PRICING STRATEGIES.Meaning Price is an important element of marketing mix. Price is the exchange value. Developing a right pricing strategy is critical to an organizations success. Price is a significant variable, as in many cases; it is the main factor affecting consumer choice. Its significance is further emphasized as it’s the only element of marketing mix that generates revenues and the others produce costs. Objectives.. The first step in developing a pricing strategy is to develop pricing objectives – what the pricing decisions must accomplish. Pricing objectives must support the broader objectives of the marketing department (such as increasing market share) and that of the organizations overall objectives (such as enhancing shareholders wealth or enhancing corporate image). SurvivalIt is the most important objective of pricing; especially when companies are faced with the problem of over capacity, intense competition, or changing consumer wants. Most firms adopt survival objective during recession, when customers on an average have less money to spend. Prices are reduced in order to maintain sufficient flows of cash for working capital. Profits are less important than survival. As long as prices cover variable However, survival is a short-term objective, as price-cutting is not always the answer. Marketers need to be careful with the pricing strategy that brings short term benefits at the expense of long-term goals. Reducing prices in order to increase sales can cause customers to be price sensitive. Profit Objective:One of the main objectives of pricing is to earn profit. The profit objective of pricing can be expressed in two ways: Return on investment: a good number of firms fix their prices to stimulate consumer interest in their brand over other competing brands. Attractive prices result in higher sales ,which in turn helps to achieve a certain level of return on investment or return on capital employed. This in turn helps a firm to achieve its one of the overall objectivesenhancing shareholders wealth. Profit maximization: A profit maximization objective seeks to get as much profit as possible. Profit maximization does not necessarily involve fixing high prices. Low prices may bring in higher sales and profits. Sales objectives Firms also fix prices in order to attain sales objectives. The sales objectives can be expressed in two ways: 1 Market share growth: A firm may fix the price of its products at a certain level so as to defend its current market share, and if possible to increase the market share. for this purpose a firm may adopt penetration pricing for its existing prices. Sales growth: some marketing managers would like to achieve sales revenue growth in terms of unit sales growth or in money terms. Increase in sales is an important indicator of a firm’s success. However, increase in sales targets does not necessarily result in other objectives, such as profits. This is because, sales may increase, but profits may actually decrease, or a firm may even suffer losses despite growing sales. Therefore, pricing objectives should not just focus on growth in sales, but also on profits. Competitive-Effect Objectives: at times, a firm may deliberately seek to reduce the effectiveness of one or more competitors. It may fix its prices in such a way that it would enable it to win over competitors customers. For instance, a departmental store can offer a heavy discount in early November on garments, footwear, etc. Image differentiation: Some firms may create image differentiation through pricing. They may change a premium price for their products to create a distinct image vis-a- vis the competitors, in the minds of their target audience. Firms like Mercedes Benz, Rolex watches, and others have adopted this strategy. Some other firms may charge a moderate price for high quality products. For instance, a firm may position its product on the moderate price vis-à-vis high quality. Market skimming objectives: the firms that launch a new product in a market may adopt the market skimming strategy. in this case, the product is launched at a high price, and then gradually it is reduced over a period of time. Skimming, apart from other benefits, helps a firm to recover high development costs associated with new products. Early cash recovery: Firms that face liquidity problems or those that believe that life of the product or market is likely to be short may adopt a pricing strategy designed with the objective to generate a high cash flow and lead to an early recovery of cash. Such firms may provide a series of special offers and discounts, and adopt a strict credit policy, so as to increase immediate sales and achieve prompt payment. Preventing new entries: Firms may adopt low price strategy with the objective of preventing others from entering the market. The potential entrants would recognize the low returns available and the dangers of getting involved in a price war. In this way, existing firms may be able to minimize the amount of competition in the market. Customer satisfaction objective: A good number of quality-focused firms believe that profits result from customer satisfaction, as the primary objective. They believe that by focusing solely on short-term profits, a company loses sight of winning customers and retaining them. These firms instead develop pricing objectives based on pleasing customers over the long term. They may adopt a high value strategy. where product quality is high and the price is moderate instead of adopting premium strategy where high quality product is sold at high price. However, 2 it is to be noted that some customers, especially, belonging to the upper-upper class would be satisfied with premium strategy, as they enjoy prestige status with highly price items. Social responsibility objectives: Social responsibility objectives often play a major role in pricing decisions of the government and of non-profit organizations. Even professionals like doctors may adopt social responsibility as their pricing objective. For instance, some doctors may charge consulting fee on the basis of ability to pay. Poorer sections may be charged less, whereas the richer sections may be charged more. Also professional business firms may pass on the economies of large scale production and distribution, at least partly, to the consumers, with the objective of fulfilling social responsibility towards the consumers. FACTORS AFFECTING PRICING A. INTERNAL FACTORS 1. Costs: Firms while fixing prices should consider the costs for producing the product.in case of several products, costs constitute a large part of the price. The firm must plan to recover both the variable cost and the fixed costs. However, a firm selling bulk of its supplies in the home market and a part of the production in the overseas market, then all the fixed costs may be recovered from the home market, and the only variable costs may be charged for the overseas markets. 2. objectives of the firms: the marketer must consider the objectives of the firm, while fixing prices. Price of products is directly related to objectives of the firm. For instance, if the objective of the firm is to increase return on investment, then it may charge a higher price, and if the objective is to capture a large market share, then it may charge a lower price. 3. product: the product plays an important role in fixing price. If the product is of superior quality, then a firm may either adopt premium strategy or high value strategy. In premium pricing, the firm would charge high price for high quality, and in the case of high value pricing. The firm would charge moderate price for high quality. There are also firms that adopt super value strategy, where a high quality product is sold at low price. 4. image of the firm: the firms enjoying the good image in the market may charge a higher price, as compared to those firms which do not enjoy reputation in the market. This is because; consumers have trust and confidence in the firms enjoying nae and reputation in the market. For instance, firms like P&G, HLL can command a higher price for their brands, as they enjoy goodwill in the market. 5. brand image: the image of a brand can affect its price. Those brands, which command a good image in the market, would fetch higher prices. For instance, in India, the titan 3 demand: price of goods to a great extent depends upon demand. 2. socially responsible marketers pass on a part of the benefits of large-scale production and distribution to the consumers. The consumer factors that must be considered include the price sensitiveness of buyers. 8. and therefore. these are firms that introduce a products variant at low price to fight competition in the market. at least in the long term. then the firm may charge a higher price for a newly introduced product. However. During the growth stage. as nowadays. When there is high competition. buying pattern. and vice-versa. For instance. Demand may increase due to economic conditions in the market. 1. it can command higher price as compared to other Indian brands of watches. the price must be within the range of that of the competitors. and trade barriers while fixing prices. prices may be lower. government control: the government control and regulations must be considered while fixing prices. If a firm undertakes heavy advertising and sales promotion. For instance. as well as those of substitutes must be considered while fixing prices. It is to be noted. For instance. when other products in the product line are priced higher. 6. the marketer has to consider such regulation while fixing prices. Normally. and so on. In case of certain products. even though there may be no rise in costs. when consumers have less 4 . 4. especially in a low competition market. economic conditions: the economic conditions prevailing in the market must be considered while fixing prices. that increase in demand need not result in increase in prices. 3. During the times of recession. consumers: the marketer should consider various consumer factors while fixing prices. EXTERNAL FACTORS. It is often observed that highly advertised or promoted brands command high price as compared to lowly promoted brands. purchasing power. The taxes and duties levied by the government authorities must be considered. Price of competing brands. even though the other products in the product line are of higher price. promotional activities: pricing is related to promotional activities.brand of watches enjoys a good image. and as such. 5. then it may charge a lower price to attract the customers. 7. government may announce administered prices. product line: pricing can be affected by the pricing of various products in the product line. then price planning must ensure that these promotional costs will be recovered. a firm may increase the price. competition: the marketer has to consider the degree of competition in the market. when a firm introduces a product in a competitive market. B. an increase in demand may lead to an increase in price. problems with the supplies of competitors and so on. The marketers catering to foreign markets must consider the incentives. product life cycle: the stage of a products life cycle affects pricing. the marketers may reduce the prices to influence buying decision of the consumers. For existing products. a marketer may normally adopt either skimming pricing strategy or penetration pricing strategy. The marketer must also decide about the merthod of pricing. He may consider markup pricing method. etc. The pricing objectives must be in line with the overall objectives of the firm and that of the marketing department. Nature of the product. Decide pricing strategy and method: The marketer must decide about the pricing strategy and method.etc. To learn a fair return on investment. a marketer may adopt follow-the leader pricing strategy. To achieve a desired level of sales. standard or one-price strategy. The longer the chain of intermediaries would increase the price of the goods. The marketer may set any or the following pricing objectives: to ensure survival of business.the pricing process is briefly stated as follows: 1. Set initial price: 5 . Product life cycle. To increase market share. which include: Cost of the product. However. 2. or going-rate method. 6. There are several factors that affect pricing. or perceived value pricing or so on. 3. Demand for the product. Nature of consumers and their price perception. Evaluate the factors affecting pricing: The marketer should identify and evaluate the factors affecting pricing.money to spend. channel intermediaries: the marketer must consider the number of channel intermediaries and their expectations. Nature of competition in the market. set pricing objectives: the first step in pricing is to set pricing objectives. and so on. For a new product. Firms need to follow a systematic process in fixing prices. PRICING PROCESS. 4. the marketers may charge a higher price. during economic boom. Again. and assume that you have $10. the prices charged by the competitors. and vice-verca. sales and profit position. then the marketer may be able to set a relatively high price.Set your price to achieve a target return-on-investment (ROI). Marketer may also make to attract buyers to the product. Marketers may temporarily quote a lower price to attract buyers to the product. or $10 profit per unit. You want to recoup all your investment in the first year.000 units. with a high markup for the marketer. including both cost of goods and fixed costs at your current volume. Target return pricing .the next step is to set the initial price. PRICING METHODS. There are several reasons for making adjustments in the final consumer price. Your expected sales volume is 1. Review: The marketer must constantly monitor the price of the product considering the objectives of the firm. For instance.000 units in the first year. Your total cost is $50 per unit. so you add $10 (20% x $50) to the cost and come up with a price of $60 per unit. if so required. and so on. 5. You decide that you want to operate at a 20% mark-up. you will always be operating at a profit. For example. 1. and at current sales volume (or anticipated initial sales volume).cost oriented method 2.market oriented method. lower price may be quoted for large orders. Such review would enable the marketer to make necessary changes in the prices.After selecting the pricing strategy and method.000 profit on 1. 6. if the marketer is planning a heavy a high promotional strategy to emphasize the superiority of the product vis-à-vis that of the competitors. so you need to make $10. giving you again a price 6 . to price a new product. For instance.if required.000 invested in the company. Make price adjustments: The marketer may make price adjustments. and then he may adopt the markup pricing method. the marketer selects skimming pricing strategy.Set the price at your production cost. your widgets cost $20 in raw materials and production costs. your fixed costs come to $30 per unit. and may be for the dealers as well. let's use the same situation as above. For example. A marketer may also make necessary adjustments for different customer groups. plus a certain profit margin. Cost-plus pricing . So long as you have your costs calculated correctly and have accurately predicted your sales volume. you should probably be priced higher than most of your competition.000 a year in. 7 . there is one more major factor that must be considered. and customers would gladly pay it. Let's say that your widget above saves the typical customer $1. energy costs. Psychological pricing . even if it delivered $10. There is simply a limit to what consumers perceive as "fair". Popular price points . but more than enough increase in sales to offset it. Dropping your price to a popular price point might mean a lower margin. because it's "one bill" that people commonly carry.of $60 per unit. Meals under $5 are still a popular price point. "under $100" is a popular price point. If your sales forecast is inaccurate. Have you figured salary for yourself in your costs? If not. since they would get their money back in a matter of months. The most extreme variation on this is "pay for performance" pricing for services. $60 seems like a bargain .maybe even too cheap. if you can achieve it. your profit has to be enough for you to live on and still have money to reinvest in the company.Ultimately. If it's obvious that your product only cost $20 to manufacture. A little market testing will help you determine the maximum price consumers will perceive as fair. You have to make a living. This is usually the most profitable form of pricing.000 in value.Price your product based on the value it creates for the customer. in which you charge on a variable scale according to the results you achieve. However. In that case. $300 or more for it. If your product reliably produced that kind of cost savings. If you want to signal high quality. Value-based pricing . you could easily charge $200.There are certain "price points" (specific prices) at which people become much more willing to buy a certain type of product.Sometimes it simply doesn't matter what the value of the product is. as are entree or snack items under $1 (notice how many fast-food places have a $0. Fair pricing . "Enough under $20 to be under $20 with sales tax" is another popular price point. For example. figuring things like: Positioning . you'd have a hard time charging two or three thousand dollars for it -.If you want to be the "low-cost leader". you must take into consideration the consumer's perception of your price. say. Now.people would just feel like they were being gouged. even if you don't have any direct competition. how far off can you be and still be profitable? Ideally. you must be priced lower than your competition. how do you combine all of these calculations to come up with a price? Here are some basic guidelines: Your price must be enough higher than costs to cover reasonable variations in sales volume. you want to be able to be off by a factor of two or more (your sales are half of your forecast) and still be profitable.99 "value menu"). suitability: this strategy is suitable to those products that offer important benefits to the target audience. Secondly. As the demand of the first customers is satisfied. the firm lowers the price to attract another. more pricesensitive segment. if people won't readily pay enough more than your cost to make you a fair profit. and there is limited promotional effort to promote the product. Definition of 'Price Skimming' A product pricing strategy by which a firm charges the highest initial price that customers will pay. -The high price is interpreted as a sign of high quality. How can you cut your costs substantially? Or change your product positioning to justify higher pricing? Pricing is a tricky business. as prices are lowered over time. *NEW PRODUCT PRICING STRATEGIES. Firms often use this technique to recover the cost of development. and even a substantial one if you create value for your customers. for skimming pricing to be successful.Your price should almost never be lower than your costs or higher than what most consumers consider "fair"." or customer segments. -Lowering the price would have only a minor effect on increasing sales volume and reducing unit costs. Therefore. But remember. there should be little chance for competitors to enter the 8 . Slow skimming pricingWhere high prices are charged. the skimming strategy gets its name from skimming successive layers of "cream. either by miscalculating costs or by inadequate market research to determine fair pricing. Types of skimming pricing: Rapid skimming pricingWhere high prices are charged. something is ultimately worth only what someone is willing to pay for it. -The high price does not attract competitors. you need to reconsider your business model entirely. You're certainly entitled to make a fair profit on your product. Simply put. but many entrepreneurs seem to miss this simple concept. Skimming is a useful strategy when: -There are enough prospective customers willing to buy the product at the high price. I. This may seem obvious.and the product is promoted with heavy promotional expenditure. and that the target audience doesn’t mind paying higher price. market in a short period of time. both of which are positive for any firm with fixed overhead. The reasoning behind this marketing strategy is that customers will buy and become aware of the new product due to its lower price in the marketplace relative to rivals. A high price reflects high quality of the product. It helps the marketer to sense the demand in the market at higher prices. It helps to recover development and launch costs within a short period of time. if the price is only an introductory campaign. however. the high sales volume can also lead to lower production costs and higher inventory turnover. as normally customers equate high prices to high quality. Definition of 'Penetration Pricing' A marketing strategy used by firms to attract customers to a new product or service. Penetration pricing can be a successful marketing strategy when applied correctly. and the product is promoted with heavy promotional expenditure. and there is limited promotional expenditure to promote the product. This is possible in the case of highly technical and complex products. customers may leave the brand once prices begin to rise to levels more in line with rivals. Penetration pricing is the practice of offering a low price for a new product or service during its initial offering in order to attract customers away from competitors. 9 . Additionally. and then gradually reduce it over a period of time. *types of penetration pricing strategy: Rapid penetration pricing strategy. as only high class of the society can afford to pay high prices. Advantages of skimming pricing: It enables higher profits per unit sold during the initials stages of product launch. is that the increase in sales volume may not necessarily lead to a profit if prices are kept too low. It can often increase both market share and sales volume. I.where low price charged. Slow penetration pricing strategy. The chief disadvantage.where low prices are charged. It brings prestige status to the users. As well. IV.who do not buy frequently from that store. when a new product is introduced. A firm can enjoy economies of large-scale production and distribution. 10 . Foe instance. a firm may sell it at a special price to its loyal customers. Value pricing is undertaken so as to attract a large number of value conscious customers. Most of the reputed firms follow this strategy mainly for administrative convebience and to maintain goodwill among customers. which can generate a large volume of business. Value pricing involves not just setting lower prices as compared to competitors. Also. then high prices would be continued. a firm offers the same product and quantities to dofferent customers at different prices. some firms adopt value pricing. *advantage It helps to capture a large share of the market. V. It discourages potential competitors to enter the market due to low profit margin. a higher price is fixed to find out the reaction of the buyers towards the price. The special price is a reward for customers loyalty. trial pricing: in this case. Often.eho purchase products under same conditions and in the same quantities. when a new product is introduced in the market. If the firm gets enough business at high prices. One-price strategy: a firm that introduces a new product may adopt one-price strategy. standard pricing strategy: the seller may charge the same price in all the markets. so as to offer super value to customers. It brings in quick sales. but also redesigning the firms operations to become low-cost producer without sacrificing quality. trial pricing is seen as an alternative to giving away samples of a product in order to make people to have a trial of the product. the price might be reduced. They charge a low price for high quality products and services. and as such a firm can make good amount of profits. III. value pricing: nowadays.*suitabilityThis strategy is suitable to those newly introduced products. A one price strategy offers the same price to all customers. II. The purpose is to win customer acceptance first and make profits later. VII. A firm introducing a new product at low prices can enjoy brand leadership in the market. In this case. a firm may launch a new product with low pricing for a limited period of time. One price strategy can also be used to sell existing product. otherwise. a retailer may offer special price to frequent-shopper as compared to other customers. Flexible price strategy: in this case. probe pricing strategy: A marketer may adopt probe pricing. VI. which are called as slow selling periods. The following are the types of discounts offered. It is granted for turning in an old item when buying a new one. Functional Discounts/ trade discounts: it is offered by a manufacturer to trade-channel members for their functions such as selling. 3. He may charge more or less the same price as charged by the leader. volume purchases and season buying. demand potential. It helps in the planning of marketing strategy. 1. 11 .VIII. 2. 5. differenciated pricing strategy: the seller may charge a different price in different markets depending upon local competitions.etc. storing. IX. Discount pricing has become common among a large number of companies offering goods and services. quantity discounts: it is a price reduction to those customers who buy large quantity of goods. 4. follow the leader strategy: a marketer introducing new product in the market may follow the pricing of the leader in the market. Cash discounts: it is a price reduction to customers to encourage prompt cash payments. Seasonal discounts: it is a price reduction to buyers who make purchases during offseasons. Most companies offer discounts and allowances for early payment. this is more common in consumable durable goods. this discount is allowed. record keeping etc. Allowances: it is an extra payment designed to gain reseller participating in special programs. DISCOUNT POLICIES Discounts are reductions from the listed price that are given by a seller to a buyer. If the customers are making the payment within the specified time limit. price sensitivity of customers. It is to increase the quantity of goods and offered when the order is placed. 1976. California that designs. on January 3. reflecting its shifted focus towards consumer electronics. Inc. is an American multinational corporation headquartered in Cupertino. Fortune magazine named Apple the most admired company in the United States in 2008. 1977. Its best-known hardware products are the Mac line of computers. computer software and personal computers. the iTunes media browser. and the iLife and iWork creativity and productivity suites.. 12 . The company was founded on April 1. INTRODUCTION Apple Inc. the same day Steve Jobs introduced the iPhone. the company has received criticism for its contractors' labor practices. the Safari web browser. and for Apple's own environmental and business practices. Apple is the world's second-largest information technology company by revenue after Samsung Electronics and the world's third-largest mobile phone maker after Samsung and Nokia.APPLE Inc. However. Its consumer software includes the OS X and iOS operating systems. develops. the iPod music player. and in the world from 2008 to 2012. and sells consumer electronics.. and incorporated as Apple Computer. 2007. The word "Computer" was removed from its name on January 9. the iphone Smartphone. Inc. and the iPad tablet computer. formerly Apple Computer. Apple is the largest publicly traded corporation in the world by market capitalization. educators. 13 . with an estimated value of US$415 billion as of March 2013. Its worldwide annual revenue in 2012 totaled $156 billion. health and safety management practices into all aspects of our business. Apple entered the top ten of the Fortune 500 list of companies for the first time. we can offer technologically innovative products and services while conserving and enhancing recourses for future generations. We recognize that by integrating sound environmental. rising 11 places above its 2012 ranking to take the sixth position. software and Internet offerings. Apple strives for continuous improvement in our environmental. As of Sept 29 2012. the latter of which is the world's largest music retailer.800 permanent full-time employees and 3. Apple maintains 408 retail stores in fourteen countries as well as the online Apple Store and iTunes Store. health and safety of our employees. the company had 72.As of May 2013.300 temporary full-time employees worldwide. processes and services. In May 2013. creative professionals and consumers around the world through its innovative hardware. Mission Statement "To make a contribution to the world by making tools for the mind that advance humankind. health and safety management systems and in the environmental quality of our products." Apple Computer is committed to protecting the environment. customers and the global communities where we operate. Vision and values Apple is committed to bringing the best personal computing experience to students. While early models used ordinary cassette tapes as storage devices. The Apple I went on sale in July 1976 and was market-priced at $666.Founding and Incorporation: Apple was established on April 1. the Disk II. 1977 without Wayne. by Steve Jobs. adjusted for inflation). Steve Wozniak and Ronald Wayne[1] to sell the Apple I personal computer kit. The kits were hand-built by Wozniak and first shown to the public at the Homebrew Computer Club.690 in 2013 dollars. was introduced on April 16. VisiCalc created a business market for the Apple II and 14 . a spreadsheet program. due to its character cell-based color graphics and an open architecture. RAM. VisiCalc.66 ($2. During the first five years of operations. The Apple II. also invented by Wozniak. at the first West Coast Computer Faire. revenues doubled every four months. they were superseded by the introduction of a 5 1/4 inch floppy disk drive and interface. It differed from its major rivals. a computer single handedly designed by Wozniak. which is less than what is today considered a complete personal computer. The Apple I was sold as a motherboard (with CPU.000 during the incorporation of Apple. an average growth rate of 700%. Multi-millionaire Mike Markkula provided essential business expertise and funding of $250. Apple was incorporated January 3. 1976. The Apple II was chosen to be the desktop platform for the first "killer app" of the business world. the TRS-80 and Commodore. who sold his share of the company back to Jobs and Wozniak for $800. 1977. and basic textual-video chips). gave home users compatibility with the office. visited Xerox PARC in December 1979 to see the Xerox Alto. The company introduced the Apple III in May 1980 in an attempt to compete with IBM and Microsoft in the business and corporate computing market. [ Apple was a distant third place to Commodore and Tandy until VisiCalc came along.6% in the October to December quarter. Apple went public at $22 per share. an Indian retail chain which says it sells 15% of iPhones in the country. It has recently ramped its efforts and is seeing success. PRESENCE IN INDIA Apple has seen increased success in India and is looking to significantly expand its presence in the country. However it is late to focus on this country so Samsung (market share of about 38%) and others have established themselves. While the Smartphone market share is about 10% in India due to their costs. On December 12. 15 .000) a month per store. 1980. Key Takeaway: India is such a large market with a growing middle class that Apple can grow significantly.000) a month to Rs 2 crore ($370. The Mobile Store. an additional reason to buy an Apple II. Due to India’s requirement that 30% of a product be sourced in India it will be difficult if not impossible for Apple to open any of its own stores in the country.000 lakh ($65. Jobs and several Apple employees. Apple started an advertising campaign that promotes an upfront payment of 5. Apple has increased its share significantly over the past nine months. Apple had a staff of computer designers and a production line. Xerox granted Apple engineers three days of access to the PARC facilities in return for the option to buy 100. a daily Indian newspaper. The Economic Times. generating more capital than any IPO since Ford Motor Company in 1956 and instantly creating more millionaires (about 300) than any company in history.000 split-adjusted shares) of Apple at the pre-IPO price of $10 a share. previously being focused on selling through carriers and premium resellers. It is estimated that the company’s revenue market share was 3. tripled its iPhones sales from December to January which it attributed to the payment plan. By the end of the 1970s. including Jef Raskin. Jobs was immediately convinced that all future computers would use a graphical user interface (GUI). given the potential growth and size of the Indian Smartphone market (IDC estimates it could grow from 19 million units in 2012 to 108 million in 2016) all the major players will be very focused on this opportunity. Another indication of Apple’s recent gains is an Apple premium reseller saying that its sales have gone from Rs 35. the total cost of about $840. and development of a GUI began for the Apple Lisa.056 rupees ($93) for an iPhone 5 vs.000 shares (800. is reporting that Apple plans to triple its exclusive stores (Apple Premium Resellers) from over 65 to about 200 by 2015 and expand the use of multi-brand stores vs.9% in the July to September quarter and grew to 15. APPLE PRODUCTS Apple designs. business. manufactures and markets personal computers and related solutions for sale primarily to education. creative. and consumer customers. The company’s key products and services include the following: Mac: 16 . iMac: Consumer all-in one desktop computer. introduced in 2006. Apple introduced their much-anticipated media tablet. iPod: 17 . photos. music. videogames. movies. word processing documents. and most existing iPhone apps. introduced in 1998.MacBook Air: Consumer ultra-thin. introduced in 2006. textbooks. running a modified version of iOS. MacBook Pro: Professional notebook. ebooks. the iPad. introduced in 2005. It offers multi-touch interaction with multimedia formats including newspapers. magazines. Mac Pro: Workstation desktop computer. introduced in 2008. ultra-portable notebook. 2010. iPad: On January 27. spreadsheets. Mac Mini: Consumer sub-desktop computer and server. videos of TV shows. Apple has partnered with Nike to offer the Nike iPod Sports Kit. enabling runners to synchronize and monitor their runs with iTunes and the Nike+ website. introduced in 2005. introduced in 2007. currently available in a 160 GB model. currently available in 32 and 64 GB models. and the iPod brand is now the market leader in portable music players by a significant margin. though the current generation features a multi-touch interface and includes an FM radio and a pedometer. first introduced in 2001. currently available in a 2 GB model. iPod Shuffle: Ultra-portable digital audio player. Several updated models have since been introduced. iPod Nano: Portable media player. currently available in a 16 GB model. with more than 350 million units shipped as of September 2012. introduced in 2005. the latter of which supports HD video recording at 1080p. a Retina display. The current generation features the Apple A5 processor. iPod Touch: Portable media player than runs iOS. An earlier model featured the traditional iPod click wheel. iPhone: 18 . Apple introduced the iPod digital music player.On October 23. and dual cameras on the front (1. 2001. iPod Classic: Portable media player.2 megapixel sensor) and back (5 megapixel iSight). rather than simply receive credit to be used at a later date. Bluetooth. A significant part of the program's goal is to increase the number of customers who purchase iPhones at Apple stores rather than carrier stores. customers must have a valid contract.5-inch (89 mm) touchscreen display.This was the first time that Apple has simultaneously launched two models and the inclusion of China in the list of markets contributed to the record sales result. running scaled-down versions of Apple's Mac OS X (dubbed iPhone OS. it was updated to have 16 GB of memory. 2008. in addition to the 8 GB and 4 GB models. It combined a 2. Apple announced on September 1. Upon the launch of the iPhone 5S and iPhone 5C. which sets a new record for first weekend smartphone sales. Apple sold over nine million devices in the first three days of its launch. The original iPhone was released on June 29. Steve Jobs introduced the longanticipated iPhone. For the program to become available. 2013 that its iPhone trade-on program would be implemented at all of its 250 specialty stored in the US. 2007 for $499 (4 GB) and $599 (8 GB) with an AT&Tcontract On February 5. with various Mac OS X applications such as Safari and Mail.5Gquad band GSM and EDGE cellular phone with features found in handheld devices. The iPhone features a 3. a convergence of an Internet-enabled Smartphone and iPod. and Wi-Fi (both "b" and "g"). 19 . and must purchase a new phone.At the Macworld Conference & Expo in January 2007. later renamed iOS). It also includes web-based and Dashboard apps such as Google Maps and Weather. a set-top video device intended to bridge the sale of content from iTunes with highdefinition televisions. with one computer's iTunes library and streams from an additional four. which allowed media to be purchased directly from the Apple TV. 2008 software update was released. (previously known as the iTV). Jobs demonstrated the Apple TV. and plays video at a maximum resolution of 720p. The Apple TV originally incorporated a 40 GB hard drive for storage. includes outputs for HDMI and component video. The device links up to a user's TV and syncs. POINTS 20 .Apple Tv: At the 2007 Macworld conference. 2007 a 160 GB drive was released alongside the existing 40 GB model and on January 15. either via Wi-Fi or a wired network. On May 31. I often use the analogy of early-bird. The stock market reacted harshly to Apple’s new strategy primarily due to the 5C’s $549 off contract price. In my consulting work with companies. Newly married couples on a budget. This strategy allows customers to choose the price that works best for them. Apple will grow its business with new early-bird customers. start at $99 on contract and $549 off-contract. A similar type of selfselection will occur with these two iPhone options. To combat this pricing pressure. for instance. opt to arrive before 6:30 PM while dining high rollers willingly pay a hefty premium to hob nob with the chef. It will preserve the 5S’s margins. Apple changed things up by going to a “good -better-best” pricing strategy on its new devices. Often times a premium product with large market share encounters a new wave of competition that is winning customers via rock bottom prices. the company showcased a new and improved iPhone model — the 5S — which provides faster processing. a better camera. By serving the price sensitive market. buying handsets off-contract is very popular and the 5C’s relatively high price isn’t going to generate long lines of “I must have it now” customers. Prices for the 5S in the U. I inevitably recommend introducing a lower priced version — a fighter brand — which competes with new entrants and serves price sensitive customers. and James Bondlike fingerprint security technology. which in essence is old technology — similar to the current iPhone 5 — in a plastic backed case available with a variety of new colors. 5C prices in the U. For proof of Apple’s woes in this area one need look no further than the recent Siri-bashing Windows 8 Tablet ads. But in my view the good-better-best pricing strategy (in this case “better-best”) makes sense for Apple for a couple key reasons: Giving customers more choice will generate growth. and chef’s table options that are available at many gourmet restaurants. whose punch-line is $250 cheaper price tag than the iPad.Apple’s iPhone Pricing Strategy: Good. Not Great! iPhone release. With the 5C in place as a fighter brand. But why does the high off-contract price matter? In emerging markets such as China. As it always does. I’ve been in similar situations as Apple now faces. Apple also released a lower priced iPhone. the 5C (many view the “C” as a moniker for “cheaper”). start at $199 for customers who commit to a 24 month contract and $649 for those who prefer not to be tied to a two-year financial obligation. Analysts had previously predicted the 21 . the 5S is now better positioned to customers who highly value the handset and can continue to command a premium.S.S. regular. What’s interesting is the intended outcome of the 5C attracting price sensitive iPhone customers who buy on-contract could have also been accomplished with a new pricing strategy. has reportedly committed to purchase over $23. And just like car leases. For the right to offer iPhones to their customers. Because of these deals. for instance. for instance. The analysts blew it and Apple is now a victim of unrealistically set expectations. there’s no way that Apple would have offered a cheap off contract 5C price. the key to success in these markets is to push on-contract (in essence. which I believe is easily solvable. or no money down and an extra $10 monthly finance payment. which is good. Taking a page from the car leasing industry. offer them $100 upfront plus an extra $5 per month for the 24 months of the contract. that over 60% of BMW and Mercedes new car sales in the United States are leases. Apple needs to promote these pricing practices to help customers understand that leasing or financing over time via contract are time-honored strategies used by customers to buy luxury products. While the off-contract 5C pricing won’t move the needle in emerging markets. investors got skittish. it wouldn’t surprise me if these high volume deals with wireless suppliers such as Verizon prohibit Apple from selling cheap off-contract phones. wireless carriers typically pledge to sell large volumes.off-contract 5C price to be around $400 and when the actual price of $549 was announced yesterday. The 5C will accomplish exactly what Apple intended in the on-contract market — provide an early-bird $99 option. Customers typically focus on what it’s going to cost them today and often gladly tradeoff a lower upfront payment for a few extra dollars a month obligation.5 billion in iPhones in 2013 alone. carriers should offer customers a range of choices. Verizon. monthly payments can be further reduced if customers pledge to return the phone in 24 months (presumably to trade-up to a new iPhone). But what prevents this strategy from being great is the lack of a viable pricing-related growth strategy in emerging markets. 22 . If $199 upfront for the premium 5S on contract does not work for a customer. It’s estimated. In fact. This would induce customers to buy off-contract — which would hurt its wireless supply partners who are hustling to meet their commitments. financing) or lease pricing options. Apple unveiled new iPhones in September. 23 . Apple raised the entry price for the latest iPad Mini to $399 from $329. PHOTOS: The new iPad Mini gets the crisper Retina display and the new A7 chip. according to Gartner estimates.87 following the new product announcements.. an analyst at ISI Group. making it almost as big a market as PCs. Apple's share was almost two-thirds. It's also keeping the larger iPad 2. However." Still. such as Google's Nexus 7. because Wall Street has begun to think of the company as a "one-product" story again. and Android was below 30%. there are a slew of cheaper. Apple shares slipped 0.3% to close at $519. China will be included in the initial launch for the first time. Apple said. The tablet has Apple's faster A7 chip. It weighs 1 pound — 28% lighter than the previous mode — and is 20% thinner. Tablet shipments are expected to surge 43% to more than 263 million units in 2014. he noted.S. * FIRST TAKE: iPad Air steals show with familiar feel Android will have 49." said Brian Marshall. while Apple will have 48. In 2011. It costs $399 for the 16GB Wi-Fi model. Barclay’s analyst Ben Reitzes wrote in a recent note to investors. Apple executive Phil Schiller introduced a new 9. 1 in about 40 countries. Apple is keeping the older iPad Mini and will drop the price to $299 for the entry model.7-inch tablet called iPad Air.6% — making 2013 the first year Android will lead. The new iPad Mini will be available later in November. a new camera. there's a lot to fight for. Samsung and Amazon. A revived iPad line is crucial for Apple. Apple's announcements confirmed that the company is sticking to its high-price strategy. mostly Android-based tablets out there. while versions with a cellular connection start at $629. says Gene Munster.com in the fast-growing tablet market. The 16GB Wi-Fi version costs $499 in the U. which costs $229 with a high-resolution display. "They are not going after the low end of the tablet market. and the smartphones account for the largest part of the company's profit. Still. dual microphones and comes in silver or space gray. "These new devices are not cheap. without being more specific. Marshall said buyers may gravitate to the lower end of Apple's new iPad range.6% of the worldwide tablet sector this year. which will sell for $399 for the base model. which means good margins for the company. an analyst at Piper Jaffray. Apple's share of the tablet market has been sliding as cheaper tablets running Google's Android operating system become more popular.Apple sticks to high-price strategy with new iPad Air! Apple unveiled new iPads Tuesday as the technology giant tries to beat back rising competition from Google. going for 16GB Wi-Fi models rather than 64GB cellular versions. The iPad Air will be available Nov. Gartner estimates. while a cellular version starts at $529. (Samsung had 32% of the global market in Q3. There are two big problems with this analogy. is like BMW. But Apple's sales badly lagged both Samsung and. Apple fans have developed excuses for Apple's lagging sales. The most popular is that Apple is a "premium" gadget maker. Apple's smartphone sales grew at only half the rate of the market. Apple. First. both companies sold more smartphones this year than last year. which is where most of the growth in smartphones and tablets now is. the broader smartphone market. In other words. Apple fans can keep telling themselves that this is just fine. grew 46%. but what these fans need to recognize is that this is effectively a major change in Apple's pricing strategy. the same share as a year ago.) Yes. Samsung's increased 46%. importantly. Apple. there just aren't that many people who want to buy BMWs when many very high-quality gadgets are available for much lower prices. Apple's sales increased 23%. meanwhile. meanwhile. which is now by far the dominant smartphone maker in the world. and it only wants to sell its phones (and tablets) to people who can afford to pony up for them. in emerging markets.and in platform markets. smartphones are a "platform market" .third parties build products and services that run on top of smartphones . The message was clear: Apple is getting its clock cleaned by Samsung.Third quarter global smartphone salescame out earlier this week. market share is a huge competitive advantage. not a hoi polloi gadget maker. had only 12% of the market. that Apple doesn't want or need to sell gadgets to earthlings of more average wealth. not Ford. in other words. down from 14% a year ago. Second. unlike cars. 24 . The actual reason that Apple's gadget sales are now so badly underperforming the market is that Apple no longer sells products at price points that appeal to the growth segment of the market. The smartphone market as a whole. in iPads. meanwhile. but some . it's probably already too late. Amazon. and small. it has so much profit to spare that it has no idea what to do with the cash piling up on its balance sheet. But. our premium industry research service. thereby. Specifically. they also cost the same or less. strengthen the "lock-in" of its products and services. but this phone is now old. 25 . for example. greatest version of the Mini at a high price and other recent models at a very competitive price. (Yes. Apple is being greedy and shortsighted and choosing to maintain its already fantastically high profit margins at the expense of market share. the answer is for Apple to sell some of its gadgets -. Google. India. as the line in the chart below shows. It is for Apple to use its phenomenal profitability as a competitive weapon. Apple led the market not just in product quality but in product price. If gadgets were not a platform market. And now look at Apple's growth in these markets. this wouldn't matter.not the latest.) The simple answer is NOT for Apple to make low-end gadgets that it considers crappy. And those alternatives .) Significantly increasing its market share in key markets around the world would make Apple's long-term competitive position much stronger. But they are. it could sell the 5C at a sharply lower price point. as you can see. greatest ones. weak. The iPhone and iPad were not just way better than the competition.at prices that are highly competitive with local alternatives. Now. Now that Apple has "forked" its iPhone product line into the 5S and 5C. have hit a wall. its gadgets are considerably more expensive than the alternatives. Let's go to the charts: (These charts are all from BI Intelligence. Apple is still charging almost as much for the 5C as the 5S. Brazil. and many other vendors .are getting better and better. it could sell the latest. Instead. in many of them. instead. Apple is selling its "Mini" at prices that are radically higher than high-quality alternatives. the less chance it will have to become the leading platform in these countries. It would help Apple increase the value of its content and app "ecosystem" in these countries and. Apple may still have an edge in product quality (this is debatable and a matter of personal preference). Instead. et al. but in most countries.) Similarly. Importantly. You can sign up for a free trial here >) First.from Samsung. And Apple has plenty of profit to spare. (In fact. Apple is selling the iPhone 4 at a significantly lower price than the 5s. this would cost Apple nothing more than some near-term profits. Apple's iPhone sales have slowed sharply: Apple's tablet sales. And the more market share Apple surrenders in China. (In fact. First. the global smartphone and tablet markets are still growing like mad.In the first few years after the iPhone and iPad launched. Apple has radically underperformed the market for the past couple of years. market and that Americans keep scarfing up Apple's top-of-the-line iPhones. in the face of increased competition from Samsung. The bottom line is that. Apple and its fans may come to regret this short-term thinking in the end. HTC. Meanwhile. Google.S. Apple fans can talk all they want about how Apple is "like BMW. and Motorola cutting into the 26 .When confronted with these statistics. this is a shortsighted decision. Because of the importance of the platform and ecosystem for long-term value. But it will continue to lose platform and ecosystem share in most of the world. is an anomaly. it isn't. by trying to maintain its price points and super-high profit margin. Apple fans generally point out that Apple still has a very strong position in the U. In most other countries. But now. But the U. no one has questioned Apple’s product or premium pricing strategies. Apple is missing a massive opportunity. That's true. And that means that. at best." but in a couple of key competitive respects. If it continues to pursue its current pricing and maximize-short-term profit strategy. And if the gadget platform market behaves the way other platform markets have (think Windows). Google's Android has become the world's dominant smartphone and tablet platform.S. especially in tablets. Apple is losing share fast. Apple may continue to increase its profits for the next couple of years. Apple's market share in the United States is indeed strong. Lessons from Apple’s Pricing Strategy Dilemma For years. Netflix. very few SaaS businesses can scale (let alone survive) by selling their products for slightly above zero. the company is revisiting its strategy with the iPhone 5S and 5C. As Chen points out in the aforementioned New York Times post. What lessons can SaaS companies learn from Apple’s gamble on price? lesson 1: Competing Solely on Price is a Bad Play When competition gets stiff or you’re trying to quickly acquire as many customers as possible. Lower prices are an unsustainable competitive advantage. However. the company’s profit growth has been slowing for some time. and IBM have learned those lessons the hard way. as competitors like Samsung have made significant headway by offering smartphones in both the high-end and low-end markets. it can be tempting to try to win with lower prices. In fact. bigger competitors with bigger budgets). Gateway. both Gateway and IBM ended up exiting the PC business and Dell continues to struggle. Competing on price alone is problematic for growing companies for three big reasons: Someone will always be able to do what you do cheaper(namely. Dropbox. and price is often a quicker route to capturing market share in emerging markets like the ones that Apple is currently competing for.g. of course (e. and others). The fierce competition between the PC makers pushed prices down and resulted in razor thin margins. Traditional PC makers such as Dell. Lesson 2: Competing on Price Can Actually Work (Under the Right Conditions) Businesses can and have succeeded by being the low-cost option in their market. This has enabled Samsung to gain traction in emerging markets such as China and India where smartphone sales are 27 . setting low prices in the early days of a company’s development can actually prove to be a smart strategy.. Lower prices attract lower-value customers that still cost your business the same amount to acquire and support. While there are a few exceptions to that rule. Doing so ensures that a business doesn’t scare away price sensitive users. while also giving the company a way to compete for more customers in a crowded marketplace. particularly for smaller businesses without the benefit of economies of scale. it is not a prescribed course of action. as serial entrepreneur and investor David Skok writes in this post. Good examples of that approach include tech businesses like 37Signals and Evernote. in doing so you run the risk of a “race to the bottom” in pricing that might prove to be your undoing. while not the lowest cost product. The iPhone 5C. As Patrick McKenzie points out in this excellent post for the blog SaaS Pricing. In the end. which essentially gave away their products early in their development in an attempt to quickly acquire users.iPhone’s market share. is Apple’s first attempt at catering to the mainstream price sensitive market. Apple's iPhone 5c pricing seen as right move. the classic iPod appealed to hard-core music fans that needed more storage. while the iPod Mini targeted exercise fanatics who wanted something that wasn’t cumbersome to carry. The primary goal of this move was to broaden the iPhone’s potential market in emerging markets where Smartphone’s are not subsidized by the cell provider. Lesson 3: Tiered Pricing Can be Incredibly Effective The chief problem with Apple’s iPhone 5C strategy is that the company’s newest product offering might not be cheap enough to appeal to a broader market. the company has successfully tiered its products to appeal to a variety of buyer types. The key to their success was each product maintaining the look. without sacrificing its highend brand reputation. while KISS metrics’ Lars Lofgren points out that the ultimate key to tiered pricing is to focus on value. market to low-entry buyers. some have wondered whether Apple was better off offering a iPhone 4C. will pay off in the long 28 . According to this Venture Beat post. feel. And as Apple CEO Tim Cook recently told the New York Times. Despite offering a lower cost phone. because it gives them the ability to accommodate different customer segments. For instance. the iPhone 5C is still an astounding $549.surging. That is compared to an average smartphone sales price of around $300. making it the company's mid-range phone with a $99 on-contract price. Skok refers to that strategy as multi-axis pricing in this post. If Apple is able to cater to that market — and continue to sell its higher-end products to higherend consumers — then the company’s decision to cater to price sensitive markets with lower cost iPhones could pay off in a big way. With several different models of laptops. each of those models had a reason to exist. As a result. and upsell existing customers on feature upgrades. holiday sales expected to pick up steam Maynard Um of Wells Fargo Securities believes Apple's pricing strategy with the iPhone 5c. arguing that it’s actually one of the best tools for growing SaaS revenue. and iPads. desktops. that translates to one month’s salary for average Chinese and Indian workers. and quality that the consumer expects out of an Apple product. iPods. It’s surprising because for years. It would have offered a more significant reduction in price while preserving the attractive packaging. Tiered pricing can be effective for SaaS businesses that offer different levels of products or services. Apple has successfully offered an array of products in their other product lines. not arbitrary dollar amounts. Lower-cost options are popular in these markets as they appeal to what analysts call “aspirational consumers” — buyers who will only splurge on a fancy brand if the price is right. " To that end. Um said in his note to investors on Thursday that supply chain data has been "hit or miss. it would be impossible to interpret that data point as to what it meant for our business. and we obviously have multiple sources for things. there would have been "no guarantee of price elasticity driving volumes. we believe it would be more prudent for Apple to manage the channel (despite potential holiday demand) as the risk of excess inventory is much higher than ramping unit orders later. But doing so would have been too risky of a move." he said. Um believes. The analyst's comments came in response to reports this week from both The Wall Street Journal andReuters. If Apple had taken lower margins and hoped for unit volumes to offset. the iPhone 4S. saw its sales ramp up heading into November and December. He doesn't see discounts on the newly released model as 29 ." but later clarified to say that any apparent reductions "may not be all bad." Um said. As for a series of discounts offered by retailers for the iPhone 5c. and he believes iPhone 5c sales could pick up heading into the holiday season." suggesting he's not concerned by the latest reports. "Even if a particular data point were factual. "The supply chain is very complex. The Journal initially speculated that changes in the supply chain could signal "weaker-than-expected consumer demand. Maynard Um of Wells Fargo Securities isn't concerned about supply chain data. He noted that last year's mid-range Smartphone. Um noted that this is a typical strategy for third-party resellers. "Regardless. In addition." Cook said." he said." Apple Chief Executive Tim Cook himself warned analysts earlier this year that reading too much into supply chain data can be a critical mistake.run. which cited anonymous sources as indicating that Apple was cutting orders for the iPhone 5c. "We believe the certainty was the right choice and would not necessarily discount demand yet. a cheaper iPhone 5c may have resulted in even greater margin pressures as Apple transitioned to its next models in 2014. Some market watchers believe Apple should have priced the iPhone 5c more aggressively. as more casual buyers showed interest during the holiday shopping season. in an attempt to take market share away from low-end smartphones running Google's Android platform. CONCLUSION Over the past 30 years Apple Inc has amplified from computer design to developing consumer electronics. Steve Wozniak. This means that all employees & departments work together in the creation of their product. Apple is usually 1st company to come with a new product before anyone else. This shows that taking risks can sometimes make or break you. Tim Cook is the current CEO of the company. third-party resellers derive profits from carrier 'finder's fees. This is very risky but it seems to be working to apples advantage.' which can amount to $250 depending on a number of factors. a price 'drop' is not necessarily a reflection of materially weak demand. "Thus." Wells Fargo Securities has maintained its "outperform" rating for AAPL stock with a share valuation range of between $525 and $575. 30 . The company was started by Steve Jobs." he said. a business model strategy to drive volumes. including whether it's a new contract or an upgrade. but. It uses different business strategy.concrete evidence of soft demand for the iPhone 5c. rather. and Ronald Wayne in the 1970’s. "As has been the case in the industry for years. What we found to be the most interesting about Apple is how they are very innovative and early adapters. com www.srceendigest.com 31 .com www.wikipedia.com www.com www.google.studymode.seanet.com www.BIBLIOGRAPHY Search engines: www.strategicmanagementsight.