Apple overcharging for the iPhone?

[EssentialParado]

The 16gb iPhone is only $650 plus tax. The 32gb is $750.

My mistake. My initial post made a different comparison and I forgot to update the prices.

It seems I lost this argument quite quickly anyways. I approached it with some unfair language ("is Apple overcharging", for example), and I didn't fully take into account a few other aspects too, like that most iPhone owners got subsidized pricing.

 

[Rennir]

Yeah it's supply and demand. Any business is out to make a profit and they'll charge as much as the market can bare to maximize producer and consumer surplus and prevent deadweight loss. It's hard to argue that a specific company is overcharging because all manufacturers sell products for more than the worth of their total components for a profit. I guess you could make an argument for what percentage profit you think it would be reasonable for all businesses to make, but that would probably be relative to the industry, and again, you'd have to include all businesses in your argument.

 

[EssentialParado]

Yeah it's supply and demand. Any business is out to make a profit and they'll charge as much as the market can bare to maximize producer and consumer surplus and prevent deadweight loss. It's hard to argue that a specific company is overcharging because all manufacturers sell products for more than the worth of their total components for a profit. I guess you could make an argument for what percentage profit you think it would be reasonable for all businesses to make, but that would probably be relative to the industry, and again, you'd have to include all businesses in your argument.

While I understand the Supply & Demand argument (particularly as I've sold products at a 500% markup), The Supply & Demand model is not actually applied universally in business because it comes with side affects attached to it.

I believe it's a certain degree of hypocrisy if you don't apply the S&D model to your full line up of products. A company should either sell everything at a high markup or nothing at one. It would be like Universal records selling Lada Gaga albums for $100 on iTunes because they can, or movie theaters charging $50 a ticket for The Dark Knight Rises because they can (and I firmly believe they could easily charge that for TDKR and still get sold out theaters) But shouldn't we be pissed at them for doing that regardless? I can't imagine you guys making the same argument of "Every business is there to maximize profit" and "They do it because they can" if it was any other company.

 

[nitemare]

all companies do it. do you really think it costs 59.99 to make a game disk and packaging for PS3 or XBox 360? no its more like maybe $2 for the disk and a few bucks more for the package its in. where all that extra comes in is in the software, R&D, overhead cause they have to pay the employes that sell you the product so if you take everything into account they aren't over charging they are covering their overhead. if u think they are then don't buy it. companies like HP and Dell are losing money selling you cheaply built computer with high specs

 

[bp1000]

Because the grandfather original iPhone was revolutionary at the time, Jobs always had bold pricing for products and he set the $600 price point and the pricing and technology yielded big time.

True to philosophy, apple continued to improve year on year without adjusting the price too much.

Tablets are theoretically in no mans land. They aren't computers and they aren't phones and they aren't truly mobile. They had to be priced attractively to sell.

As it turns out, the iPad is yet another product that nobody needed that is truly stunning and now everyone wants. Myself included.

 

[Rennir]

While I understand the Supply & Demand argument (particularly as I've sold products at a 500% markup), The Supply & Demand model is not actually applied universally in business because it comes with side affects attached to it.

I believe it's a certain degree of hypocrisy if you don't apply the S&D model to your full line up of products. A company should either sell everything at a high markup or nothing at one. It would be like Universal records selling Lada Gaga albums for $100 on iTunes because they can, or movie theaters charging $50 a ticket for The Dark Knight Rises because they can (and I firmly believe they could easily charge that for TDKR and still get sold out theaters) But shouldn't we be pissed at them for doing that regardless? I can't imagine you guys making the same argument of "Every business is there to maximize profit" and "They do it because they can" if it was any other company.

Yeah there's a lot of other variables to consider when talking about Supply and Demand. But I think the basic point still stands: If people perceive a luxury good to be worth the amount of money they are paying for it, who are we to complain? If you personally don't believe the value of an iPhone is worth however much the price is, you're free not to buy it and purchase a cheaper phone instead.

Why should they have a high markup of everything though? It's the business's choice, really. They can price their products however they want. Well Universal and movie theaters could, but then demand would dramatically drop and they wouldn't be making any profit. Do you really think people would pay $50 for a movie, even if it were their favorite movie? They'd most likely buy the DVD or just obtain it through illicit means instead. I believe that for any luxury good, business's can charge whatever they want for it (for the iPhone, be it $300 or $750 or heck even $2000), and if they're happy with the profit they make and if consumers perceive those goods to be worth what they are paying, then that's fine.

Actually, I would make that argument for any other company. I find myself defending Android or replying to those blindly devoted to Apple on this site all the time I like to debate things objectively. If Apple does something wrong then I will gladly call them out on it. They haven't with the pricing. I just happen to study economics. You can't make an objective argument that the iPhone is overpriced because perceived value is subjective. Sure, you may think that it is overpriced. But I'd argue that the majority of people don't think so.

 

[macjunk(ie)]

I guess it all started when the first iPhone was released. Think back, what was the market like then for touch phones ? You would have to choose between fugly Windows 6 and clunky Symbian.

In that market, Apple was a breath of fresh air and people were more than willing to pay a premium for the Apple experience. However, things are changing rapidly in the current market. People are able to get slightly less refined experiences at a lot lesser than the iPhone. Apple, in its part, has tried to retain the premium price point (slight increase in case of the 4S - unjustified IMHO) by providing features similar to the competition. I mean, I am pretty sure Apple can no longer pull off a 3MP shooter in their latest iPhone models (whereas the competition was already at 5MP or 8MP), like they could in the past.

But I guess it is still not convincing for some users cause the competition is still priced lesser than the iPhone. Add to the fact, the competition is constantly improving (e.g., ICS). I get a feeling that Apple has its work cut out in the future....The same applies for their laptop/desktop lines too.

 

[Small White Car]

It seems I lost this argument quite quickly anyways.

I don't know why.

You made a very nice 'point A.' The thread then filled up with people arguing against point, B, C, and D.

I can't explain it either. Sorry you got a bad thread, I thought it was an interesting post!

 

[Rennir]

I don't know why.

You made a very nice 'point A.' The thread then filled up with people arguing against point, B, C, and D.

I can't explain it either. Sorry you got a bad thread, I thought it was an interesting post!

I think I was arguing the point...would you explain where we all argued incorrectly?

 

[Small White Car]

I think I was arguing the point...would you explain where we all argued incorrectly?

You were the only one. Out of 20-something posts, that's not a good ratio.

 

[Jagardn]

Then why is it that the iPod touch is only $199?

The hardware in the touch is old. Camera, processor, etc. All off their engineering costs for that hardware was re-cooped a long time ago.

 

[Jagardn]

I guess it all started when the first iPhone was released. Think back, what was the market like then for touch phones ? You would have to choose between fugly Windows 6 and clunky Symbian.

In that market, Apple was a breath of fresh air and people were more than willing to pay a premium for the Apple experience. However, things are changing rapidly in the current market. People are able to get slightly less refined experiences at a lot lesser than the iPhone. Apple, in its part, has tried to retain the premium price point (slight increase in case of the 4S - unjustified IMHO) by providing features similar to the competition. I mean, I am pretty sure Apple can no longer pull off a 3MP shooter in their latest iPhone models (whereas the competition was already at 5MP or 8MP), like they could in the past.

But I guess it is still not convincing for some users cause the competition is still priced lesser than the iPhone. Add to the fact, the competition is constantly improving (e.g., ICS). I get a feeling that Apple has its work cut out in the future....The same applies for their laptop/desktop lines too.

Your right, with the way their sales have been going, they'll be bankrupt in no time.

 

[EssentialParado]

The hardware in the touch is old. Camera, processor, etc. All off their engineering costs for that hardware was re-cooped a long time ago.

It's true the $199 iPod Touch hardware is not as new as the iPhone 4S, but it is almost on par with the iPhone 4 ($550), and better hardware than the 3GS ($350) which doesn't even have the retina display

 

[thewitt]

Aren't the parts used in the iPhone and iPod Touch not the same? I thought that things such as the display were higher quality (not higher resolution) in the iPhone.

The iPhone has a better camera and display than the iPod touch

But the prices are set based on what the market will pay.

It you could manufacture a widget for $1, and sell as many as you can make for $50, wouldn't you do so, rather than sell for less because it would be more "fair" in the minds of some?

When demand drops, the price will drop as well. It's just simple economics.

 

[TheSacredSoul]

As a business student, we've discussed Apple in class many times. The goal of any business is to make profit. Some companies do it at a lower price to sell higher quantities and some companies sell it at a higher price but with lower quantities. What Apple has managed to do is sell their product at a higher price at higher quantities.

They have an image to maintain. They cant sell it at too low a price, below their competitors or too high and risk losing market share. Their iPhones had always been priced around the same range since the very first iPhone. They seem to have hit a sweet spot in their pricing strategy that virtually guarantees them market share and profit. Thus, they wont underhand themselves at this stage and lower the price of their iPhones.

 

[EssentialParado]

Okay, I think I should re-iterate my position from my initial post…

I'm not asking "Why don't Apple lower the price of the iPhone?"

I'm asking why there's such a discrepancy between the iPad and the iPhone in price. Aren't they both selling out?

 

[r.j.s]

The difference is that the iPhone is subsidized by the carriers - so the consumer sees a lower price. They probably wouldn't tolerate a higher price for the iPad, since there is no subsidy.

 

[nitemare]

i think i argued the point quite well. in fact i was the first one to point out he tried to compare a 16gb iPad to a 32gb iPhone 4S. every company sets a price point based on overhead and a profit margin. they have to pay utility bills, employes, R&D costs, leases on property, shipping and yes even TAXES.

 

[Applejuiced]

Okay, I think I should re-iterate my position from my initial post…

I'm not asking "Why don't Apple lower the price of the iPhone?"

I'm asking why there's such a discrepancy between the iPad and the iPhone in price. Aren't they both selling out?

I hear you on that. Even the ipod touch for example.
The latest generation is like $180. I dont think a few parts missing from the iphone like the cell radios, gps and a few others really make up for the $470 price difference between the two.
But like others said, its a business and they want to make as much money as possible.
I'd do the same.

 

[eawmp1]

Okay, I think I should re-iterate my position from my initial post…

I'm not asking "Why don't Apple lower the price of the iPhone?"

I'm asking why there's such a discrepancy between the iPad and the iPhone in price. Aren't they both selling out?

Apple priced the iPad with the intention of trying to corner the market. It was to competr with that sub-$1000 computer market/netbook market Apple said they wouldn't be able to compete in. And remember, in the U.S. most consumers are buying the iPhone subsidized, so when you look at apples to apples:

Unsubsidized iPhone 4S 64 $849
New iPad 64 wifi+4g $829

And the iPod Touch is derivative, little new R&D went into it. And it is competing with mp3 players for market share.

But you forget the most important reasoning in any economy: charge as much as the market will bear. Apple, with it's ridiculous sales figures knows what it is doing.

 

[minimo3]

Wirelessly posted (Mozilla/5.0 (iPhone; CPU iPhone OS 5_1 like Mac OS X) AppleWebKit/534.46 (KHTML, like Gecko) Version/5.1 Mobile/9B179 Safari/7534.48.3)

Same reason a galaxy nexus is $649 while an amazon fire is just $199

 

[ScottNWDW]

I guess it all started when the first iPhone was released. Think back, what was the market like then for touch phones ? You would have to choose between fugly Windows 6 and clunky Symbian.

In that market, Apple was a breath of fresh air and people were more than willing to pay a premium for the Apple experience. However, things are changing rapidly in the current market. People are able to get slightly less refined experiences at a lot lesser than the iPhone. Apple, in its part, has tried to retain the premium price point (slight increase in case of the 4S - unjustified IMHO) by providing features similar to the competition. I mean, I am pretty sure Apple can no longer pull off a 3MP shooter in their latest iPhone models (whereas the competition was already at 5MP or 8MP), like they could in the past.

But I guess it is still not convincing for some users cause the competition is still priced lesser than the iPhone. Add to the fact, the competition is constantly improving (e.g., ICS). I get a feeling that Apple has its work cut out in the future....The same applies for their laptop/desktop lines too.

The latest iPhone 4S has an 8MP shooter and the iPhone 4 has a 5MP shooter. If you are going to argue the virtues of the phone's camera, please understand what is in the phone first. Also note that the cameras's in Apple phones have glass lenses, which are better optics for taking pictures whereas the competition is using plastic lenses. The iPhone 4S also has a layer or two more glass elements in the camera lens than the iPhone 4.

 

[Ciri]

Why is Apple charging $750 for the iPhone when the new iPad + 4G costs only $630?

Based on some quick calculations based on the price of an iPod Touch (which is essentially an iPhone without the phone part), and the price of an iPad 4G (which is an iPad with the phone part), the iPhone 4 is $220 more expensive than it should be, and the iPhone 4S is $420 more expensive than it should be!

The price discrepancy seems to be supported by the iSuppli teardown component estimate of the iPhone 4S, which was $188, and the new iPad + 4G, which is $364 (double that of the iPhone 4S).

So if we conclude that Apple are unnecessarily overcharging on the iPhone, any theories why? Or is it simply "because they can"?

Um.....I thought that the iPhone was only $199.

My answer to the question would be that I think it has to do with the service contracts. There's no way they could lock you into these contracts if they sold it at a reasonable price.

 

[0dev]

Why is Apple charging $750 for the iPhone when the new iPad + 4G costs only $630?

Based on some quick calculations based on the price of an iPod Touch (which is essentially an iPhone without the phone part), and the price of an iPad 4G (which is an iPad with the phone part), the iPhone 4 is $220 more expensive than it should be, and the iPhone 4S is $420 more expensive than it should be!

The price discrepancy seems to be supported by the iSuppli teardown component estimate of the iPhone 4S, which was $188, and the new iPad + 4G, which is $364 (double that of the iPhone 4S).

So if we conclude that Apple are unnecessarily overcharging on the iPhone, any theories why? Or is it simply "because they can"?

Because private enterprise needs profit and prices are determined by supply and demand. That's how all businesses work.

 

[eawmp1]

Um.....I thought that the iPhone was only $199.

My answer to the question would be that I think it has to do with the service contracts. There's no way they could lock you into these contracts if they sold it at a reasonable price.

No, there is no way the iPhone would be as successful in the U.S. if it weren't for the subsidization of the price by the service contract. We are penny wise and pound foolish in the U.S.