Monday, March 1, 2010

Pricing


Price is the amount of money charged for a product or service, or the sum of all the values that customers give up in order to gain the benefits of having or using a product or a service (Kotler)

Pricing is an important to a business; it must set prices so that it can profitable. Flawed pricing can lead to loss of customers, profits and market share. We will discuss the pricing strategy of Apple, Inc., a company that produces a wide-array of technology products.

Value-based pricing

Apple adopts value-based pricing, (setting prices that are based on buyers' perceptions of value rather than on seller's cost), more specifically value-added pricing. Apple products usually cost higher than other market offerings from other brands, however it has features that justifies the higher premiums. For example, the iPhone has touch screen functionality and has the ability to run several applications available at the App Store. This enables the iPhone to be a mobile phone,a mp3 player, a gps, a hand-held gaming system and much more. Macbook Pro's are highly-priced compared to market offerings by Hp, Dell, and other laptop manufacturers. The base model of the current Macbook Pro retails for $1,199. However, Macbook Pro's have the ability to dual-boot and run OS X and a Windows operating system. They also offer a plethora of other features that increases its value such as LED-lit screens, an aluminum body, prolonged battery life and much more.

New-Product Pricing Strategy

For the iPad, Apple used a market-penetrating pricing strategy, along with other pricing strategies such as product line pricing strategy. Market-penetrating pricing is defined as setting a low price for a new product in order to attract a large number of buyers and large market share. The iPad is priced competitively against its competitors (Amazon kindle, Sony e-readers, Netbooks). By doing this, Apple hopes to increase its market share and quickly attract a number of buyers.

Product Mix Pricing Strategy

Apple adopts a product line pricing strategy for most of its products. Product line pricing is defined as setting the price steps between products in a product line based on cost differences and customer perceptions of the value. For example, Apple sells its iPods at various price points. The iPod touch is priced at $199 for the 8gb model, $299 for 32gb, and $399 for the 64gb model. The price savvy consumer might gravitate towards the lower 8gb model but a heavy-user with little regard for price will purchase the models with higher memory capacities. The other iPods such as Nano, Classic, and shuffle also follow a similar pricing scheme.

Apple also uses optional-product pricing . Optional-product pricing is defined as the pricing of optional or accessory products along with a main product. A variety applications that are usable on the iPhone and iPod touch can be only purchased directly from Apple's App Store. If a user wants to legally download certain mp3 songs, albums and video files, they can download those files from Apple's iTunes Store. Users can also customize the hardware of their Macbooks and Macbook Pro's; they pay extra for upgrades in hard-drive space, Random Access Memory (RAM), processors and much more.

Apple occasionally uses product bundle pricing as well. Product bundle pricing is defined as the combination of several products and offering the bundle at a reduced price. For example, during the summer of 2009, Apple bundled certain iPods and printers with Macbooks and Macbook Pro's for the retail price of the Macbook or Macbook Pro.

Price-Adjustment Strategies

Apple also applies psychological pricing. Psychological pricing is defined as a pricing approach that consider the psychology of prices and not simply the economics, the price is used to s ay something about the product. The higher prices of Apple's products compared to its competitors triggers signals to consumers; exclusivity, high-quality, uniqueness, coolness factor, etc. They also incorporate psychological pricing in a different way. As stated previously, the different variations of the iPod Touch retail at different price points. While applying product-line pricing, I also believe this strategy also urges its consumers to step up to the next model and pay more for a higher model. For example, the $399 iPod touch yields the best value because the price per GB is $6.23 ($399/64) while the $199 yields a price per GB of $24.88 ($199/8). These cues could lead to a purchasing decision that a customer did not anticipate (i.e wanting to purchase the 16gb initially, but ended up purchasing the 32gb or 64gb model).

Note: All the definitions were obtained from the textbook.

Jose Jacinto

Section E

4 comments:

  1. what about making a discount in primary good to sell its complement?for example bank sells loan to their customers. but offer a discount for loan if the customer also buy insurance. what is the name of this pricing strategy?

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