analysis | Fool's Gold: Apple Watch Edition is not for sale.

© Apple

Credit where it's due: Apple's announcement of the Watch Edition starting price of $10,000 has stunned the tech world in its sheer audacity. Why charge an obscenely high price when aside from the casing, it's identical to the basic $350 model? No convincing explanation has developed, but that's because people are viewing it wrong.

Watch Edition is not a product, it's a brilliant marketing strategy.

In a Monday event, Apple announced further details of their long awaited Apple Watch, to be sold in three variants: the Watch Sport starting at $349, the Apple Watch starting at $549, and the Apple Watch Edition starting at $10,000, with some configurations reaching $17,000. A Patek Phillipe Calatrava can be had for $10k. A Volkswagen Jetta costs $17,325.

But aside from the gold alloy used in the casing and the use of crystal rather than glass for the face, Watch Edition is ultimately an identical device to Watch Sport—same features, same specifications, same guts. Analysts have wasted no time in (gleefully) pointing out the flaws with competing against the Swiss luxury market: the Apple Watch is unlikely to gain value with age, will have limited resale value, and lacks the craftsmanship of products at that range.

Others have floated the concept of Watch Edition being a "halo" product, where a high-end product helps sell low-end products. But Watch Edition is not a straightforward example—the strategy works best between products with clear fundamental differences. Gold casing aside, there is just not enough to distinguish Watch Edition from its counterparts and justify the markup.

The most popular justification has been charitably called the "Rich People Are Stupid" strategy, and it goes something like this: if Apple can get people to pay eighteen times the price for the exact same device, why not? The target is assumed to be the super-wealthy; oil barons, the increasingly affluent Chinese market, and folks with more cash than sense. The narrative even plays right into our schadenfreude: we walk away knowing we are smarter than the rich, that money doesn't make you clever.

But the strategy just doesn't fit. Most of the affluent did not get to where they are by being stupid, and are likely to balk at paying a 280% premium on the exact same product, solid gold case notwithstanding. The China strategy doesn't work either, since an ongoing government crackdown on corruption has made any ostentatious displays of wealth a potential liability, in turn dampening sales of luxury goods in the sector. It is unlikely that many officials will gift or even flaunt an obvious status symbol for fear of invoking corruption charges.

Apple, however, is neither stupid nor crazy. The pricing of the Watch Edition is a brilliant form of marketing. Here's the trick:

Apple doesn't actually expect people to buy the Watch Edition.

Watch Edition's purpose is not so much to sell as it is to make its bretheren appear much more reasonable in comparison. This technique is called "framing," where the use of a high end product makes even an inflated price tag seem more palatable. You're not thinking about the actual $550 cost of the midrange Watch, how it's equivalent to an entry level automatic watch or a hundred dollars away from a brand new iPhone, you're thinking about what a good deal it is: the same innards, functions, and design as the Watch Edition, but with a slightly less fancy casing. Even the schadenfreude comes back into play: Apple is counting on that "money doesn't buy you smarts" superiority to fool yourself into thinking its other models are a good deal.

The pricing of the Watch Sport means that at most, the core technology of Apple Watch costs no more than $350. Indeed, this is the average price of a smartwatch from other manufacturers. It follows that the midrange Apple Watch is itself overpriced, but by pricing the Watch Edition at the far end of the spectrum, Apple has successfully diverted the conversation away from how inherently expensive the midrange Watch actually is. The mere presence of Watch Edition has already skewed expectations: its pricing has dominated headlines and caused a torrent of "why I won't buy it" articles. This reinforces how sensible the price of the midrange Watch is, but many forget it is sensible in comparison and not by itself.

Watch Edition is the ultimate example of using framing to influence perspective, the result of Apple's incredibly deft marketing team. It is likely being produced in small enough quantities to meet what little demand there is, but while the profits made on these devices are a nice bonus, they're not intended to be the main drivers of Apple Watch sales. Apple knows its business traditionally comes from the mid-market, but justifies high pricing by pitching an ostentatiously luxurious device, giving its other products an extra bit of gold dust.