Analysis
Hint – it’s not to sell $17,000 watches.
The reviews are in and the Apple Watch is predictably getting a wide range of reviews typical of Apple products from both fan boys and haters alike. But most curious is the Apple Watch Edition. A number of reviews I’ve read have panned the watch as too expensive for a device that will be obsolete in a year(HBR gives it a D for pricing strategy.), while others have said the price is too low.(Apple watch might be too cheap) At $17,000 it’s targeted at the high end of the market, but it’s been panned by fashionistas. And at that end Apple may not be viewed as a “luxury” brand enough to justify customers purchasing them.
But that’s not Apple’s game. I think that Apple doesn’t care how many $17,000 watches it sells. I think that they are using anchor pricing to make their $1,500 watch more reasonable to their typical consumers. (Anchor pricing is a technique where you purposely create a premium priced product to make your standard prices seem more acceptable to consumers.) I put myself in that ballpark. I’m a tech enthusiast and bought into the first Pebble Kickstarter campaign, and have an Iphone. I’m tied to the ecosystem but not so much of a fanboy that I’ll buy anything that Apple puts in front of me. I’m a slightly discerning gadget addict. But the current smart watch price range that has seemed acceptable to me has been about $200, due to Pebble’s entrance into the market, and Apple’s previous iPod Nano. I’ve had both. My expectation for how much to pay for a companion price has already been established.
But $200 is not enough for a new marque Apple product. By using a psychological anchor pricing technique of having a high priced version of the Watch, they make the entry and middle prices seem more reasonable. The Apple Watch starts at $349 ($449 in Canada) and if one desires to have a watch with a metal band it’s about $1,500. Without a $17,000 watch, $1,500 for a smart watch with a metal band seems highly unreasonable, especially when I had a metal watch band for iPod Nano that I got for $50. But with the $17,000 edition in the mix, $1,500 seems more acceptable and I’ve found myself nodding and rationalizing why that price is fair.
Now that I’m aware of it, it might make me a bit more resistant and I might go for the new Pebble Time Steel after all, but I suspect that Apple will sell many $1,000 and $1,500 watches because they have the Apple Watch Edition to create a high end psychological bracket.
