Genius Apple Watch Pricing Strategy Explained
Andrew Sheehy, Business Insider:
The watch market has given Apple the perfect opportunity to execute what I think will be seen in years to come as an extremely astute pricing strategy — that will allow the company to effectively guarantee that the ASP will be well above the entry level of $US349 (£239), and probably some way above $US600 (£410).
It is clear to me that Apple has spent a lot of time studying the Swiss watch industry: in spite of manufacturing just 29 million finished watches in 2014, representing just 2.3% of worldwide industry production volume, Swiss watchmakers accounted for nearly 67% of retail expenditure.
Sheehy goes on to illustrate his research with a series of charts and graphs, and they might go a long way towards explaining the rationale behind each of the three tiers of Apple Watch pricing. These tiers are placed into three presumptive “uptake” scenarios, each of which demonstrate varying degrees of optimism re: category sales percentages (Sport, standard, and Edition):
It should be noted that in his “most optimistic” scenario, Sheehy estimates that Apple will move Edition at a four percent clip, further underscoring the “limited edition” nature of that specific offering. But even at a measly one percent (which seems more reasonable to me), the gold variant plays a big part in elevating the entire Apple Watch ASP (average selling price) to well over $748, which is well above established iPhone territory. Hence, Sheehy’s conclusion:
In the long run, when manufacturing processes are mature, then because the Apple Watch has a lower mass and contains less electronics than an iPhone, it will actually cost less to produce. When combined with the higher ASP then the Apple Watch is set to be even more profitable for Apple than the iPhone.
As a strictly subjective look at the numbers (and their potentials), this is about as good a predictive treatise as you’re likely to get on Apple Watch sales. Naturally, it doesn’t take into explicit account the more psychological aspects of Apple’s “aspirational” marketing, where the existence and promotion of Apple Watch Edition among wealthy worldwide celebrities will actually cannibalize Sport sales and move them up the ladder to the mid-level stainless offerings. This, then, would have the effect of raising the Apple Watch ASP even further, and it’s not at all inconceivable that it could settle even higher than the mind-boggling $1177 that Sheehy predicts in his best-case scenario.