One of the most interesting things about the Apple Watch is that its pricing structure isn't based on its capability, but on its materials and appearance. This is contrary to how iOS devices are priced; the higher end devices simply have more storage but look identical.
Apple uses differentiation within product lines because it's a way to entice customers with reasons to buy the more expensive model, while still maintian a low starting price. Idealy, this differentiation should be obvious to customers because they are more willing to pay more if they understand why they should. Pricing based on storage space is quite simple; it's easy for most people to wrap their heads around. Apple could have charged for speed, but speed is complicated. There are many compononents like memory, CPU, GPU, etc. that don't really make sense to people. Gigabites of memory is a weird concept and gHz is totally abstract. Storage is more straightforward data takes up space.
Storage capacity is an easy to understand measure, but it's not the most obvious differentiator of a prodcut. That would be appearance. It dosen't take any technical knowledge to know that the cooler one is more expensive. It takes a quick glance to understand, and its targets peoples' desire to own and wear cool stuff. I think this is a better pricing model. Sure, I know that people are upset that Apple will use style instead of tech to upsell, but just think through it. If you are someone that wants the full expereince without paying for fashion, you can get that. This is actually a good thing for thoes people. I've read comments that suggested Apple is no longer focusing on normal people because of this. This couldn't be further from the truth. The Apple Watch is the only Apple product that no matter how much you pay, you get the same user experience. This is a much better model because it is not punative to people that buy the base model, as it is for iOS devices.
The point of selling the 16GB is clear. It is not to get a few extra dollars per unit that mindset is the cause of comments such as "It would only cost a few extra dollars to have 32GB." No, it would cost a lot more. For many people, 16GB is not enough and they decide to spend an extra $100 for the 64GB model. If Apple sold a 32GB base model instead, many people will decide that it's enough and not pay the extra $100. If we assume that one million people settle for the hypothetical 32GB base model that would have had to get 64GB just because 16GB is not enough, that's $100 million dollars Apple leaves on the table. And that's mostly all profit.
The problem with this model is is that the incremental value of storage is not linear the first few extra gigabites are crucial but only up to a point, then each consectutive gigabite becomes just nice to have. The curve of this graph is shaped like a hocky stick with the blade pointed toward the origin and the shaft extending horizontally, showing how after a point each extra bit of storage is not too important to most people. Pricing a product with this value curve is difficult because there's a sharp turn from having too little to make use of, to having enough for most cases. To maximaize profit this way you need to make the lowest tier punitively low.
I wonder if Apple will start using materials and apearance as a pricing strategy in other products... a Space Black SS iPhone 6 would look awesome. The token $100 storage fee is there because something needs to be. I would rather Apple offer the internals everyone needs regardless of how much they want to spend, and sell the higher profit items to rich people who like how it looks. In this way, the high end, high profit purchasers subsidize the base model buyers.
Apple uses differentiation within product lines because it's a way to entice customers with reasons to buy the more expensive model, while still maintian a low starting price. Idealy, this differentiation should be obvious to customers because they are more willing to pay more if they understand why they should. Pricing based on storage space is quite simple; it's easy for most people to wrap their heads around. Apple could have charged for speed, but speed is complicated. There are many compononents like memory, CPU, GPU, etc. that don't really make sense to people. Gigabites of memory is a weird concept and gHz is totally abstract. Storage is more straightforward data takes up space.
Storage capacity is an easy to understand measure, but it's not the most obvious differentiator of a prodcut. That would be appearance. It dosen't take any technical knowledge to know that the cooler one is more expensive. It takes a quick glance to understand, and its targets peoples' desire to own and wear cool stuff. I think this is a better pricing model. Sure, I know that people are upset that Apple will use style instead of tech to upsell, but just think through it. If you are someone that wants the full expereince without paying for fashion, you can get that. This is actually a good thing for thoes people. I've read comments that suggested Apple is no longer focusing on normal people because of this. This couldn't be further from the truth. The Apple Watch is the only Apple product that no matter how much you pay, you get the same user experience. This is a much better model because it is not punative to people that buy the base model, as it is for iOS devices.
The point of selling the 16GB is clear. It is not to get a few extra dollars per unit that mindset is the cause of comments such as "It would only cost a few extra dollars to have 32GB." No, it would cost a lot more. For many people, 16GB is not enough and they decide to spend an extra $100 for the 64GB model. If Apple sold a 32GB base model instead, many people will decide that it's enough and not pay the extra $100. If we assume that one million people settle for the hypothetical 32GB base model that would have had to get 64GB just because 16GB is not enough, that's $100 million dollars Apple leaves on the table. And that's mostly all profit.
The problem with this model is is that the incremental value of storage is not linear the first few extra gigabites are crucial but only up to a point, then each consectutive gigabite becomes just nice to have. The curve of this graph is shaped like a hocky stick with the blade pointed toward the origin and the shaft extending horizontally, showing how after a point each extra bit of storage is not too important to most people. Pricing a product with this value curve is difficult because there's a sharp turn from having too little to make use of, to having enough for most cases. To maximaize profit this way you need to make the lowest tier punitively low.
I wonder if Apple will start using materials and apearance as a pricing strategy in other products... a Space Black SS iPhone 6 would look awesome. The token $100 storage fee is there because something needs to be. I would rather Apple offer the internals everyone needs regardless of how much they want to spend, and sell the higher profit items to rich people who like how it looks. In this way, the high end, high profit purchasers subsidize the base model buyers.