Apple’s iPhone 6 Pricing is Brilliant Marketing

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Apple’s new iPhone 6 and 6 Plus have been very well-received, for the most part. Design, functionality, features, build quality, etc. have all been up to Apple’s typical standards (comparisons to Android and Windows Phone alternatives notwithstanding). One area that’s been a point of contention, though, is pricing and specifications, particularly Apple’s decision to offer a 16GB entry-level version for $649 with the next step up being 64GB for $749. The question has been, why 16GB and not 32GB, or, why no 32GB option at all?

Looking at things from the buyer’s perspective, 16GB is simply not enough, and the lack of expandable storage adds insult to injury. It’s common in Android and Windows Phone devices, as well, and just as bad there. I’ve run into issues with my Lumia 925 with 16GB, not because I store a lot of music and video locally (I access those strictly from the cloud), but because I take a fair number of pictures and video and I like to install and test more apps than the average. I’ve found my 32GB Nexus 5 to be much more comfortable, and have always considered 64GB to be overkill.

Looking at things from Apple’s perspective, however, it all makes great sense. Apple is an excellent marketing company, and pricing is a core marketing function. They’ve always been very good at controlling costs while maintaining higher pricing than the average, which helps explain why their profit margins are typically industry-leading (and thus why they enjoy such a phenomenal market cap).

Simply put, offering a 16GB product at $649 means that Apple maximizes their margins for the most popular model versus starting at 32GB. At the same time, offering 64GB as the next option likely maximizes the number of upsells, grabbing all the buyers who are willing to spend $100 for 4X the storage but who would hesitate for just 2X the storage. Given Apple’s low costs, their margins on 64GB compared to 16GB is bound to be extremely high. The bottom line (no pun intended), therefore, is that Apple wins whether someone buys the 16GB version or the 64GB version, and they win more often than they would by offering 32Gb at the low-end or a 32Gb option in general.

In this case, Apple is driving the market rather than merely reacting to it. They’ve likely crunched the numbers and the results were simple: the number of people who will pass on the iPhone 6 because it only offers 16GB at the low end is probably very low. Most people who want an iPhone 6 will buy it even though 16GB is disappointing, or at least that’s likely Apple’s thinking.

Note that I don’t blame Apple in the slightest for their decision here.  I think every company should strive to best match their profitability with customer demand, and they should sell whatever it is that customers are willing to buy. Put another way, it’s never a good idea to leave money on the table. It might not make Apple fans terribly happy, but they’ll buy in droves regardless–and that’s what Apple is counting on.

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