The Psychology of the $17K Apple Watch Edition

On April 8th, Apple officially launched its line of smart watches, originally unveiled late last year.  The following week was filled with media speculation as to why Apple had introduced such a high-end device when it was clear that such technology has a very limited shelf life.  There have been endless editorials describing how, for the select “elite few”, dropping this kind of money on a device would not be a concern, but then questioning how Apple could hope to profit from addressing such a limited market.  How great could this market be?  Is it worth addressing, simply to have it “seen being worn by the right people?”  I think not.  In fact, I think that the Apple Watch Edition serves a far more important purpose; a purpose that Apple would even be prepared to take a loss on the development in order to achieve.  If I am correct, the $15-17,000 price tag is the most important feature, not a drawback.

In releasing the Apple Watch, Apple is entering an already crowded space.  Google’s Android Wear has now been on the market for a year, and has established a price point of between $200 and $300.  Other upstarts like Pebble have set that bar decidedly lower, beginning at $150.  When Apple launched, it knew that it needed to sell its most basic model for $350, and that would be using materials that Apple would feel uncomfortable using.  Its preferred devices, with Stainless Steel and Sapphire Crystal would need to sell for $200 more than this.  While it has become accepted that Apple products carry a higher price tag, starting at $150 more, and going as high as three times more is a trick that even apple hasn’t been able to master.

To understand Apple’s solution, you may look to experiments described in the book “Predictably Irrational” by Dan Ariely.  In it, he describes how they tested subjects by showing them two pictures of similarly attractive individuals, one with dark hair and one with light hair, and asked the participants to choose which was more attractive.  In this test case, results were equally divided between the two photographs.  However, if you added a picture of a less attractive dark haired person to the original two photos and allowed the participants to choose from the three, a majority of people chose the picture of the more attractive dark haired person.  Having a position to compare helped sway the judge decidedly in one direction.

Similarly, Dan Ariely also described a tactic employed by the Wall Street Journal where they offered users three subscription offers: an Internet only subscription for $59, a print-only subscription for $125, or a print “and” internet subscription for $125.  If you look at this and say “why would anybody choose the print-only subscription”, you would not be alone.  What you may not realize is that it is also designed to focus your attention on the two higher-price options, with the more favorable one being the “print and internet” editions.  If the Wall Street Journal did not include the “print only” edition, they found that far fewer chose the print “and” internet version.  Only by providing this unreasonable comparison did they attract more users to the more expensive option.

Carry this thinking over to the Apple Watch.  If Apple had just offered the $350 “sport”, people would compare it to the existing Android Wear watches.  If you introduce the $350 Apple Watch Sport and the $550 Apple Watch, people would probably just opt for the $350 Sport model.  Introducing the $10,000 Apple Watch Edition, provides that option that will almost never be chosen, and now that $550 price tag does not seem all that high anymore.  In fact, its only 5% the cost of the Apple Watch Edition (what a steal!).

While we may never know exactly what Apple was thinking when it decided to release the $10,000-$17,000 Apple Watch Edition, we do know that it is a great departure from Apple’s general strategy of creating something “just higher priced” than normal, but still clearly targeted at the mass market.  While there is a precedent for selling watches that use precious metals and jewels at similar price ranges, these watches are typically considered heirlooms that could even appreciate in value.  They do not include components that will be outdated in two years and will be (at best) interesting oddities in five years.  It is far more likely that the importance of this product is psychological, and it doesn’t matter if Apple even sells one, so long as it serves its purpose on distracting consumers from the price tags of their primary watch product lines.