Apple Price Cut Essay

To what extent the iPhone set system is similar to the iPod determine dodging? How do you explain that the iPod expense thin out did non fall to such a train of customers protest? cause Both iPhone and iPod start out experienced a large amount of cost sign in their mathematical harvest lifecycle. In this document, we discharge find that iPod was throwed in October cc1. Tough relatively mellowed hurtd for an MP3 player, it was tremendously requested and re mains popular till date though there was a determine slash in 2005. Similar to the outlay ablation of the iPod, dickens months after(prenominal)ward the launch of the iPhone, apple glowered the terms by 200 USD.However, go outing the harm system, a big difference between two products is the time of harm cut. iPod adjusted its terms after experiencing a 4-year success from its launch in 2001, whereas iPhone drop in expense in only 2 month, which is the main explanation of wherefore the iPod worth cut did not lead to such a serious level of customers protest. Although both price adjustments were knowing for the aim to further expand in the megabucks commercialize and better the gross revenue, we atomic number 50 find that the main moderateness for price cut of iPod is to c all over more(prenominal) products in its declining conclusion of product lifecycle.By contrast, the objective of price cut of iPhone is to rapidly monopoly the smart cry market place in its evolution period of product lifecycle, which resulted a component part of orchard apple tree fans pelf since they bought the product in a game price. 2. Market analysts pointed out that apple had created a strong instigator and customer loyalty which it capitalized on by adopting a skimming strategy in pricing. They also felt that customers accept its passing priced products with equanimity. To go a step further, they consciously expect it to be so.What does this guarantee you most the value of iPhone own-price elasticity, breed-price elasticity and income elasticity? Answer The practice of price skimming involves charging a relatively high price for a piteous time where a tender, innovative, or much-improved product is launched onto a market. Obviously, due to the reason that orchard apple tree had created a strong flaw symbol by its transmutation of technology and creativity of determination, and loyalty of customers, particularly those orchard apple tree crazy fans, the price skimming strategy was able to work extremely well when iPhone was launched onto the market.Meanwhile, orchard apple trees iPhone entered the highly volatile cell environ market cartel 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 certified on those first adopters inelasticity of demand for the product ei ther by the market as a whole. However, in the cell phone industry, where the product lifecycle is relatively short and the market is highly competitive.Before whatsoever former(a) 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 demand is relatively inelastic. Whereas in the cell phone industry, the demand from mass market is price elastic, which is the main reason that Apple needs to drop its price to join on its sales according to its mass-market strategy. In terms of cross-price elasticity, we can think about this doubt 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 lower price of components from its supplier and further guarantee its gross margin of iPhone. In addition, the increase of sales also mea ns the increase number of customer buying and renting apps from Apples online store. Secondly, considering substitutes, price of iPhone decrease, and quantity of competing products demanded decrease.Since the demand is price elastic, the lower production cost and increase revenue from Apple softer w atomic number 18 be able to recuperate the loss from cost cut. We can support the destruction that regarding to the income elasticity, a decrease of price of iPhone has a cocksure impact on its total revenue. 3. Based on the information provided in the case would you say that the market for smartphone is closer to monopoly or to monopolistic contention? Justify. Answer Yes, base on the information provided in the case, I regard the smartphone industry as a monopolistic disputation.Monopolistic competitionis a form of imperfect competitionwhere many competing producers sell products that are secernfrom one another. Smartphone industry has following traces* There are several producer s like Apple, Blackberry, Nokia, Motorola etc. , and many consumers in the market, but no company can total control 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 take a crap a pointedness of control over price. 4. Is the price cut decided by Apple two months after iPhone initial launch consistent with the smartphone market grammatical construction described above? Answer Yes, the performance of iPhone is consistent with the smartphone market structure. Firstly, the MC theatres 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 powers but have differences in qualities such as design, style, reputation and appearance. Secondly, independent decision-making is another characteristic of monopolistic competition. The soused gives no consideration to what effect its decision whitethorn have on competitors. In other words each firm feels free to set prices as if it were a monopoly. Lastly, Apple has some pointedness 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. Knowing 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 vacation season high spending habits and therefore dropping the price to stimulate market growth? Is this consistent with Apple pricing strategy in its other product lines like calculators and iPod?Answer I dont entirely believe that iPhone lunched at a high price was due to it attempted 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 raft are not sensitive for iPhones price. What attract 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 descriptor a high-end brand image. 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 practically find on the market that a product of Apple or other brands cuts its price when i t has been launched for a period of 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 mustiness be in line with iPod tinge, this strategy is special for Apple, comparing with other products. 6. According to Apple executives the move had been mean long ago and felt that the pricing strategy was conceived in part to keep the iPhones pricing in line with its virgin iPod touch. pardon to what extent a high-priced iPhone could be an obstacle to the success of the new iPod theme song. Based on what you know about Apple late emergence 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 bunk of a phone. This determines that the prices of these two types of products mus t be in a line, which means, 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 higher level than the realistic one. We usurp that, if iPhone 4 GB continued existence change at 499USD, iPod Touch may be sold at four hundred 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 afflicted Apples brand image. Combining with what I know about the late development of these two types of products, I found although the price slick had a temporary harm on customers trust, iPhone and iPod Touch both performed well on the market.It proved the importance of keeping 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 ain computer makers, is not immune from the brutal pressures of the cellular phone business. Does this statement 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 treat 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 processing technology and operating system have high reputation. Thus, Apples PC products long lived in a pricing bubble insulate d from other personal computer makers. That means Apple has in spades strong market power on PC market. Its high price doesnt mean there is less 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 tender 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. Keeping in mind Apples consort of high priced products which gives it an aura of exclusivity, was Jobs decision to reduce the price a effective one? With a 50% gross margin, Apple is setting itself up for aggressive price declines going forward. Do you believe that Apple move is a sign that it is ready to enter a price war? Would this mean that Apple is leaving the niche market set up it held for decades to go after 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, mod appearance and the combination of music, game, music, web surfing and other functions.It determines the positioning 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 go out 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 following should be the core problem.Cutting the price and going in to the mass market is a universal method. Apple also adopted this strategy on iPhone. Pros of going to mass marke t * iPhone can attract more followers. 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 establish 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 aid 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 balance of the benign competition with its rivals.But a cellular phone product such 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.