As Apple pushes deeper into luxury brand territory, the company is making its products more accessible through lower pricing. At $159, Apple is underpricing AirPods. The same can be said for Apple Watch, priced at $269. In just ten years, we have moved from the “Apple Tax” days, when Apple was accused of pricing products artificially high, to Apple products being priced below the competition. Apple is using its balance sheet and scale to grab new users, and in the process, redefine luxury.
After using AirPods for the past three months, one takeaway relates to pricing. It is clear that Apple is underpricing AirPods. While this statement may sound outlandish considering that a pair of EarPods is included in every iPhone box, AirPods are not just any pair of headphones. The combination of accelerometers, optical sensors, Apple’s new W1 chip, and a well-designed charging case, position AirPods as Apple’s second wearables product. AirPods are computers for your ears. This distinction does a better job at framing the device’s surprisingly low $159 price.
Contrary to the conclusions found in most headphone buying guides, AirPods should not be compared to lower-priced, wired headphones. These buying guides not only lean on sound quality to unfairly shortchange truly wireless headphones, but also misidentify why consumers want to buy wireless headphones in the first place. AirPods’ primary value proposition isn’t found with sound quality but rather with not having any wires. Accordingly, the product should be compared to other truly wireless headphones.
Apple’s Pricing Strategy
AirPods and Apple Watch pricing demonstrate how Apple is looking to own not only the premium segment of the wearables market, but rather the entire market. As Apple runs deeper into luxury, the company is reducing entry-level pricing. This is a curious development as one assumes the opposite would have occurred – Apple would keep prices high to maintain a certain level of exclusivity or scarcity. Instead, Apple is redefining the concept of luxury in order to sell mass-market products.
Consider Apple’s approach to Apple Watch pricing. With $269 and $369 Apple Watch options, Apple is very competitive with nearly every smartwatch. However, at the other end of the product line with Apple Watch Hermès and Edition starting at $1,149 and $1,249 respectively, Apple is selling different materials, and a different kind of experience, at much higher prices. Apple is segmenting the product line to appeal to a wider variety of users.
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