The Art of Selling Cheap: When Apple Sold Products for Less Than $1

How Apple Made Billions Selling Products for Less Than a Dollar

In today's competitive market, businesses are constantly looking for ways to get and keep customers. While premium pricing is still a popular approach, there’s a strategy that has proven to be very effective - “penny pricing”.

There's a debate about pricing: should you charge more for your products, or should you offer them at a lower price to get more customers?

The answer, as with most things in life, is not always black-and-white.

But there are important lessons to be learned from two different businesses that seem unrelated.

100 Montaditos

A Spanish fast-food chain, 100 Montaditos, has been around since 1999. The restaurant's unique selling point is its tapas-style menu, which has over 100 different types of mini sandwiches, or "montaditos," that are all priced at €1 each.

The catch is that customers are encouraged to order at least four or five montaditos at a time. The size of their sandwiches is too small to beat hunger with a single sandwich and to be fair, customers want to try different flavors.

This strategy is designed to ensure that customers try various of the restaurant’s offerings and that they don’t leave feeling hungry.

While each montadito is relatively inexpensive, the average customer spends around €6-€10 on their meal.

This is a significant profit margin for a fast-food restaurant.

Apple

When Apple released iTunes in 2003, the music industry was in a tough spot. Napster and other file-sharing services had disrupted the traditional model of selling music albums, leading to widespread piracy.

In response, Apple decided to offer individual songs for download at the low price of 99 cents.

Apple’s pricing strategy was based on the belief that customers would be more likely to buy songs if they had lower prices. The company also believed that customers would be more willing to experiment with new music if they didn’t have to invest a lot of money in each song.

This move was met with skepticism, but it turned out to be a game-changer.

This strategy turned out to be very successful. iTunes quickly became the dominant player in the digital music market, and Apple sold billions of songs.

Some estimations predict over 10 billion songs were sold on iTunes during the period when this pricing model was in place (2003–2010).

How and why does this work?

The key to success with penny pricing lies in understanding customer psychology.

By offering low prices, businesses can attract more customers and encourage them to try new products.

Businesses can benefit from penny pricing by carefully balancing price and quality, without compromising their brand reputation.

This is much easier to do with products or services that have a low cost of production, like music, or digital products.

However, it’s crucial to ensure that the low prices don’t undermine the perceived value of the products.

As a business, never give things away for “free”.

Lessons Learned

Several key lessons can be learned from the 100 Montaditos and iTunes models.

If prices are low, more people will buy something.

The initial barrier to attracting a customer is lower, customers don’t think twice before trying your products. This is especially true for items that are relatively cheap to make, like music and food.

Promoting a wide range of products can boost the average purchase amount.

This is a particularly effective strategy for restaurants and other businesses that offer a wide selection of products. The Spanish tapas system is a good example of this. The meals are generally smaller, cheaper, and the customer always orders more than just one meal.

Low prices can be a powerful marketing tool.

Customers are often more likely to remember a product if it is priced significantly lower than its competitors. It also attracts a wider audience.

Of course, there are also some potential downsides to selling cheap products. For example, low prices can lead to lower profit margins and can make it more difficult to attract and retain high-quality employees.

However, the right pricing strategy can be a powerful tool for businesses of all sizes.

By understanding the lessons learned from 100 Montaditos and iTunes, businesses can develop pricing strategies that will help them achieve their sales and profit goals.

Penny pricing can be a powerful tool for businesses looking to expand their customer base and boost sales.

However, it’s important to implement the strategy carefully, considering factors such as customer perception, cost structure, and brand positioning.

When done correctly, penny pricing can be a key ingredient for success in a competitive market.