Apple Watch Pricing for Plebes

As John Gruber notes, there’s little reason to speculate on Apple Watch at this point, but it’s fun. So let’s join in.

The most salient part of Gruber’s piece is the section entitled, “The Messaging”:

Using the name “Apple Watch” for the stainless steel collection — the collection with the widest variety of straps — clearly establishes it as the “regular” collection. In turn, that has left many with the impression that it will be the best-selling, the most common, the one most people walk out of the store with — and thus priced near the $349 baseline.

And, earlier:

But the steel Apple Watch, that’s something that most people still look at as for them. And so they expect the starting price to be around $500, and the various leather and metal band options to cost $100–300 more.

I am one of those people who looks at the steel Apple Watch as “for them.” So what is my watch going to cost? Gruber dismisses a $500 starting price for the stainless collection, because a mere $150 difference would imply that the Sport and regular collections are not highly differentiated — which they are. One more quote:

With Sport and steel Apple Watches, everything you can see or touch is different. Different metal (aluminum vs. steel), different finishes (matte vs. highly-polished), different displays (glass vs. sapphire), different case backs (plastic vs. ceramic and sapphire).

Okay, so we’ve got a totally different class of materials in the stainless edition. From an operational and marketing perspective, that should justify more than a $150 difference. I’m sold — both as a prospective buyer and amateur business strategist. 

But I think his final guess, that the stainless line will start at $749, is way too high. I may be brewing up my own cauldron of claim chowder, but here’s the argument.

Apple prices to customer demand. They charge what you will pay, not cost-plus-a-percentage. And they are very good at pricing very near the maximum of what their customers are willing to part with. 

What’s the psychology of a pricey Apple purchase? Based on introspection, I think there’s two key mechanisms:

Talking yourself up the line

Buying a medium- or high-end iPhone, iPad, or Mac is a process of incremental compromises. Well, I can’t get the 128GB Macbook Pro, because that’s not enough space, and, oh, the faster CPU is just an extra $300, and I get twice as much storage, but, wait, the 15-inch is just $200 more… 

To paraphrase Ernest Hemingway: how do you end up buying a $1,999 computer? Gradually, and then suddenly.

The Sport watch’s price should top out at $399 (I agree the 42mm will be $50 more than the 38mm). In Gruber's pricing model, there’s a $350 gap between that and the lowest-end stainless, which still has an effectively-rubber watchband. If we’re comparing 42mm models, it’s a $400 gap, or a straight doubling of the price from $399 to $799.

To get touchy-feely, $350–400 just seems like too much. I don’t think I can talk myself into bridging that gap. $100 gets you an iPhone 6 Plus instead of a 6. $229 gets you an iPad Air 2 (faster, lighter, TouchID) and cellular over an Air 1 with wi-fi only. I find it hard to believe that those increments will be wildly outmatched by those on the watch.

As someone who’s talked himself up plenty of Apple product lines, that $350 void appears as an abyss that I cannot cross. And if supply chain rumors are at all accurate, I find it almost inconceivable that one-half of purchasers would be able to make the leap. 

Sanity checking

The second way Apple convinces us to buy higher-end models is by preventing the purchase-killing sanity check. Comparing a prospective acquisition to other Apple products doesn’t make you feel insane.

Buying a $729 iPad feels about right. Less than a computer, more than a (subsidized) iPhone. Same with a $1,999 Macbook Pro. Less than the 5K iMac, more than most laptops, but not out of the ballpark. 

What about the Apple Watch that is my top choice? (Stainless, 42mm, black classic buckle.)

In the $749 stainless-start-price world, this is an $899 watch. With tax, basically $1,000. That feels insane. I cannot justify it. I could have an awesome iPad, with cash to spare. I could have a Macbook Air! It seems crazy to me that people will walk into Apple Stores, see $899 unibody laptops, and decide that the second-lowest-priced stainless Apple Watch is worth the same. (Since this is the cheapest watch that shares no materials with the sport line, it’s arguably the real beginning of the “normal” Apple Watch line.)

The implication of Gruber’s predictions is that the watch will be priced as if it is a watch, rather than as if it is a tech product. I believe it will be priced the same way every Apple product is priced — as if it is an Apple product. The only comparisons that matter are to other Apple products. 

Laying it on the line

Regrettably, I’ve violated Ben Thompson’s rule and used “I” far too many times in this piece. But my goal is to understand which prices are feasible, and — given that I’m in the top 0.001% of consumers with respect to interest in the Apple Watch — I think I’m a decent test case. If they can't sell the watch to the Apple-fan-with-disposable-income base, it's hard to figure out who they could sell to.

So let’s do this:

  • Apple Watch Sport: $349/$399 (38mm/42mm)
  • Apple Watch, steel, Sport Band: $599/$649
  • Apple Watch, Classic Buckle: $699/$749
  • Apple Watch, Modern Buckle (38mm only): $799
  • Apple Watch, Leather Loop (42mm only): $849
  • Apple Watch, Milanese: $899/$949
  • Apple Watch, Link Bracelet (steel/black steel): $949/$999 

Some of the higher-end guesses are rawer than raw speculation. My gut tells me the Milanese is cooler than the Modern Buckle/Leather Loop, and I buy Gruber’s argument on the supremacy of the link bracelet.

No predictions for the Edition edition, because, once we’re talking thousands, does it matter to us plebes? I believe that Edition prices could be higher than for any other Apple product, as the solid 18K gold moves them into the pure luxury category. (If I had to make a bet, put me down with Marco at ~$3k, which is high, but not truly, ridiculously high. But I really don't know.)

I do think I would buy that $749 classic buckle, though, even if I’m praying it’s $699 or less. Because I can just barely talk myself into it, one price hop at time.