Pricing the Apple Watches

AppleWatch_with_Screen Several people have asked my opinion of the pricing of the new Apple Watch, in particular the $17,000 dollar watch. Please note that I have no inside knowledge, but here’s my thinking (best guessing?). First, It is curious that they have gone away from their standard good, better, best pricing model. All of the other iProducts seem to come with three different amounts of memory, giving Apple a way to price segment their market using products. Maybe the electronics don’t perform any better with more memory so they couldn’t justify it. They are offering three basic versions of the electronics with the key difference being the case material. Here is a simplified summary of their pricing: Apple Watch Sport - Aluminum case - starts at $349 Apple Watch - Stainless Steel case - starts at $549 Apple Watch Edition - Gold case - starts at $10,000 (and goes up to $17,000). Although this might look like good, better, best pricing, it isn't. What if someone prefer an aluminum case to a stainless case? They will buy the less expensive one, not because it’s less expensive but because it has the features they prefer. With good, better, best pricing, the middle one should be everything the lower priced version has plus more. Not be different.  With Apple's pricing, the features change as you move to more expensive versions. Another reason this isn’t good, better, best is because the decisions are more complicated. Once you choose a level of watch, then you have to decide if you want the bigger face for $50 more (only for the Sport and Watch, not the Elite). Then you have to decide which type of band you want at different price points. I’m not saying this is bad pricing. I am saying this is not good, better, best pricing. My belief, because they’ve made the selection more confusing, fewer people will buy than would have if the selections were simpler. After all, a confused mind doesn’t purchase. Here is how I would probably have launched this. Start with just the Aluminum version and offer 2 or three band colors. Then, offer a lot of band colors as accessories. I would have tried to put different memory amounts so I could have a good, better, best offering. (Although maybe this doesn’t make sense for the product.) Then, when people are deciding, the decision is simple. I doubt that anyone thinking about an Apple Watch would say “I’d buy one if only the case was stainless or gold.” Then, over time and after people have come to know the Apple Watch, I would have considered launching higher fashion versions. Now, what do I think of the $17,000 watch? I think Apple will discontinue it within a year. (How’s that for sticking my neck out?) The good news about the gold watch is there are quite a few wealthy tech people who will purchase it. If we assume the margin percentages are similar across the watches then Apple only needs to sell one gold watch for the same revenue and profit as 20 to 50 of the lower priced watches. However, Apple sells millions of any item. I suspect that they will sell millions of the lower priced watches producing billions of dollars in revenue. Yet they will probably only sell thousands of gold watches. That is great business for most companies, but for Apple it’s a distraction. A $10,000 watch is a fashion accessory, not a functional item. Although Apple makes their electronics more fashionable than any other company, they aren’t in the fashion business. They are in the easy to use electronics business. I’m guessing Apple can’t make a $10,000 watch have the same cachet as a Rolex. It took Rolex a long time to create that reputation, and Rolex doesn’t sell a $350 version of their watches. You’ve now read my prediction. What’s yours? Time will tell.
Mark Stiving

Mark Stiving

Mark Stiving is an instructor at Pragmatic Marketing with more than 20 years of experience in business startup, development, management, turnaround and sales and design engineering. He has helped companies create and implement new pricing strategies to capture more from the value they create, and has consulted with Cisco, Procter & Gamble, Grimes Aerospace, Rogers Corporation and many small businesses and entrepreneurial ventures. He has led pricing initiatives as director of pricing at Maxim Integrated and as a member of technical staff at National Semiconductor. Mark also has served as president of both Home Director Inc. and Destiny Networks Inc. and as an assistant professor of marketing at The Ohio State University. Mark also is the author of “Impact Pricing: Your Blueprint to Driving Profits” (Entrepreneur Press, 2011). He can be reached at mstiving@pragmaticmarketing.com.


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