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Apple's pricing magic explained

Posted: , by Victor H.

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Apple's pricing magic explained
Have you ever wondered why phones and tablets often get hugely discounted merely weeks or months after release, and the iPhone and iPad retain their prices perfectly flat for nearly their whole yearly existence? How does Apple manage to prevent large chains like Best Buy and Wal-Mart to discount its products when even giants like Samsung cannot?

If you have ever wondered about the pricing magic that Apple does to keep its huge profit margin intact, an interesting article at MacWorld gives an explanation to at least a part of your questions.

First of all, Apple treats stores that sell its products differently from other companies. How? Every manufacturer gives its “manufacturer suggested retail price" or MSRP to retailers, and retailers can then come up with a price. However while all manufacturers allow for a wide gap between the wholesale price paid by the retailer and the MSRP, Apple does not.

The actual gap between wholesale price and MSRP for Apple products is a mystery surrounded with the veil of secrecy typical for Cupertino. And retailers cannot tell the numbers as they are bound by non-disclosure agreements.

“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.

This alone however does not do the trick. Apple actually provides considerable monetary awards to retailers selling their products at or above a set price. This works like a post-sale subsidy, and keeps the pricing flat.

Overall, this strategy works brilliantly for Apple. The company has an equal policy towards all retailers, and it avoids the risk of having one single retailer offer huge cuts, grab the majority of sales and then blackmail Apple for discounts. Instead, Cupertino has its huge margin and the retailers are happy with their monetary incentive. Not a bad business model, is it?

source: Mac World

31 Comments
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posted on 15 Jan 2013, 07:56 20

1. wendygarett (unregistered)


It's funny, all of my mac and iDevice, are all collected from the cheap second hand users who wish to throw it away, and I bought it mostly around $200-$400 and some even free...

Oh Apple, when will you grab my money for real, I'm waiting :(

posted on 15 Jan 2013, 07:58 6

2. ChiX017 (Posts: 308; Member since: 09 Nov 2011)


It's not bad at all!

posted on 15 Jan 2013, 11:04 5

16. appleDOESNT.com (Posts: 418; Member since: 19 Nov 2011)


Only apple makes money off Apple. Stores don't. Sales associates don't. Apple's highest of highest margins only benefit the ruthless, over priced, under-tech'd company starring non other than rotten fruit

p.s. why do you think most sales people push everything BUT apple. because their commissions are so low it's just a waste of time

posted on 15 Jan 2013, 11:40

18. thephoneguy92 (Posts: 191; Member since: 29 Dec 2011)


Speaking from experience, most carriers base commission off of number of phones sold, regardless of manufacturer.

posted on 15 Jan 2013, 12:10 1

19. kellkeezy (Posts: 57; Member since: 17 Dec 2011)


yeah but we make less commission on the iphone then any other brand. we work off a point system at my retailer so basically i make $60 (.60) off an iphone were an LG Spectrum 2 I make $172 (1.72)

posted on 15 Jan 2013, 13:07

23. thephoneguy92 (Posts: 191; Member since: 29 Dec 2011)


Some third party dealers may work that way, but I would be willing to bet that all major carriers pay on the amount of phones sold, not types of phones sold.

posted on 15 Jan 2013, 17:45 1

27. jeck77 (Posts: 25; Member since: 09 Dec 2010)


So you make as much as $172 for a sale? On a contract that your employer makes about $300 commission from the carrier? You get about 48% of the total gross commission your employer makes? Wow. I'd like to know where you work. I've been in this business for 14 years, and that's the largest commission per phone sold on contract (I'm assuming on contract because no retailer makes that kind of money on sales of non-subsidized handsets) I have ever heard of. Wow.

posted on 15 Jan 2013, 12:29

21. pats4thewin (Posts: 29; Member since: 10 Jul 2012)


i make the same if i sell you a flip phone or an iphone 5 64gb (free and 400$ on contract) its more about boxes sold at most retailers. the majority of the reason that sales persons push android over iphone is that most salespersons have used multiple products and are more tech savvy than most consumers are. and like the fact that androids offer more utility to them. although that is not always the case as i have 3 co-workers with the iphone 5 (IMHO ofc)

posted on 15 Jan 2013, 08:10 1

3. ajac09 (Posts: 1344; Member since: 30 Sep 2009)


guess this didnt happen at Christmas time 2012. Iphones were dirt cheap and lots of ipad deals where around.

posted on 15 Jan 2013, 08:42 1

8. bucky (Posts: 1295; Member since: 30 Sep 2009)


Lol. If love to see some proof of a "dirt cheap" iPhone 5 and new iPad.

posted on 15 Jan 2013, 09:49

10. dan86 (Posts: 298; Member since: 17 Mar 2012)


This is forgery with its high value customers. Apple produce iCrap you eat. A monopoly of market shouldn't be tolerated for a long.
Insane business strategies worth real dirt.

posted on 15 Jan 2013, 11:32

17. tedkord (Posts: 4286; Member since: 17 Jun 2009)


Iphone 5 was $128 on contract at Radio Shack. That was unheard of even a year ago.

posted on 15 Jan 2013, 10:59

15. cripton805 (Posts: 907; Member since: 18 Mar 2012)


$20 off with an iTUNES card is dirt cheap?

posted on 15 Jan 2013, 08:15 10

4. andro. (Posts: 1936; Member since: 16 Sep 2011)


What ever goes on behind the scenes its all about what they charge the customer and having to pay over 100 bucks more for an iPhone over an s3 is bad for the customer. Thankfully most have seen the light an the better phone in the s3 is outselling it. I've seen it even on some carriers the Htc one x plus 64gb for 150 on 24 month contract while apple have the 64gb iPhone 5 at 400 on the same plan. What ever business model goes on behind the scene the customer always loses when it comes to apple

posted on 15 Jan 2013, 08:27 4

5. J-LoTheGreat (Posts: 32; Member since: 07 Oct 2011)


Yes the customer loses, however, you are only a customer if you buy their product.

posted on 15 Jan 2013, 08:34 5

6. ramonleonjr62 (Posts: 48; Member since: 17 Oct 2012)


but it will hurt them look now cuting production on their product poor apple selfish like always and realy l do not care about apple product

posted on 15 Jan 2013, 08:41 15

7. cretinick (Posts: 147; Member since: 25 Jan 2011)


Not bad for Apple.
But it is very bad for the consumer.

That is, pretty much, a cartel formation among Retailers, coordinated by the supplier.

posted on 15 Jan 2013, 09:39

9. ogy_dogy (Posts: 453; Member since: 29 Jun 2012)


Couldnt agree more...

posted on 15 Jan 2013, 10:36

12. jmoita2 (Posts: 930; Member since: 23 Dec 2011)


This is what the anti trust laws were created to prevent. I guess Apple is exempt from them. They turned price gouging into a science.

posted on 15 Jan 2013, 10:43 1

13. threed61 (Posts: 123; Member since: 27 May 2011)


Apple is fixing prices on a non-essential product. There are lots of alternatives to iProducts, many both better and cheaper. No one has ever been forced to by their stuff.

posted on 15 Jan 2013, 21:07

28. cretinick (Posts: 147; Member since: 25 Jan 2011)


I agree.

But as their products are a market reference (perhaps the major), all other manufacturers end up basing their prices on the Apple's prices. Ifthey lay far below, they are deemed inferior products. In the most of customer's minds, more cheap it is, lower is the quality.

In the end, they pull up the prices of all the Phone, Laptops, computers, music players, tablets...

posted on 15 Jan 2013, 10:25

11. phonemonkey (Posts: 162; Member since: 13 Feb 2012)


grow up

posted on 15 Jan 2013, 10:44 2

14. Fuego84 (Posts: 259; Member since: 13 May 2012)


Just plain old greed if you ask me.

posted on 15 Jan 2013, 12:41

22. pats4thewin (Posts: 29; Member since: 10 Jul 2012)


a company can hardly be successful if the said company isnt money hungry. some may have a more aggressive approach than others, but that hardly should be a reason to hate apple that they are one of the most successful companies in the world because of their business model. hate them all you want, but you cant deny their smarts

posted on 17 Jan 2013, 13:40

31. ZeroCide (Posts: 683; Member since: 09 Jan 2013)


Standard apple practice since the begining of apple.

posted on 15 Jan 2013, 12:16

20. rusticguy (Posts: 2819; Member since: 11 Aug 2012)


Apple will soon allow everything ... perforce. It's buyers market much to dislike of Apple execs.

posted on 15 Jan 2013, 13:17

24. downphoenix (Posts: 2267; Member since: 19 Jun 2010)


so basically the magic is, they stiffarm the retailers so that the retailers have no choice basically but to sell at their recommended price and not have any price competition with other retailers, which in turn also stiffarms the consumers.

Congratulations Apple. Your price is magical!

posted on 15 Jan 2013, 15:41

25. Fruitpoop (Posts: 34; Member since: 27 Dec 2012)


People obviously buy the overpriced iPhone for the brand, while they can get much cheaper devices for lower.

posted on 15 Jan 2013, 16:38

26. MrJerry (Posts: 384; Member since: 05 Oct 2012)


Like i said

Money greedy lowlife scumbag

posted on 15 Jan 2013, 22:26

29. jsdechavez (Posts: 699; Member since: 20 Jul 2012)


I think resellers, despite the lower profits from Apple are lured by the high demands. Selling more for less works if the demand is really high.. But as it seems, Apple now fears overstocking the iPhone 5 since it's no longer selling as well. Resellers will find it harder to profit from it and thus pitch for fresher offerings such as Windows Phone and Blackberry 10.

posted on 15 Jan 2013, 23:14 1

30. kabhijeet.16 (Posts: 628; Member since: 05 Dec 2012)


Bcoz Apple is greedy & wont reduce their profit margins...

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