How Apple decides on price increases

When asked whether Apple prioritizes absolute profit or percentage margin when raising prices, Tim Cook gave a concrete answer for the first time during the conference call. He explained why some products have become more expensive while others have not.

At the end of June, Apple raised prices for Macs, iPads, and the Vision Pro – the MacBook Neo increased in Germany from €699 to €799. The company cited significantly increased costs for RAM and flash storage as the reason, a point also reflected in its outlook for the September quarter. During the third quarter earnings call, an analyst asked about the logic behind such decisions. Cook's answer was unusually specific.

Three quantities instead of one formula

According to Cook, there is no formula that leads to a specific price. Apple considers three factors together: unit sales, revenue, and profit margin. The interplay of these factors results in a business decision, not the outcome of a simple equation. Furthermore, the time horizon is crucial – Apple thinks in terms of years, not quarterly cycles, when it comes to such matters.

This is more than just a platitude, because these three factors are inversely related. A higher price protects the margin but reduces unit sales. Lower prices maintain sales volume and thus the installed base, which in turn supports the services business, but reduce the gross profit per device. Essentially, Cook is saying: Apple is willing to accept a smaller margin if it means an increase in the device base.

This exact pattern was observed with the MacBook Neo. The device was positioned as an affordable entry-level model and delivered a quarter of 28.7 percent Mac sales growth for Apple. The €100 price increase only came about when component costs changed the equation.

Cook was clearly aware of storage costs

To justify the June price increase, Cook reiterated that Apple had only taken this step reluctantly. He described the development of memory prices as a once-in-a-century event with exponential cost increases – a phrase he had already used in June when the price increases for Macs, iPads, and the Vision Pro became apparent.

Apple expects storage costs to rise again in the September quarter. This will be mitigated by inventory purchased at older prices and by falling prices for some components outside the storage sector.

Cook remained silent regarding the iPhone

Cook didn't address the obvious follow-up question: whether Apple would also raise iPhone prices when the new models, including the first foldable device, are unveiled in September. Several analysts consider such a move likely – a point that has long been factored into the expectations surrounding the iPhone 18 Pro and the foldable model.

The iPhone is so far the only major product that Apple has exempted from the price increases. Applying Cook's own logic, this makes sense: for the most important device, which accounts for roughly half of the company's revenue, the loss in unit sales outweighs the margin pressure. Conversely, however, this also means that this calculation could reverse as soon as costs continue to rise.

What this means for buyers in German-speaking countries

Apple makes pricing decisions globally, but implements them differently in each market. The June round of adjustments differed between Europe and the US because exchange rates and tax rates were taken into account. Therefore, a future adjustment cannot be predicted simply by converting dollar prices.

The only certainty is the direction. Cook has repeatedly stated that costs will continue to rise, and Apple has shown that it passes this trend on after a certain period. Anyone planning to purchase a device in the coming weeks should buy at the currently known price – the price difference between the MacBook Air and MacBook Neo has already shifted due to the markup.

The next price decision will be made under Ternus

iPhone prices in September will be decided by a corporation then headed by John Ternus. The handover takes place on September 1st, immediately before the usual unveiling of the new models. Cook's explanation of how Apple makes such decisions thus also serves as a description of the framework his successor will inherit. (Image: Shutterstock / janews)