• Pranav Patvardhan

How Apple mastered luxury pricing to create an aspirational brand

Pricing has always been one of the staples of management, being used by businesses in all industries, countries and contexts. While most businesses have used it primarily for maximising profits and competing with rivals, few businesses have ever thought of it as a brand statement. Perhaps no other company has been as successful at leveraging price as a branding tool in itself as Apple.

Apple has long been considered a luxury brand, catering to customers at the very top of the pyramid. Unlike several other luxury brands like Chanel or Gucci, Apple has not relied as heavily on influencer/celebrity endorsement to create a powerful brand; instead relying on its premium pricing, elegant design and wholesome ecosystem to keep users allured by its premium feel.

To understand how Apple used price to mark up its products at a premium, an exhibit below shows the price of an iPhone relative to its cost (please note that these are for older models):


Source: The Economist


The actual build costs for current models can be seen below, following a similar strategy:


Source: https://www.digitalinformationworld.com/2021/10/the-manufacturing-cost-for-iphone-13-is.html


The revenues generated by large margins on every product sold by the brand were applied to building a powerful world-class ecosystem of software and hardware products that increased switching costs for consumers, who would forgo convenience significantly if they attempted to make the switch to Windows/Android or use either system along with an Apple product. Even though say an iPhone can be used with a Windows PC, it is much easier to sync with devices running on Apple’s software.

As far as price as a marketing tool goes, by attracting the top of the pyramid, Apple created a virtuous cycle by enticing middle-class buyers to aspire to Apple products being used by more affluent customers, even at a premium. It is even more remarkable considering Apple's success even in developing markets, where the cost of an iPhone can be several times the income of citizens. Sales grew by as much as 11% in 2021 with sales of over 6 million units - largely driven by its thorough positioning and coverage of all subsegments of premium (premium, mid-premium or affordable premium) with various models and products.

Source: https://www.livemint.com/companies/news/apple-sales-get-off-to-a-flying-start-in-india-11643999475806.html

In summary, we can conclude that:

Pricing can be a brand statement in itself, creating a powerful allure when set high and a practical, relatable brand when set competitively.

Lower price is not always the best strategy - both margins and a premium perception are lost when a product is priced competitively or low.

Price alone is not sufficient to stay competitive; businesses must synchronise their pricing game with marketing, branding, position and quality to ensure that the offering is desirable in the long-run.

The real money lies at the top of the pyramid - selling even a handful of units can be enough to make substantial gains

Apple has become one of the wealthiest entities on the back of its brand, user experience and easy to use technology, but above all on the back of its pricing strategy. Celebrities and style icons from all over the world would be more likely than not to be seen with an iPhone - it would be worth pondering over how its premium price made this reality possible (Source: https://techunwrapped.com/why-do-almost-all-celebrities-use-iphone/).

Additional references:

Here are some other useful links that show how a range of brands have mastered pricing, often in tandem with other competencies like branding

boAt: https://www.youtube.com/watch?v=31UVvKEYO6k

Walmart: https://www.youtube.com/watch?v=BxDmbGFABJw

(Source: ThinkSchool)

Breakdown of iPhone production cost:

https://www.investopedia.com/financial-edge/0912/the-cost-of-making-an-iphone.aspx


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