I think the only way Chuck’s answer is wrong is in that it’s too concise - I don’t read it as, and don’t think he meant that Apple can ask any arbitrary price for their products.
Yes, they would sell iPads at the $10k mark if they chose to price them there. But they do price them at the absolute maximum their optimum market permits, sometimes higher because they know their brand-affinity and buyer base will stretch a little higher than most. Apple buyers will grumble - sometimes loudly - but readily pony up $50 to $100 more than what even they think is a reasonable price.
If Ford prices a car as little as $500 too much, they are likely to lose sales even to lifetime Ford buyers looking for exactly that car. Apple, however, can set the bar high, even too high, and keep raising it, which is a nearly-unique situation outside of the very exclusive tier of luxury products. Tech analysis often shows that Apple’s manufacturing costs are no more than for equivalent products, but they sell at multiples of Samsung and other competitors… because they can, because you as an Apple customer accept the practice.
So yes, Apple does have customers who gladly pay any price they ask. Not any price imaginable - but any price they ask from their carefully-maintained market position. And your option is to pay it, or go elsewhere.
It doesn’t work that way anywhere below the luxury tier or nearly unique cases like Apple. It certainly doesn’t work in the commodity/mass retailer world.
Amateur Barbarian, you don’t have any idea what you’re talking about.
Apple’s pricing walks the same fine line as every other product manufacturer. Charge the highest price the market will bear, balancing higher profits per unit with reduced quantities at higher prices. In fact, they are under even more scrutiny than most, since the expectation is that their prices are fixed and will remain so for an extended period of time. They have to get it right the first time, they can’t put things on sale, or offer a lower warehouse price or rebate that no consumers know about. The fact that they get a higher margin on each unit doesn’t mean they don’t have to carefully price their product. If they price their next iPad $50 too high, that’s 50 MORE dollars they are above the competing product. Maybe I go iPad for a $100 premium over Samsung, but not $150.
And really, Ford is your example of high prices chasing away buyers? Nobody but a complete moron pays list price for a new car. Car sales are a bastion of kickbacks, discounts, rebates to the point where the List Price is nothing more than a rough guide. If Ford prices their car $500 too much, they’re going to hear back from dealers to whom they can give a silent $500 kickback for each unit sold.
:smack: But of course it does. How could I forget that Target and Nieman Marcus, Kia and Maybach, Claire’s and Gucci, and Early Times and Van Winkle all use exactly the same pricing model.
Lots of chatter in here about how stupid and irrational shoppers are. This discussion reminds me of the study that showed that people’s perception of wine was heavily influence by how much they were told it cost. Or the use of placebo pills by doctors. People want to feel like they “got a deal”, and that they are owning valuable goods.
If someone is more confident in the same shirt if they think of it as a $50 shirt they got for %50 off, instead of a $25 shirt, well … is it irrational or stupid to leverage the “irrational” corners of our mind to maximize our happiness? Of course there is always the question of who is doing the leveraging and who is really winning, but I’m not sure this subject is so simple as is being made out here.
For my part, I prefer to know the “real” prices and have them presented as such, and was bummed to see JCP go back to the Old Way, it was the only department store I could stand setting foot in. I asked my wife about all this and it didn’t seem to be a particularly interesting topic to her. She said the equation is simple: see something she likes, try it on, decide if the current asking price is worth it for her.
I’m thrilled that I could have helped you remember that they are ALL trying to maximize profit in competitive industries. None of them get to deny reality, or charge whatever they want, they all have competitors. Even luxury brands with high margins have to manage their prices closely, if only to ensure they maintain their market niche and profit margins.
His error did not come about because Apple has a magic pricing wand that lets them do whatever they want. It came about because the honest pricing model wasn’t received as the refreshing change of pace that it was intended to be. A lot of retailers manage without a bullshit list price and constant sales, like the Dollar Store.
Do you have any idea what luxury-item profit margins are?
My point is that while in a simplistic sense you’re right, there is vast difference between Target and Wal*Mart slugging it out over t-shirt sales on an 8% margin, and Gucci and Prada slugging it out over handbags at a 75% profit margin that can represent the cost of a car on each item. Yes, each is “competitive” but that has no more relative meaning than saying “they all sell their products for money.”
Um, wow. Where to start…
Yes, indeed, Apple DOES have a magic pricing wand; it’s shaped like the outline of an apple with a bite taken out of it. That brand and the reputation that stands behind it (all issues of whether it’s justified or not aside) means that they can set the price bar almost anywhere they want it and be assured of sales. They *would *sell iPads at $10k, enough for it to be profitable. They do sell iPads at the highest price tier in the market and each generation is priced the same or higher… because they can. It has nothing to do with cost-plus-markup or a functional profit margin; every product is priced at the absolute maximum they can set without alienating their own adoring fan base… too much. There is nothing sensible, market-driven or realistic about it; they are a brand whose products - even broken products that would sink other makers - are in such demand that they can create their own reality. Maybe they’ll be able to do it forever. Maybe they’ll overstep so badly on a next-generation item that they collapse. But they very much do wish their own reality into existence and hey, it works. For them.
Will any part of that model and attitude work at, say, JC Penney? I’d bet against it. Call me psychic.
And to drag bottom-tier mass-trash sellers into the same discussion is really taking it off a cliff. While the model could be outlined on a marketing class blackboard (sorry, they’re whiteboards or SmartBoards these days, aren’t they?) pretty much the same way for all these retailers, the situations are so different as to hardly be in the same financial universe. Which is my point.
If you think retail pricing is sensible or formulaic or in any way meaningful or logical - you have fallen for one of the great shucks of our consumer culture. Pricing, of items and across niches, is the next thing to arbitrary. Read any couple of chapters of Poundstone’s Priceless. (As he repeats himself over and over through the book, any couple of chapters is plenty.) Or google around on the concept of “price anchoring.” There are decades of behavioral economics research backing up the concept.
You do realize that all but the tippy-top exclusive models of luxury handbag are made in China? That’s all the way up to $4-10k ones… if you go to the exclusive floor of Prada on 5th and get into the $20k range it might be made by European artisans. Manufacture cost is typically less than $250 even with the most exclusive materials. Need a calculator?
Using conjecture to support your point, essentially begging the question. Apple prices their products what the market will bear, just like everyone else. Apple is unusal in the amount of percieved value they are able to create in their products, reflected by their high margins.
That’s almost exactly what I said, except that I contend, from having watched their product history since the beginning, that they could set the bar much higher with far less impact than most brands.
Contend = opinion, by the way. Not claiming anything else.
I was with you on post #21. But I think embracing the term “magic pricing wand” and saying they can “will their own reality.” goes to far. It is not magic, and they cannot will their own reality. They are very much at the mercy of consumers: they must continue to create products whose percieved value is commesurate with the prices they are asking.
I think we essentially agree here, but the language in your post seems inconsistent. We (I) may be descending into pedantry here.
Apple is absolutely sui generis in the consumer world, and they can do so many things that are contrary to the reality most companies have to work within - even successful, highly-regarded companies - that “magic” is not too strong a term.
Name any other company that can create massive media attention and market frenzy because they breathlessly announce they are… releasing an existing product in five new colors. (Granted, that schtick is wearing thin, but it ain’t worn out. See: iPhone 5C. The current ads focus on nothing but whimsically-named color combinations.)
Probably about the same as the profit margins for the services I spent a decade pricing.
Point is, it doesn’t matter. When you’re on the block to decide on a price point, you don’t have a magic wand, even if your selling for 90% gross profit.
Just like every other company in existence.
At best, Apple has a wider range of profitable price points, BFD. Their goal is the same as everyone else’s, maximize profits. They don’t walk into pricing meetings saying 'who cares, just add $50 to the price and let’s make some long green!" They are agonizing over their price point. They just introduced a downgraded 5c model in some markets to try and hit a lower price point. Their stock took a 5% hit last year because analysts thought their prices were too high.
They’re still doing well, but because they’re working hard to do it right, not because they have an apple shaped magic wand doing their pricing.
The only “real” price is what one pays. Have JCP customers been systematically paying more there than they would for comparable stuff at another store? Absent some evidence that they have, I don’t see how one can deem them “irrational.”
Seems to me this discussion is about customers not paying any price at all at JC Penney stores.
They weren’t shopping there, period, because of their perception that Penney’s prices were higher (since they weren’t “sale” prices). Chances are, only a small percentage of shoppers actually bother to directly compare specific prices for the same item across stores.
So yeah…to base one’s purchasing decisions on perception rather than reality, to not grasp the shell game that retailers have been playing for years…that strikes me as irrational.
