Profit Maximization
It is an example of value-based pricing (pricing based on the perceived value to the customer, ignoring the actual cost to build or provide) strategy designed to boost profits while psychologically appearing competitive, particularly in areas where there is strong price competition. With public companies, we can see the bottom line effects of these pricing strategies due to some degree of transparency. This is just one of many pricing strategies used by companies to increase profit margins.
The "labor" Hypothesis (aka: the cost-plus misunderstanding)
No, the price delta isn't labor costs. The "labor" hypothesis is easy to nullify. If it went toward labor costs, the result would simply not show up in the profit margins. When we look at the financials, we see the margins for the different units, we have insight into the near-slave labor conditions many of these devices are built under, we know that labor would increase the price more uniformly regardless of component and, again, would not suddenly appear on the balance sheet as a profit. The highest paid workers assembling devices like this make US $1.18 per hour (The Deadly Labor Behind Our Phones, Laptops and Consumer Gadgets), not anywhere close to explain the delta. Moreover, we know that it costs no more in labor to insert or solder two 8GiB parts than two 2GiB parts, and that companies research desired configurations ahead of time and build inventory to match.
Consumers often expect products to use cost-plus pricing (in which a fixed percentage is added to the cost of the product) and are often surprised and dismayed to learn of other pricing strategies.
Storage Suckers:
Ever since the days of the iPod, Apple has boosted its bottom line through upgrades. The company offers the entry-level versions of its devices at a price that seems reasonable to many people. This entry-level price functions as a marketing come-on—a way to get you in the store.
What's Behind Apple's Epic Memory Markup:
At an Apple store, a charger that IHS estimates costs $1.40 to make sells for $40. The company’s gross margin stood at 37 percent last quarter, compared with archrival Samsung’s 30 percent, Hewlett-Packard’s (HPQ) 23 percent, and Dell’s (DELL) 18.5 percent, data compiled by Bloomberg show. Marshall estimates that the mobile memory markup accounted for about one-fourth of Apple’s profit last quarter; Gene Munster of Piper Jaffray puts it at around two-fifths.
In cases of soldered memory (as in tablets and ultrabooks) "starting at" prices and decoy pricing (sometimes misunderstood as illegal bait-and-switch tactics) are used to maintain an appearance of competitiveness.
The tablet memory mark-up scandal:
Yet despite these paltry market costs, Apple charges its customers £80 more for its 32GB iPad than for its 16GB model. That’s a profitable mark-up of at least 1,267%, based on the market price of £5.85.
