OnDemand WTP Pricing Research

Apple’s new watch masters time-honored pricing tactics | Miami Herald

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Take the company’s new small-screen product, the Apple Watch. Released a few weeks ago, the pricing strategy behind the Apple Watch is a great example of how a company can profit by capturing value in both volume and margin terms.

One of the great pricing challenges companies face is that customers value products differently. They have different levels of willingness and ability to pay, different preferences and different intended uses. When a company tries to serve all customers with one price, or one standard markup, it is forced to make huge tradeoffs between volume and margin.

On one hand, a one-price-fits-all approach enables some customers to acquire a product for much less than they are willing to pay for it, leaving a big chuck of profit on the table. At the other end of the spectrum, more price-sensitive customers are excluded. Even though the price they were willing to pay would still have been profitable.

But Apple will have none of that. Their product and pricing people have found a way to fan out all along the price/demand curve, making sure that everyone pays as much as they are willing to pay on one hand, and that virtually no one is turned away because the price is too high on the other hand.

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Apple’s new watch masters time-honored pricing tactics | Miami Herald.