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  1.    #1  
    Hiya all,

    Great read!

    Take care,

    JAY

    How Apple plays the pricing game
    Creative strategies prompt consumers to buy, buy, buy
    By Ben Kunz, updated 9/6/2010 12:53:38 PM ET

    How Apple plays the pricing game - Business - Bloomberg Businessweek - msnbc.com

    Next time you're sitting at an airport bar and hear two businesspeople debate whether Apple is a technology or design company, chime in: "Nope. What Steve Jobs sells is pricing."
    Pricing? You bet.

    Jobs is a master of using pricing decoys, reference prices, bundling and obscurity to make you think his shiny aluminum toys are a good deal. Apple's Sept. 1 announcement of new products was a classic example. The popular iPod Touch media player has been revamped at three price points - $229, $299, and $399 - all costing more than the iPhone, which does everything the Touch can plus make phone calls.

    What gives? Watch Apple, and you can learn pricing tricks for your own business.

    First, understand that pricing games are vital for Apple, because competition is fierce in the tech world and product hits just don't last.

    The current iPad costs $499 in its lowest-powered configuration vs. the Archos 7 Home Tablet ($189) or the Dell Streak ($299 with a two-year AT&T contract). And competitors are rushing to offer more functionality for hundreds of dollars less; the Streak tablet throws in a videocam and phone, which iPads don't yet match.


    Apple's touchscreen buzz window is closing fast, and even though it will inevitably add features - I predict the iPad will sport a camera, videocam, and phone within two years - today's tech wonders, like the much-copied iPhone, become tomorrow's commodity.

    So let's count the ways Apple defends itself with pricing:

    Price decoys
    The Economic Daily News of Taiwan reported in August that Apple has started to build smaller, 7-inch versions of its iPad tablet, timed to hit U.S. shelves before Christmas. If you wonder why in the world Apple would add yet another potentially cannibalizing product to its lineup of iPods, iPod Touches, iPads, laptops and computers, realize that this gadget is likely a decoy.

    Decoys, in marketing, are products, services, or price points that a business doesn't really want you to take, but rather use as a reference to make another product look better.

    Economist Dan Ariely, author of Predictably Irrational, gives the classic example of a Realtor who shows you a home that needs a new roof, right before taking you to a higher-priced house she really wants to sell. It's hard to tell if a $400,000 colonial is a good deal - but compared with a $380,000 home that needs work, it looks quite good. Now consider, $499 for an iPad? Well, compared with a smaller one with fewer features, it suddenly looks great.

    Decoys explain why Apple often sells each gadget in a pricing series, such as the new iPod Touch's $229, $299, and $399 price points for different storage capacities. You may gladly spend $229 to get a hot media player, thinking it's a deal compared with the highest-priced version and not blink that you could instead buy an iPhone 4 at the lower price of $199 with more features.

    The $399 "decoy" has clouded your judgment. Apple wins the best of both worlds - stoking demand for products that look like bargains and for all the decoys it sells at much higher prices. Yes, some people will spend $399 for a music player with slightly better technology - and Apple makes even fatter margins.

    Establish a high reference price
    Behaviorial economist Richard Thaler has noted that consumers are really bad at making decisions about value and constantly need "reference prices" for comparison. A dress costs $80. Is that too much? Not if it's marked down 50 percent from $160. The trick is, that artificial $160 reference price may not really exist.

    Apple has played this game with itself by launching products such as the iPhone at artificially high reference prices - the iPhone cost $599 when it first hit the streets - and then rapidly lowering that price. Today, a $199 iPhone seems like a steal; Apple in essence is using its first-iteration pricing as a reference to make its current products feel affordable. You may be on the fence for a $499 iPad, but if it drops to $399 by Christmas, won't you feel better?

    Obscure the reference price
    This is a more clever Apple marketing trick; instead of giving consumers a reference price, hide the pricing altogether. Mail order business Omaha Steaks does this by selling complex bundles of meat and side dishes for about $100; the assortment of items obscures any comparison with prices at your grocery store. Candy in movie theaters is another classic example of price obscurity, because it comes in unusual, large boxes that are shaped nothing like what you see at other stores.

    Apple also obscures references by making its products look like nothing else, from the first iPod with a unique scroll wheel to the current iterations wrapped in gleaming aluminum. Apple seems wondrously unique, until you consider aluminum is the same material you wrap leftover fish in and then it hits you: Apple is disguising itself so you can't compare prices. Is the new $99 Apple TV box a good deal? Who knows? It looks like nothing else on the planet.

    Bundle price components to hide what you can
    Buy an Apple product and you'll spend more downstream. For every iPad or iPhone sold, Apple likely counts on your future song purchases, video rentals, and soon iAd clicks on app advertising.

    That sexy new Apple TV thing doesn't store anything, so you'll pay to play. Apple is not unusual here; almost every mobile handset, for instance, has some of its costs buried in future monthly data fees over a two-year phone contract. All of this "bundling" means the price over time is much more than what you think picking up the Apple gadget.

    The pricing strategy is brilliant. By staging a series of perceived technology innovations and then adding price decoys, reference prices, obscurity and bundling, Apple makes us willing to pay more to do the same stuff we did 30 years ago: read magazines, type messages, watch shows or make phone calls. The communication breakthroughs are mostly an illusion, but with shiny aluminum in our hands, who cares what it costs?

    Copyright 2010 Bloomberg L.P.All rights reserved.
    Please Support Research into Fibromyalgia, Chronic Pain and Spinal Injuries. If You Suffer from These, Consider Joining or Better Yet Forming a Support Group. No One Should Suffer from the Burden of Chronic Pain, Jay M. S. Founder, Leesburg Fibromyalgia/Resources Group
  2. #2  
    FOOL!

    The first few lines are enough to prove that. The iPhone is less expensive than the iPod? Really? Did he consider the fact that the iPhone is heavily subsidized by AT&T? I guess not, since he continued to repeat this fallacy and build on it.

    He referred to the initial price of the iPhone which was UNSUBSIDIZED! He then, used that as an example of how the iPhone's price was artificially inflated to make the new SUBSIDIZED price seem like a good deal. FOOL!

    ILD, these types of articles just make you look bad, unless you add some insightful commentary along with the article. This is not a good article. It is not well reasoned. It is not well researched. It is just nuts. And you posted this, why?
  3.    #3  
    Quote Originally Posted by dandbj13 View Post
    FOOL!

    ILD, these types of articles just make you look bad, unless you add some insightful commentary along with the article. This is not a good article. It is not well reasoned. It is not well researched. It is just nuts. And you posted this, why?
    Hi, I am reposting what I read, I don't have any apple products, although I did give my g/f an Ipod nano...she love it BTW...I have no idea if it is correct or not....

    I am the sole care giver of my 87 year old Mom who is recovering from a heart attack and stroke...your lucky I have time to post let alone research out each article....that is what all of you are out there for your input.

    I am not pro or anti apple....I am just posting news...

    So just correct what is wrong and leave my credibility alone...after all, it is not as if I wrote the articles!

    Take care,

    jay
    Please Support Research into Fibromyalgia, Chronic Pain and Spinal Injuries. If You Suffer from These, Consider Joining or Better Yet Forming a Support Group. No One Should Suffer from the Burden of Chronic Pain, Jay M. S. Founder, Leesburg Fibromyalgia/Resources Group
  4. #4  
    Quote Originally Posted by ilovedessert View Post
    ...your lucky I have time to post let alone research out each article....that is what all of you are out there for your input.
    What you don't seem to realize is that when you post an article on a discussion board, you ARE making editorial comment, even if you didn't write it. Assuming you do not post everything you come across, you are choosing certain articles for a particular reason. The body of work you choose to post is a strong editorial statement, and does betray certain biases.

    I read dozens of articles a day. I might choose to post one every other week for the sake of a specific discussion. The vast majority of what I encounter in a day is garbage, not worth a second look.

    You say you have very little time to vet what you post. I take it you at least read the articles and not just look at headlines? If you take the time to read the article, first, then you can make a judgement about whether the article adds something of substance to a conversation, or if it is just so much noise. You will save time by not posting the garbage. Other forum embers are not your fact checkers. If you don't have time to judge if the article is any good, and add some type of editorial spin of your own, then it is probably not worth posting.

    I am not trying to beat up on you or curb your obvious enthusiasm. What I am telling you is a matter of forum etiquette. Many boards have rules to this affect. I am surprised this one doesn't. There are other rules pertaining to copying and pasting whole articles, but why bother with that now.

    Just try to exercise a bit of restraint, and realize that you are not escaping the burden of editorial judgement by claiming you are doing a public service. Every article you post IS editorial commentary. As a commentator, you are subject to criticism for what you say and imply by your post. You can avoid that criticism by adding your own editorial spin that makes your intentions clear.

    Peace.
  5. #5  
    You could exercise some restraint yourself.
  6. #6  
    I like the article........ keep up the good work Jay!

    Apple fan boys can be fierce! The price they pay for ignorance.
  7. #7  
    Quote Originally Posted by dandbj13 View Post
    FOOL!

    The first few lines are enough to prove that. The iPhone is less expensive than the iPod? Really?
    You do realize that his point was that apple tricks you into thinking the iphone is a good deal when you really pay out your **** for it through apps advertising and contracts?
    Last edited by ryleyinstl; 09/07/2010 at 01:44 PM. Reason: Language
  8. #8  
    Quote Originally Posted by Titan078 View Post
    You do realize that his point was that apple tricks you into thinking the iphone is a good deal when you really pay out your **** for it through apps advertising and contracts?
    That was not his point.
    Last edited by ryleyinstl; 09/07/2010 at 01:44 PM. Reason: Language
  9.    #9  
    Quote Originally Posted by dandbj13 View Post
    What you don't seem to realize is that when you post an article on a discussion board, you ARE making editorial comment, even if you didn't write it.
    Peace.
    Good day,

    No it means I am opening up a dialog, not that I am endorsing something!

    If I post something to Fark or Totalfar.com about a murder doesn't mean I endorse MURDER?????????? Your line of thinking may be how you do things, but it isn't what I do!

    Last time I looked, I wasn't under oath to post things that I endorse or believe, that isn't a requirement to post on this site.

    BTW if you didn't have anything nice to say, how about not saying anything. So have a nice life....

    Jay
    Please Support Research into Fibromyalgia, Chronic Pain and Spinal Injuries. If You Suffer from These, Consider Joining or Better Yet Forming a Support Group. No One Should Suffer from the Burden of Chronic Pain, Jay M. S. Founder, Leesburg Fibromyalgia/Resources Group
  10. #10  
    Then have a dialog about it. You said it was a great read so obviously you agreed with the writer for the most point. You got your dialog when someone disagreed with you.
  11. #11  
    Quote Originally Posted by UntidyGuy View Post
    Wow. So you're telling me that Apple doesn't just take their cost of making a product plus a fixed amount for profit? I was wondering why everything costs $99, $199, or $299. I thought it was just a coincidence.

    And you know what? I think all those free apps in the App Store are "sold" at a loss. They are, indeed, playing crazy games!

    Seriously, at least Apple announces nationwide retail prices, often with shipping included, so you don't have to check a dozen websites to find the lowest prices while trying to avoid the scams like you do most with most electronics. An iPhone costs either $199 or $299 with new contract. What does a Pre cost?
    the article is not in reference to the iphone, but rather to all "I" products in general.

    while i do agree with you in reference to actual mac computers, that this is the same pricing structure as any company, including HP.. the fact is that the "I" product line pricing structure is a little blurry.

    does that make apple shady? NOPE
    does it make them $$$?? tons
    should they keep doing it? why not.. the consumer got what they wanted at the price they wanted.. not like bait and switch or anything
  12. #12  
    I agree that mot of what Jay posts is thought provoking but at least a third of the time, I hover over the URL wondering, "what back street blogger hack did this come from?!" and I start despairing over the state of journalism.


    I am in the camp that if you post it, you are posting it either because you support the article, OR because you take issue with the article (in which case when you do, you note it).

    But no, you don't get a pass just saying, "I am posting what I find and take no responsibility for it."
  13. #13  
    it isn't really fair to say an iPhone is $199. That carries a thousand or two dollars of service fees. At$t subsidizes the iPhone as do all carriers.

    I think they even may subsidize the off contract price because they know you will eventually activate it.

    that aside, this article really nails apple's strategy. And shows how freaking smart they are at marketing.
  14. #14  
    Quote Originally Posted by finngirl View Post
    I agree that mot of what Jay posts is thought provoking but at least a third of the time, I hover over the URL wondering, "what back street blogger hack did this come from?!" and I start despairing over the state of journalism.


    I am in the camp that if you post it, you are posting it either because you support the article, OR because you take issue with the article (in which case when you do, you note it).

    But no, you don't get a pass just saying, "I am posting what I find and take no responsibility for it."
    there is a third category, which is 'things that make you go "hmmm" and provoke thought.

    I agree that posting everything one finds will produce a few turkeys. There used to be several here that posted one whacky conspiracy theory here every day. Every stinking day.

    I agree that the state of on-line journalism is pretty poor. But in this case, the author is more right than wrong, even if his logic is a bit flawed.

    its also not so good to post entire articles, but that's another topic.
  15. #15  
    btw jay, I sent you a PM. Please check for it.
  16. #16  
    I am going to try to take this article seriously enough to comment on the content. It's not easy, though.

    As has already been stated, the author seems to be confused over the difference between phone pricing and other things. That aside, he makes it sound like Apple is doing something underhanded with their pricing. It feels like he is trying to write a hit piece, but he's not very good at it.

    Take the iPad as an example. Apple has six SKUs for it. Prices range from $499 to $829. When you see a bunch of HP tablets at different price points, you don't think, "These guys are trying to trick me." You think that they are offering different machines at different price points for different people with different budgets and different needs. Most people think of that as a good thing. Android supporters certainly seem to think so. Yet, when Apple does it, there is some type of cynical ploy to trick people out of their money.

    To the greater issue of pricing and marketing, I really don't get his point. Apple plays the marketing game well. This is a bad thing? Is it bad when Google does it? Verizon? HTC, Moto, Samsung, HP? Are we supposed to be upset with Apple for doing what everyone in the industry has been doing for ages? I don't get the point he is trying to make, other than some vague notion that Apple is evil, and they are trying to trick you into buying their products. Whatever.
  17. #17  
    I think what surprises me the most in this article is the author's seeming belief that he's stumbled upon some big secret in the industry. In my experience this sort of pricing is commonplace across multiple industries whether you're buying a house, a car, a TV, or a medium popcorn at the local theater. I'm pretty sure pricing strategies are usually put in place with more purpose that a recoup of manufacturing expenses plus a modest profit. If you're a business with a product line (or two, or three) and you don't have an aggressive pricing strategy, you better have a monopoly, or you should prepare for failure.
  18. #18  
    Quote Originally Posted by ilovedessert View Post
    Hiya all,

    Great read!

    Take care,

    JAY
    Not quite. I'm no Apple fanatic, but this guy's arguments are extremely thin on facts or logic.

    Apple also obscures references by making its products look like nothing else, from the first iPod with a unique scroll wheel to the current iterations wrapped in gleaming aluminum. Apple seems wondrously unique, until you consider aluminum is the same material you wrap leftover fish in and then it hits you: Apple is disguising itself so you can't compare prices. Is the new $99 Apple TV box a good deal? Who knows? It looks like nothing else on the planet.
    Other people have touched on other points, but this one really got to me. I don't think the author realizes that there is a huge difference in pressed and rolled aluminum foil and manufacturing small parts in aluminum. The first is very simple and cheap, the second is fairly complex and cost intensive. High tech sports engines and fighter jets are made out of the stuff, is he going to disdain those too? It's a fantastic material to make small, droppable electronic equipment cases out of since it's strong, durable, and lightweight. Hell, if the Pre had been made with a backbone of alumninum, maybe we wouldn't have the cracking problems we have. (Okay, maybe reception problems )

    Say what you want about Apple's pricing (I happen to agree that the iPad is over-priced, but that has more to do with demand that Apple itself fostered) at least they have a dedication to quality control that is unmatched by other tech companies, antennagate notwithstanding.

    The fact is, you really get what you pay for. Sure you could get a music player for half what you'd pay for an iPod, but it just won't work together as elegantly. Unfortunately, they nerfed the nano, so I'm sticking with the last generation until they bring back something like a smaller Classic. Not interested in the Touch for a lot of the reasons he mentioned. It's over-priced and my Pre does everything it would do.

    The author also didn't do adequate research. While the new Apple TV can't store data, it can play content from a networked computer where you can store content. But who cares? The cloud is where everything is headed anyway.

    How exactly does one become a Bloomberg editorialist?
    Last edited by malber; 09/07/2010 at 03:38 PM.
  19. nullr's Avatar
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    #19  
    Eco 121 basics. Apple is not selling devices they are selling a brand. When you are selling a brand you can mess with the price with little ill-effects on the demand. Nike, RayBan, Lamborghini, etc the list goes on. If you look theres superior products for less money for products from any of those companies but they are selling a label so they can do with price what they feel.
  20.    #20  
    Quote Originally Posted by cardfan View Post
    Then have a dialog about it. You said it was a great read so obviously you agreed with the writer for the most point. You got your dialog when someone disagreed with you.
    Hi, I said it was a great read, b/c it was provocative and interesting. I don't know enough about Apple's cost or sales info to have an opinion. I just thought sharing it would be thought provoking, which it has been. Take care, Jay
    Please Support Research into Fibromyalgia, Chronic Pain and Spinal Injuries. If You Suffer from These, Consider Joining or Better Yet Forming a Support Group. No One Should Suffer from the Burden of Chronic Pain, Jay M. S. Founder, Leesburg Fibromyalgia/Resources Group
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