As a brand, Apple is innovative, creative, and cutting-edge. It is not cheap. For virtually all of its history, the company has held firm to a premium pricing strategy, offering new models at price points that are higher than those charged by most competitors. Although savvy buyers might find a few deals in refurbished or older models, even those prices remain relatively high. This pricing strategy has helped support the company’s continuous innovation and also enabled it to maintain a prestigious, appealing image.

And then came COVID-19 and the related sales drops. In particular, sales of AirPods, the popular wireless listening devices, slowed considerably in early 2020, leaving Apple with a substantial inventory backlog. Such a situation is virtually unprecedented for the company, which historically has been able to track the sales curves that its popular products tend to follow quite accurately.

In response to the novel scenario, Apple radically altered its pricing strategy, but in doing so, it also held firm to its corporate principles, namely, to be innovative. That is, even as it pursued a totally different approach to pricing AirPods, as well as some other devices, it maintained its overall reputation for moving quickly and decisively. In particular, it make three key strategic decisions.

First, it shelved plans to introduce a new model of the AirPods in 2020. With so much inventory of the most recent model, it had no interest in flooding the market further, so it cut losses there and planned to return to development efforts later, after it had cleared its proverbial shelves.

Second, it indicated that new models of iPhones would no longer come with Earpods, the wired headphones that have always come with new devices. The Earpods offer functionality but also relatively lower quality. Thus, Apple gave price-conscious consumers an added-value benefit by providing the Earpods for free, but it also gave quality-focused consumers a good nudge to purchase a better option. By removing the free offer of Earpods, the company essentially forces new phone buyers to make an additional purchase to be able to listen without bothering other people around them.

Third, it is cutting the price. This move is the big one, but it requires the other two strategic choices, if it is to work. That is, if Apple is going to force people to buy some type of listening device, it can make that option less painful or more appealing by allowing them to do so at a “discount.” The lowered price helps buyers feel like they are getting a great deal, even if they previously could have had (lower quality) headphones for no additional cost. Furthermore, the lower price helps overcome any potential complaints by tech fans who might have been waiting for a new model, which will not be coming for some time.

The AirPods’ price drop is notable, but it reportedly is not alone. Some analysts predict that the iPhone 12 will arrive with a starting price of $649. It is still a lot, but it is less than the starting price for last year’s iPhone 11. In this move, Apple is providing a better quality, new version of its extremely popular product for less money.

In a way then, Apple’s recent pricing moves are unprecedented for the company. But in another way, they are precisely in line with the company’s broader strategy: Apple is responding, creatively, quickly, and competitively, to new market conditions, with an innovative approach that ensures its continued competitive advantage and reinforces is positioning.

Discussion Questions:

1. How is Apple driving demand for AirPods?
2. How does this pricing strategy differ from Apple’s past strategies, and what has driven this change?
3. Do you think that these novel strategies will be effective?

Source: Jay McGregor, “Apple to Abruptly Slash New AirPod Prices and Ditch Famous iPhone Ensemble,” Forbes, May 20, 2020; Jay McGregor, “Ruthless Apple Slashes iPhone & iPad Prices to Fen Off Rivals, Bad News for Android,” Forbes, May 16, 2020