Costs Go Up, but the Price Tag Doesn't Move

Materials and labor costs have climbed, yet many small business owners haven't touched their price list in months—too afraid that raising the price on their flagship product will drive regulars away. This week's Apple earnings report offers a case study in exactly this dilemma, Apple-style: freeze some products, raise others. It's a pricing strategy built product by product.

Apple Froze Some Prices and Raised Others

Apple's fiscal third-quarter revenue hit $109.4 billion, up 16% year over year and an all-time high for the June quarter, with net income holding steady at $29.8 billion. But the underlying picture wasn't so comfortable. Memory chip costs built into its devices quadrupled, from $50 to $200, dragging hardware margins down from 49.3% to 47.9%. Faced with this cost spike, Apple split its response in two. While competitors raised prices across the board, Apple held the line on its flagship iPhone—and that decision paid off, with sales growing 3% and market share holding around 20%. The price increases landed elsewhere: iPad, MacBook, and subscription fees for its services. With paid subscriptions reaching 150 million, Apple judged its base solid enough that a price hike there carried little risk of driving subscribers away. The trouble showed up next. Services—the high-margin segment carrying roughly 70% operating margins that had been propping up profits—slowed as weak game category performance collided with forced cuts to App Store payment fees, and revenue missed its target. Management pointed to gaps in the content release schedule, but the deeper story reads as structural: regulatory pressure and a soft gaming lineup.

Every Product Plays a Different Role

The business logic behind this choice runs as follows. The iPhone is Apple's customer-retention product. Raise its price when costs go up, and market share wobbles—taking the subscriptions and add-on revenue built on top of it down as well. iPad, MacBook, and subscription services are the profit-recovery products. Raising prices there doesn't directly trigger customer churn, and it absorbs the cost shock instead. Rather than passing the cost increase evenly across every product, Apple allocated it by role.

This quarter also exposed the strategy's weak point. The job of recovering profit rested on a single segment—Services, at 26.3% of revenue—and when that segment wobbled under regulatory pressure and weak gaming, the entire earnings structure was put to the test. A per-product pricing strategy isn't complete just because it divides roles; it also has to reckon with how many profit-bearing pillars it's actually standing on.

Give Your Own Products Roles, Too

The scale is different, but the principle holds. Start by sorting your products by role. The product that brings customers in and keeps them coming back is not the same as the one that actually turns a profit. For a designer, that might mean the first logo project is the former and the maintenance contract is the latter; for a café, the americano might be the former and desserts or bean sales the latter. Writing down the margin each product leaves behind makes the split even clearer. This distinction is the starting point for any per-product pricing strategy.

Next, when costs rise, don't touch your flagship product's price first. Your flagship is whatever price customers remember exactly; your profit-driver is whatever price they rarely bother comparing. It's safer to try increases first on the latter—add-ons, options, recurring contracts—where the risk of churn is low. Protect the flagship, and the add-on revenue stacked on top of it survives too.

Finally, if you have only one product carrying your profit, now is the time to add a second. Even a company the size of Apple had its entire quarter called into question when a single profit pillar wobbled. For a solo business owner, that kind of shock lands far more directly. Whether it's a maintenance plan, consumables, or training, building a second profit pillar in advance keeps one cost spike from shaking your entire business.

All You Need This Week Is One Sheet of Paper

Split a sheet of paper into two columns. On the left, list the products that bring customers in. On the right, list the products that actually make you money. If the right column is empty, or has only one entry, that's exactly where you need to make a move before the next cost increase hits.