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BusinessTechnology

Apple sticks to premium pricing at $349 for its watch

The Apple Watch is displayed after its introduction

The Apple Watch is displayed after its introduction on Sept. 9, 2014 in Cupertino, Calif. Credit: Bloomberg News / David Paul Morris

Apple Inc.'s products aren't cheap. Its new smartwatch is no exception.

As the iPhone maker looks to ratchet up competition in the wearable market with its new Apple Watch, the company said the device, which includes features such as health tracking, maps, voice commands and text-message notifications, goes on sale early next year starting at $349.

That means the least expensive Apple Watch will cost more than Samsung Electronics's $299.99 Gear 2 smartwatch with a camera, music player and voice-response technology, which currently is far pricier than most other wearable fitness monitors.

The approach is in line with Apple's past strategy of quickly moving into a new product category with a higher-priced offering in a bet people will pay up for the Apple cachet. It's a tactic that first played out in 2001 with the iPod music player, and has worked since 2007 with the iPhone.

"Apple, without any precedent at all, has managed to set price levels on new devices," said analyst Alex Gauna, of JMP Securities, said before the Apple Watch announcement. "I don't think Apple has ever really shot itself in the foot with pricing."

NEEDS AN iPHONE

The Apple Watch was unveiled at an event in Cupertino, California, along with two new, larger iPhone models. The wearable device, which requires an iPhone, detects a user's pulse rate and can connect with the company's new apps for monitoring health and workout progress. It comes in two sizes and different models, and will display weather, stocks, music apps -- and will tell time, with a choice of watch-display styles. The interface and straps can be customized and changed, the company said.

Morgan Stanley analyst Katy Huberty said in July that Apple could sell as many as 60 million of the new wearable devices in its first year on the market, adding as much as $9 billion in revenue for fiscal 2015. At the time, she estimated the company would charge about $300.

Sales on that level would far exceed the existing market for both smartwatches and activity trackers. Global sales of activity trackers reached 13.6 million last year, according to researcher Parks Associates, while smartwatch sales rose to 3.15 million in 2013 from 300,000 a year earlier, according to Zurich-based researcher Smartwatch Group.

SAMSUNG'S LEAD

Samsung, based in Suwon, South Korea, shipped 800,000 Galaxy Gear smartwatches last year, making it the market leader with 34 percent of shipments, according to Smartwatch Group.

Garmin Ltd. also sells a variety of watches that can track heart rate, running pace and GPS coordinates. Those watches range in price from about $130 to $400, according to the company's website.

Sony Corp. offers a $199.99 smartwatch that connects with phones based on Google Inc.'s Android software through Bluetooth wireless technology, while Nike Inc. sells the FuelBand device, which measures movement, starting at $99, according to its website.

Closely held Fitbit Inc., based in San Francisco, similarly has a bracelet-like device that tracks movement and sleep for $99.95 along with a cheaper one called the Zip, which costs $59.95 and tracks steps, distance and calories burned.

Jawbone's Up24 wristband, which tracks sleep and movement, costs $149.99, according to the San Francisco-based company's website. The brightly colored, splash-resistant rubber bracelet connects through Bluetooth to compatible devices, including iPhones and Android devices, for managing the data through an application.

JOBS'S PLAYBOOK

When co-founder Steve Jobs introduced the first iPhone in early 2007, Apple was asking $499 to $599 -- which was as much as $400 more than some competing devices. The Treo 750 with Microsoft Corp.'s Windows operating system, for example, at the time sold for $399, while Research in Motion Ltd.'s BlackBerry Pearl smartphone went for $200 with a wireless-service contract.

"If we offer something that has tremendous value, that is sort of this thing people didn't have in their consciousness -- it was not imaginable -- then I think there's a whole bunch of people that will pay $499, $599," Tim Cook, who was then chief operating officer, said in defending the company's strategy in February 2007, in the months leading up to the iPhone going on sale. He pointed to the success of the iPod and its ability to carve out a new niche for higher-priced music players. The iPod was introduced in 2001 for $399.

"The iPod would not have been brought to market if we would have looked at it that way -- how many $399 music players were being sold at that time?" Cook, who is now chief executive, said at the time.

During the introduction Tuesday, when asked after the event about how many watches Apple will sell next year, Cook declined to speculate.

"We'll see," he said. "Right now, I'm focusing on how great it feels to get it announced and to get the iPhones out and Apple Pay coming shortly."

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