Pricing Consideration and Approach of Apple Products

Launch of Apple products have always created halo effect – whether it’s a new IPhone, MacBook or the new IOS. Some people hate them (overpriced, restrictive) some will love them (reliable and easy to use) but there is barely anyone who would think indifferently about Apple product.

The dispute of what’s better will last as long as consumers have choice

Apple-vs-Android-vs-Blackberry-Users

So how does Apple approach the pricing of their products?

After all, price isn’t just a way to recover the cost incurred of bringing the product to the customer. It’s the way the company (along with other 4Ps) sends the message to the customer and the industry – we charge high price and therefore we offer a premium, high quality product (Iacobucci, 2014).

Apple does just that – Steve Jobs strategy which made Apple so successful was based on four pillars (Arora, 2016):

  • Offer a small number of products
  • Focus on the high end
  • Give priority to profits over market share
  • Create a halo effect

The products are known for their excellent design, durability and good reselling value comparing to the alternative products, so how does Apple set their pricing?

Generally, the price is set by following six steps (Kotler, 2006):

  1. Select the price objective – Apple have never pursued maximum market share or survival; their objective is maximising current profit along with product-quality leadership
  2. Determine the demand and estimate price elasticity. Apple competes at the high end of the market, so Apple’s customers should not be price sensitive. The customers are prepared to pay premium for the product where they perceive the value – design, reliability, simplicity and style
  3. Estimating the cost. Vertical integration has given Apple a sound competitive advantage as it owns chip manufacturers, controls assembly and operates a closed ecosystem of proprietary Apple Stores. This has given Apple a tight control over the supply chain and therefore the component cost (Nielson, 2014)
  4. Analysing Competitors Costs, Prices & Offers. Generally, the firm would monitor and consider the offers and prices offered by the competitors. Would Apple try to match or beat Samsung or HTC on the price? Probably not. Apple considers their products superior to the competitors and the price cut may send a wrong message to the industry and consumers. Samsung has been forced to recall all of the new Galaxy Note 7 due to battery flaw after being in rush to release their new model a month before the new IPhone (Reilly, 2016)
  5. Select Price Method. The companies employ several ways to price their products – mark up pricing (by adding the mark up to their variable and fixed cost), target-return pricing (based on internal ROI) and perceived value pricing by using the marketing mix elements such as advertising, and sales force to enhance the perceived value in consumer minds. The perceived method appears to be used by Apple. At the same time Apple appears to reply more on “halo effect” than aggressive advertising and sales force. The sales team at Apple Store are trained to demonstrate the products and resolve customer issues rather than push the sales. (Kane, 2011)
  6. Select the final price. The final price has to reflect the brand’s quality and send the message to the industry and customers. Apple pricing policy is consistent across Apple Stores and the retailers. Apple uses a retail strategy called MAP (minimum advertised price). This strategy prevents authorised retailers from competing directly with Apple owned stores and insures no reseller has advantage over another. (Nielson, 2014)

Apple continues to maintain Job’s vision to create distinctive products and charge premium price. To continue with this strategy Apple needs to insure they have a competitive advantage over the competition. Some analytics say that Apple is losing its inspiration status…. well, we’re still likely see people spending nights in front of Apple store waiting for IPhone7….

apple-store-sydney_3452578b

At the same time, I don’t remember seeing anything similar in front of Samsung stores before the release of new Galaxy Note

Samsung_in_SM_Aura,_Bonifacio_Global_City

So are we still going to pay whatever Apple is going to ask to pay? Probably yes!

Apple+Store

References

Available at: https://www.google.com.au/imgres?imgurl=http%3A%2F%2Frwrant.co.za%2Fwp-content%2Fuploads%2F2013%2F03%2FApple-vs-Android-vs-Blackberry-Users.jpg&imgrefurl=http%3A%2F%2Frwrant.co.za%2Fiphone-vs-android-vs-blackberry-users-infographic%2F&docid=rPd0dFSwfSbwFM

Arora, N., 2016. Hard To Imagine Steve Jobs Running Apple This Way. [Online]
Available at: http://www.forbes.com/sites/greatspeculations/2013/01/09/hard-to-imagine-steve-jobs-running-apple-this-way/#1a70bff967e6
[Accessed 3 September 2016].

Iacobucci, 2014. Marketing Management. 4th ed. Mason OH USA: Cengage.

Kane, Y. I., 2011. Secrets From Apple’s Genius Bar: Full Loyalty, No Negativity. [Online]
Available at: http://www.wsj.com/articles/SB10001424052702304563104576364071955678908
[Accessed 3 September 2016].

Kotler, 2006. Marketing Management. 12 ed. New Jersey : Pearson .

Nielson, S., 2014. Why Apple’s ecosystem is its biggest competitive advantage. [Online]
Available at: http://marketrealist.com/2014/02/ecosystem/
[Accessed 3 September 2016].

Reilly, C., 2016. Samsung recalls Galaxy Note 7 over battery flaw. [Online]
Available at: http://www.cnet.com/au/news/samsung-confirms-global-recall-replacement-galaxy-note-7-faulty-battery/
[Accessed 3 September 2016].

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s