Pricing Strategies of Apple Company - Case Study Example

Apple Pricing Strategy Apple is one of the super brands and one of the most successful company popular for its phones, computers and other products and services such as the sale of tunes and products such as iTunes. Apple, which is a manufacturer of computers and smart phones often, adopts strategies aimed at attracting customers to their products while at the same time offering value for money. The pricing strategy also helps in giving the customers more choice that generates growth in the sense that it sells more of its products. However, the major strategy remains maintaining similar prices for all retailers, which ensure uniformity wherever they are sold. The price strategy for Apple majorly lies in the fact that they endeavour to sell great phones and products at a lower cost. It therefore offers a small number of products with a focus on the high-end market while giving priority to profits over the share of the market and creating a halo effect that makes people continuously attracted to its products. Apple ensures that when it is pricing its products, it adopts strategies that in relation to the market forces unlike the usual minimal pricing of products in the market place. Therefore, the prices are made in such a way that at times it is two times what its competitor’s charge, which it gets away with through strategies in how the product is implemented. The justification for the higher price of the products y Apple is the fact that it builds beautiful products that are attractive to the consumers and have features and benefits that the competing companies cannot match. Apple strives to create a demand for its products through differentiation, which entails having attractive and unique products to the consumers, and this enables it to have total control over the prices. Apple maintains a higher price for its products which keeps away its competitors in check helps it maintain its margins in terms of profitability (Spencer, 2013). Through the focus on customers that are likely to buy at the premium prices and maintaining it at that level, the company sets a level at which its competitors must also set its prices in the market. Apple therefore offers its products at premium prices by creating a premium product which is of high quality as indicated by the features in the products which translate to a lot of value for the price which helps shore up the profits. For instance, Apple raised the price of the latest iPad Mini by sticking on its high-end pricing strategy with the sole aim of maintaining the profit margins. The new device is not cheap and targets the high-end market that ensures that the company remains profitable in what it offers to the consumers (Barr, 2013). Companies within its distribution networks are also allowed to offer a lot of value for the price as long as they possess a competitive advantage over others offering products of similar nature. Apple also makes use of a strategy known as price maintenance which takes advantage of the popularity of the products and its exploitation of the manner in which retailers can advertise the products. This ensures that the products that are conveyed from the manufacturers through to the retailers move seamlessly through a network of distributors. However, Apple at times offers lower-priced products such as smart phones in order to attract new customers especially those in new and emerging markets but the pricing strategies remain in place to ensure that it maintains its profitability (Luk, Dou and Sherr, 2013). At Apple, the products move from the manufacturer to the retailers through a network of distributors and the retailer is allowed to set its own retail price other than the manufacturer suggested retail price” (MSRP) (Tabini, 2013). The retailers are therefore free to set up their own prices for selling the products depending on the market dynamics where they are situated which makes Apple’s products attractive. The ease with which the prices are set and vary from the manufacturer, among the distributors and the retailers is made possible by the gap left by Apple, which caters for the price variability amongst retailers. This allows the retailers to set it own policies and have ranging prices depending on the market that they operate. The company also extends a little discount on wholesales of such products such as the iPads and Macs to the retailers who are amongst the chosen few enjoying this confidential discount service. With such little discount to alter the price, most retailers find it difficult to offer large discounts while still making a profit and this ensures the stability of the prices of Apple’s products. The implication of this strategy is that it makes it difficult for those that are retailing in the products of Apple to set prices other than that which has been set by the manufacturer, which ensures that the prices remain at the higher and premium rates along the lines of the company,’s pricing strategy. Apple supplements the little wholesale discounts to those that resell the products through monetary incentives which an only be accessed if the resellers advertise the products at or above a fixed price known as the “minimum advertised price” (MAP). This allows the retailers to make more money per unit sale and prevents them from offering customers substantial discounts, which leads to the witnessed uniform prices of Apple products. This is beneficial to Apple as it enables it make more money through direct sale by minimizing competition with the resellers who might attempt to sell the products at reduced marked prices. This is made possible by the difficulty of undercutting by the distributors, which would be counterproductive to them. Therefore, the narrow range of variability in prices prevents a retailer from establishing a stronger position for future negotiations with Apple. Apple uses this minimum advertised price to cope up with the highly competitive retail environment that helps it to generate enough revenue to continue the production of its products and keep the brands at the higher prices. The retailers therefore have to abide by these price controls as they benefit from the incentives offered which ensures that they suffer no losses or undercut their prices. Small retailers of the products of Apple therefore are able to withstand the competition of bigger retailers who may be tempted to undercut which makes all the retailers despite their financial muscles to be t par with the prices set by Apple in its stores (Stock, 2013). In addition, Apple uses price decoys, which in real sense are products, and services that it does not really want but aimed at making another product look better. It ensures that it sells its products in pricing series, which cloud the judgment of the buyer thus stoking demand, in that prices look as bargains while in real sense they are higher. Apple also establishes high reference prices such as the launch of iPone at $ 599 before it was lowered in a rapid manner that makes the products more attractive to consumers as compared to that of the consumers. Further, at times the company obscures the reference price of its products before they hit the market, which helps it know the prices the consumers are likely to buy the products at. At certain instances, apple has bundled the price components of its products whereby it stages a series of technological innovations that will require the consumer to be continuously engaged to its products (Kunz, 2010). Conclusion Apple has applied the pricing strategies, which have worked-out well for them which continuously attract customers to its products. The effect of the above stated pricing strategies has enabled Apple to tightly control its distribution channels leading to the production of high-quality products at fairer prices as compared to rivals. The stable prices have enabled Apple customers to shop freely in the market including the delivery of products to the consumer wherever he is. Apple has therefore ensured that it maintains its premium brand status through strategies for pricing that helps it have reasonable price as at manufacture and distribution, which helps it maintain a profitable norm. The company strives to avoid cutthroat pricing, which may lead to the loss of value of the products and reduce the profit margins for both the manufacturer and the retailers. More important to Apple’s pricing strategy is the minimum advertised price (MAP) which enables the company set its prices in a manner that guarantees more money on direct sales and reduced competition with it retailers who may offer the same product at marked-down prices. The narrow range of price variability also prevents any retailer from creating a strong market position that may confer unto it undue advantage when negotiating sale of Apple’s products. In summary, Apple adopts a strategy for pricing that is aimed at reducing the chances for future conflict in the channels that distributes its products, which also helps its own retail operations function properly despite the differing market forces. Despite the strategies put in place to control its pricing, the company usually focuses more in meeting the needs of the customers and does not compete on price meaning that it can set its own prices as long as their products are perceived to be valuable. References Barr, A. (October 22, 2013). Apple sticks to high-price strategy with new iPad Air, USA TODAY. Available at Kunz, B. (June 9, 2010). How Apple Plays the Pricing Game, Bloomberg Businessweek. Available at Luk, L., Dou, E., & Sherr, I. (October 16, 2013). Apples Dual iPhone Strategy in Doubt, Company Cuts iPhone 5C Orders, Raising Concerns About Demand for Lower-Cost Device. The Wall Street Journal. Available at Spencer, E. (October 22, 2013). Apples Big Decision of Margin Or Market Share Drives Strategy. Forbes. Available at: http://www.forbes.com/sites/ewanspence/2013/10/22/apples-big-decision-of-margin-or-market-share-drives-strategy/ Stock, K. (September 13, 2013).How Did Wal-Marts IPhone Discount Defeat Apples Price Controls? Bloomberg BusinessWeek. Available at: http://www.businessweek.com/articles/2013-09-13/how-wal-marts-iphone-discount-defeated-apples-price-controls > Tabini, M. (January 14, 2013). How Apple sets its prices. MacWorld. Available at Read More