Apple’s Pricing Strategies

Vigneshwar Sankaraan       #216268276

all-iphones

Perception of product and brand image

Apple Inc. is a technology and innovative company, which designs, produces and sells Imac, Iphones, Ipods, music. Apple is differentiated by other company by its brand-perception and identification. Apple has become a cult-brand in the last couple of years. Apple has numerous features that are unique and well known in the marketplace today. By placing products such as Iphone, Macbook Apple has attracted a lot of consumers in one way or another. High technology, design, simplicity and the sense of luxury are some of the main features integrated in these products. The company’s products are always ahead of with their competitors in terms of features and uniqueness. In spite of high competition, Apple has always succeeded in creating demand for its products, giving the company control over costs through product differentiation, innovative promotion and advertisement, ensured brand loyalty, and creating hype around the launch date of new products. By focusing on customers willing to pay more and keeping up a premium price at the cost of unit volume.

Apple iphone 6s advertisement showing different features and innovation which creates hype amongst the customer.

Skimming pricing strategy

Many innovative company including Apple use skimming price strategy. This strategy is used when a product is just launched in the market and it is sold at a relatively high cost because of its unique features, benefits to consumers or new product design. However, slowly the prices are dropped as the product lifecycle comes to an end and the product is brought at competitive price. This strategy is generally used for technological products which is new to the market, has consumers willing to pay a premium price, it is far ahead of the competition.

How Apple uses skimming strategy for its Iphone.

When Iphone 5 was launched in the market 4 years ago, it had a premium price. Only few could actually afford an iphone. Gradually, few years later, prices of Iphone have been slashed down with time, such that, everyone could now afford an Iphone 5. A few months ago, Iphone 6s was introduced in the market. Before that Iphone 6 was launched. Both these Iphone were sold at very heavy price and in large quantities. Now people are waiting to buy the much awaited Iphone 7. Presumably, the current generation of Iphone will have a price cut prior to the release of new Iphone. This strategy apple uses here is called skimming pricing strategy.

In other words, here are the lists of benefits of skimming pricing strategy:-

  • Advantage from high short term profits due to the uniqueness of the product
  • To create an effective segmentation and gain maximum profit from each segment.
  • Good return of investment from initial set up costs, which include product research, development and marketing.

Product Lifecycle Planning

As we can see from the Apple’s skimming strategy example, the strategy that Apple is utilizing consist keeping the highest initial launch price that customer will pay and as soon as the demand of the first set of customers is satisfied, the company will lower slash down the prices over time. But if we think in the matter of customer’s perspective, then you wouldn’t buy an Iphone 5 now because it will be technologically inferior to current generation of Iphone. This is one of the downside of the skimming strategy.

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Other Pricing strategy

Apple uses a retail strategy called “minimum advertised price” (MAP). Minimum advertised pricing policies (MAP) prohibit dealers, resellers from advertising a company’s products below a certain minimum price. It is usually enforced through marketing subsidies offered by a producer to its resellers.

Apple maintains the reputation of its high-priced products by only offering retailers such as Wal-Mart a marginal wholesale discount. This small percentage in savings isn’t enough of a profit margin for retailers to offer big discounts on Apple’s products, which means consumers end up paying a cost close to the producer suggested retail price (or MSRP). However, a seller could give up this small profit margin and offer products at a discount to attract even more consumers. Apple prevents this situation by offering incentives to retailers to sell products at the MAPs fixed by the company.

This strategy is effective, as it prevents retailers from competing directly with Apple’s own retail stores and it also ensures that no particular reseller has a competitive  advantage over another. So Apple is able to keep its supply channels clean as well as make more money on its direct sales.

References:-

Iacobucci, D 2014, Marketing Management (MM), 4th Edition, South-Western, Cenage Learning, Mason.

Apple’s premium pricing strategy and product differentiation (2014), Samantha Nielson, retrieved 3 September 2016, <http://marketrealist.com/2014/02/apples-premium-pricing-strategy-product-differentiation/&gt;  

Which is right business for you? (2016), April Maguire, retrieved 3 September 2016, <http://quickbooks.intuit.com/r/pricing-strategy/6-different-pricing-strategies-which-is-right-for-your-business/&gt;

The marketing mix of apple (2016), Available at: <http://www.marketing91.com/marketing-mix-apple-inc/&gt;

Brand perception is important: Apple is doing it right (2012)<https://www.nuvonium.com/blog/view/brand-perception-is-important-apple-is-doing-it-right&gt;

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