UNEC image in the mind of people. Its simplicity

 

UNEC
– International School of Economics

 

Student: Nazpari Samadova

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Group: ? 1061

Subject: Price and pricing

Lecturer: Farid Amirov

Topic: Identify a company
that has a reputation in its industry for being smart at pricing. (Profile its
pricing practices – strategy, organization, implementation)

 

Note: This topic is written
in the case of Apple Inc.

 

 

 

 

Baku-2017

 

 

 

 

INTRODUCTION

The research
paper is about Apple Inc. that is an public company. In this research Apple’s
business strategy, pricing  practices
through its strategy, organization, implementation. In this paper, business
strategy, price practices of Apple are analyzed. It is also carried out that
why Apple Inc. is successful in its industry.

Business strategy
of Apple is implemented by product differentiation and cost leadership
strategy, product
diversification and focusing to broader consumer base strategy, innovation strategy,
creating ecosystem products and brand loyalty strategy, vertical and horizontal
integration strategy, retail strategy, promotion strategy.

(Strategic
Analysis of Apple Inc.,Yasin Nar,2013)

 Its income is increasing over the years.
Apple’s pricing strategy mainly focuses on the price skimming strategy.
Additionally it uses versioning strategy.

( Why did Apple change
its strategy?,Ch. Prof. Marco Tolotti, Ca’ Foscari University of Venice,2014).

The company
believes that high quality is the core value and it attracts customers.

( An Insightful Analysis Report on APPLE,INC,Yiyan Wang & Xuequan Ma,2015)

 

 

ABOUT
APPLE INC.

Apple Inc. was
founded on 1976. Its founders were Steve Jobs, Steve Wozniak and Ron Wayne. It
is an American multinational company. It has qualitative products and it is one
of the most successful companies in the world. Apple has a  unique reputation in its industry that is
based on consumer electronics. It produces, develops, and sells consumer
electronics, computer software, and personal computers. The company prefers a
high-quality. It thinks that this strategy attracts customers. It has made
luxurious image in the mind of people. Its simplicity ,creativity and luxury
causes to be successful company. The most famous products of Apple include
iMac, iPod, iPhone, iPad. Major countries where Apple’s products are sold
include United States, United Kingdom, France, Canada, Germany, Australia,
Japan, Italy, China and Netherlands. Main parts of Apple’s markets are placed
in developed countries.

(Wang Lehuan , Fei Xuan ,Liu Danfei , Jiang Yongming , Zhang Hao ,
Li Changhua, Copenhagen Business College,2011)

 

 

 

 

 

 

 

Annual income
statement:

               

(Data source: http://www.nasdaq.com)

This figure shows
Apple’s the sales performance from 2014 to 2017. We see that the net income
increased over 2014-2017.

Factors
of success

 

Successful
strategy of the company leads successful results. For example, one of the
famous products of Apple is very successful. Everyone thinks that which reasons
there are the reasons behind iPhone success. In the case of iPhone, factors of
success include a different product, a disruptive innovation, a successful
business model, a strong brand image and a loyal customer base.

A different product

One of the
reasons is that Apple’s products are different because the materials that Apple
use are high quality. When the first iPhone was introduced onto the market, its
some features were standard with other phones such as e-mail, address book etc.
But iPhone’s screen was different than others.

A disruptive innovation

One of the
factors affects Apple’s successes is innovation. A disruptive innovation is a term that defined by  Christensen, a Harvard Business School
professor. He defined a disruptive innovation as “a product or service designed
for a new set of customers that helps create a new market and value network,
eventually disrupting an existing market and value network (over a few years or
decades) and displacing an earlier technology”

A successful business
model

·        
The Company’s business strategy use its special capacity to outline and
build up its hardware, operating systems, services application.

·        
To provide customers with products that satisfy them is one of the main
goals of the company.

Apple, Inc.’s
Vision:

“Apple is
committed to bringing the best personal computing experience to students, educators,
creative professionals and consumers around the world through its innovative
hardware, software and Internet offerings”.

 (Johnson,
Katherine; Li, Yang; Phan, Hang; Singer, Jason; and Trinh, Hoang,2012)

Apple, Inc.’s
Mission:

“Apple designs Macs,
the best personal computers in the world, along with OS X, iLife, iWork and
professional software. Apple leads the digital music revolution with its iPods
and iTunes online store. Apple has reinvented the mobile phone with its
revolutionary iPhone and App Store, and is defining the future of mobile media
and computing devices with iPad”.

(Johnson, Katherine;
Li, Yang; Phan, Hang; Singer, Jason; and Trinh, Hoang,2012).

 

Investment in
research and development, marketing and advertising  are important factors for Apple. Because they
have affect on the sales and  development
of the company. According to its business strategy, Apple keeps development for
delivery of third-party digital content and applications by the iTunes Store. Customers can download applications and books by
the Company’s App Store and iBookstore that are parts of iTunes.

 

A strong brand image
and a loyal customer base

The brand image
of Apple’s products, such as iPhone leads to success of the company. Apple
exists 41 years and during these years it created its reputation and image in
the mind of customers. Its previous products had affect on its reputation
because they were high-quality products

 

Pricing Strategy of Apple Inc.

 

Price strategy is
one of the most important factors for a company since revenue of the company
depends on it. Price strategy can change during the life cycle of product.

Apple implemented
price skimming and versioning  strategy.

( Why did Apple change its
strategy?,Ch. Prof. Marco Tolotti, Ca’ Foscari University of Venice,2014).

Price skimming strategy

 Price skimming strategy means that a company
charges the high initial prices. And in this case customer will  pay it. In general it happens for short time
and when a new, much-improved product is launched into market. It is used
because of features, benefits, design of new product. But due to the end of
life cycle of product, prices are dropped slowly.

For example,
Apple launched iPhone 5 few years ago at the high price. There were few people
could buy it. Constantly, after few years prices of iPhone are dropped and more
people could buy it. Before a few months iPhone 6s was launched onto the
market. And before that iPhone 6 was launched. Both of them had high prices and
large quantities. Then as a result of  introducing
new models such as iPhone 7, iPhone 8, prices of previous models will be
dropped slowly.

Another example
is iPad. When iPad was launched, there are large numbers of customers who were
willing to buy the new device. Price skimming strategy mostly depends on the
inelasticity of demand for the product. High prices can be appropriate when
demand is relatively inelastic and  for
short term.

Price skimming
strategy has both advantages and disadvantages.

Advantages:

1)Apple produces
innovative products such as iPad. And the costs of this kind of products are
very high. For example, promotion etc. It is positive aspect that the company
can cover its costs.      

2)By selling its
product at high price, Apple can create a high-quality image about its product in
the mind of customers.

3)Products are
distributed via retailer stores. And retailers can get high benefit from the
high price of products.

Disadvantages :

1)   
This strategy is suitable only in the case of inelastic demand curve of
product. If in the long run demand curve would be elastic then market
equilibrium will be reached by quantity changes, not price changes.

2)   
Competitors are attracted by skimming price strategy. They are forced for
entry to the market.

(Price Skimming on a Successful Marketing
Strategy: Study of Ipad Launching as Apple’s Innovative Product,Ma
Huimin, Jose Antonio Hernandez,2011)

Versioning strategy

Versioning means
that the company offers different kinds or models of the same product at
different prices to customers. In this case prices are different for each model.
Due to geographic location, different willingness to pay of different kinds of
markets, Apple carried out this strategy.

For example, when
iPhone 5 was launched onto the market, it had different prices for its
different models. It had lower cost and high cost version.

( Why did Apple change
its strategy?,Ch. Prof. Marco Tolotti, Ca’ Foscari University of Venice,2014).

 

Example:

Storage

16GB

32GB

64GB

Price on Apple

649

749

849

 

(Data source: Data
Analysis of Trends in iPhone 5 Sales on eBay, Wenyu Zhang)

 

 Apple always tries to increase market demand
for its products. Although there is high competition in its industry Apple is
successful in this strategy. It can create demand for its products. And it is
one of the most important targets of Apple. It implements it by product
differentiation strategy. Innovation, advertisement, brand name has also affect
in this strategy.

Minimum advertised
price

Apple use a
retail strategy called “minimum advertised price”.  As a result of this strategy, resellers can
not advertise manufacturer’s products below a certain minimum price. The
minimum advertised price is ordinarily reinforce through marketing subsidies by
a producer to its affiliates. In this case, retailers can  not apply high discount on Apple’s products.
Thus customers pay a price that is matching the retail price that the
manufacturer recommend. But a retailer can prefer to give up this margin in
order to make discounts and rise the number of buyers buying the products.
Apple proposes incentives to retailers to sell its products at the minimum
advertised price set by itself in order to inhibit this from happening. This
practice of Apple is successful because prevents resellers to form a direct
competition with registered stores of Apple. A retailer can also use beneficial
position over another and this practice of Apple prohibit it.

Setting a premium price

Apple propose its
first class devices by setting a premium price. It’s  mid price products are less expensive than
others but it provides excellent valuable consumer experience.
For example, Hardware and software are first class products and Apple offers a
right price that  keeps revenue high.
Because of  Apple has a competitive
advantage that gives an opportunity it to set a premium price, the above the average prices are justified, however
if only the Company can keep this advantage.

( Why did Apple change
its strategy?,Ch. Prof. Marco Tolotti, Ca’ Foscari University of Venice,2014).

 

 

 CONCLUSION

The conclusion is
that the major factors of success of Apple include its business strategy
through successful business model, produce different product , a strong brand
image and a loyal customer base, price practices.

Because of high
quality the products of Apple are different than others. Its products differs
with some specific features. It is one of the reasons that causes success of
Apple.

Apple offers
innovative products to its customers. High innovation leads it to success.
Because in the modern era, peoples prefer to high innovative products such as
iPhone 8 etc.

Brand name has
affect on prosperity of the company. Some people prefer to famous brands and so
they buy Apple’s products. Some of them also thinks that brand image inform
about its quality.

In the side of
price practices Apple mainly  use price skimming
strategy and price versioning strategy. This strategy of Apple is appropriate
because it has some advantages as above mentioned. For example, the company can
cover its costs. It can create a high-quality image about its product in the
mind of customers. And retailers can get high benefit from the high price of
products.

Apple implements also
price versioning strategy in which the company offers different kinds or models
of the same product at different prices to customers. It means prices are
different for each model. In this research we found out it in the case of
iPhone 5.

Apple implements
minimum advertised price and setting a premium price. Because of minimum
advertised price resellers can not advertise manufacturer’s products below a
certain minimum price.

In the case of a
premium price ,first class devices are offered by setting a premium price            . This strategy leads more profit.

As a result of
this research, it is carried out that Apple Inc. is smart at pricing.
Organization of business, implementation of its price practices turn company to
a successful company.