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Discussion: Some Apple Watch pricing math | The Loop

There’s been a lot of speculation about potential pricing for the highest tiered Apple Watch, the Apple Watch Edition line. John Gruber has been writing about Edition pricing on Daring Fireball. He initially thought that $5,000 was a ceiling for the Edition entry model, then moved his target up to $10,000, even suggesting that $20,000 was not an impossible price.

Personally, I think $5,000 is the right number for the Edition model. The highest end watches tend to start at about $3000 and move up into the stratosphere. The next tier down tends to run from $1,000 up to $8,000. My instinct is that Apple Edition will fit in that latter space, more aligned with Tag Heuer than with Rolex.

There’s no traditional model to draw from, as the Apple Watch is a brand new kind of animal, but my instinct is that the cost to Apple will be between $1,000 and $2,000. Multiply those numbers by a price/cost ratio of 3.44 and you end up with a nicely marked up price of $3,400 to $6,800. Why 3.44? Here’s the math:

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But what’s the price/cost ratio for gold watches made by Rolex, Omega, etc.? I think that’ll be a better comparison.

I’ve put my bet in the pool on the top-end price being $15,000.

Also: Someday soon Apple will begin offering gold iPhones whose cases are actually made of gold!

 

Grail-watch.com thinks that $800 estimate for the gold content is too low. Plus, they point out Apple won’t be calculating its prices based on the real cost of gold since they have to hedge against the price going up. They also note that you have to factor in much higher security costs for every step from manufacturing (probably not low-wage workers in china) to transportation (bonded couriers) to retail (probably have to hire 24 hour security guards for every Apple store that stocks the gold watch).

In short, you can’t just take the cost of the sport watch, factor in the market cost of the gold case, and multiply by Apple’s standard markup.

 

What bothers me about the extreme fluctuation in Apple Watch prices that people are speculating is that all three tiers of watch look essentially the same. If I shell out $8k for a Rolex it’s going to look like a Rolex and people will know right away that I have a fancy watch, but an $8k Apple Watch (or a $15k Apple Watch Edition) is just going to look like a $350 Apple Watch Sport with a slightly different color. I imagine a person wearing an Apple Watch will be asked what model it is because you can’t tell them apart by simply glancing at the face. If I were in the market for one I wouldn’t get anything more than the Sport model for just that reason. I’d buy a separate leather strap if I want to fancy it up.

 

The gold Apple Watch will not be priced in relation to its cost. This a product for the top one percent of iPhone owners. iPhone owners are already (on average) more affluent than the typical customer base, and the top one percent of *that* buy the best they can buy. The price is not a large part of the equation. In fact, for some, the higher the price the better – it doesn’t matter to them, so a higher price makes it more of an elite subset of iPhone owners.

Until now, the typical buyer could afford to have every bit as good a phone as the richest people in the world. And now it will no longer be true.

And with many hundreds of millions of iPhone owners, if 10% of the top 1% buy the gold watch that’s still at least $10B in gold watch sales alone.

 

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Some Apple Watch pricing math.