Note that some of these approaches are not legal in the EU and rules in the markets for some products such as TVs that discussion of MSRPs or RRPs (Recommended Retail Prices) can be an indication of price fixing. ERPs (estimated retail prices) need to be used for internal forecasting ideally gathered from respectable information services such as GfK and if the ERPs were all €x99 that would be suspicious. Routinely asking retailers what prices they were selling at could be grounds for an investigation.
One approach sometimes taken (although I suspect not by Apple) is that if one retailer discounts the product the manufacturer supports other retailers to match the discount. This is illegal in the EU as it acts as a deterrent to any discounting as it will get the initial discounter no benefit (market share still ends up shared but they unlike their competitors have to pay the cost of the discount).
Despite this Apple maintain tight control of the prices probably by thin retailer margins with money made up by accessory sales and probably some support/discount/payments for retailers who display Apple products according to their guidelines. It is allowable to offer different terms for different types of retailer e.g. dedicated Apple store, store with dedicated area with demo units complying to guidelines or online although it should be non-discriminatory in that any company that sets up to comply with the terms should be allowed.
I have no proof of either. The article may be completely correct about the US approach and their European approach may be different and legal and/or they may be treading very carefully in the EU with high quality legal advice.
Also I believe there are (but can't quickly find reference to) special categories of products in the EU with stricter rules than the general ones and that this includes TVs (the product I have experience of at Sony) so some of the practices I mentioned as illegal for TVs may in fact be legal for laptops and tablets.
I am insufficiently expert in EU competition law to know the exact limits but did have enough information to know a few key things not to do and when things were getting near enough the limit that it was time to check with a lawyer. I did support discussions with expensive outside lawyers with product information about what products could be put into categories that were not offered to every retailer (only those that fulfilled conditions around presentation and demonstration).
My main warning is that you have to tread carefully in these areas particularly in the EU and get good legal advice (which I'm sure Apple has).
It is quite possible that Apple is, technically, breaking EU law but the Commission are letting them get away with it because they have more important things to deal with. With no consumer outrage and no real local competitor to protect from a foreign predator there is no political gain from action.
However competition law applies uniformly across the EU so it is easy to comply with, if you choose so. A more complex situation exists with Facebook. To follow a variety of applicable national and state law they would have to an extraordinarily large amount of legal resources familiar with the respective intricacies and probably create national variations of their product. This is the kind of thing that holds back European companies but in this case it protects FB, because the Commission (the only institution with enough political clout and resources to take action) is only going to address EU-wide issues, not a bag of a dozen different issues. So it is rational for FB to mostly ignore the law, which in reality they chose to do.
> Still Apple prices in the EU are the same everywhere just as in the US, i always wondered how they manage to accomplish that
If I had to guess I would say near zero margins and fixed payments for each store with display areas meeting display requirements for design, size, placement in store, network connectivity, device set up, trained demonstrator availability, product ranging and possibly even store location. The rest would come from accessory sales. You can get away with a lot of terms when customers come into shops looking for an iPad or Macbook rather than just a tablet or a computer. I imagine there may be minimum sales numbers to get the fixed payments but that the profit would come from the fixed payments and the accessories rather than any margin on the devices themselves.
Apple, however, extends only a tiny wholesale discount on its Macs and iPads to your retailer of choice.
IIRC there was a discussion on Reddit involving a guy who has made an incredible profit acting as Apple's sole distributor in certain SE Asian countries. I'll see if I can dig up the link. His story tends to contradict the authors statement above.
As long as there isn't a way to buy directly from Apple in that market the retailer is free to raise prices to find his profit maximizing level. If you are in a market where Apple sells directly to customers then Apple's selling price acts as a hard upper limit to what you can charge and limits your profit maximizing opportunities.
I know a company registered as an Apple Reseller, and I can confirm the numbers; the margins are tiny. Apple also has a university program with some universities, where they offer their products with a special discount; to wit, these prices were (for the end user) were better than what the reseller got. Although they may give higher margins if the reseller buys huge amounts of products, the one I know is fairly small.
I don't see any contradiction at all between those two stories.
There is a massive difference between a national distributor and even a large retailer in a country the manufacturer directly handles distribution for and I would expect the terms to be very different.
Not necessarily contradicts, that article is just how it works in one specific part of the world (America) and the AMA is how things work in another specific part of the world. The chances are Apple is offering the same wholesale discount and the importer in SE Asia is just putting the markup as high as he fancies.
That was a different situation because the products were being sold far above retail (sort of like all the iPhones bought in the US and shipped back to China). He essentially cut back room deals with some sketchy government types to have a monopoly and require any Apple products are sold through him. Basically a mobster. (Assuming the story checks out, I doubt it does.)
Apple uses a fantastic array of social psychology when pricing their products. You may have noticed a few more:
Price Anchoring
At most of their keynotes when they release a new product, they often anchor the minds of the press and buyers. Apple do this by showing a price of £X00 and then saying it's actually much less than that. Look at the transcript of the iPad release:
"If you listen to the pundits, we’re going to price it at under $1000, which is code for $999. Up on the screen comes a huge $999 price. Then: "I am thrilled to announce to you that the iPad pricing starts not at $999....but at just $499."
The much cheaper price now feels like a bargain. It's an excellent sales technique in action.
Decoy Effect
Similarly, when showing the pricing metric for the iPad, Apple went with showing all the price dimensions together. This highlighted two things: 1) the highest price of the WiFi+3G 64GB model; 2) more importantly, the relatively bargain-worthy price of the entry level model.
Value Based Pricing / Emotional Benefits
Apple's marketing is mostly excellent. They rarely show the features of the product and more often focus on the emotional benefits of using their products. The famous example is of course using their iPad showing how grandparents can have a video chat with their children and grandchildren.
Bandwagon / Social Proof
Apple's branding and unique design is perfect for social proof. When you use an Apple product, it's fairly obvious that it's an Apple product. Therefore when potential buyers see this, they think: "All these other people are buying an Apple X, I should get one. They must be very good as so many people can't be wrong".
The Nibble
Similar to warranties, apple care and other 'add-ons', Apple have employed the wonderful 'Nibble Technique'. Once you've paid for a high price item such as an iPad, a relatively low priced item seems inconsequential. That's why tailors get you to purchase a suit before offering you a tie to go with it. Apple use this technique at the checkout process offering you accessories such as an iPad Smart Cover or an iPhone case. These tend to be low cost items with very high margins - they seem cheap to you, the buyer, as you've just spent so much on the something else. These add-ons can significantly increase sales and more importantly profits.
>At most of their keynotes when they release a new product, they often anchor the minds of the press and buyers. Apple do this by showing a price of £X00 and then saying it's actually much less than that. Look at the transcript of the iPad release: "If you listen to the pundits, we’re going to price it at under $1000, which is code for $999. Up on the screen comes a huge $999 price. Then: "I am thrilled to announce to you that the iPad pricing starts not at $999....but at just $499." The much cheaper price now feels like a bargain. It's an excellent sales technique in action.
Indeed, with 2 caveat:
1) Pundits DID predict a $999 price for the iPad.
2) At $499 not only it REALLY was a bargain, but competitors had a hard time for 2-3 years to offer anything as powerful for the same money. Competiting tablets were in the $699 - $899 range.
1) I'm sure pundits predicted a lot of things.
2) That's nonsense. The only thing the iPad had was its screen, otherwise it was already inferior when it launched. Didn't stop people lapping it up.
The iPad didn't just have a screen, it brought a whole new experience to interacting with a large screen. This was also due to the software behind the screen. Ever try to use a touch screen the size of an iPad before the iPad? It was terrible.
It was more than just an object, it was an experience. It's an experience that other tablet manufacturers and software developers are still trying to get right.
The iPad was inferior for many computing tasks. It made interacting with the internet and a computer feel totally different. It's hard to quantify that in terms of megahertz and ram.
Cheap cop-out. The most widespread prediction was that the iPad would be expensive in the "around $999" region.
2) That's nonsense. The only thing the iPad had was its screen, otherwise it was already inferior when it launched.
Now, that's nonsense, if I ever read one.
For over a year there was no competition to the iPad worth mentioning. Point to anything if you have. Prepare to be ridiculed. Android wasn't even ready for tablets back then.
As others pointed out, you are plain wrong. The can be made (maybe) that new Android tablets are overtaking the iPad in performance. The fact is, Android tablets didn't really exist when the iPad was released, and the few that were on the market were laughably awful (like the original G1 compared to the iPhone).
> 2) At $499 not only it REALLY was a bargain, but competitors had a hard time for 2-3 years to offer anything as powerful for the same money. Competiting tablets were in the $699 - $899 range.
Things that are 'really a bargain' are hard to quantify as such. What do you mean by this?
Agreed, their supply chain management and component agreements were disruptive to the industry. However, that didn't stop them using behavioral nudges to make buyers also think the price was cheap.
The use of the price anchor was great because a) it was regularly published in the press so it couldn't be seen as being too 'salesy' and b) it was significantly higher than the actual price thus the manufacturing price was disruptive and the perceived value (via the price) was disruptive.
>Agreed, their supply chain management and component agreements were disruptive to the industry. However, that didn't stop them using behavioral nudges to make buyers also think the price was cheap.
Apple's competitors also played completely into their hands. Apple's perception in general was that they made relatively expensive hardware that was of good quality and excellent design. They had a reputation of producing premium products at a premium price.
The pricing of the competing tablets played exactly into that perception, and I think that's part of what made the iPad so desirable compared to the more powerful hardware of the Motorola Xoom and others.
Pundits and analysts on the internet predicting pricing is sort of like monkeys on typewriters producing Shakespeare. I'll maybe concede that the monkey to useful output ratio is a bit different between the two cases.
I recall many were predicting Apple would have a tablet computer, running a touch-enabled version of their desktop OS, not the iPad.
What you call a tablet these days is not what we were looking for as a 'tablet' in 2010. At least, the pricing guesses at the time were based on the idea of a touchscreen netbook of some shape or form.
The base MacBook Airs are not fairly-priced, though they might be less overpriced than other Mac models.
For example, consider the Asus Zenbook Prime[1], which can be found for $1100-$1150 configured with a Core i7 (faster than the base $1200 13" Air) and a 1920x1080 screen (about 1.5 times more pixels than the Air).
I'm not going to get into the fair price discussion, cuz I think the MBAs are generally more expensive. but I see sooo many people say the MBA is not as good, cuz abc ultrabook has an i7 in it.
A.) Who really needs to do serious crunching on their ultra book these days. Unless you are compiling very sizable programs, you're never gonna notice processor speed.
B.) Think about how that "superior" processor eats power like it's going outta style. Now combine that with a super thin computer that's light on volume to hold batteries. Is that extra fast processor worth 2hrs less battery life?
C.) Given A and B, I'd rather have the slower processor.
Asus is not in the same league as Apple. They make good hardware, but it's not exceptional.
You're basically saying that a Hyundai is a better car than a BMW because it has a more powerful engine and a dashboard with more blue lights.
Likewise, a $35 Casio calculator watch is basically better than a $2,200 Omega. The Omega can't even multiply numbers and it has difficult to read hands!
Apple's build quality is approaching levels previously only seen in extremely high-end watches and automotive products. Computers, in general terms, have such rickety materials that they packaging they come in is often nearly as robust as the computer itself.
When people say "fairly priced" they mean for what you get. Apple's offering an extremely premium package for a slightly premium price.
He left out an important point: Apple invests marketing dollars that the retailer shares in. When you see Apple products in a weekend flier, Apple paid for that placement (so did other brands). All of this also falls under the banner of "co-op advertising."
This article either misses the point or just got the wrong headline. The article is about the mechanics of how Apple maintains price discipline in the channel. Apple sets its prices, and is able to maintain that channel discipline, because they understand that price is determined by perceived differential value.
They try to make things that people will find valuable. Since they have done a great job in a number of categories, they can set the price, and effectively dictate the terms to retailers. Other manufacturers use similar channel pricing mechanisms, but lack the clout to make them stick as well as Apple.
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[ 19.7 ms ] story [ 84.9 ms ] threadOne approach sometimes taken (although I suspect not by Apple) is that if one retailer discounts the product the manufacturer supports other retailers to match the discount. This is illegal in the EU as it acts as a deterrent to any discounting as it will get the initial discounter no benefit (market share still ends up shared but they unlike their competitors have to pay the cost of the discount).
Despite this Apple maintain tight control of the prices probably by thin retailer margins with money made up by accessory sales and probably some support/discount/payments for retailers who display Apple products according to their guidelines. It is allowable to offer different terms for different types of retailer e.g. dedicated Apple store, store with dedicated area with demo units complying to guidelines or online although it should be non-discriminatory in that any company that sets up to comply with the terms should be allowed.
Also I believe there are (but can't quickly find reference to) special categories of products in the EU with stricter rules than the general ones and that this includes TVs (the product I have experience of at Sony) so some of the practices I mentioned as illegal for TVs may in fact be legal for laptops and tablets.
I am insufficiently expert in EU competition law to know the exact limits but did have enough information to know a few key things not to do and when things were getting near enough the limit that it was time to check with a lawyer. I did support discussions with expensive outside lawyers with product information about what products could be put into categories that were not offered to every retailer (only those that fulfilled conditions around presentation and demonstration).
My main warning is that you have to tread carefully in these areas particularly in the EU and get good legal advice (which I'm sure Apple has).
However competition law applies uniformly across the EU so it is easy to comply with, if you choose so. A more complex situation exists with Facebook. To follow a variety of applicable national and state law they would have to an extraordinarily large amount of legal resources familiar with the respective intricacies and probably create national variations of their product. This is the kind of thing that holds back European companies but in this case it protects FB, because the Commission (the only institution with enough political clout and resources to take action) is only going to address EU-wide issues, not a bag of a dozen different issues. So it is rational for FB to mostly ignore the law, which in reality they chose to do.
"Price maintenance" is an antitrust offence in the EU, any attempt by a large manufacturer to prevent consumer prices from being lower is an offence.
Still Apple prices in the EU are the same everywhere just as in the US, i always wondered how they manage to accomplish that
If I had to guess I would say near zero margins and fixed payments for each store with display areas meeting display requirements for design, size, placement in store, network connectivity, device set up, trained demonstrator availability, product ranging and possibly even store location. The rest would come from accessory sales. You can get away with a lot of terms when customers come into shops looking for an iPad or Macbook rather than just a tablet or a computer. I imagine there may be minimum sales numbers to get the fixed payments but that the profit would come from the fixed payments and the accessories rather than any margin on the devices themselves.
Retailers occasionally sell Apple products under RRP here.
IIRC there was a discussion on Reddit involving a guy who has made an incredible profit acting as Apple's sole distributor in certain SE Asian countries. I'll see if I can dig up the link. His story tends to contradict the authors statement above.
There is a massive difference between a national distributor and even a large retailer in a country the manufacturer directly handles distribution for and I would expect the terms to be very different.
Edit: Reordered sentences.
Even though he did supply proof to the mods there was some doubt on his authenticity - http://www.reddit.com/r/IAmA/comments/10uy0x/the_answers_in_...
Price Anchoring
At most of their keynotes when they release a new product, they often anchor the minds of the press and buyers. Apple do this by showing a price of £X00 and then saying it's actually much less than that. Look at the transcript of the iPad release: "If you listen to the pundits, we’re going to price it at under $1000, which is code for $999. Up on the screen comes a huge $999 price. Then: "I am thrilled to announce to you that the iPad pricing starts not at $999....but at just $499." The much cheaper price now feels like a bargain. It's an excellent sales technique in action.
Decoy Effect
Similarly, when showing the pricing metric for the iPad, Apple went with showing all the price dimensions together. This highlighted two things: 1) the highest price of the WiFi+3G 64GB model; 2) more importantly, the relatively bargain-worthy price of the entry level model.
Value Based Pricing / Emotional Benefits
Apple's marketing is mostly excellent. They rarely show the features of the product and more often focus on the emotional benefits of using their products. The famous example is of course using their iPad showing how grandparents can have a video chat with their children and grandchildren.
Bandwagon / Social Proof
Apple's branding and unique design is perfect for social proof. When you use an Apple product, it's fairly obvious that it's an Apple product. Therefore when potential buyers see this, they think: "All these other people are buying an Apple X, I should get one. They must be very good as so many people can't be wrong".
The Nibble
Similar to warranties, apple care and other 'add-ons', Apple have employed the wonderful 'Nibble Technique'. Once you've paid for a high price item such as an iPad, a relatively low priced item seems inconsequential. That's why tailors get you to purchase a suit before offering you a tie to go with it. Apple use this technique at the checkout process offering you accessories such as an iPad Smart Cover or an iPhone case. These tend to be low cost items with very high margins - they seem cheap to you, the buyer, as you've just spent so much on the something else. These add-ons can significantly increase sales and more importantly profits.
Indeed, with 2 caveat:
1) Pundits DID predict a $999 price for the iPad.
2) At $499 not only it REALLY was a bargain, but competitors had a hard time for 2-3 years to offer anything as powerful for the same money. Competiting tablets were in the $699 - $899 range.
It was more than just an object, it was an experience. It's an experience that other tablet manufacturers and software developers are still trying to get right.
The iPad was inferior for many computing tasks. It made interacting with the internet and a computer feel totally different. It's hard to quantify that in terms of megahertz and ram.
Cheap cop-out. The most widespread prediction was that the iPad would be expensive in the "around $999" region.
2) That's nonsense. The only thing the iPad had was its screen, otherwise it was already inferior when it launched.
Now, that's nonsense, if I ever read one.
For over a year there was no competition to the iPad worth mentioning. Point to anything if you have. Prepare to be ridiculed. Android wasn't even ready for tablets back then.
Things that are 'really a bargain' are hard to quantify as such. What do you mean by this?
competitors had a hard time for 2-3 years to offer anything as powerful for the same money. Competiting[sic] tablets were in the $699 - $899 range.
The use of the price anchor was great because a) it was regularly published in the press so it couldn't be seen as being too 'salesy' and b) it was significantly higher than the actual price thus the manufacturing price was disruptive and the perceived value (via the price) was disruptive.
Further Reading: Dan Ariely: http://danariely.com/the-books/excerpted-from-chapter-1-%E2%...
Apple's competitors also played completely into their hands. Apple's perception in general was that they made relatively expensive hardware that was of good quality and excellent design. They had a reputation of producing premium products at a premium price.
The pricing of the competing tablets played exactly into that perception, and I think that's part of what made the iPad so desirable compared to the more powerful hardware of the Motorola Xoom and others.
OTOH, other analysts predicted an average selling price of $600. Which is pretty on target.
http://appleinsider.com/articles/09/12/28/apple_seen_selling...
What you call a tablet these days is not what we were looking for as a 'tablet' in 2010. At least, the pricing guesses at the time were based on the idea of a touchscreen netbook of some shape or form.
For example, consider the Asus Zenbook Prime[1], which can be found for $1100-$1150 configured with a Core i7 (faster than the base $1200 13" Air) and a 1920x1080 screen (about 1.5 times more pixels than the Air).
[1] http://www.amazon.com/Zenbook-Prime-UX31A-AB71-13-3-Inch-Ult...
A.) Who really needs to do serious crunching on their ultra book these days. Unless you are compiling very sizable programs, you're never gonna notice processor speed.
B.) Think about how that "superior" processor eats power like it's going outta style. Now combine that with a super thin computer that's light on volume to hold batteries. Is that extra fast processor worth 2hrs less battery life?
C.) Given A and B, I'd rather have the slower processor.
You're basically saying that a Hyundai is a better car than a BMW because it has a more powerful engine and a dashboard with more blue lights.
Likewise, a $35 Casio calculator watch is basically better than a $2,200 Omega. The Omega can't even multiply numbers and it has difficult to read hands!
Apple's build quality is approaching levels previously only seen in extremely high-end watches and automotive products. Computers, in general terms, have such rickety materials that they packaging they come in is often nearly as robust as the computer itself.
When people say "fairly priced" they mean for what you get. Apple's offering an extremely premium package for a slightly premium price.
http://www.iamconcise.com/main/the-reason-for-the-ipad-mini....
They try to make things that people will find valuable. Since they have done a great job in a number of categories, they can set the price, and effectively dictate the terms to retailers. Other manufacturers use similar channel pricing mechanisms, but lack the clout to make them stick as well as Apple.