The most important aspect to any company is the pricing model – if they get it right people buy, if it is not correct people find alternatives. In a recent article Shane Dingman wrote about the price of the new Apple phone. The first thing to think about is as products have become more powerful and smaller they have also become cheaper. The new technological features plus the supply chain efficiencies has allowed manufacturers to cut prices consistently.

With smartphones it does not seem to be the case. According to data collected by Android Authority, smartphones prices have crept upwards, from $600 in 2012 to $750 and now Apple is testing the $1,000 mark. The new Apple phone is $300 more than the existing one and the old one breaks down to the device parts costs between $250 and $270 with the screen adding another $50. The new phone the screen is likely closer to $100.

Apple has traditionally kept a 33% margin in its iPhone selection and on the NAND memory it can generate as much as 80%. NAND memory stores the data on the phone, if you order more memory, the chip costs $20 but you pay about $100.

The next advantage Apple has is the psychology of pricing – the good, better and best. A variety of pricing are offered and people tend to gravitate towards the middle and spend a little more than they expected. In addition, with the large wireless firms offering a more manageable monthly payment which 75% of smartphone users are using. The psychology of pricing works best if customers see a great benefit with the highest pricing.

Linking to dividend paying stocks, for these stocks, the best customer is the repeat customer and if the company appeals to a mass market as long as there is enough then margins will be good and profits roll in. Once customers see alternatives they deliver them the value they want and need, they will begin to make changes. For now, on the companies you invest in see if the margins are holding.

There are more questions than answers, till the next time – to raising questions.