How Apple maintains product price tags?

Posted on Jan 16 2013 - 4:57pm by Phalgun Shenoy

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Apple makes quality products and everyone loves quality. Apple products are considered very cool, but the main issue is that they are overpriced. If you consider an iPad’s price tag, it obviously doesn’t cost that much to manufacture one. Same is the case with Mac laptops, where you may find yourself buying a PC with much better specs at half the price of a Mac. A Mac is basically a PC in a shiny aluminum case running Mac OS. Apple fanboys may argue that Apple products are overpriced or cost that much because the company invests a lot of funds back into R&D.

That’s mostly the case, but as you know, Apple is a very profitable company. If you are out in the market to buy a laptop or a smartphone, you will find multiple stores offering various kinds of discounts on these devices, but not on Apple products. Why is that? Apple products seem to maintain price across country. So how does Apple manage to maintain the price?

Folks at macworld have a great article up on this, and according to them, the Cupertino based company has a strategy known as price maintenance. As I have told before, the manufacturing cost is much less than the final price you pay. Manufacturers usually have something called “manufacturer suggested retail price” (MSRP), but when the stores buy the devices or products from the manufacturer, they do so in bulk. Bulk pricing is of course significantly less than MSRP, and the retailer is free to stick their own price tag on the device and sell. To put this in perspective, if a laptop comes with a MSRP of $500, it was probably manufactured for $200, and was sold to the retailer for $250 (bulk pricing). Now the retailer is free to stick a price tag of say $350, and broadcast that they are offering a $150 discount on the product in question in order to attract customers.

In case the retailer is experiencing low sales volume, it can increase the sticker price in order to level the profits. Normally, there is a 30 to 55 percent price gap between the MSRP and what the retailer pays to the manufacturer for each unit, due to which the retailer manages to offer discounts and still make profits, but in case of Apple, that price gap is really less.

“Apple, however, extends only a tiny wholesale discount on its Macs and iPads to your retailer of choice. The actual numbers are a closely guarded secret, protected by confidentiality agreements between Cupertino and its resellers, but the difference probably amounts to only a few percentage points off the official price that you find at Apple’s own stores. With such a narrow gap to tinker with, most retailers can’t offer big discounts and still hope to turn a profit,” MacWorld explains.

With very low profit margin, retailers won’t venture into offering discounts on Apple products, which is why Apple products maintain the price tag, and this strategy works brilliantly for Apple. Let us know your thoughts in comment section below.

source: Mac World

How Apple maintains product price tags? was last modified: January 16th, 2013 by Phalgun Shenoy
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