There’s a phrase I like to use when responding to people who expect Apple to release low-cost products that appeal to most of the masses: “Apple will never become the leader in low prices.” Although people often complain about the prices of Apple products, they generally confuse being unwilling to reach the lowest price ranges with a bad price.
Yes, you may pay a little more for an Apple product than a competitor product, but you also get more. Still, there’s no denying that Apple’s products are on the pricey side. Having become one of the most profitable and valuable companies in the world, it has served well with its skill in maximizing revenue growth.
But as Apple sees sales growth slow in most of its product categories, I have to wonder how willing Apple might be to raise the prices of its products to squeeze even more money out of its customers. The recently strengthening dollar has given Apple an opportunity to experiment with what happens when the price of Apple products rises.
Foreign exchange laboratory
You would think that a strong dollar would be good for an American company like Apple. But while a strong dollar is good for US tourists – look, the whole UK is having a sale! – it’s actually bad for companies like Apple, which sell consumer products in other countries. As long as prices in other countries stay the same, that means Apple makes fewer money in dollars with every sale.
Apple
At that point, Apple has only two real choices: keep prices up and eat some of its profit margins, or raise prices and risk selling off customers in those countries because of the even higher prices of Apple equipment.
Here in the US, Apple prices have remained remarkably stable. But elsewhere in the world they are on the rise. “When we launch new products… we look at the [foreign-exchange] situation, and in some cases… customers in international markets saw some price increases as we launched new products, which is not something that US customers have seen,” said Apple CFO Luca Maestri during Apple’s fourth quarter financial report last week. of 2022. “And that’s unfortunately the situation we’re in right now with the strong dollar.”
So people outside the US, who were already used to Apple products being a bit on the pricey side, now find them even Lake expensive. This is Apple’s price increase lab. To maintain profit margins, the company raises prices in several countries – then watches how the market reacts.
The results are bad news if you value your bank account.
Inelastic, not fantastic
What Apple, according to Maestri, appears to have found is a remarkable inelasticity in demand for Apple products.
“One of the things we really appreciated… was the fact that despite this very strong dollar and the difficult [foreign-exchange] environment, we have seen very strong performance in many international markets, especially in some very large emerging markets,” said Maestri. “It’s important for us to see how these markets are performing in local currencies because it really gives us a good idea of the customer response to our products, the engagement with our ecosystem and overall the strength of the brand. And I have to say, in that regard, we feel really, really good about the progress we’re making in many markets around the world.
Let me rephrase that, just to be clear: in many international markets (Maestri specifically mentioned India, Indonesia, Mexico, and Vietnam), Apple has increased prices and the company still seems enthusiastic about the response. The stuff is still being sold, and more than before.
Of course, in emerging markets, Apple’s price hikes might be met with a shrug, because it appeals to the richest people in those countries, and there’s a limited supply of that. But maybe it also reveals something about Apple’s brand and people’s willingness to spend more for Apple products. Sure, Apple’s products are pricey now, but if they were even more expensive, would we still buy them? Early results say yes.
Jason Cross/IDG
You’re going to pay, Pro
Tim Cook’s Apple is a remarkably ruthless money making machine. As a result, I fully expect Apple to continue to raise prices, but most of it will focus on the higher end of the market. Apple has pushed up the price of the MacBook Pro and the iPad Pro and the iPhone Pro, and I suspect it will continue to do so.
While Apple will never be the low-price leader, I think Apple is well aware that there are entry-level prices it needs to hit, and that it needs to provide value at those prices. This is why the M1 MacBook Air and the ninth generation iPad and the iPhone 13 are still for sale, even though they have been replaced by newer models. Modern Apple knows how to grow its revenue by offering cutting edge designs at high prices and last year’s model at a bargain price.
But it’s hard to look at Apple’s continued success in increasingly demanding markets and not imagine the company changing its approach. Expect more expensive, high-end products in the future – the recent rumors of new 14- and 16-inch iPad models are a good indication of that – alongside choices that offer value at the cost of a bit of power or elegance.
