Nudging and Tense Decisions: Apple’s Pricing and Product Strategy, 2021
It was once a truism that everyone who could afford to purchase an iPhone would receive the exact same product, the same power, and the same experience. In many ways, the iPhone and technologies like it offered a quite clear value proposition: if you can afford the sticker price, all of this awaits you.
In 2020/1, Apple’s strategy is different. Yes, it creates products that bring about desire and it remains driven by profits and good customer experience. But in trying to cater to multiple market groups — segmenting product line ups into more and more price points — Apple forces upon users deliberately difficult choices, that are always designed in the company’s favour. If marketers speak of customers not wanting more choice but to be certain that their choices are good ones, Apple has turned this on its head: it deliberately incites tension in its pricing structure and product line up to nudge customers towards higher margin products.
Each year, a new iPhone or iPad launches. And each year, the Applesphere discusses the respective merits and demerits of storage options. Here is a screengrab from the Apple Store for the iPad Air:
The choice available to users is 64gb or 256gb (excluding cellular options). 128gb is excluded. While the blogsphere may bemoan how iPads should have more storage because users’ needs have changed (files have got larger, users are now storing more on their tablets, etc), Apple is fully aware of how much storage the average iPad user needs. 128gb is the sweetspot for iPad storage in 2020/1: and because of this, Apple does not offer its iPad Air in a 128gb configuration. It nudges users to 256gb, as these users will easily surpass 64gb but are forced into paying a premium for storage that they will probably never need.
Similarly, the lower margin iPad is limited to 32gb and 128gb offerings respectively:
Let’s be clear: these are not reflections of the prices of flash storage chips: they are nudges designed to push users towards tense decisions.
We can see the same trend in the company’s iCloud storage pricing. Users are offered a paltry 5gb gratis, and then can opt for 50gb of storage for seventy-nine pence here in the UK. Those people who use iCloud Photo Library with any relatively new iPhone will demolish 50gb very quickly, forcing users to move up to the next iCloud storage tier: 200gb for £2.49. The next storage option is 2tb! While the use of three tiers is a classic arrangement for customer choice, the gradations between these choices deliberately force users into difficult decisions that favour the seller.
In its Apple One service, the company has similarly set its sights on creating decision-making tension in its favour. John Gruber noted how the price of each bundle does not offer ‘much of a discount’. To Gruber ‘the whole point of a bundle should be twofold: a greatly simplified offering (“Just buy Apple One and get it all”) at a very compelling price’, like Amazon Prime. The problem with Gruber’s analysis is that he’s judging Apple One by his (and Amazon’s) standards of creating something that is so easy a decision that one pays up immediately. Apple isn’t concerned about this: it knows most customers are against a wall needing (and wanting) to remain in the ecosystem, and while they are there, the company will force them to upgrade.
It isn’t just pricing where Apple deliberately cultivates decision-making tension. The product lines themselves dovetail and overlap in such ways as to force users to think carefully about their needs and then overcorrect (and overspend) as a consequence. The proximity of iPad Pro pricing points to those of Macbooks is a deliberate effort to force users into a choice. Panos Panay famously mocked this difficult decision that customers had to make — iPad or Macbook — but the point at stake for Apple is that even getting users to look twice at an iPad, with its high margin, expensive accessories, and sticky ecosystem, is a victory. These are not natural choices: they have been set up and cultivated by Apple.
Apple isn’t just curating its best offerings here and it isn’t democratising access to certain technologies: it is forcing customers up the profit ladder by creating decision-making tension.
There are signs that Apple is changing its approach, though, at least in higher-margin areas of its business in which growth opportunities are not so obvious. Take the current crop of iPad Pros. Customers here are treated to a full arrangement of options, that reflect storage chip sizes, rather than abitrary choices that force a user into decision tension.
This is in contrast to what we have already seen with Apple’s lower-cost iPad and iPad Air where Apple’s marketing and revenue teams have decided to nudge customers towards profit points (ditto with the company’s push into more and more accessories). This might be an example of Apple’s desire to squeeze every last penny of margin out of its older product lines, but it is also indicative of an artificial constraining of customer choice.
Similarly, with the high margin iPhone Pro, users are offered the full selection of storage options. Even the lower-end iPhone 11 and iPhone SE models are offered with a choice of storage options, rather than forcing the customer into a deliberately difficult decision.
How do we explain this difference and what does it tell us about Apple as a company? Well, it may be that Apple is listening to certain areas of its customer base, as we saw with the discussions around ‘resetting’ the direction of the Macintosh lineup for professional customers, and offering more choice as a good and reasonable thing. It clearly isn’t around supply constraints for memory chips, as we have seen that Apple can offer a full range of choices when it wishes. I would argue that what we are seeing is Apple pushing hard for growth in income in the Services category and accepting that its hardware business, in most areas, has matured sufficiently to allow customers to have real choices. To push growth in customers who want your services already, you force them into making artificial decisions. You constrain choice in your favour.
What does this mean for the future? Expect to see predatory pricing and Apple forcing customers into deliberately tense decisions (to their profit, of course) in more service categories and less hardware devices. Once Services income plateaus, we can expect Apple to offer a full suite of options, rather than falsely constraining choice to help its revenue growth. If this happens, you need to be looking at where else in the business Apple is growing its revenue.
As for options for your own businesses, the lessons here are that it isn’t so much choice that matters, especially when your company is pushing hard to grow revenues, but it is how those prices force customers to think. These are not ‘no brainer’ decisions, but, rather, Apple knows that customers will only consider their options for a finite amount of time and that they can be successfully nudged to the conservative (and more expensive) option. In short, if you want to push growth, force your customers into making difficult choices around the suite of products you offer. Of course, this only works if your products are so compelling and attractive, that customers are forced into making the choice and not just walking away.
