Theories behind Pricing Strategy As Applied By Apple Company - Research Paper Example

? Theories behind Pricing Strategy As Applied By Apple Company al Affiliation Theories behind Pricing Strategy As Applied By Apple Company Price is regarded as one of the most important elements of the marketing mix. In fact, price is the only element of the marketing mix that generates revenues, while all the other elements namely product, promotion, and place represent cost. As such, choosing the right price for the product sold in a market is very important. This is because it helps in conveying the price-quality signal. Normally, price signaling occurs when the prices charged for a particular product reflects the quality of the product sold (Landsburg, 2011). As such, regardless of whether or not a company’s product is the best in the market in terms of quality, the company must set a price that convinces the ordinary consumer of the quality of the product. This implies that the price of the product must match the quality of the product sold. In setting a price for a product, a company must take into consideration the nature of the market in which it operates. This includes analyzing the prices charged by competitors in the market. This is because regardless of the quality of the product that a company intends to introduce in the market, consumers will always compare the prices of all the companies in the industry and match them with the quality in arriving at a decision on which company to buy from. In this regard, marketing experts argue that for a company to attract customers, it must ensure that the prices charged are not too high or too low compared to those of its competitors (Griffin, 2013). Secondly, an effective marketing strategy that a company adopts must take into consideration the cost. As such, in setting a price, a company must first calculate all the cost incurred in the development of the product and subtract it from the revenue sources. This helps in determining the minimum profit margin that a company needs in order to break even. The price at which a company will break even should always be the list price at which the product may be priced (Landsburg, 2011). Thirdly, a good pricing strategy must take into consideration the consumers and the demand for the product to be introduced in the market in order to calculate the maximum price that the consumers may be willing and ready to pay for the product. Once this has been determined, the next step is to use the profit margin goal and competitor information to choose the best price to sell the product (Griffin, 2013). Apple’s Application of Pricing Theory Product prices are determined in three different ways namely cost-based, competition-based, or demand-based. In cost-based pricing, the price of a product is fixed based entirely on the cost of production and the desired profit without factoring in the demand aspects. In competitive-based pricing, the prices are set based on the competitor prices for a similar product. In demand-based prices, the prices are fixed based on the price rage that consumers are willing and ready to pay (Griffin, 2013). Apple is one of the electronic companies that have succeeded in the electronic industry. The company is known for quality phones such as the iPhones and other electronic products. Many people have often wondered how Apple has managed to achieve so much successes despite the stiff competition it faces from other giant companies such as Samsung, Nokia, and LG. An analysis shows that apart from the quality of the products it sells, the company has also succeeded due to the pricing strategy that it adopts. In this regard, the analysis shows that Apple adopts a cost-based pricing strategy, which is purely based on its cost of production and the desired profit margin. According to the company, its prices are not fixed with the demand aspects in mind. Rather, they are fixed with the profit margin that it intends to generate in mind. This explains why the prices of Apple products are relatively more expensive than those of its compactors. Apple is a company that focuses much on profit and quality products that satisfy customer needs. However, there has been growing clamor for the change of this pricing strategy by some company managers. This is attributable to the fact that with this strategy, Apple only manages to sell fewer phones than it would if it were to set cheaper prices (Rassweiler, 2013). Apple being a company with a serious competitive advantage over other firms in the industry also takes advantage of its position in the market by adopting the premium pricing strategy. As a result, Apple has been charging higher prices for its products for its uniqueness. This is evident in its price maintenance strategy that takes advantage of the popularity of its products in the market. In addition, Apple also set prices that meet the demand of its customers by ascertaining the prices they are willing to pay (Tabini, 2013). At Apple, most products such as iPhone move from manufacturers to retailers through a distributor network. However much of Apple’s products have prices suggested by the manufacturer based on the cost and the profit margin that the product is expected to generate. The company gives each retailer the opportunity to set its own sale price. As such, the company’s laptop may have a manufacturer price tag of $500 but cost the retailer only $250 to buy. At the same time, the retailer might be allowed to carry a sticker price of $350, plus a 30% discount. In fact, with this pricing strategy, a different retailer might sell the product at even a much cheaper price to attract more customers to the store (Mohammed, 2013). Conclusion In conclusion, price is one of the most important elements of a marketing mix that managers must take into consideration. However, in setting the prices of a product, marketing managers must ensure that an effective pricing strategy is use, which takes into consideration the cost of production, profit objective, competition, and consumer demand. This helps in setting a price that not only attract many customers to the store, but also ensure that the company generates enough profit. As regards Apple, analysis shows that the company adopts cost-based that focuses on profit margin. In addition, it applies the premium pricing due to the popularity of its products in the market. Even though Apple has managed to win the market and maintain a competitive advantage in the market with this strategy, this pricing strategy leads to expensive prices that scare away customers. As such, in order for Apple to increase its sales volume, it is necessary for the company to offer relatively cheaper products that consumers of all classes can afford. References Griffin, D. (2013). Pricing strategy theory. Retrieved from http://smallbusiness.chron.com/pricing-strategy-theory-1106.html Landsburg, S. (2011). Price theory and applications. Mason, OH: Cengage Learning. Mohammed, R. (2013). Apple’s iPhone pricing strategy: Good, not great. Retrieved from http://blogs.hbr.org/2013/09/apples-iphone-pricing-strategy/ Rassweiler, A. (2013). Apple continues familiar design and pricing strategy with iPhone 5c, IHS teardown reveals. Retrieved from http://www.isuppli.com/Teardowns/News/Pages/Apple-Continues-Familiar-Design-and-Pricing-Strategy-with-iPhone-5c-IHS-Teardown-Reveals.aspx Tabini, M. (2013). How Apple sets its prices. Retrieved from http://www.macworld.com/article/2024257/how-apple-sets-its-prices.html Read More