Why Apple Products Are So Expensive | So Expensive

In 2016, the iPhone 7 started at $649. Three years later, Apple's flagship iPhone cost 54% more. It's even more dramatic for the Mac Mini. When Apple launched its new model, the price increased by 60%. These prices generate enormous profits for Apple. As the first US company to be valued at a trillion dollars, Apple's market capitalization is larger than Switzerland's GDP. So what makes Apple

products

so

expensive

? Mohan Sawhney: Apple, over the years, has earned a reputation for the quality and industrial design of its

products

. Narrator: That reputation has created millions of loyal customers. Marco Pierre White Jr.: I've been here for about 36 hours.

Man, I'm super excited, I'm not even going to lie. I can't wait to get my hands on mine. It's only 1,000 pounds, man. Hey. I'll probably take two, man! Sawhney: So brand loyalty translates into a premium they can get from customers who aren't willing to leave the Apple ecosystem. Narrator: That premium is also known as the "Apple tax," or paying more simply because it's an Apple product. The 256GB MacBook Air, for example, costs $1,299, but you can get a more powerful Windows laptop for more than $100 less. Apple's high prices reached meme proportions during its Mac Pro announcement in June 2019.

Applause turned to gasps when John Ternus introduced a $1,000 monitor stand to complement the $5,000 Mac Pro display. John Ternus: And the Pro stand: $999. And like the Mac Pro, all will be available in the fall. Narrator: The truth is that $6,000 for a professional reference monitor of this quality is comparable to the competition, but that didn't matter. Apple had botched the message and its $1,000 stand became infamous. Sawhney: Apple does something else that's a little sneaky, which is that when you buy the iPhone, you can't add memory to it. So if you want more memory, you will have to pay more taxes from Apple.

Narrator: With Apple computers, these upgrades become even more

expensive

. If you want a 13-inch MacBook Pro with 512GB of storage, you have to pay $400 more than the base model. And Apple accessories also command high premiums compared to non-Apple products. Like their $129 keyboard or their $79 mouse. Even Apple cables cost more. Apple has kept its proprietary Lightning connector and removed useful ports such as the headphone jack and SD card reader, forcing consumers to purchase expensive devices like its $39 SD to USB-C card reader. But are these products worth paying the premium for? Apple loves to talk about its innovation.

Narrator: And iPhones have added great features, like OLED displays, faster processors, and thin bezels, but competing products have many of the same features. Sawhney: The components needed to make a smartphone are fairly standardized. For example, Sony competes with Apple in smartphones, but all of the camera sensors in an iPhone are manufactured by Sony. Narrator: And those components cost much less than a new iPhone. Sawhney: The bill of materials is about $490 for a phone that's priced at $1,099. As a point of comparison, the Galaxy S10 Plus costs about $420 less than the materials for a $999 price tag. Narrator: Something changed when Apple released the iPhone 10.

Not only was it more expensive, but the difference between the bill of materials and retail cost was much larger. Obviously, Apple wants to make a profit, so the bill of materials has to cost less than the device. What makes Apple special is its ability to make higher profits than its competitors. Instead of a technology company, think of Apple as a luxury brand. As with Gucci or Hermès, customers pay more because the logo is a status symbol. That bag is not more functional, but customers still value it more. Sawhney: So all of our products become an extension of our personality. "I value elegance, I value design, I value simplicity, I value 'It just works.'" And that's what inspires a lot of loyalty and allows Apple to earn a premium for its products.

Why are Apple products so expensive? Because the design is very elegant. I think because they make top quality hardware and people are willing to pay for a simple and seamless experience. They're aimed at people who really love ease of use and ease of use, and I think that probably that design layer costs a bit and I'm happy to pay for it. They are expensive because they know that we will buy all their things no matter how expensive they are. Samsung, Android, Apple, thank you. Sawhney: I think customer loyalty is hard to earn, but when customer loyalty is earned, love is blind.

Narrator: But this strategy may not work forever. Competition with less expensive Android phones has become more pronounced and that puts the iPhone's market share at risk. Sawhney: Apple's performance in India is pathetic. Pathetic to the point that its market share has now fallen to less than 2%, it has become completely irrelevant, and the main reason is that the prices are simply unaffordable for the Indian market. Narrator: If Apple can't sell more iPhones, it may have to sell fewer iPhones for more money. Charging a premium allows Apple to continue growing revenue, even if its largest category, the iPhone, is declining.

Sawhney: Look, every time you create a new product, what you want to do is extract as much premium as you can from higher-end customers, people who are willing to pay a premium. Narrator: That means customers who buy the $5,000 iPad Pro or iMac Pro. Apple offers cheaper models, like the iPhone 11 or the 11-inch iPad, but those aren't always the models customers choose. Sawhney: This is called extreme aversion, because you don't want to buy the cheapest or the most expensive, so the middle seems like a compromise. Narrator: But Mohan pointed out that Apple has a disadvantage compared to true luxury brands.

Sawhney: A luxury product is like a Rolex, right, you would keep it for life. Well, you can't keep a smartphone for a lifetime. So, cousin. Maybe it's not luxury. Narrator: For now, Apple's reputation remains strong. What about customers who don't want to spend $1,000 on a new phone? Apple has a plan for that. Keep the old models, with a very small discount. But if Apple wants to keep its loyal customers, its innovation will have to keep pace with its cousins.