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Apple Price Policies: How the Brand Maintains Popularity and Profit Margins

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By , dealnews Copy Editor

It's common knowledge that Apple products aren't cheap. They're design-focused, proprietary, and high-quality devices that come with a noticeable sticker price. To create and retain this brand image, Apple has implemented and sustained a retail strategy that subverts basic retail rules. Its rigid price maintenance model controls price points, and most resellers don't defy it. This doesn't mean that Apple deals are non-existent; they're just rare and comparatively underwhelming.

But how exactly does Apple keep such a strong hold on pricing while still selling its products through an ever-growing number of resellers? Macworld offers a fascinating explanation of Apple's sales methodology, and even explains the recent, atypical fire sales we've seen on the iPhone 5.

Apple's Price Maintenance Model

According to Macworld, Apple perpetuates the popularity of its products despite their price tags by only offering resellers (like Best Buy, Fry's Electronics, and Walmart) a marginal wholesale discount. This small percentage in savings isn't enough of a profit margin for resellers to offer big discounts on, say, iPads or MacBooks, which means customers end up paying a price close to the suggested MSRP.

However, a reseller could always swallow these small profit margins and offer a sizable deal, if only to drum up some hype. To prevent this from happening, Apple simultaneously offers monetary incentives to retailers that stock and sell goods at the Apple-designated minimum advertised price, or MAP. So, once again, it's in a retailer's best interest to stick to MSRP.

This price strategy is effective in so far as it prevents Apple resellers from competing directly with the retailer itself while simultaneously leveling the playing field amongst resellers. This "narrow range of price variability" also means that no one reseller has an advantage over another and ensures clean distribution channels for Apple to continue to unveil and sell its product line through.

Apple Deals Do Exist

In spite of all this savvy price manipulation, we still see deals on Apple goods. For starters, older inventory inevitably falls in price once new models hit the shelves. The Sandy Bridge–equipped, 11.6" Apple MacBook Air ($699.99 with free shipping, a low by $220), for example, consistently comes in at $300 under its current generation counterpart. Refurbished goods also see significant discounts, and this applies to more than just older models; currently Apple offers cuts on Retina-equipped MacBook Pros, which were just released this past October.

We even see price cuts on brand new units for the latest Apple products, as some resellers will in fact sell items at a discount in order to attract customers. Known as "loss leaders," goods sold with no profit to the reseller serve the purpose of not only moving inventory, but also enticing customers that, hopefully, will spend money on other items like accessories that have higher profit margins. This can effectively make up part of the reseller's initial profit loss on iDevices.

The Apple iPhone as an Outlier

However, not all Apple products follow such a strict pricing model. The iPhone deviates from the norm since it's typically sold with a 2-year wireless contract, which in turns allows carriers like AT&T and Verizon to subsidize the cost of the phone. These carriers eat that loss because they in turn make money by locking the customer into an expensive contract. Resellers like Walmart in turn receive a commission from carriers for each activation.

This policy explains the recent $126 and $127 iPhone 5 promotions from Fry's and Walmart, respectively. These deals put the iPhone 5 at its lowest price ever by $20 and made the iPhone 5 the most heavily discounted iPhone to date. However, this deep discount also resulted in short stock at a number of resellers.

There were wider-ranging repercussions of the Walmart promotion, in particular. With Best Buy's holiday price-matching policy in effect, the reseller reportedly felt "compelled" to match Walmart's discount, according to the Wall Street Journal. However, this endeavor resulted in Best Buy accumulating nearly $65,000 in losses from Phone 5 sales exclusively. We're not sure how many new iPhone 5 car chargers and new Bose stereo decks can make up for that kind of loss.

All in all Apple's pricing policies have been working in the company's favor. Not only do its practices inhibit much competition from resellers, but its methodology increases the perceived value of the brand. And while stable prices can make shopping for a new iPad relatively stress-free, savvy consumers will have to actively seek out specific, sometimes-unadvertised deals — unless of course you sign up for an email alert to keep in the loop on the latest Apple discounts.

Front page photo credit: TechSpot
Photo credits top to bottom: Digital Spy and WebProNews



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Please note that, although prices sometimes fluctuate or expire unexpectedly, all products and deals mentioned in this feature were available at the lowest total price we could find at the time of publication (unless otherwise specified).
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3 comments
Calvero
One can also save money by buying from an out-of-state online retailer that doesn't charge state and local sales tax. Depending on how much you're being gouged by sales taxes, you could save up to 10%, before and not including deals and loss leading sales.
artfawcett
The term is price fixing.
vince.burns.524
BTW Apple does have a price matching policy, and will generally match any advertised price and promotion from major retailers. I.E. if Walmart, Best Buy, or Target are offering a deal on iPads, Macs, iPhones, iPods, etc. lets say $15 off and including a $20 gift card (like on Black Friday) Apple Retail Store will match the offer and include like Gift card (Apple gift card).
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