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How Apple Keeps Prices High, Even at Best Buy

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Apple sells its devices in numerous stores throughout the U.S., but it’s very rare that stores discount Apple devices. According to MacWorld that’s because Apple has tight control over its prices through a variety of methods.

Whenever a company sells its products to a retailer like Best Buy it sells the device at wholesale cost with a “Manufacturer Suggested Retail Price” (MSRP) that’s much higher than what the store buys it for. In MacWorld‘s example a PC company may sell Best Buy a $500 laptop for $250 each. Best Buy can offer that laptop for the suggested $500, but it can also choose to sell the laptop for $350 and say the price is “30 percent off.”

When Apple sells its devices to retails it offers a very small wholesale discount. The exact number is unknown, but Best Buy can only make a few dollars off each iPad or MacBook it sells because it pays Apple so much for each unit. Best Buy can’t discount the iPad without taking a loss on the sale.

To make the high wholesale prices worthwhile for retailers Apple offers money to stores who maintain the “minimum advertised price” (MAP) for its devices. That means Best Buy and Walmart get money from Apple for not offering significant discounts on its devices. By enforcing MAP Apple can maintain the same cost for its devices in all retailers.

Apple

MAP helps Apple’s retail stores remain highly profitable. For consumers it means there’s less comparison shopping for prices. People who want an iPad will know it costs $500 for the 16GB model anywhere they go, except maybe during the holidays.

The iPhone is different, however, because carriers also give money to retailers for signing up subscribers to new contracts. Because the retailers get money from the carriers they’re more wiling to offer discounts on the iPhone. That’s why Walmart, Best Buy, Target and RadioShack all offered discounts on the iPhone 5 this past holiday season.

Retailers are also willing to carry Apple devices because accessories for Apple devices don’t carry the same relatively small profits. Manufacturers that make accessories like iPhone and iPad cases don’t have the same power over retail as Apple does. Stores can make more profit by selling accessories for Apple device accessories.

Shawn is a tech junkie who spends most of his time reading and writing about it. You can follow him on Twitter, @shawn_i.

3 Comments

  1. Lawrence

    01/15/2013 at 9:59 am

    Apple sucks and are greedy and glitchy product idiots to buy!!!

  2. Minimum Advertised Price

    01/15/2013 at 10:22 am

    Thanks for trying to explain how retail works while failing in the process. Dumb article.

  3. Tom Farinola

    01/17/2013 at 7:44 am

    You have no idea what you are talking about when it comes to cost and MSRP, in the IT category you are lucky to have 15% profit. 50% is only found in extended warranties and wire. Apple holds the price by providing even less margins then 15%. Sales people are paid on profitability not sales volume….you can figure it out from there ….Tom

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