adapter and EarPods, the consumer will feel a sense of involvement in the practice and spontaneously accustom to the change.
But how much does the power adapter and the EarPods cost?
20-watt USB-C Power Adapter: $19
EarPods with Lightning Connector: $19
In order to understand the pricing strategy of the iPhone, we will compare the launch price for the series of iPhone 11 and iPhone 12.
This has shown that Apple has applied a consistent “formula” for the Standard edition of charging $100 extra where each x2 size in its storage space.
Starting from Pro version, it is where the fascinating discovery begins, there is no 64 GB for iPhone 12 Pro, but the launch price for following two storage space is relatively lower than the iPhone 11 Pro.
Similar case for Pro Max version, the pricing difference further widens when measuring according to its storage space variation.
There are two potential inferences which can be made:
a) Apple did not upgrade the specs or add features to the extent found in iPhone 11 Pro
b) Apple aims for volume rather than margin for iPhone 12 Pro to enhance its profitability in the pandemic
Despite purchasing the power adapter and EarPods, it is still within the price difference between two generations of iPhone for Pro and Pro Max model. Alternately, you could opt for AirPods or even AirPods Pro.
Then, we will be looking into their pricing strategy — the method used by Apple to determine the best price for all their iPhone 12 models.
1. Psychological Pricing
As discussed earlier, the pricing is deemed reasonable when the consumers accept the justification given by Apple about the exclusion of power adapter and EarPods and supporting the carbon-neutral movement. They tend to feel satisfied with the price, especially when it is very close to the previous versions.
2. Premium Pricing
This strategy is not something new to the game. It has been employed since the “s” models are introduced. It has now updated to Pro and expanded to Pro Max form. How Apple convince consumers to decide on this premium purchase would be adding some additional features focusing largely on the precision of the camera.
Furthermore, the pricing gap between the Pro and Pro Max are extremely proximate. A slight persuasion could simply induce an individual to settle on the higher price-point option. Somehow, the Pro Max phrase could be interpreted as perfection at its limit.
3. Market Penetration Pricing
The debut of the iPhone 12 Mini is part of the budget alternative in this release. By reducing the screen size for those consumers who want a handy smartphone at affordable pricing, this would be a prudent decision. Again, this pricing strategy has been used before for the iPhone XR and iPhone SE, but this time, it was launched concurrently.
Since the iPhone 12 Mini is at the lowest of the pricing spectrum, it could be attracting those first-time iPhone users or even targeting parents who supportive of the Apple brand and would like to buy it for their children due to the suitable overall phone size.
Pre-Order & Release Schedule
The last thing we will be discussing would be the pre-order and release schedule arrangement.
The key factor in figuring out both batches would be the loyalty and profit margin. Based on the direct pricing comparison in Table 1, iPhone 12 could be the product with the highest profit margin in the series. On the other hand, the iPhone 12 Pro is expected as an “upgrade” for existing iPhone users, and with the new design and colours, certainly, their sales could achieve their goal.
For Batch 2, it could be described as the “they can wait” crowd. These group of potential customers, including first-time iPhone users and loyal iPhone customers. For first-time users, they would assess the functionality of the smartphone before purchasing through unboxing videos and review videos on social media platforms.
Whereas for the loyal customers, there is no significant impact of them buying the phone now or later. Thus, to establish an organised supply chain network and secure a fair number of orders for the Batch 1, the four models are separated in terms of available dates as well as their pre-order dates.
Based on my observation of this launch, it is indeed a smart move and decision made to boost the volume sold in the pandemic when the share price of the company is soaring at an all-time high. It has no room for failure to beat the market expectation to retain its spot as the largest company in the world.
