Price is generally the sum of production cost with some 10% to 20% of profit. Is that what you think??Not Really, In value-based pricing, the price is set based on the consumers perception of the value and not the actual production cost. There are many brands that adopt this strategy to mark their prices for example Costco, Sam’s Club and Apple.
As you all know, Apple products are usually priced high when compared to other brands. This is because Apple fixes its price based on the values that are functionality, utilities and services that it is providing to the consumers. The cost of manufacturing of an iPhone may be less but the features that it provides values more that reasons the cost. The sophisticated features like touch screen functionality, Airdrop, Data Integration and security serves as a competitive advantage which enables the iPhone to have high prices.
Can everyone afford an iPhone? Not really. Apple is not concerned about making it affordable to everyone. It follows skimming pricing through which it is getting more revenue via fewer consumers. Skimming pricing is selling a product in high price which provides healthy margin but sacrificing the sales. iPhone user base mainly consists of early adopters, about 75% of whom are previous apple consumers. So they are targeting the mainstream buyers, who are ready to buy high priced products instead of new adopters so that they can maintain their growth.
Apple has successfully created a good demand for their product through differentiation. The traffic for pre-booking is itself huge. Since the demand is more, the price is increased, many people still want to purchase it that is why they could maintain this pricing policy The other fact is that they push the bars and invent something new in their product. R&D of Apple tries to incorporate something new in every product so that stands out from the crowd. For example, the apple laptops can work under dual operating systems. Both mac and windows and be installed in Apple computers. But the mac operating system cannot be installed in a windows computers. Facilities like these fancies the consumers which make them buy it even though it is costly.
Apple also applies psychological pricing strategy, which means fixing the price considering the psychological factors of the consumers. Marking the price $299, $199 will make the consumer to feel like it is $200 and $100 as the first number gets into the mind. For example, the price of iPhone 6 is $929 and iPhone 6 plus is $1079. Nice trick isn’t it? The other factor is that Apple places well using their storage capabilities. The fact that iPhone does not have an option for external storage, people will be confused to select which storage to buy. For example, the price of iPhone 6 plus 16 GB is $1079 which is $68 per GB whereas the price for 64 GB is $1229 which is $20 per GB. This will lead most of the consumers to buy 64GB who had a mindset of purchasing 16 GB initially. The worst part is that they do not produce 32 GB storage in iPhone which enhances the sales of 64 GB to next level.
On a contrast, the apple iPad follows market penetrating pricing, which means providing a lower price in the beginning and when the demand increases, the price also increased slowly. Initially the pads were launched in competition with kindle and e-readers so that with low prices, it attracted more buyers to buy iPad and when the demand of it actually increased, the price also increased obviously.
This is how Apple follows different pricing strategies with different products.
Name : B.KARTHIK RAAGAV
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Blog, Marketing, Marketing Blog, and View profile. “Marketing Examples: Pricing”. Uwmktg301.blogspot.com.au. N.p., 2010. Web. 2 May 2016.
“Value-Based Pricing Definition From Financial Times Lexicon”. Lexicon.ft.com. N.p., 2016. Web. 2 May 2016.