Ever wonder how the world’s biggest brands attain and maintain their dominance? I’m about to show you how.
There are a few pricing strategies that the world’s most valuable brands use that all brands need to know. Forbes recently released a list of the top 100 most valuable brands and, unsurprisingly, Apple topped it with a brand valuation of $104.3 billion. Apple is considered a premium brand that stays consistent over time and successfully justifies its price point by providing high quality products and great customer service.
What’s Profit Got to Do with it?
Everything. Apple is top dog when it comes to profiting from its products. Here are a few examples from Apple that will surprise you and help you understand why it locked in the number one spot.
- Makes $370.55 in profit from one Mac vs. $52 for one HP PC. (Apple makes more profit from selling one Mac than HP does from selling 7 of their computers!)
- Sells only 28% of the total volume that HP sells: 4,000,000 vs 14,000,000 laptops shipped as of Q4 of 2012.
- Only sells 5% of the world’s PCs, but makes 45% of the industry’s profits.
- Pockets nearly 20% of overall Mac revenue as profit.
Impressed? Of course you are. But how did Apple get to this point and how can online retailers follow suit?
Apple has been successful in part because its products have many price points that appeal to multiple customer segments. Apple has used version pricing to appeal to many different customer segments and their individual willingness to pay. The company did this very effectively with the introduction of the iPhone. The first generation in 2007 varied from $499 to $599 based on memory and a two year contact. Apple products generally have a higher price at the time of launch because early adopters are willing to pay more to get their hands on new technology. Once Apple solidified demand, the price dropped to $199-$299 for the 3G-4 models.
One of the most recent additions to the iPhone family shook up its pricing structure. The 5C started at $99 when it was released in 2013 and made the high quality iOS software accessible to more price-sensitive customer segments. Harvard Business Review contributor, Rafi Mohammed explained, “With the 5C in place as a fighter brand, the 5S is now better positioned to customers who highly value the handset and can continue to command a premium.”
What Apple Does to Keep Demand High
Apple uses a variety of tactics to keep demand high, even though its prices are rather stagnant. Here are two of the top ones:
- Creates anticipation by being secretive about new product launches and uses press events to build enough buzz to keep consumers in line for hours.
- During launches, Apple regulates volume available, giving more exclusivity to those who were able to snag one.
How Resellers Fit in
In order to keep brand value consistent, prices can’t fluctuate much. Apple does this effectively by having sales only once in a blue moon. This maintains brand equity, customer perception, and keeps customers satisfied. Even among resellers, Apple products tend to have rather consistent prices. That is because the company employs price maintenance, a tactic that gives resellers minimal discounts on wholesale orders and, therefore, there is little incentive to sell below MAP (minimum advertised price).
If you need to see it to believe it, our new infographic sums up Apple’s pricing strategy nicely. Check it out below!
Know of other pricing strategies that can boost profit? Leave a comment below.