A recent blog entry in the HBR attempts to refute another blogger’s argument that Apple is re-positioning itself away from “egalitarian provider of mass market tech” to a luxury brand for the wealthy: the 1%.  The writer testifies that Apple products today cost relatively less (in terms of average household income) than they did several decades ago. However, aside from having wrong prices (the $499 for an iPhone in 2007 is a carrier subsidized price), I believe the writer also made a fundamental mistake by comparing prices relative to income, of one company in different time periods, as opposed to substitute product prices.

Any first year economics student can tell you why the prices of the Apple II and Macintosh were seemingly high in 1977 and 1984: there was no competition. Apple had to price their products high in order to cover their large fixed costs (in the short-run, with limited production). These product prices were probably irrelevant to Apple’s market position.

Fast-forward to today: as a result of market saturation, demand for electronics is largely price-elastic. Prices for smartphones are more or less fixed at $600-700USD. However, while Apple does sell products at the market price, the majority of its current product line sells well above it (e.g. iPhone 6+ at $949 USD, higher storage capacity models, etc.)

Furthermore, with the introduction of the Apple Watch Edition, a 18 karat gold watch, Apple is clearly creating a point-of-difference distinguishing itself from other producers in the gadget watch market. They are repositioning themselves as a luxury brand, and it is likely that this will carry over to their other product lines in the near future.