In 2016, the iPhone 7 started at $649.
Three years later, Apple's flagship iPhone
cost 54% more.
It's even more dramatic for the Mac Mini.
When Apple released its new model,
the price increased by 60%.
These prices bring in
huge profits for Apple.
As the US's first trillion-dollar company,
Apple's market cap is higher
than the GDP of Switzerland.
So what makes Apple products so expensive?
Mohan Sawhney: Apple has, over the years,
built a reputation for quality
and the industrial design of its products.
Narrator: That reputation has created
millions of loyal customers.
Marco Pierre White Jr.: I've
been here about 36 hours now.
Man, I'm super excited,
I'm not even going to lie.
Can't wait to get my hands on mine.
It's only 1,000 pounds, man. Eh.
I'm probably getting two, man!
Sawhney: So that brand loyalty
translates into a premium
that they're able to
extract from customers
who are unwilling to switch
out of the Apple ecosystem.
Narrator: That premium is
also known as the "Apple tax,"
or paying more simply because
it's an Apple product.
The 256 GB MacBook Air, for example,
costs $1,299,
but you can get a more
powerful Windows laptop
for over $100 less.
Apple's high prices
reached meme proportions
during the announcement of
its Mac Pro in June 2019.
Claps turned to gasps
when John Ternus unveiled
a $1,000 monitor stand as an add-on
for the $5,000  Mac Pro display.
John Ternus: And the Pro Stand: $999.
And like the Mac Pro, they'll
all be available in the fall.
Narrator: In truth,
$6,000 for a professional
reference monitor of this quality
is comparable to the competition,
but that didn't matter.
Apple had botched the messaging,
and its $1,000 stand became infamous.
Sawhney: Apple does something
else that's a bit sneaky,
which is that when
you're buying the iPhone,
you can't add memory to it.
So if you want more memory,
you have to pay more Apple tax.
Narrator: With Apple's
computers, these upgrades
get even more expensive.
If you want a 13-inch MacBook Pro
with 512 GB of storage,
you have to pay $400
more than the base model.
And Apple's accessories
also have high premiums
compared to non-Apple products.
Like its $129 keyboard
or its $79 mouse.
Even Apple's cables cost more.
Apple has kept its proprietary
lightning connector
while removing useful ports,
like the headphone jack
and the SD card reader,
forcing consumers to buy expensive dongles
like its $39 SD-card-to-USB-C reader.
But are these products worth the premium?
Apple loves to talk about its innovation.
Narrator: And iPhones
have added great features,
like OLED displays, faster
processors, and thin bezels,
but competing products have
many of the same features.
Sawhney: The components
that go into making
a smartphone are fairly standardized.
For example,
Sony competes with Apple in smartphones,
but all of the camera sensors
that go into an iPhone
are made by Sony.
Narrator: And those
components cost a lot less
than a new iPhone.
Sawhney: The bill of
materials is about $490
for a phone that is priced at $1,099.
As a comparison point, the Galaxy S10 Plus
is about $420 below materials
for a price of $999.
Narrator: Something changed when Apple
released the iPhone 10.
Not only was it more
expensive, but the difference
between the bill of
materials and the retail cost
was much greater.
Obviously, Apple wants to make a profit,
so the bill of materials has
to cost less than the device.
What makes Apple special is its ability
to pull larger profits
than its competitors.
Instead of a technology company,
think of Apple as a luxury brand.
As with Gucci or Hermès,
customers pay more
because the logo is a status symbol.
That handbag isn't a more functional bag,
but customers still value it more.
Sawhney: So, all our
products become an extension
of our personality. "I value
elegance, I value design,
I value simplicity, I
value, 'It just works.'"
And that is what inspires a lot of loyalty
and allows Apple to extract
a premium for their products.
Why are Apple products so expensive?
'Cause the design's very sleek.
I think because they make premium hardware
and people are willing to pay
for a simple, seamless experience.
They're catering to
people that really love
ease of use and user-friendliness,
and I think that probably
that layer of design
probably costs a little bit,
and I'm happy to pay for it.
They are expensive because
they know we will buy all of their things
no matter how expensive it is.
Samsung,
Android,
Apple, thank you.
Sawhney: I think that customer
loyalty is hard to earn,
but when you do earn the customer loyalty,
love is blind.
Narrator: But this strategy
might not work forever.
Competition with
less-expensive Android phones
has gotten steeper,
and that's put the iPhone's
market share at risk.
Sawhney: Apple's performance
in India is pathetic.
Pathetic to the point
that their market share
has now slipped to less than 2%,
has become completely irrelevant,
and the primary reason there
is that the price points
are simply unaffordable
for the Indian market.
Narrator: If Apple
can't sell more iPhones,
it might have to sell fewer
iPhones for more money.
Charging a premium allows Apple to keep
increasing its revenue,
even if its biggest category,
the iPhone, is declining.
Sawhney: See, whenever
you create a new product,
what you want to do is
to extract all of the
premium that you can from
the higher-end customers,
people who are willing to pay a premium.
Narrator: That means the
customers who buy the iPad Pro
or the $5,000 iMac Pro.
Apple does offer cheaper models,
like the iPhone 11
or the 11-inch iPad,
but those aren't always the
models customers choose.
Sawhney: This is called
extremeness aversion,
because you don't want
to buy the cheapest,
you don't want to buy the most expensive,
so the middle one looks like a compromise.
Narrator: But Mohan pointed out that Apple
has a disadvantage compared
to true luxury brands.
Sawhney: A luxury product
is like a Rolex, right,
that you'd keep it for a lifetime.
Well, you can't keep a
smartphone for a lifetime.
So, premium. Perhaps not luxury.
Narrator: For now, Apple's
reputation remains strong.
And the customers who don't want to spend
$1,000 on a new phone?
Apple has a plan for that.
Keep the old models around,
just at a very slight discount.
But if Apple wants to
keep its loyal customers,
its innovation will have to
keep pace with its premiums.
