Observations on iMac Pricing – A case of well executed versioning?

Take a look at the pricing of the two lowest priced iMacs.

The cheapest one not only has the lowest configuration but also allows no customizations to the CPU and Disk capacity. It cannot be that it is technically infeasible to support customization on this version. Moreover, it is not farfetched to think that, among the customers who prefer the lowest priced version, there must exist two sub-segments who would prefer to

  1. upgrade just the CPU to the next level
  2. upgrade just the disk to 1Tbyte level from 500GByte level

(Note: The segment that prefers both will choose the next higher version since it offers them better price. I am clearly ignoring the graphics card is not a factor.)

Apple charges $188 for upgrading CPU to next level and $141 for the Disk upgrade. So why doesn’t the Apple offer these customizations for the lowest priced version? Are they leaving money on the table by not meeting the demand by not asking “Do you want to supersize it for just $141 or $188?”?

One possible answer is they want to nudge those who can and willing to pay higher price ($1499) for a faster CPU or bigger disk to self-select themselves to the next higher version  instead of choosing the lowest priced version and paying just for that upgrade. While there may be some customers in the $1199 segment who are willing to upgrade just one of the features, there may be others in the $1499 segment who may be tempted to do just that as well. That is there must exist sub-segments in the $1499 category who would prefer to

  1. Downgrade to $1199 version and upgrade just the CPU to next level
  2. Downgrade to $1199 version and upgrade just the disk to next level

I believe their customer demand modeling must indicate that the revenue gain from those willing to upgrade from the $1199 version is less than the revenue loss from those who are willing to downgrade

$188 * (number of customers willing to upgrade CPU) + $141 *( number of customers willing to upgrade disk)


$112 *( number of customers willing to  downgrade to $1199 version with CPU upgrade)  +  $159 *( number of customers willing to downgrade to $1199 version with Disk upgrade)

There is nothing new  or Apple magic here. This is a case of second degree price discrimination (versioning) executed very well.

The other possible reason is, this isn’t by deliberate versioning design at all but a random scheme chosen by one of the product managers.  But I am 70% confident it is the former.

How do you set your version prices?