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How Does Apple Maintain Its Prices?

While judicious shopping around can find you a better deal on some older products, pricing for Apple’s gadgets tends to be remarkably consistent. How does the technology giant ensure that all its retailers play ball?

Picture by Cameron Spencer/Getty Images

Compared to a couple of years ago, discounting on Apple products is actually slightly more common. The rise in grey importing options for the iPad (including such mainstream players as Harvey Norman and Kogan) means that you can often find it cheaper than Apple’s own prices. Electronics retailers quite regularly offer 10 per cent off on Mac products, and iTunes cards are discounted even more often. Apple itself holds an annual Black Friday Sale, but the discounts it offered for hardware this year weren’t notably better than what shows up at its rivals. The best deals Apple has offered all year were on original iPad models after the iPad 2 was announced, and even those got undercut by Big W.

So it’s not true to say that pricing on Apple products is utterly fixed or that it always has the cheapest prices on its own gear. Under Australian law, Apple can’t refuse to supply a retail customer purely because that customer sells an Apple product at a lower price than Apple itself. If a retailer wants to sell something at cost price or below cost price as a loss leader, that’s their affair. But in practice it doesn’t often happen, and we hardly ever see the kind of fierce price competition that characterises other segments of the gadget market.

In the weekend edition of the Australian Financial Review, reporter Julie-Anne Sprague investigated Apple’s dominance of the gadget landscape and how it impacts on retailers. (The full article is on the AFR site but is behind its paywall and only available to subscribers.)

Reflecting Apple’s well-known commitment to secrecy, virtually none of its local resellers were willing to comment on the record about the strategies Apple uses or how much margin they actually make on selling Apple products. It seems none of them want to risk future supplies by doing so; the demand for Apple product is too strong to make that a viable option.

Sprague’s investigation concluded that margins on Apple product tend to be in the 10 to 22 per cent range. As well as being relatively slim for a retail product, supply of those gadgets also come with strict conditions: Apple dictates how the products should be marketed. It’s easy to see this in action; If you visit the web sites for local telcos selling the iPhone, the product details for the iPhone are in a totally standardised form set by Apple.

While Apple’s range is undeniably popular, the fact that products are often released on short notice isn’t great for retailers either. They sometimes cop the blame for product shortages, even though they have little control over allocations and have to compete with Apple itself to sell the gadgets.

However, no major retailer can afford to ignore Apple’s range at the moment, given its dominance of the tablet and MP3 player space and its hefty mobile phone market share. There was a time when Harvey Norman, a store noted for its stubbornness, didn’t stock Apple gear; depending who you believe, either Apple didn’t want Harvey Norman because it was too mass-market or Gerry Harvey didn’t want Apple’s thin margins. But even that moment has passed. The conditions might be annoying, but the foot traffic is apparently worth it.

The success of Android demonstrates that there’s a big market for phones which come at a range of price points, which is not a market Apple seems to be aiming at. Most Apple buyers seem happy to pay the prices charged, and it’s hard to argue (in the case of tablets particularly) that they’re getting bad value. As long as Apple’s customers are happy and don’t feel they can replicate the experience elsewhere, a relative lack of pricing competition isn’t going to bother anyone much.

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