You go into Apple store and they charge you a price between $499 and $929

ipad_air_pricesJimmy Kimmel, in his Late Night Show on Halloween, was making fun of iPad Air pricing. It went something like this (you can Google the video),

“iPad Air costs from $499 to $929. You go in the Apple store and they randomly charge you a price between $499 and $929”

Isn’t that close to a profit maximizing marketer’s Holy Grail? People walk into the store and each one pays a price that is specific to them – their price at which they are happy to get the product over keeping the money.

Granted we would like unbounded upper limit – not constrained at $929 and we do not want it to be a random price, we want each customer to pay precisely the exact price they are happy to pay to get the product.

That is impossible in practice and likely is illegal. You wouldn’t like it that I get to pay only $199 for iPad Air (because I am far too happy with my iPad2) and you have to pay $879 because you just pulled up in your Tesla.

I also will not like it when they pick a random number  and ask me to pay that price. Except of course if it is like a Becker-Degroot-Marschak method where they ask me to first write down my price between$499 and $929, then they pick a random number between these two.

If the price I wrote down is higher than the random number they picked, I get the iPad Air at the number they picked, otherwise I walk out losing my chance to be “awesome” and damned to eternity in Luddite world.

Since forcibly charging different prices for different customers or randomly asking them to pay different prices is not possible, Apple has the next best thing in pricing – making customers willingly self-select themselves to pay the price they want by choosing the particular product version they want.

That is why Apple offers 8 different iPad Air versions to spread the price spectrum from $499 to $929. In some sense Jimmy Kimmel is not all wrong in saying, “randomly pay”, you could argue arrival rate of customers is random and the version they will like and buy is also random. Only thing is customers willingly pay that price and the marketer enables this with multiple price points.

Do not for a second think the prices are different because of the cost. You do not believe it costs Apple $300 or even half that to go from 16GB to 128GB do you? Compare this to cost of going from hard drive to flash in non-Retina MacBook Pro and you will understand.

The prices are different because we are different and we all value products differently and willingly pay higher prices than others for the same product.

That is just versioning done right.

In fact the price spectrum for iPad is wider than $429 to $929.

If you include iPad2 it is $399 to $929.

If you include iPad mini and mini Retina is is  $299 to $929.

There is no one price to rule them all. You build and deliver products at multiple price points to let customers choose the price they want to pay.

Before you go and introduce versions at dozen different price points, see also 4 costs of versioning.