Apple Price Cut Essay Example for Free

apple Price Cut essayTo what extent the iPhone set strategy is similar to the iPod pricing strategy? How do you explain that the iPod expenditure eff did non lead to such a level of customers protest? Answer Both iPhone and iPod defy experient a large amount of scathe abscission in their return lifecycle. In this document, we arse stimulate that iPod was lanceed in October 2001. Tough relatively lofty hurtd for an MP3 player, it was hugely inviteed and remains popular till date though there was a harm slash in 2005. Similar to the price cut of the iPod, 2 months by and by the launch of the iPhone, orchard apple tree dismayed the price by 200 USD.However, obedienceing the price strategy, a big difference of opinion between deuce products is the timing of price cut. iPod adjusted its price after experiencing a 4-year success from its launch in 2001, whereas iPhone drop in price in only 2 month, which is the main explanation of why the iPod price cut did not lead to such a serious level of customers protest. Although both price adjustments were designed for the aim to raise expand in the atomic reactor grocery store and improve the sales, we washbowl distinguish that the main think for price cut of iPod is to sell to a greater extent products in its declining termination of product lifecycle.By contrast, the objective of price cut of iPhone is to rapidly monopoly the smart anticipate securities industry in its growing period of product lifecycle, which resulted a part of Apple fans profits since they bought the product in a high price. 2. grocery store analysts pointed out that Apple had created a wholesome brand and customer loyalty which it capitalized on by adopting a sliver strategy in pricing. They also felt that customers accept its highly priced products with equanimity. To go a misuse further, they consciously expect it to be so. What does this tell you about the value of iPhone own-price elasticity, cross-price el asticity and income elasticity? Answer The figure of price skimming involves charging a relatively high price for a short time where a new, innovative, or much-improved product is launched onto a market. Obviously, due to the reason that Apple had created a strong brand video 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 market.Meanwhile, Apples iPhone entered the highly volatile cellular telephone 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 dependent on those first adopters inelasticity of convey for the product either by the market as a whole. However, in the cell phone industry, where the product lifec ycle is relatively short and the market is highly competitive.Before few other 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 necessary is relatively inelastic. Whereas in the cell phone industry, the demand from muddle market is price elastic, which is the main reason that Apple needs 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, quantity demanded of components increases, which leads Apple to get a natural depressioner price of components from its supplier and further guarantee its gross margin of iPhone. In addition, the increase of sales also means the increase physical body of customer buying and renting apps from Appl es on contestation store. Secondly, considering substitutes, price of iPhone decrease, and quantity of competing products demanded decrease.Since the demand is price elastic, the disappoint production cost and increase revenue from Apple softer wargon are able to recuperate the dis receipts from cost cut. We can make the conclusion that regarding to the income elasticity, a decrease of price of iPhone has a positive bear on on its total revenue. 3. Based on the information provided in the case would you say that the market for smartphone is close at hand(predicate) to monopoly or to monopolistic challenger? 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 following characteristics * There are some(prenominal) producers like Apple, Blackberry, Nokia, Motorola etc. , and many con stateers in the market, notwithstanding no company can total contain over the market price. * Consumers perceive 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 decided by Apple two months after iPhone initial launch consistent with the smartphone market structure described above? Answer Yes, the execution of instrument of iPhone is consistent with the smartphone market structure. Firstly, the MC unbendables 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, indepen dent decision-making is another characteristic of monopolistic competition. The firm gives no consideration to what effect its decision may have on competitors. In other run-in each firm feels free to throttle prices as if it were a monopoly. Lastly, Apple has some degree of market power. Market power 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. crafty 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 ontogenesis? Is this consistent with Apple pricing strategy in its other product lines like com puters and iPod?Answer I dont entirely believe that iPhone lunched at a high price was due to it essay to take the advantage of holiday season high spending 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 sensitive for iPhones price. What run 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 cipher. 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 o f time. But iPhone dropped its price only 2 months after it had been introduced onto the market. This strategy is quite different from other products 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 notion, this strategy is special for Apple, comparing with other products. 6. According to Apple executives the function had been planned long 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 obstruction 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 escorts that the prices of these two types of products must be in a line, which m eans, for a reasonable consideration, the price of iPod Touch must be lower than iPhone but not too far away. If iPhone had not cut its price, iPod Touch must have had been priced at a high 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 stricken 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 harm on customers trust, iPhone and iPod Touch both performed well on the market.It proved the importance of keepi ng 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 brutal pressures of the cellular phone business. Does this averment 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 donation 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 impact technology and operating system have high reputation. Thus, Apples PC products long lived in a pricing bubble insulated from other personal computer maker s. That means Apple has definitely strong market power on PC market. Its high price doesnt mean there is little competition.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. retention in mind Apples range of high priced products which gives it an aura of exclusivity, was Jobs decision to reduce the price a right one? With a 50% gross margin, Apple is setting itself up for obstreperous price declines going forward. Do you believe that Apple move is a sign that it is rear to enter a price war? Would this mean that Apple is leaving the niche market invest it held for decades to go afte r mass market? What would be the pros and cons of that strategy? Do you believe it? Answer The characteristics of Apples products are novel design, fashionable appearance and the combination of music, game, music, web surfing and other functions.It determines the locating 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. Pure 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 pursual should be the core problem.Cutting the price and going in to the mass market is a customary method. Apple also adopted this strategy on iPhone. Pros of going to mass market * iPhone can attract more follo wers. Some of them are sensitive to the price, their demands are elastic. Before the price cutting and entry of the mass market, some of the non-owners didnt buy it just because of the high price. * iPhone can expand its market share quicker, and work up 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 receive 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 equilibrium of the benign competition with its rivals.But a cellular phone product s uch as iPhone goes into the mass market is usually a temporary strategy when the product comes into the mature or declining 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.