What is Average Selling Price (ASP)
An average selling price (ASP) is the price a certain class of good or service is typically sold for. Average selling price is affected by the type of product and the product life cycle. Products, like computers, cameras, televisions and jewelry will tend to have higher average selling prices while products like books and DVDs will have a low average selling price. When a product is the the latter part of its product life cycle, the market is most likely saturated with competitors therefore driving down the ASP.
BREAKING DOWN Average Selling Price (ASP)
Average selling price (ASP) can refer to the average selling price of the product across multiple distribution channels, across a product category within a company or even across the market as a whole.
Average Selling Price and the Smart Phone Market
The concept of average selling price is very visible in some industries, and the smart phone market is a big one. In the smart phone market, the average selling price indicates how much money a handset manufacturer is receiving on average for the phones that it sells. The average selling price is usually reported during quarterly financial results and, thus, can be considered as accurate as possible given regulation on fraudulent reporting. For the smart phone market, advertised selling prices can differ quite drastically from average selling prices.
For product-driven companies like Apple, ASP calculations provide pivotal information about its financial performance and, by extension, the performance of its stock price. In fact, there's a clear relationship between Apple's iPhone ASP and its stock price movements.
The iPhone's ASP matters even more when you begin considering how each device drives overall profitability for Apple. Apple consolidates its operations under a single profit-and-loss statement, meaning investors can't tell how costs, such as marketing and R&D are spread among the company's various products. Since the iPhone has the highest gross margin in Apple's device family, though, it's safe to assume that the device generates the lion's share of Apple's profits. That makes the iPhone crucial in determining Apple's overall financial performance each quarter.
Average Selling Price and the Housing Market
Average selling price can also refer to the housing market. When the average selling price of a house within a particular region rises this may be a signal of a booming market. Marketers who are trying to set a price for a product must also take into consideration where they want their product to be positioned. If they want their product image to be part of a high quality choice they have to set a higher ASP.