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Apple Watch's US$50 price drop shows reaction to slow 2015 sales

Matt Hamblen | March 23, 2016
Apple Watch 2 announcement was postponed, probably until June or July, for standalone wireless device

To buy a new band alone, in addition to the band that comes with the $299 Sport starting price, customers will shell out $49 for each new woven nylon model, including one in a "scuba blue" color. There's also a new Milanese Loop band, made of woven stainless steel mesh, for $149.

Analysts predicted that Apple will more than make up on its $50 price cut for the Sport model with customers who buy a second band, since so many buyers view the smartwatch as a fashion item. For the $49 fluoroelastomer (a kind of rubber) sport band, Apple's cost is probably just "several dollars," said Patrick Moorhead, an analyst at Moor Insights and Analysis.

"If you think of how much profit they are making on those bands, it's astronomical," Moorhead said. In addition, Apple is possibly generating 50% profit on each Watch it sells, he and other analysts said.

But Moorhead said the $50 price drop also makes sense for a new category of product. "It is a challenge to price it, since it's a combination of demand and how much profit you need to make, so it takes a while to figure out that price point," he said. Moorhead is a big fan of smartwatches and owns 16 models from various makers. He said his personal Apple Watch has five different bands.

Meanwhile, if the health-care management capabilities of the Apple Watch catch on, there might be potential for an even lower price on future entry level Apple Watches.

"Fitness and health matter a lot to users of wearables in China," said Carolina Milanesi, chief of research at Kantar WorldPanel. "To matter to Apple and researchers, hospitals and such, you need to have mass market usage, which is why building from the iPhone first makes sense. Once users of health apps and organizations start to rely on that, the switch to the extra benefits of the Watch will be easier."

Moorhead, as well as analysts from Gartner and IDC, see steady growth for smartwatches of all brands in coming years, despite the slow start in 2015. But there are a few who have doubted the category from the start, noting that people need a strong reason to buy a smartwatch, beyond it being a fashionable, status item.

"Apple's price drop speaks to making Apple Watch more appealing to the mass market, where consumers remain unsure about the value of wearables," Milanesi added. "It's also a clever move if you think that with the savings of $50, consumers can buy an extra band — something that we see consumers do often at point of purchase."

 

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