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Apple loses its way on pricing

By Troy Wolverton
San Jose Mercury News

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Apple still knows how to create compelling products. But it seems to have forgotten nearly everything it ever learned about pricing such products for mainstream consumers.

The company’s new iPads, unveiled last Tuesday, look great and include some exciting new features. But the pricing of the company’s iPad line as a whole is absurdly high, with Apple’s models often costing at least $100 more than their closest rivals.

You know things are out of whack when the best-priced iPad still costs $500 and Apple is offering a 2½ year old model at a price that is $40 more expensive than a comparably sized — but brand new — Samsung tablet.

Apple, of course, has a reputation for offering expensive products, and company executives have repeatedly tried to position its brand as a premium one. Apple’s Mac computers remain pricey compared with their PC rivals, and its iPhone isn’t cheap, particularly without a hefty carrier discount.

But the company’s history tells a more complicated story than its reputation would suggest.

Apple’s iPod line was consistently priced aggressively compared with its rivals, and Apple developed lower-cost models to compete in the lower-priced segments of the market, rather than conceding them to the competition.

When Apple introduced the original iPad with a starting price of $500, many observers were blown away that it would charge that little, as some had speculated that the device would cost as much as $1,000.

Even with the iPhone, which initially carried a hefty $500 price, Apple found a way to reach mainstream consumers, persuading AT&T to subsidize it so consumers paid a much more palatable $200 upfront.

But lately the company seems to be going back to its pricey ways.

Before Apple introduced its new iPhones last month, it was rumored to have a low-cost model in the works, one that could be broadly affordable even without a carrier discount. Instead, the company unveiled the iPhone 5C, a repackaged version of last-year’s iPhone 5, that carries a $550 unsubsidized price. You may not be surprised to hear that according to numerous reports, the 5C is selling poorly and several retailers have already offered discounts on it.

Expensive laptops

Yet the recent unveiling event offered more of the same. Apple introduced two laptops that, yes, are each $200 less expensive than last year’s models. But with starting prices of $1,300 and $2,000, they are well beyond the typical price of a PC.

It also put a price tag on the Mac Pro, a new computer targeted at creative professionals that it previewed in June. That computer’s base price is an absurd $3,000, which looks even more ridiculous when you consider that the entry model has so little storage that buyers will almost certainly have to get a pricier model with more storage or immediately buy an external hard drive.

But you could dismiss those announcements as being in line with Apple’s longtime pricing strategy for the Mac. More shocking were the prices it announced on the iPads.

iPad Air best full-size tablet

Apple kept the $500 base price on its flagship model, now dubbed the iPad Air. While that price used to be a bargain, it’s increasingly looking expensive, especially when you can get Google’s Nexus 10 for $400 and Samsung’s Galaxy Tab 3 10.1 for $360. But it’s at least defensible; the big iPad is still the best full-size tablet out there, and the changes Apple made to it — adding a 64-bit chip and giving it a much thinner and lighter case — appear to have made it even better than before.

But the prices on the other iPad models are simply baffling. Instead of marking down last year’s fourth-generation iPad as a lower-priced full-size model, Apple decided to drop that model and continue producing the iPad 2. And it will continue to sell the iPad 2 for $400.

That’s a crazy price, considering the cost of the Nexus 10 and the Galaxy Tab 3 — brand-new Android models with better specifications. And it also seems obscene when you consider that the iPad 2 debuted in February 2011 and could be ineligible for updates to its operating system as early as next year.

Mini models’ prices baffling

The prices Apple slapped on its iPad Mini models are just as bewildering.

When Apple introduced the Mini last year, the device had three obvious drawbacks: It had a relatively low-resolution screen and an older processor, and at $330, it cost more than $100 more than its competitors.

This year, Apple fixed the screen and processor shortcomings. The new Mini has one of Apple’s high-resolution Retina displays, and the company included with the Mini an A7 chip, which is its latest and greatest processor.

If Apple had kept the Mini’s price at $330, those upgrades might have justified its price. But instead, Apple raised the price on the Mini to $400.

Mind you, you can get Google’s Nexus 7, which has a similarly high-resolution, if smaller, screen and a similarly fast processor for just $230. And Amazon charges the same price for its brand-new 8-inch Amazon Kindle Fire HDX.

Apple did cut the price of last year’s Mini, which it decided to keep in its lineup, but only by $30, which means that it still costs significantly more than brand-new models from its rivals.

Apple market share down

Apple’s prices would make sense if the company were still dominating the tablet market. But its market share has plunged and its tablet sales actually fell last quarter from the same period a year earlier.

So while Apple might know a lot still about how to make cool devices, it seems to have lost its way on pricing. Here’s hoping it relearns its lesson.


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