Apple's pricing magic explained

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.


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

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31 Comments

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 :(

2. ChiX017

Posts: 308; Member since: Nov 09, 2011

It's not bad at all!

16. appleDOESNT.com

Posts: 456; Member since: Nov 19, 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

18. thephoneguy92

Posts: 191; Member since: Dec 29, 2011

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

19. kellkeezy

Posts: 57; Member since: Dec 17, 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)

23. thephoneguy92

Posts: 191; Member since: Dec 29, 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.

27. jeck77

Posts: 25; Member since: Dec 09, 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.

21. pats4thewin

Posts: 29; Member since: Jul 10, 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)

3. ajac09

Posts: 1482; Member since: Sep 30, 2009

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

8. bucky

Posts: 3786; Member since: Sep 30, 2009

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

10. dan86

Posts: 298; Member since: Mar 17, 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.

17. tedkord

Posts: 17365; Member since: Jun 17, 2009

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

15. cripton805

Posts: 1485; Member since: Mar 18, 2012

$20 off with an iTUNES card is dirt cheap?

4. andro.

Posts: 1999; Member since: Sep 16, 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

5. J-LoTheGreat

Posts: 32; Member since: Oct 07, 2011

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

6. ramonleonjr62

Posts: 48; Member since: Oct 17, 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

7. cretinick

Posts: 148; Member since: Jan 25, 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.

9. ogy_dogy

Posts: 453; Member since: Jun 29, 2012

Couldnt agree more...

12. jmoita2

Posts: 930; Member since: Dec 23, 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.

13. threed61

Posts: 259; Member since: May 27, 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.

28. cretinick

Posts: 148; Member since: Jan 25, 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...

11. phonemonkey

Posts: 168; Member since: Feb 13, 2012

grow up

14. Fuego84

Posts: 357; Member since: May 13, 2012

Just plain old greed if you ask me.

22. pats4thewin

Posts: 29; Member since: Jul 10, 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

31. ZeroCide

Posts: 814; Member since: Jan 09, 2013

Standard apple practice since the begining of apple.

20. rusticguy

Posts: 2828; Member since: Aug 11, 2012

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

24. downphoenix

Posts: 3165; Member since: Jun 19, 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!

25. Fruitpoop

Posts: 34; Member since: Dec 27, 2012

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

26. MrJerry

Posts: 403; Member since: Oct 05, 2012

Like i said Money greedy lowlife scumbag

29. jsdechavez

Posts: 803; Member since: Jul 20, 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.

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