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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Comments

    I work for a retailer, and the reality is that the margins are actually more in the 5% range for Apple computers, if we're lucky. Most 10% off sales we do are under cost, but Apple stuff doesn't get discounted because most people have already decided they want to spend $2000 on an Apple computer. So why discount?

    Also, margins on cheaper Apple products are even lower. 8GB iPod Touchs are sold under cost, sometimes by as much as $50, and iPads are barely above cost price (one model has only a 1% markup to stay competitive).

      It's true- most products are sold at only slightly above cost price. Why? Because when people buy a new iPod/iPad/iMac etc, they don't just want the gadget itself. They also want a case, screen protector, iTunes card, software, etc. THIS is where the retailers make their money.

        Yeah man, I used to work at a reseller and you're spot on. I'd get people coming in asking for me to knock the price down on a macbook or whatever, but there's just no room to move at all, they're just above cost price.

        You're right on the accessories, some of those Speck cases cost like $75.

    If I had invested the same amount in Apple stock over the years as I have spent on Apple gear I would be a very rich man!

    Whilst the margins, percentage wise, might be low on Apple gear, the price points are higher, so the $$ are just as good.

    For example a 10% margin on a $2,000 item is the same as a 20% margin on a $1,000 item. Gerry Harvey has been bleating about this with the fall in prices of flat screen TVs - you have to sell twice as many units to make the same $$s.

    Lets get one thing straight, the margin the resellers and distributors make is small.

    The margin Apple makes is astronomical.

      Oooh, imagine that. Apple makes the device and the reseller doesn't get a big chunk of the profit for putting it on a shelf! Crazy!

        We also have to put up with ridiculous demands of Apple's clientelle. "It's the wrong colour, I want the white one." "What do you mean you only have the display? Apple can't be at fault, even though they're only providing 35 imacs for the country." You speak like we just throw it up, but we have to learn its features to answer technical and practical uses and still sell extended warranties and accessories otherwise we lose our jobs. Fuck that.

    +1 @ Drew apple would be making a killing on all there gear, they lock in prices with there suppliers and then sell at a premium price for a "premium product" that's not saying there stuff is bad just that they have a very deliberate market image they maintain to be able to charge high prices.

    I recall a previous story about this price business. I remember it being something about the relationship between Apple and their resellers. The resellers, from a Trade Practices perspective, are agents, and are thus beholden to Apple totally. At work, we tried to get a bulk discount for a substantial number of Macs and were simply told they were not allowed to do it. I suppose it value adds a profit margin on the slave labour that they get to make them.

    Apple has been a ripoff since the apple II days.The c64 and atari 8 bits were just as good but cost half as much, same with the classic mac Vs. Amiga/ST.

    The original question was not really answered. How does Apple maintain its prices?
    Seems to me that Apple plays some sort of hardball game with merchants, an article exploring this issue would be very interesting.
    Or is it as previously suggested, if your the only supplier then you can set the cost price of an item to whatever you want?

      +1 - I agree, the question wasn't actually answered. It's more of an article about how retailers won't tell you anything about their relationship with Apple. Pure pontification.

    when i read the title i thought, "probably the same way as mesa/boogie does"

    i got my 32GB White iPad for 600 dollars because i work for Ford motors

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