Apples Pricing Strategy - Research Paper Example

Marketing Report and Section # of In this paper I have assumed that I am working at Apple Inc. The product that I have chosen for this assignment is Apple’s iPhone. The iPhone is a Smartphone launched by Apple Inc which has internet and multimedia capabilities. The phone was launched in 2007 after much pre-launch hype and became immediately popular, especially amongst the youth. iPhone has many attractive and distinct features. It has a sleek design with a completely touch-based interface and uses a virtual keyboard. All models of iPhones have a built-in camera, multimedia player, internet browsing and emailing and Wi-Fi connectivity. The camera has syncing capabilities with image-management software which makes the process of transferring photos convenient. There is a possible video recording feature. iPhone has superior battery life and is easy to recharge. It gives 5 hours of video playback with Talk time of 16+ hours, comparable to market standards. Another advanced feature in iPhones is Synchronization with Apple’s other products such as iTunes, iCal and Address Book. Apple has also launched iPhones with 3G and 3GS capabilities. These advanced models have the features of Digital Compass and GPS for navigation, and proximity and light sensors. Further, Apple also allows users to add applications of their choice on their iPhones. These applications are of various kinds and can be purchased from the Apple online stores. Apple is renowned for its quality products and the same tradition continued with iPhones. Despite the sleek design and the sensitive touch interface, the phones are very sturdy and durable. Moreover, they are strong on the software side as well. The Apple OS inside these phones is known for its reliability and user-friendly interface. Apple also has strict quality checks on the iPhone Apps that are developed by third-parties. Apples Warranty for iPhone covers limited warranty for one year. Warranty service for repairs is available at no charge for twelve months from the date of original retail purchase. The phone is sold individual packaging. The package design itself is very attractive. Typically the phone is shipped with the handset, headset, charger, cables and user manual in the package. iPhone is very strong on the branding side. Experts say the success of the phone is more accredited towards Apple’s strong branding as compared to the phone’s features. Apple chose to target the teenager’s market and create a strong reputation amongst them. Apple has created itself as a brand of the youth. It has a very intense brand loyalty amongst its consumers with tons of ardent and zealous fans who crave anything coming from Apple. With already such a preset market situation, the iPhone too became a ‘must-have’ amongst teenagers within no time of its launch. The product, with its design and features, is perfectly in line with the Apple’s strong brand image. The launch of iPhone can be termed as a great success on Apple’s part. Within no time, this product has greatly begun to yield great returns. Not only it’s the sale of the phones which brings in revenues for Apple, the iPhone applications (or apps) are another major source of revenue. Apples financial reports of 2008 revealed that iPhone then accounted for 39% of the overall Apple’s business with revenues of $4.6 billion and sales of 6.9 million units (Tom Krazit, 2008). The importance does not only lie in the numbers. Primarily Apple was a computer manufacturing company but with the launch of iPhones, Apple has set its footstep in the communications market. This opens up a whole world of new opportunities for Apple to exploit. Apple’s pricing strategy for iPhones has been very bizarre and questionable. When the iPhone was first launched in 2007, the 4 GB model had a price of $499 and the 8 GB model was priced at $599. Despite the highly successful launch, just after two months Apple discontinued the 4 GB model and slashed the price of 8 GB model to $399. According to (Sliwinska, Ranasinghe, & Kardava, 2008) Apple’s pricing strategy can be defined by two concepts: price skimming and price discrimination. Skimming is the technique of selling the product at a high price for the initial period. This is done to target the early users of a product or a service because they are not very price sensitive. Apple already had millions of ardent fans who were technologically sophisticated and awaiting the launch. As a result, Apple had no problems selling the phones initially at a very high price. After Apple had initially sold it to these fans, it needed to further expand sales to the masses. That is why the price was slashed down. This was also part of the skimming technique. Price discrimination is a strategy where customers pay different prices for the same product or service. Under pure discrimination, the company would charge the maximum price the consumer is willing to pay. Apple’s strategy to charge premium price from some consumers at the product launch and to charge a lesser price afterwards can be termed as ‘temporal price discrimination’ (Sliwinska, Ranasinghe, & Kardava, 2008). Besides this temporal discrimination, Apple also practices ‘versioning’ which is also a form of price discrimination. This happens when Apple is charging a higher price for a different version of a product which is slightly modified. Despite the criticisms from all over on Apple’s unfair strategies, these techniques have proved to be a great success for the company. Much before the actual launch of product, Apple had created tremendous hype about the upcoming iPhone. This had created strong interest amongst Apple’s fans that are mostly technology oriented. When the phone was launched, Apple already had an eager crowd of people waiting to buy the iPhone at any price. Taking advantage of that, Apple charged a very high price from this price insensitive audience. However, the number of these people was limited and Apple could not rely on them for a long run. It had to reach out to the common masses for more sales. As a result, it then had to reduce the price to attract more consumers. As a result of this technique, Apple made huge profits on their product. Had they launched the iPhone with the regular price, they would have made much lesser profits. Moreover, price discrimination through versioning allows Apple to set big differences amongst prices of products with only minor changes in the products itself. This is another way Apple is able to take advantage on its pricing strategy and increase the profits. Bibliography Sliwinska, D., Ranasinghe, J., & Kardava, I. (2008). Apple’s Pricing Strategy. Retrieved from http://christophe.benavent.free.fr/IMG/pdf/AINI_2008_Apple_s_Pricing_Strategy.pdf Tom Krazit. (2008, October 28). iPhones Importance To Apple. Retrieved from http://www.cbsnews.com/stories/2008/10/22/tech/cnettechnews/main4538175.shtml Read More