The ongoing debate over Apple Watch pricing is causing many to miss the big picture: Apple wants the Apple Watch to be for everyone. By selling a device for the wrist, Apple is trying to appeal to a wide range of consumers, from high school students to senior executives. In such a scenario, price is only one piece of the puzzle as Apple positions Apple Watch as both a mass-market good and luxury item.
Tim Cook and Jony Ive have been quite clear from the start: Apple Watch is the most personalized device Apple has ever made. Apple's goal to make wearable products required taking a different page from the old product playbook. Personalization was crucial as different options based on color, material, and style were required. Apple priced the entry-level Apple Watch Sport collection to be a mass-market good, attainable for mostly anyone willing to spend money on an iPhone accessory for the wrist. Prices will likely rise to thousands of dollars for the Edition collection to appeal to the consumer who wants a well-crafted device serving as a luxury status symbol. It really doesn't matter what price the high-end models cost as Apple's strategy will be the same: segmenting the market between mass-market and luxury.
Luxury denotes supply scarcity at higher prices, while mass-market denotes abundant supply at low prices. In an attempt to chase profits and market share, some companies with a traditional luxurious brand are trying to appeal to the mass-market. Such "mass-market luxury" brands can be seen in the automobile industry as Mercedes-Benz, BMW, and Audi continue to move down-market with entry-level vehicle options priced around the ultra-competitive $35,000-$40,000 range. After closer examination, one would see that these prices are artificially low as additional upgrades and options are required to truly get the "experience" of owning one of those high-end brands. By moving down-market, these brands are losing their luxury status and diluting their brands by removing features. Just as mass-market luxury is an oxymoron, many of these brands may be harming their long-term reputations.
Instead of following the automobile playbook when it comes to appealing to both mass market and luxury, Apple is taking a different strategy with Apple Watch. Rather than selling a cheaper Apple Watch model with fewer features, Apple is relying on different materials to establish distinct watch collections. The Apple Watch experience isn't dependent on price. Apple Watch Sport provides the same technological capabilities as Apple Watch Edition; both show notifications, monitor daily activity, and accept incoming tap messages. Instead, the three Apple Watch collections contain different materials, which help give the Edition a more luxurious status with precious metals and greater craftsmanship, compared to the Sport's anodized aluminum and Ion-X glass watch face. By focusing on materials variance instead of feature variance, Apple is hoping to be able to sell a product that appeals to the mass-market and luxury circles at the same time. To complete the sale, Apple will likely need to rethink its retail distribution as well.
There may be Apple retail stores that go days or weeks without selling the most expensive Apple Watch Edition watch face and band combination if it's priced at $20,000. Meanwhile, a customer going into an ultra-luxury jeweler would likely be insulted seeing a $349 Apple Watch Sport being sold next to some of the world's most expensive watches. If Apple is interested in having such a wide variation in price for Apple Watch, a new retail distribution model would likely be utilized. Apple can rely on segmentation for setting up kiosks or a store-within-a-store in high-end shops that sell only Apple Watch Edition or Watch collections. There are reports of Apple building a store-within-a-store in a high-end Paris department store (probably not that high-end as to exclude Sport collection though), but that general idea can be expanded into even more high-end retail locations. Meanwhile, there may not be much reason to stock Apple Watch Edition collection options at big-box retailers like Walmart and Best Buy. By using a more segmented retail distribution, Apple may avoid some of the backlash from appealing to wealthy and less wealthy customers at the same time, which apparently worried executives as reported in The New Yorker profile of Jony Ive.
Another reason I'm not too focused on Apple Watch Edition pricing is that I suspect the device will display inelastic demand once the price exceeds $5,000-$7,500. Said another way, once Apple sells certain models over a certain price, raising the price may not necessarily correspond to a decline in demand, or at least not in a direct relationship. John Gruber at Daring Fireball thinks Apple Watch Edition may come in options approaching $20,000, while others think $10,000 is a given.
There is a much bigger strategy at play here besides just selling expensive wrist gadgets. There is a battle for the wrist. For Apple Watch to be worn on some wrists, the luxury watch that is currently taking up real estate will need to be put back in its watch case. How will Apple be able to accomplish that difficult task? Selling a luxurious device that contains materials denoting high-end and craftsmanship, like precious metals and special watch bands. It's rather interesting that Apple has been able to go so long without customizing the iPhone. There are cottage industries focused on customizing mass-market consumer gadgets like phones into luxury items. With a wearable, this option had to be offered from the start. I'm not too concerned with where Apple Watch Edition pricing will end up because Apple will be utilizing the same strategy regardless of price: positioning Apple Watch as both a mass-market good and luxury item.