Why is Apple so expensive? | CNBC Explains

Summary

Apple's premium pricing strategy has made its products some of the most expensive in the tech industry. From the iPhone to the Apple Watch, Apple customers are paying a premium for innovation and the seamless integration of its ecosystem. While the company has faced challenges in sustaining growth and surpassing past iPhone sales, it has relied on price hikes to maintain profit margins. However, the increasing cost of Apple products, especially in emerging markets, poses risks to its global dominance. Experts suggest that Apple needs new innovations, not just higher prices, to maintain its competitive edge.

Takeaways

• 😀 Apple products are expensive, with a laptop, cell phone, tablet, and headphones together costing over $3,500, which is equivalent to about two and a half months' rent for the average American.
• 😀 The price of Apple products, such as the iPhone, has increased significantly over the years. For instance, the iPhone started at $499 in 2007 and now starts at $999.
• 😀 The 'Apple Tax' refers to the extra money consumers are willing to pay for Apple products due to their perceived premium quality and 'cool factor'.
• 😀 Apple’s pricing strategy and high margins have helped it become one of the world’s most valuable companies, with $245 billion in cash reserves by 2019.
• 😀 Tim Cook, Apple’s CEO, defends the high prices, arguing that creating innovative products that replace multiple devices (like cameras and music players) requires significant investment.
• 😀 Apple’s innovation strategy has played a major role in its success, with products like the iPhone and iPod revolutionizing technology and creating long-term customer loyalty.
• 😀 The iPod, launched in 2001 at $399, became a major success, selling over 100 million units by 2005 and leading to widespread adoption of other Apple products.
• 😀 Apple’s ecosystem lock-in strategy has encouraged customers to buy more Apple devices over time, making them more likely to purchase iPhones, MacBooks, iPads, and Apple Watches.
• 😀 The iPhone became Apple’s flagship product after replacing the iPod, and its success continued with peak sales of 231 million units in 2015, but growth has slowed since then.
• 😀 The rising cost of smartphones and longer device lifespans have resulted in slower iPhone upgrades, pushing Apple to raise prices to maintain profit margins.
• 😀 Apple’s premium pricing strategy, while successful in Western markets, has faced challenges in emerging markets like China, India, Brazil, and Turkey, where competitors offer cheaper alternatives.
• 😀 Apple's failure to maintain iPhone market dominance in some regions, like China, is partly due to the high cost of iPhones compared to local competitors like Huawei and Xiaomi, who offer cheaper alternatives.

Q & A

Why are Apple products considered expensive?

Apple products are considered expensive due to a combination of factors, including premium design, high-quality materials, and cutting-edge technology. Additionally, Apple is able to charge higher prices because of brand loyalty and the so-called 'cool factor' associated with its products.

What is the 'Apple Tax'?

The 'Apple Tax' refers to the extra amount customers are willing to pay for an Apple product over a similar product from a competitor. This phenomenon is often attributed to the brand's prestige and customer loyalty rather than superior functionality or performance.

How has Apple's pricing strategy helped it become one of the most valuable companies in the world?

Apple's pricing strategy, which involves charging premium prices for its products, has contributed to its high profit margins. This has helped the company amass substantial cash reserves, and its ability to innovate continuously has cemented its position as one of the world’s most valuable companies.

What was Tim Cook's argument for the high price of the iPhone in 2018?

In 2018, Tim Cook defended the high price of the iPhone by pointing out that the device replaced the need for multiple other gadgets, such as a camera, music player, and video recorder. He emphasized that creating the most innovative product available requires substantial investment and resources, and that Apple prioritizes quality over lowering prices.

How did the iPod influence Apple’s growth?

The iPod was a breakthrough product that revolutionized the music industry. Its success helped establish Apple as a major tech player, and it led many customers to continue purchasing other Apple products like the iPhone, iPad, and MacBook. The iPod helped Apple build a loyal customer base, contributing to the company’s ongoing growth.

What effect did the iPhone have on the smartphone market?

The iPhone, which debuted in 2007, replaced the iPod and revolutionized the smartphone industry. Its success helped Apple become a dominant force in the market, with iPhone shipments peaking at 231 million units in 2015. However, the smartphone market's growth has slowed, and Apple has struggled to surpass that peak in recent years.

Why is Apple struggling to maintain growth in the smartphone market?

Apple is facing challenges in maintaining growth in the smartphone market due to longer device lifespans, meaning customers are upgrading less frequently. Additionally, the high price of iPhones has limited their accessibility in emerging markets, where Apple is encountering increasing competition from local brands like Huawei and Xiaomi.

How has Apple attempted to increase profit margins despite stagnating sales?

In response to declining sales, Apple has raised the prices of its products, such as the Apple Watch, and even sold higher-end models like the Apple Gold Watch for $10,000. This price increase helps boost profit margins and maintain profitability despite lower sales volumes.

What role does Apple's ecosystem play in driving customer loyalty?

Apple’s ecosystem, which integrates all of its products (iPhones, Macs, iPads, and Apple Watches), creates a seamless experience for users. This lock-in effect encourages customers to continue buying Apple products, as it’s easier to stick with a brand when all devices work well together.

How did Apple’s pricing strategy affect its sales in China and other emerging markets?

Apple’s premium pricing has hurt its sales in emerging markets like China, India, Brazil, and Turkey, where local competitors offer smartphones at much lower prices. Despite efforts to grow in China, Apple faces strong competition from companies like Huawei, and the high price of iPhones makes them less accessible to a broader customer base.