Apple Price Cut Essay

To what extent the iPhone pricing dodge is similar to the iPod pricing outline? How do you explain that the iPod equipment casualty chuck out did not lead to such a level of customers protest? Answer Both iPhone and iPod have experienced a vast amount of worth snip in their harvest-feast lifecycle. In this document, we tummy find that iPod was launched in October 2001. Tough relatively racy priced for an MP3 player, it was hugely rented and remains touristy till date though there was a price slash in 2005. Similar to the price cut of the iPod, two months later on(prenominal) the launch of the iPhone, apple lowered the price by 200 USD.However, regarding the price strategy, a big difference between two products is the timing of price cut. iPod adjusted its price afterward experiencing a 4-year success from its launch in 2001, whereas iPhone drop in price in only 2 month, which is the main score of why the iPod price cut did not lead to such a serious level of customer s protest. Although both price adjustments were designed for the aim to further hyperbolise in the trade food grocery store and improve the sales, we can find that the main reason for price cut of iPod is to sell more products in its declining period of product lifecycle.By contrast, the objective of price cut of iPhone is to rapidly monopoly the smart phone merchandise in its growing period of product lifecycle, which resulted a part of orchard apple tree fans profits since they bought the product in a blue price. 2. Market analysts pointed out that orchard apple tree had created a strong brand and customer loyalty which it capitalized on by adopting a skimming strategy in pricing. They also felt that customers accept its highly priced products with equanimity. To go a step further, they consciously expect it to be so.What does this tell you about the value of iPhone own-price snap, bollix-price elasticity and income elasticity? Answer The practice of price skimming involve s charging a relatively high price for a in brief time where a new, innovative, or much-improved product is launched onto a tradeplace. Obviously, due to the reason that Apple had created a strong brand image by its innovation of technology and creativity of design, and loyalty of customers, particularly those Apple crazy fans, the price skimming strategy was able to work extremely well when iPhone was launched onto the mart.Meanwhile, Apples iPhone entered the highly volatile cell phone market combining telephony, MP3, Web surfing and video watching, which completely revolutionized the tech-savvy market and was most awaited by both the technology enthusiasts and mainstream media. Therefore, the success of this strategy was largely bloodsucking on those first adopters inelasticity of demand for the product either by the market as a whole. However, in the cell phone industry, where the product lifecycle is relatively short and the market is highly competitive.Before some former( a)(a) competing products or substitutes emerging on the market, iPhone could enjoy its high price and benefit from its monopoly profits in a short term where demand is relatively inelastic. Whereas in the cell phone industry, the demand from mass market is price elastic, which is the main reason that Apple demand to drop its price to increase its sales according to its mass-market strategy. In terms of cross-price elasticity, we can think about this question from two aspects complements and substitutes.Firstly, due the reason that the demand of iPhone is price elastic in mass market, price of iPhone decrease, sum demanded of components increases, which leads Apple to get a lower price of components from its supplier and further guarantee its crude leeway of iPhone. In addition, the increase of sales also means the increase number of customer buying and renting apps from Apples online store. Secondly, considering substitutes, price of iPhone decrease, and quantity of competing pro ducts demanded decrease.Since the demand is price elastic, the lower production cost and increase revenue from Apple softer w atomic number 18 are able to recuperate the loss from cost cut. We can cave in the purpose that regarding to the income elasticity, a decrease of price of iPhone has a positive impact on its total revenue. 3. Based on the information provided in the representative would you say that the market for smartphone is closer to monopoly or to monopolistic competition? Justify. Answer Yes, base on the information provided in the case, I regard the smartphone industry as a monopolistic competition.Monopolistic competitionis a form of imperfect competitionwhere many competing producers sell products that aredifferentiatedfrom one another. Smartphone industry has pastime characteristics* There are several producers like Apple, Blackberry, Nokia, Motorola etc. , and many consumers in the market, but no company can total control over the market price. * Consumers perc eive that there are non-price differences among the competitors products. * There are few barriers to entry and exit.Producers have a degree of control over price. 4. Is the price cut firm by Apple two months after iPhone initial launch consistent with the smartphone market structure described above? Answer Yes, the performance of iPhone is consistent with the smartphone market structure. Firstly, the MC firms sell products that have real or perceived non-price differences. However, the differences are not so great as to eliminate other goods as substitutes. Technically, the cross price elasticity of demand between goods in such a market is positive.In this case, iPhone perform the same basic functions but have differences in qualities such as design, style, reputation and appearance. Secondly, independent decision-making is another characteristic of monopolistic competition. The firm gives no consideration to what effect its decision may have on competitors. In other words each fi rm feels free to set prices as if it were a monopoly. Lastly, Apple has some degree of market authority. Market office staff means that the firm has control over the terms and conditions of exchange. An MC firm can raise it prices without losing all its customers.The firm can also lower prices without triggering a potentially ruinous price war with competitors, which is the reason why iPhone was able to largely cut its price in two months. 5. Knowing the price cut affected negatively Apple reputation, do you believe Apple adopted an opportunistic pricing strategy initially selling the iPhone at a high price to take advantage of holiday season high spending habits and then dropping the price to stimulate market egression? Is this consistent with Apple pricing strategy in its other product lines like information processing systems and iPod?Answer I acquiret entirely believe that iPhone lunched at a high price was due to it attempted to take the advantage of holiday season high sp ending habits. From my point of view, there are two main reasons why iPhone priced high at the beginning Firstly, the core consumer groups of iPhone are enthusiastic fans of high-tech gadgets and some of them are loyalty customers of Apple. These parts of people are not comminuted for iPhones price. What attract them are its quality, design and innovation. The first adopters inelasticity of demand is a good opportunity for using the price skimming strategy.Secondly, high price strategy is an effective method to build a high-end brand image. Its much easier that a high brand image product cuts its price for promotion than a low brand image one raises it. For the tech-savvy market, the product lifecycle is short. We can often find on the market that a product of Apple or other brands cuts its price when it has been launched for a period of time. just now iPhone dropped its price only 2 months after it had been introduced onto the market. This strategy is quite different from other p roducts of Apple.For instance, iPod depreciated 2 years after it came into the market. Seeing the price of iPhone must(prenominal) be in line with iPod Touch, this strategy is special for Apple, comparing with other products. 6. According to Apple executives the fly the coop had been planned great ago and felt that the pricing strategy was conceived in part to keep the iPhones pricing in line with its new iPod touch. Explain to what extent a high-priced iPhone could be an obstacle to the success of the new iPod Touch. Based on what you know about Apple late development do you find that explanation convincing?Answer In terms of the features of these two types of products, iPod Touch is like a simplified version of iPhone, without the function of a phone. This determines that the prices of these two types of products must be in a line, which means, for a rational consideration, the price of iPod Touch must be lower than iPhone but not too furthermost away. If iPhone had not cut its price, iPod Touch must have had been priced at a higher level than the realistic one. We assume that, if iPhone 4 GB continued being sold at 499USD, iPod Touch may be sold at 400 or 450USD. As an mp3 player, it would be much more expensive than its competing brands.On the contrary, if iPhone had kept a high price level but iPod Touch had been set at a low one, the customers would have had been confused for why a simplified version of iPhone is so much cheaper than iPhone? That would have had a negative impacts on the sales of both iPhone and iPod Touch, even would have had impaired Apples brand image. Combining with what I know about the late development of these two types of products, I found although the price cutting had a temporary prostitute on customers trust, iPhone and iPod Touch both performed well on the market.It proved the importance of keeping the price of iPhone and iPod Touch in a line. 7. But the sharp price cut suggested that even Apple, which has long lived in a pricing bubble insulated from other personal computer makers, is not immune from the unforgiving pressures of the cellular phone business. Does this statement mean that the personal computers market is different from the cellular phone business in other words, the cellular phone market is more competitive than the personal computer market? Why? Do you share this view? Justify.Answer From this statement, I cant make the conclusion that the cell phone market is more competitive than the personal computer market. Apple is one of the earliest personal computer manufacturers in the world. Its personal computer products are behalf of the most advanced PC technology of the world. Especially its graphics processing technology and operating system have high reputation. Thus, Apples PC products long lived in a pricing bubble insulated from other personal computer makers. That means Apple has definitely strong market power on PC market. Its high price doesnt mean there is less competiti on.Furthermore, the technical innovation, appearance design, and function combination of cell phone products are updating so fast. So the lifecycle of a handset product is shorter than a computer. The price cutting often occurs when a mobile phone has come onto market for a period of time. The objective usually is for making price room for a new generation of product, which isnt caused by competing activities. In conclusion, I dont share this view. 8. Keeping in mind Apples range of high priced products which gives it an aura of exclusivity, was Jobs decision to reduce the price a pay off one? With a 50% gross margin, Apple is setting itself up for aggressive price declines going forward. Do you believe that Apple move is a sign that it is ready to enter a price war? Would this mean that Apple is leaving the niche market position it held for decades to go after mass market? What would be the pros and cons of that strategy? Do you believe it? Answer The characteristics of Apples pro ducts are novel design, fashionable appearance and the combination of music, game, music, clear surfing and other functions.It determines the positioning of iPhone must be high, and the main target consumer group is high income, music digital amateurs. This segment of consumer has low sensitive for price. keen price war will not yield more market shares for iPhone. So, the price cutting strategy doesnt mean Apple is ready for the price war. The products features determine Apples niche market strategy. But a cell phone product innovates relatively faster than other cargos. When a product successfully attracted some first adopters, how to sell them to more followers should be the core problem.Cutting the price and going in to the mass market is a universal method. Apple also adopted this strategy on iPhone. Pros of going to mass market * iPhone can attract more followers. nearly of them are sensitive to the price, their demands are elastic. Before the price cutting and entry of th e mass market, some of the non-owners didnt buy it just because of the high price. * iPhone can expand its market share quicker, and establish the competitive barriers. Its market power will be stronger. * The expanded customers would have had bought more online products, which would have had a big growth of income.By this strategy, iPhone can consolidate their customer-friendly brand image, and increase the loyalty of the customers. * The cooperation with ATT can get a synergy between these two brands, and can fuck off a sum of bonus revenue from the carrier. Cons of going to mass market * It made the brand image be lower than before. * Decreased the gross margin of iPhone. * Hurt some die-hards loyalty. * Increased the degree of monopoly, made the competition imperfect, and harmed the balance of the benign competition with its rivals.But a cellular phone product such as iPhone goes into the mass market is usually a temporary strategy when the product comes into the mature or decl ining period in its lifecycle, or when the company wants to make some price room for a new product. Apple cut iPhones price was just for keeping the iPhones price being in a line with iPod Touchs. It didnt mean Apple changed its main branding strategy to go into the mass market. For that time, I assume that it was a reasonable strategy for Apple to cut iPhones price.