How does Apple do it? Case Study on Premium Pricing

In the previous post we discussed how you can charge premium price without losing sales and still have customers love your products. No one does this as well as Apple, the most valuable company in the world by market value. Apple never competes on equal playing field with their competitors. They write their own rules and come up with innovative products that no one has dreamed off year after year. Their slogan explains how they have been able do this – Think Different! As a result Apple has been able to charge premium price for all its products and enjoy remarkable sales growth and margin for a long time.
What is their secret sauce? In this post we attempt to decipher their strategy by understanding how they apply the rules of premium pricing we described in the earlier post.

  • Differentiation – You can recognize Apple computer in the middle of hundred others from a mile away. With their distinctive aluminum casing and signature logo Apple computers are in class of their own. There is no apple-to-apple comparison between them and those from competitors. When all other computer makers are fighting for sales with low price Apple holds its ground and commands premium. And still when you ask any college bound kid what computer he wants without a doubt the answer will be Apple. No wonder Apple enjoys double-digit margin on their products when other PC makers are happy to achieve even 5%.
  • Quality – All Apple products are known for their workmanship and quality. They last for a long time, although most people do not want to hold onto them for too long because they are always itching to get their hands on the next interesting thing. When you do run into problems with Apple products their customer service takes care of them quickly. Anyone who has visited their “Genius Bar” in Apple Store understands this.
  • Must-have Products – Show me someone who doesn’t desire Apple products and I will show you someone who has been living in a different planet for the last 10 years. Apple products are objects of desire for 3-year old kid as well as 90-year Grandmas and everyone in between. According to CNBC All-American Economic survey half of U.S. households own at least one Apple product, while 9% own more than 5 products! Any company would die for this type of customer lust for their products.
  • Guarantee – When most PC users are afraid of their computers getting infected by virus and losing data, Apple products have been relatively virus free. With their iTunes program they control which applications are allowed to get into Apple products. This gives users peace of mind that the applications downloaded on their computers, iPhones or iPads will be safe to use.
  • Show and Tell – Steve Jobs was a master of introducing new products. It is said that he could pick up a stone from the sidewalk and sell you for the hundred dollars! Months before they introduce new products rumor mills swirl with excitement and journalists flock to their grandiose product introduction to see what Steve Jobs has to show.
  • Hold Ground – Even in the face dire financial situation in 90’s Apple never compromised on quality and price. They always maintained that their products are superior to anything else in the market and hence command premium price. It finally paid off when it became the most valuable company in the world few months ago.

Do you agree with our analysis? What more would you add from your own experience with Apple products?

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  1. says:

    How does Apple do it? Case Study on Premium Pricing…

    Apple has been immensely successful at selling must-have products at premium pricing. This post analyzes their strategy and shows how small businesses can apply the same to their business to improve sales and profit….