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Brand Value & Pricing Derrick Daye

Brand Pricing Strategy: The Early Apple Way


Brand Pricing Strategy Apple

Pricing strategy
is one of the most important marketing decisions. Here’s a little history on
how we thought about pricing in the early days of the Mac which may help
marketers understand how Apple might be thinking about pricing in the post-PC

The early Mac
had a higher COGS (cost-of-goods-sold) than the MS.DOS PC. This is because we
had to amortize all of our system software development and leading edge
proprietary graphics hardware technology across a much smaller number of
physical units than PCs. Microsoft could spread its R&D across 9 times more
computers and Bill Gates purposefully priced his operating system at a very low
price to OEMs (original equipment manufacturers) in order to hold off
competitors. Bill’s strategy was to charge a high price for application
software and in fact Microsoft’s profit on each Mac was about the same as
Apple’s because Microsoft’s MacOffice was premium priced.

Steve Jobs and I
disagreed over the introductory price for the original 128k Mac. Steve wanted
to sell it for $1999 and I wanted to sell it for $2499.

Here was why we
eventually settled on $2499. In 1993, all of Apple’s profits and cash flow came
from the 6 year old Apple II. We needed that Apple II cash flow to fund the Mac
development and marketing launch. If the Mac were introduced at $1999 there would be insufficient monies to
fund both the Mac launch and follow-on Macintosh R&D without systemically
reducing Apple’s traditional 40% gross margin. Neither I, nor the Apple board,
wanted to reduce our 40% gross margin and the facts were that Macintosh would
continue to be a more expensive R&D computer platform than the Apple II.
Even at 27, Steve Jobs was a very sharp business strategist and his defense of
the $1999 price point was largely out of loyalty to an expectation he had previously
set with his Mac team that he would price the Mac as a consumer appliance and
back in 1984, $1999 was actually thought of as a consumer price point for a
personal computer.

After Steve Jobs
left Apple in 1985, he went on to start NeXT computer and ended up targeting it
at the higher education market with an introductory price of $9999. The NeXT
computer was technically brilliant and its design elegant but its price was way
too high and NeXT never achieved the market success Steve had hoped for. The
reality was that breakthrough high tech products have always been expensive in
their early days. For example, the first dye sublimation color printer in 1988
was priced at $29,000 ( e.g. ink jet printers today cost about $79). Or a Sharp 70” HDTV 4 years ago was
introduced at CES at a price point of over $50,000.

Steve Jobs first
principles never changed:

The product experience must be elegant;
no compromises.

Apple creates complete end-to-end
systems, not just hardware products.

1980s = Mac +
Postscript + LaserWriter + PageMaker

1990s = iPods +

2007 = iPhones +
iOS +App Store.

2009 = iPad +
iOS + App Store.

Apple has an
increasingly smaller market share in mobile than Android and Samsung, but Apple
makes 80% of the profits today in consumer mobility. 

27 years after
the first Macintosh was introduced, Apple is still employing a premium price

Contributed to Branding Strategy Insider by: John Sculley, Former CEO of Pepsi-Cola, Former CEO of Apple, marketing innovator and thought leader.

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