How would you describe Apple’s pricing strategy, are they skimming pricing, penetration pricing, or target costing? Why? Justify your answer. Additionally, provide an example for each pricing strategy. (300 words)
Also, need two replies 200 words each……..
The pricing strategy of Apple
Apple has gone on to incorporate a twist with their skimming strategy. It is not about introducing a product at a higher price range as then you might be able to trim down the prices. The company is going to stake out a price and then they go on to maintain the same price where they go on to increase the value of goods or services.
The price strategies are bound to alter once a product goes through the product life cycle. A stage that poses to be a major challenge works out to be the introduction stage as it points to the new pricing of the product. The moment a competitor brings out a new product in the market, they might encounter challenges for the first time. The strategy that goes on to adopt goes by the name of Price skimming strategy. It points to the fact that you go on to set a higher price when it is a new product so as to skim the maximum benefits when it is a layer by layer basis. Because of such a strategy the company goes on to make fewer but less amount of sales. Apple goes on to make purchasing decisions when it comes to each layer of customers (Liu et al., 2019).
A company like Apple goes on to invent a product at a higher initial level so as to skim layers by layers in the market. When the company did go on to introduce the iPhone he price was on the higher side. In fact the product was purchased by customers who really wanted the same and could afford paying a higher price for the same. Once this segment did go on to skim for a few months the price did drop down considerably to attract new buyers. Within a passage of time close to a year the price did go on to drop considerably.
Liu, J., Zhai, X., & Chen, L. (2019). Optimal pricing strategy under trade-in program in the presence of strategic consumers. Omega, 84, 1-17.
Apple’s pricing strategy has changed a lot over the past couple of years, making it a better fit for these businesses. The most common reason for Apple’s penetration pricing is the same as most companies, and they are the same reasons many customers give. Due to Apple’s high revenue growth, its superior cost structure to competitors is known as the Apple effect and better marketing. Apple has achieved some of the most profitable products on the market today and is now one of the most significant sales and profitability companies this year (Ismail & Abbas, 2020). An increase in cost as a primary motive for Apple’s penetration pricing may explain why Apple can afford to keep the prices at levels that will attract and retain customers even when they are significantly lower than they were in the past. However, some price increases will be offset by adding new features, which will result in a cost increase. A price increase is unlikely to have the same effect as Apple introduced because it will come when the company starts seeing a better return on investment than other companies. As with nearly every industry, a market price rise has the most excellent chance of being reversed by introducing new products or services that significantly lower the costs. It is a scenario that Apple has not encountered with any of its products because they are expensive to produce and require an increasing supply of products to maintain. The additional cost will be offset by the more significant profit earned by the companies that make these new products, for many companies, as this increase of profitability can increase the market price. However, suppose consumers can only afford to spend a third of the revenue on buying new products in addition to existing products. In that case, it is unlikely that an introduction of new products will reverse any such decrease in price (Ismail & Abbas, 2020).
Even if Apple can capture the market with its existing price structure, it may not maintain a market price at the level it does. Companies that have historically had the highest price tend to suffer the most significant drop in the market value due to competitors making their goods. The lower cost and higher margin will cause companies to reduce prices to meet demands, which will tend to depress the market price. It has been a problem for companies like Apple that have had to produce high-quality products and use the highest quality materials (Zimmerman, 2017). Apple has had to reduce the price of these products while maintaining the same quality level. It would force them to increase the costs of the products they were producing while continuing to create and deliver the same high-quality products at the same time, making them more expensive for consumers to purchase and require. It may not matter how much Apple has spent on manufacturing, as if it were not to produce enough products to match the demand it has already created, there would be no reason to pay again (Zimmerman, 2017).
Ismail, M., & Abbas, M. (2020). VARIATIONS OF PRICING STRATEGIES ON DEMAND OF CONSUMER’S PRODUCTS. A REVIEW ARTICLE.
Zimmerman, J. L. (2017). Accounting for decision making and control (9th ed.). New York, NY: McGraw-Hill Education.