Business

The brilliance of Apple’s Watch pricing strategy


Smart watches are already a commodity. I can find a dozen from no name Chinese manufacturers to big companies like Motorola, Samsung, LG, etc. Prices range for these devices from as low as $40 to around $300.

Apple hits the market with what is arguably nothing truly revolutionary (its not, Garmin has watches with similar functionality, so has Motorola or Samsung), but Apple has already proven they can sell these like no one else. Apple made an interesting move when it started marketing the watch a few months ago, it focused on how the watch made your life better. It was marketed purely as a lifestyle gadget, not some revolutionary life altering thing. This allows Apple to not have to compete on purely functionality (which could be a terrible arms race they’ve managed to ignore in the Android space).

The real genius of Apple’s strategy with the Watch is the pricing though. By telling the market that this is a luxury good, priced from $349 and going all the way up to $17,000, Apple is saying they’re nothing like the Android watches that all hover around $200-300. Apple has planted their flag in the high end of the market, they are the Mercedes of smart watches. By anchoring their price in a completely different bracket they effectively changed the conversation surrounding their product. No one will compare a $10k Apple Watch to a $249 Samsung gear watch, as they won’t even be considered in the same conversation. This now effectively lets Apple make incredibly high margins on what could have otherwise been a commodity product.

We’ve already seen this works, the product hasn’t even shipped to the masses yet, but it has already reportedly sold 2.5Million units, more than all the android smart watches COMBINED in the last year. Apple changed the story altogether. Brilliant move Tim Cook, brilliant move.

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  • Justin Kent

    Great insight, Brian. I’ve been thinking about this a lot too. The Watch could end up being Apple’s highest margin product, ever. Think about the multiplier they get on a laptop over a similarly specked Dell or HP: it’s not much, maybe 1.5 at the max? Here they can get double, triple or more over a similarly specked smart watch.

    The other thing I’ve been thinking about is the pricing of the Edition. I feel like the Edition’s job is mainly to make all the rest of the line seem inexpensive. Imagine if the the Edition didn’t exist: you can get a generic smart watch for $100, or an Apple watch for $349 (wow, that’s high!) up to $1,100 for the fancy stainless (OMG I could get 4 Android wears for that price! What are they thinking?). Whereas, with the Edition, $1,100 seems CHEAP compared to $10k or $17k. $349 seems like a downright bargain.

  • adk

    It seems like Edition basically makes the Sport and Watch lines into diffusion brands, a la Giorgio Armani vs Armani Collezioni/Exchange.

  • The technical term is called price anchoring. If you go in and see the most expensive one at $10k, you think holy shit that $349 one is a steal.
    Andrej, I am not sure if diffusion brand is the right term/idea (though I’d never heard that term before). Since this isn’t GAP’s model of Banana Republic > Gap > Old Navy.