How Does Pricing Affect Apple’s Technology?

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Abstract

Apple Inc. is listed among the best computer software, consumer electronics, and personal computer companies in the world (Carr, 2013). Headquartered in California, its products enjoy a global market. It is ranked as the second-largest information technology company in the world by revenue, the only company ahead of it being Samsung electronics. As a mobile phone maker, it comes third after Samsung again, and Nokia.The company is well known for its cutting edge technology, which is what every person requires in the current technologically advanced world. Apple Inc. began generating sales from the production of the best personal computers which were available in the computer market in the nineties. Some of the computer brands which were available in the market at that time included Power Mac, Macintosh and the Apple brand computers (Carr, 2013). However, after competition stiffened within the technology industry, the company experienced a drastic drop in the number of sales that were being generated forcing the company to devise new strategies to maintain its position in the market. It was then that Apple Inc. decided to introduce varieties of technological products other than just focusing on computer brands. In 2001, Apple Inc. introduced its first iPod in the market which the major competitors in the industry have tried to copy, but their products come second to Apple Inc.’s brand (Carr, 2013).

Apple’s Pricing Strategy

After the introduction of the new iPhone model in the market, Apple employed the “good-better-best” pricing strategy for all its new technology devices introduced in the market (Carr, 2013). The new iPhone model also known as the 5S has a better capability in comparison to other iPhone models that had been previously introduced in the market. For instance, the iPhone 5S has a faster processing ability and enhanced security technology and a better camera. Carr (2013) further states that, in the U.S., the prices of the 5S range from $199 to $649 depending on whether the payments are to be made on a contract basis or on cash terms. Alongside the 5S, Apple also introduced the 5C which is an older iPhone technology and cheaper in that sense. The prices of the 5C iPhone range between $99 and $549.

How Does Pricing Affect Apple’s Technology

Apple’s pricing strategy did affect the company’s long term profitability despite undergoing some form of criticism and facing some harsh reactions within the stock market. Evidently, Apple’s “good-better-best” pricing strategy provides the company with a choice of generating growth. As it is, Apple’s pricing strategy takes into consideration the desires of customers in the marketplace through the provision of a contract-on and contract-off options for their technology in the marketplace. Further, the company delivers similar products, which are priced differently to cater to the need of the customers within different economic brackets. This means that customers can choose the price which works best for them. This has a direct effect on the company’s long term profitability since the strategy does not dictate the customers on what prices to settle for on Apple’s technology in the market thus enhancing its competitiveness against competitors such as Microsoft Corporation in the market. Gershoff, Kivetz, and Keinan (2012) indicate that Apple’s pricing strategy is a way of serving the price-sensitive market through the introduction of fighter brand technology such as the 5C iPhones. This is also a way of enhancing the competitiveness of the company in that the fighter brand technology introduced in the market attracts a different set of consumers in the market ensuring the growth of Apple’s business through the attraction of the new early-bird customers. This further boosts the level of sales which the company makes from its technology.

In addition, Apple’s pricing strategy did affect the company’s future profitability and competitiveness on the basis that it plays a great role in preserving the margins of the technological products that it offers in the market, such as the 5S’s margin. Miletsky and Hand (2009) state that a premium product with a larger market share normally encounters a new wave of competition which attracts the attention of customers through employment of rock bottom prices. The Siri-bashing Windows 8 tablet ads are an example of technology by Microsoft utilizing the rock bottom prices to generate a new wave of competition, which is similar to what Apple does to win more customers against their competitors. Dedrick, Xu, and Zhu (2008) report that the punch-line of the Windows 8 tablet ad was cheaper than the iPad technology introduced in the market by $250. However, the tablet and the iPad are two different technologies designed for different functionalities. This made it even harder for Microsoft to serve the price-sensitive customers unlike in Apple’s case where the company introduces lower-priced fighter brand technologies in the market such as the 5C which better positions the 5S among the customers who value the iPhone handset.

According to Drnevich and Croson (2013), the stock market provided harsh reactions to the new pricing strategy employed by Apple after the introduction of $549 off-contract prices for 5C fighter brand technologies in the market. The relatively higher prices drew much attention as analysts had previously predicted that the prices of the 5C would be approximately $400. As a result, the company’s investors became skittish after the new $549 prices were announced for the 5C technology. This can be translated to mean that Apple is considered a victim of unrealistic expectations.

Conclusion

Although Apple’s off-contract technology pricing strategy does not have the ability to attract and satisfy the needs of an emerging market, push on contract, also known as the lease pricing option, is regarded as the key to success in these markets. The use of the “good-better-best” pricing strategy by Apple Inc. does affect the company’s future profitability and competitiveness through the identification of different prices for their technology. This caters to all the consumers available in different economic brackets, and, therefore, widening the company’s consumer base which further increases profitability and enhances the company’s competition. Apple’s innovative capability contributes towards the company’s success as the company can identify the most appropriate technologies to deliver in the market as well as the suitable prices to allocate the technology such that the company generates a considerable amount of profits and at the same time enhance its competitiveness. As a way of limiting the mixed-up feelings towards the company’s pricing strategy, it would be wise for Apple Inc. to improve its pricing strategy and practices as this assists customers and investors in understanding that the use of on-contract strategies is a time-honored strategy which advances over time.

References

Carr, A. (2013). What You Don't Know About Apple. Fast Company, (174), 35-38.

Dedrick, J., Xu, S., & Zhu, K. (2008). How Does Information Technology Shape Supply-Chain Structure? Evidence on the Number of Suppliers. Journal of Management Information Systems, 25(2), 41-72.

Drnevich, P. L., & Croson, D. C. (2013). Information Technology and Business-Level Strategy: Toward an Integrated Theoretical Perspective. MIS Quarterly, 37(2), 483-509.

Gershoff, A. D., Kivetz, R., & Keinan, A. (2012). Consumer Response to Versioning: How Brands' Production Methods Affect Perceptions of Unfairness. Journal of Consumer Research, 39(2), 382-398. Doi: 10.1086/663777.

Miletsky, J. I., & Hand, M. (2009). Perspectives on Marketing: The Agency Perspective. [Boston]: Course Technology.