Pricing Strategies - Apple Inc.

Pricing Strategies - Apple Inc.

Recap

Virgin Australia

The iPad

iPhone 5

iPhone 5c

Advantages/disadvantages of Premium Pricing

Market - Penetrating

What Is a Pricing Strategy?

• A pricing strategy is the decision of setting a price for a product or service

• It is important to consider both internal and external

• Penetration - Act of setting low initial price to increase the market share

• Skim Pricing - Used with high risk products, unexplored markets and to make back money quicker

• Premium - setting a price higher than the market price, in the expectation that customers will purchase it due to the perception that it must have unusually high quality of reputation

• Released in 2010
• Low demand for Tablets
• Risky, Unestablished Market

Welcome

The decision of setting a price for

a product or service

Brand Opening Sales

Aero Biscuit

References

• Black, John 2012, Price elasticity: A dictionary of economics, Oxford University Press
• Menzes, Flavio 2015, Parliament should look closely at iron ore price war, podcast, ABC viewed 21/05/15. http://www.abc.net.au/news/2015-05-18/menezes-parliament-should-look-closely-at-the-iron-ore-price-war/6478444
• Seamons, Owen 2015, Week 10 pricing strategy, PowerPoint slides, University of Queensland, Brisbane
• Accounting Tools, (2014). Premium Pricing [online], http://www.accountingtools.com/premium-pricing/ [Accessed 14th May 2015].
• Nielson, S. (2014). An Investor’s Essential Guide to Apple. [online] Market Realist. http://marketrealist.com/2014/01/apple/, [Accessed 14th May 2015].
• Richards, L. (2013). Different Types of Pricing Strategy [Online], Demand Media http://smallbusiness.chron.com/different-types-pricing-strategy-4688.html [Accessed 14th May 2015].
• Varjan, T. (2012). Eight Advantages or Premium pricing Strategy [Online] http://www.varjan.com/articles/1205-may-eight-advantages-of-premium-pricing-strategy-and-eight-disadvantages-of-economy-pricing.shtml [Accessed 14th May 2015].

• Apple Inc., (2015). Apple (Australia) - Apple Press Info - iPhone 5 First Weekend Sales Top Five Million. [online] Apple. Available at: https://www.apple.com/au/pr/library/2012/09/24iPhone-5-First-Weekend-Sales-Top-Five-Million.html [Accessed 13 May 2015].

• Armstrong, G., Adam, S., Denize, S. and Kotler, P. (2015). Foundations of Marketing. 3rd ed. Frenchs Forest: Pearson Australia, p.276.

• Padilla, R. (2013). iPhone 5s and iPhone 5c Sales Top Nine Million in Launch Weekend. [online] MacRumors. Available at: http://www.macrumors.com/2013/09/23/iphone-5s-and-iphone-5c-sales-top-nine-million-in-launch-weekend/ [Accessed 13 May 2015].

• Riley, J. (2015). Penetration Pricing. [online] tutor2u. Available at: http://beta.tutor2u.net/business/reference/penetration-pricing [Accessed 13 May 2015].

Now We Want To Hear From You

Cost Based Pricing

“a record-breaking nine million units since the launch of both phones this past Friday.”

Q&A TIME

Jacob

Coleen

Abbie

Ben

Existing Products

Internal Factors

• Cost of production+ mark up= price
• Economy of scale is important here = less cost more profit
• Pricing takes into account what the minimum sale is needed in terms of units and price to break even
• Brand is not particularly important

Question

External Factors

• Fixed: Costs that the business will have even if it produces nothing
• Variable: Rises or lowers depending on production level, calculated in margin per item
• Total cost: The sum of both

Question

Question

Skim Pricing

Question

Below the Market

• Cheaper aims at selling bulk, generally not branded products

At the Market

• Large majority of everyday purchases, most branded products

Above the market

• Sells higher than the competition but could represent superior quality of niche market

Can anyone think of another apple

product that could relate to skim

pricing?

Bases of Pricing

What are some companies that might use this strategies?

Three Conditions

Who owns an apple product?

Value Based Pricing

Can anybody think of any other businesses’ that utilizes premium pricing as the marketing strategy?

Your Consumer Thoughts?

‪Source:www.economicsonline.co.uk

Question

What do you personally like about it?

Competition Based

• Economic value pricing
• Tender Pricing
• Going Rate pricing
• Performance Based pricing

Was their a lot of competition?

Did you research other options?

Did you care about price?

Was brand reputation the most important factor?

Answer

• Target market must be highly price sensitive
• Production/distribution costs must fall as sales rise
• Prices must beat your competitor’s

Premium Pricing

Key considerations:

• Brand
• Non-price variables
• What is it worth to the consumer?
• Less emphasis on production cost

• establishes a price higher than the competitors…[it] can be effectively used when there is something unique about the product or when the product is first to market and the business has a distinct competitive advantage” (Richards, 2015).
• “Premium pricing is the practice of setting a price higher than the market price, in the expectation that customers will purchase it due to the perception that it must have unusually high quality of reputation” (Accounting Tools, 2015).

Used When:

• High Risk
• Unexplored Market
• Need to Cover Costs Quickly

Supply and Demand

Pricing Strategies

Advantages

In relation to Apple inc.

Penetration Pricing

• Supply: The the amount of a particular good on the market
• Demand: The quantity that is demanded of a particular good
• Supply Vs. demand generally dictates price

Disadvantages

• Surprising your competition
• Encouraging word-of-mouth
• Easier distribution

Source:‪www.launchengineering.com

• No guarantee of customer loyalty
• Can create expectation of permanent prices
• Retaliation of competition

Apple

4 P's of Marketing

“the act of setting a low initial price, in order to penetrate the market quickly and deeply.”

• Founded by Steve Jobs, Steve Wozniak and Ronald Wayne
• Worth $700 Billion Dollars
• Most Valuable Company
• Core Products: Mac, iPod, iPad, iPhone

Price Elasticity

• Price
• Product
• Promotion
• Place

Marketing objectives:

• Increase number of consumers
• Increase market share
• Provide opportunity to increase price later on

Source:‪www.economicsonline.co.uk

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