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Apple is a premium brand of computer. Apple doesn't try to compete with PCs directly on price for several
reasons that are well known. Cut throat pricing leads to diminished profits and loss of shareholder value. It
diminishes the hard won reputation of the Apple brand. Finally, it's too early for Apple to jump on price
decreases before it fully understands the the impact of the Jan-Mar quarter sales.
Another reason is that dropping prices for a premium brand has to take into account Apple's experience with
the price elasticity of its products. Price elasticity is defined as the response in demand for a product as the
price decreases. For example, if Apple were to drop the price of the low end Mac mini from US$599 to, say,
$399, would the demand increase so much that the new production rate would lower costs and make more
money for Apple? Or would the price reduction simply reduce Apple's earnings? Based on what we've seen
from Apple lately, the answer has to be the latter.
I suspect that Apple has some fairly sound computer models that suggest what the impact would be of various
price reductions. To put it euphemistically. Tim Cook, Apple's COO, has a sharp pencil and a sharp mind. He
knows, to the penny, the bill of materials for each Apple product, what the new cost would be based on an
increased order, and how his gross margins would be affected.
Recession Realities
It's a fact of life that people who are concerned about getting laid off tend to avoid premium products. That
said, Apple still has to ask itself some hard questions about what the impact of lowering prices would be on the
company. Eventually, the U.S. and the rest of the world will climb out of this economic mess. How would
customers react in the future to Apple raising prices back to original levels? (I remember the outcry when
Apple actually raised memory prices a few years ago. One would think Apple ran over a grandma, on crutches,
in the parking lot.)
Does Apple have enough cash assets to weather a 10 percent drop in sales in order to preserve its premium
brand for the future? (The answer is yes.) History has shown that Apple appeals to prosperous customers, so
will a 9 or 10 percent unemployment rate affect a company that only has 10 percent of the total market share
of computers in the U.S.? And 3.5 percent worldwide? Will the current mental state of of American consumers
drive sales down dramatically or just a bit. Apple is watching and evaluating.
When observers of the Apple scene suggest that Apple sell a $500 netbook or lower the prices of their
notebooks drastically, it seems more like a knee-jerk reaction and wish fulfillment for a "cheaper" Mac than a
considered judgment about all the factors I've mentioned above.
Contrasting Apple to Car Companies
A lot of people like to contrast Apple to the American car companies. They wonder what GM or Chrysler would
be like if Steve Jobs were the CEO. The reason we're titillated by that prospect is because we intuitively know
that the American car companies have operated like Apple under Messrs. Spindler and, to a lesser extent
Amelio.
Before Steve Jobs came back to Apple, it was a needy company. It gave away money and computers. It spent
lavishly on the Apple Masters program, essentially a bribe to famous people to encourage them to love their
Macs and show it. Apple execs stuffed the reseller channel in the vain (and criminal) hope that lots of Macs
shipped would substitute for lots of Macs purchased by customers. Many of its products were mediocre and the
selection was confusing. (But not my beloved Power Mac 8500!)
If we look at the Detroit auto makers, we see similar things. Rebates essentially bribe customers into buying
mediocre products. Also, there are lots of products being built but few great products that cause people to
stand in line at oh-dark-thirty to buy them. While Toyota invested heavily in hybrid technology, because they
knew that offering cutting edge and responsible products would some day pay off, GM was patting itself on the
back over Hummer sales. No one really gets excited about Buicks, but show me someone who doesn't drool
over a BMW. That isn't crass thinking, rather, it's just a common sense recognition of the spectrum of quality in
products -- an enduring fact.
Basic Human Psychology
Part of the psychology here, by Apple, is that if something is just a little bit out of the buyer's price range, it's
desirable. At some point, a dream will come true (or an income tax refund check arrives) and the dream can be
fulfilled.
I've handled a few netbooks at Microcenter in Denver, and, believe me, these computers are nothing to drool
over. They're work horses for someone who needs a computer to take on travel for surfing, twitter, chat and email. That's it. They do the job nicely.
But when people use low end stuff for a living, its likely that their only available rationalization is how little they
spent. Similarly, ask any IT manager about how proud he is about how little money he spent on the computers
he bought for his staff. It's a comfortable conceit. Apple knows all about it. These people are not its customers.
Should Apple gamble that they should be?
Basically, Apple, as a business, has to make a considered judgment about its own best interests, both now and
in the future. Pleas by customers for Apple to give them gifts aren't typically part of the equation. And yet...
Recession Proof?
Apple is definitely not recession proof. The collective consciousness of the country, even though about 91
percent of people are still working, is in the dumpers. Each day brings bad news, and Apple sales will be down
this quarter. They may be down for a few quarters. Even so, Apple has the luxury, by virtue of its assets, to
avoid a hasty, emotional decision. Peter Oppenheimer, Apple's CFO, has suggested this during the last few
earnings reports.
Also, analyst perceptions about how well positioned people are to actually buy Apple products affects their
valuation of Apple stock. So despite great products, if fewer people can afford them, then Apple's viability as a
company is affected. The question for Apple, however, is deeper. Does lowering prices increase revenues? Does
it portend profits that encourage investment? Again, from what we've seen, Apple may not believe that right
now.
How far would Apple sales have to drop before Apple needed to take drastic action? What would that action be
if Apple sales fell by 50 percent, like the U.S. car companies in February? Macs at 50 percent discounts? Not
with gross margins of only 31 percent. On top of that, no business cause and effect is linear, so an X percent
drop in sales doesn't instantly dictate an X percent drop in price. It's that elasticity issue again. Finally, can a
company with US$28 billion in cash and short term investments weather a more probable 10 or even 20
percent slide in sales for a few quarters without damaging its brand? I think the answer is yes, and I think
Apple is betting on just that based on the pricing of the latest iMac, Mac mini and Mac Pro updates.
Look at these two points about Apples product prices that the author mention in the post:
The popular iPod Touch media player has been revamped at three price points $229,
$299, and $399 all costing more than the iPhone, which does everything the Touch can
plus make phone calls.
The current iPad costs $499 in its lowest-powered configuration vs. the Archos 7 Home
Tablet ($189) or the Dell Streak ($299 with a two-year AT&T contract). And competitors
are rushing to offer more functionality for hundreds of dollars less; the Streak tablet
throws in a videocam and phone, which iPads dont yet match.
To succeed in this pricing strategy the business must have much more than a product or the technology.
This need combination of different business strategies that can be used to increase overall business
potential.
First I must think that all products are brilliant. After that I will look at prices of iPod Touch and compare it
with the iPhone and probably will choose to buy iPhone because it is reasonable thinking. The iPad
features and all that buzz around it will make me to starve about a device like that and probably will buy
after some period of time. My mind is prepared that for such a product, I will pay $500. Meanwhile if it
became cheaper with launching of next generation of the product I will be more satisfied. And at the end
with all of that Apples products in my hands I will purchase some songs, buy some applications and rent
some video.
Watch Apple, and you can learn pricing tricks for your own business.
First, understand that pricing games are vital for Apple, because competition is fierce in the tech
world and product hits just don't last.
The current iPad costs $499 in its lowest-powered configuration vs. the Archos 7 Home Tablet
($189) or the Dell Streak ($299 with a two-year AT&T contract). And competitors are rushing to
offer more functionality for hundreds of dollars less; the Streak tablet throws in a videocam and
phone, which iPads don't yet match.
Apple's touchscreen buzz window is closing fast, and even though it will inevitably add features - I
predict the iPad will sport a camera, videocam, and phone within two years - today's tech wonders,
like the much-copied iPhone, become tomorrow's commodity.
Economist Dan Ariely, author of Predictably Irrational, gives the classic example of a Realtor who
shows you a home that needs a new roof, right before taking you to a higher-priced house she
really wants to sell. It's hard to tell if a $400,000 colonial is a good deal - but compared with a
$380,000 home that needs work, it looks quite good. Now consider, $499 for an iPad? Well,
compared with a smaller one with fewer features, it suddenly looks great.
Decoys explain why Apple often sells each gadget in a pricing series, such as the new iPod Touch's
$229, $299, and $399 price points for different storage capacities. You may gladly spend $229 to
get a hot media player, thinking it's a deal compared with the highest-priced version and not
blink that you could instead buy an iPhone 4 at the lower price of $199 with more features.
The $399 "decoy" has clouded your judgment. Apple wins the best of both worlds - stoking
demand for products that look like bargains and for all the decoys it sells at much higher prices.
Yes, some people will spend $399 for a music player with slightly better technology - and Apple
makes even fatter margins.
data fees over a two-year phone contract. All of this "bundling" means the price over time is much
more than what you think picking up the Apple gadget.
The pricing strategy is brilliant. By staging a series of perceived technology innovations and then
adding price decoys, reference prices, obscurity and bundling, Apple makes us willing to pay
more to do the same stuff we did 30 years ago: read magazines, type messages, watch shows or
make phone calls. The communication breakthroughs are mostly an illusion, but with shiny
aluminum in our hands, who cares what it costs?
Apple launched a completely refreshed line of MacBooks and MacBook Pros last week, to the by
now predictable fanfare and guessing-game imbroglio in the blogosphere. I have written previously
how this is a deliberate, well-designedArchetype Branding strategy on Apples part, using aspects
of "The Enigma" archetype among other things.
The MacBooks launch did contain the familiar elements of Steve Jobs magician stagecraft, though
there was a clear attempt to build up several other high-ranking Apple managers in the process,
due to recent concerns and rumors regarding Jobs health.
But the biggest overall focus in this difficult economic environment seemed to be
expected price-cuts and the overall pricing strategy. Specifically, whether the lowest-end
MacBook would go below $1,000, or even down to $899.
While the latter hope didnt materialize, the most entry level "old" MacBook (in white) was indeed
lowered to $999, but not the new line of anodized aluminum housing, all-around-upgraded
MacBooks. However, you shouldnt underestimate what Apple has done here:
1) They have now "Air-ized" (after the aluminum housing of the ground-breaking MacBook Air) the
entire MacBook/MacBook Pro line except for the close-out model "MacBook White". As Steve Jobs
said, they should see some cost reductions from ramping up the novel unibody aluminum frame
production in the next few quarters. So taking the entry-level Alu MacBook to $999 might
happen sooner than some think.
2) While the cost for the new entry-level MacBooks for now has been kept at $1299, there is a lot
of new technology that got pumped into it: iPod Touch multi-touch glass touchpad, led-backlit
screen and longer battery life from the MacBook Air, a high-end graphics accelerator, etc. etc. So
theyre establishing it as the "must-have-this-thing" item FIRST, in line with their branding as
"The Creator/Innovator" archetype among other things, plus their high-end image.
3) The new MacBook line thereby becomes "aspirational", so that even if you cant afford one right
now, you still know you want one (if you were ever open to it at all). Then, when the prices get
dropped further (see the iPhone price point development), everyone will think its a
bargain by comparison.
But to do this you have to first credibly build it up at the higher price levels. I would NEVER expect
Apple to forgo their brand equity and introduce brand new technology PLUS lower prices for that
new technology at the same time.
With a consumer recession already going on or imminent, the 60+% of people who are truly
affected by affordability arent Apples primary target market. AND they would be likely to delay
purchase of ANYTHING right now regardless of price point (ask yourself if they all would buy the
new aluminum MacBooks at $999 this instant I doubt it).
Apple doesnt need to be in the $400-700 notebook market for now, and if they want to be down
the road, it is still advantageous for them to have established the higher price point value
proposition. The price "anchor" this creates in the consumers mind is worth the
somewhat reduced volume now. Then when you "drop in" the price cut at the point of
maximum desirability (again, as was done with the iPhone), you are likely to create a feeding
frenzy.
Advertising
Apple advertised extensively for iPod. Just when iPod was launched, an introductory campaign which would
explain an unfamiliar product was needed. For this, Jobs thought a traditional campaign was preferable. Hence,
the first iPod's commercial showed a man listening to the songs on his iPod and dancing.
The commercial illustrated iPod's portability and ability to easily play songs downloaded from one's computer.
All media channels including television, print, hoardings, posters and wrap advertising were used to advertise
iPod (Refer Exhibit III A, III B and III C for some visuals of iPod's advertisements and Exhibit IV for wrap
advertising used for iPod)...
Positioning
The advertisements and commercials of iPod focused on the 'coolness' aspect as it made the viewers believe
that having one would make them accepted among their peers. Analysts commented that the hype surrounding
iPod was created due to its unique advertising, word of mouth publicity by the users and the look and design of
the product...
Apple owes its overwhelming success in the last years to the iPhone and to the smart iPod and iTunes product combination, a
combination of a great hardware piece with great style, great software, great performance, user friendly interface, with a good ebusiness service. The iPod + iTunes halo effect and new great Mac computers and Mac OS software did the rest in increasing Apple
revenue stream.
In the 5 years between 2003 to 2008 the Apple share value increased 25 times, from $7.5 to $180 per share. At july 2008 prices, before
the US Financial Crisis, Apple stock market capitalization was $160 billion.
In January 2010 Apple shares topped the $210 mark.
But even the best companies with the best products have bottleneck factors which often avoid full exploitation of the opportunities.
The iPod.
Few people are aware - and few market analysts too - that for the first 3 years the iPod was an absolute flop. The iPod was launched in
october 2001, and between 2001 and 2004 iPod sales were between 100-200 thousand units per quarter, very far from today's 10-20
million units per quarter, and the iPod sales were not even covering the product research & development costs.
Then, in June-Aug 2004 something happened, and iPod sales began to grow strongly, quarter after quarter. Today, we all know where
the iPod stands, and what a remarkable success it is.
The iPod made the fortune of Apple, and it stands out as the major turning point in the company growth.
Few people know that the iPod + iTunes business idea was not conceived inside Apple, but was proposed to Apple by an outside
source, a music lover and Engineer named Tony Fadell.
More on Tony Fadell and on the iPod marketing on iPod Marketing Strategy
It should be noted that, since the second generation of iPods in 2002, the iPods were made compatible not only with the Mac operating
systems but with Microsoft Windows operating systems as well.
We should ask ourselves (and to Steve Jobs): how many iPods would have been sold if the iPods would had been compatible only with
Apple did great. no doubt. However Apple has done some serious mistakes.
The most serious mistakes Apple has done concern marketing and distribution strategies in Europe.
Apple has overlooked the European markets, and missing big numbers in unexploited sales. With better marketing strategy, better
communication and distribution, Apple could have made 300% more revenues in Europe in the last 4 years. Apple Marketing in Europe
We met with with Erik Stannow, Apple Vice President of Marketing for Europe & EMEA. We have been talking with Erik Stannow about
the marketing and distribution issues of Apple in the European markets and we gave some valuable suggestions to improve the Apple
marketing strategy and distribution in Europe.
Well, it seems that in Cupertino they don't care so much about Europe.
Steve Jobs
If we talk about Apple success, about Apple great products, we need to talk about Steve Jobs. Steve Jobs has been and is the great
mind behind all this.
Steve Jobs is a genius, he is a magician, too. He is the most skilled guy in introducing new products - "... one more thing" - the most
skilled in presenting the key features, and he is a great communicator.
Even more important, Steve Jobs has Vision. Vision in the strategy, Vision in the product development, Vision in the alliances.
The market of Apple Inc is students and professionals who need computers
and other digital technologies. This market is the one that needs devices that can
keep their records and other personal or business information. This market is the
one that needs devices that can give them entertainment even if they are not in their
own homes. This market is the one that would want devices that would not cause
them to waste their time. The marketing orientation that the company tries to
implement is deeper customer focus. This type of orientation provides assistance for
the company to achieve their goals and provide effective service compared to
competitors.
Macro environmental forces that shape the marketing environment
When it comes to the law component of the macro environment Apple
Computers Inc make sure they comply with what the law states in the country; they
make sure that they comply with the regulated standards of the country. When it
comes to the economy the company tries to adjust to the economic situation of their
market. When it comes to the technology aspect of the macro environment, the
company makes use of various technological innovations that help in increasing
productivity and improving the quality of their products. The demography aspect of
the macro environment is used as a method of determining their target market. The
culture aspect of the macro environment provides Apple computers Inc the
information it needs to create products that most people will like and purchase. The
society aspect of the macro environment dictates how long the company will stay in
the industry. Nature as an aspect of the macro environment is used as a way for the
company to improve its image to its clients.
SWOT analysis
Apples strength is the international popularity it has. The company is known
throughout the world. Another strength of the company is the strong brand name
they have. The strong brand name is what makes the company and its products
popular. Furthermore a strength of the company is the effective advertising the
company uses. Lastly a strength of environment Apple Computers Inc is its website
that is easy to use, attractive, and informative. The main weakness of the company
is the health issues when their product is partaken. The products they have can
cause health problems when the user focus too much on using the product and
forgets to do other important things. Lastly a weakness of the company is its inability
to restrict certain age from using their product. Young children might use their
product to see things they should really not see at their age. Opportunity for the
company is to create products that can give not only satisfaction to clients but health
benefits as well. The company can create a product that will not cause much harm to
the users health. An opportunity for the company is to find out more ways to give a
distinctive look and features to their product. By doing this the company will have
competitive advantage over other firms. Lastly an opportunity for the company is to
reach newer territories where it can offer its products and services. The company
can reach more territories not yet reached by its competitors. The threat to the
company includes the laws in the country they are operating in. Another threat to the
company is the tariffs and taxes that the company has in different countries, each
countries has its own rate of taxes and tariff. Lastly a threat to the company is
complaints to the health problems that their product may cause. Its products may
have some effect not liked by people.
Market Segment
The market segment of the company is divided into 4 classes. Each class
represents a certain economic standing of people in the society. The company
makes sure that they cover all the segments in the society they are operating in. The
company has specialized prices for the different market segment, this will ensure
that the clients will have lesser doubts about taking a look at the companys product
and the products that they can afford.
Target market
The target market of the company involves almost all sectors of the society.
They want to provide Apple Computers Inc to young or old, boy or girl. This target
market is a larger source of income. The company has different marketing strategies
that can cater to the taste and appeal of such markets. The company makes sure
that its stores and branches are located in the most profitable places where clients
can easily see the store and they can be encouraged to visit the store and buy
products. The company also makes sure that competition in the location they want
to put up the branch will not be too heavy.
self repair courses for companies or individuals who want to learn about fixing their
products that have some issues.
Elements of the marketing mix should not be seen as individual entities, but
as a set of interrelated entities which have to be set in conjunction with one another
and in the context of the strategic window presented (Proctor 2000). Getting the right
blend of the product, promotion price and distribution is essential to put the carefully
carried out analysis into operation. The aim is to portray an image for the product or
service that will match with how one wants the product to be visualized in peoples
minds. Image is not only reflected in the promotional messages which are directed
towards the market target but also in the pricing strategy, the mode of distribution
and in the appearance of the product or service itself (Proctor 2000). The marketing
mix categorizes different aspects of the company and how the company can provide
satisfaction of the needs of the customers. Through the marketing mix each aspect
of the company can be checked and given consideration with regards to its ability to
attract clients. The marketing mix has created many changes over the years. Newer
components of marketing mix have been added. Some sectors have considered
packaging and personnel as components of the marketing mix. The marketing mix is
also continuously being improved to meet the needs of industrial product marketing
rather than the consumer marketing.
References
Birzer, BJ & Schweikart, L 2003, The American west, Wiley,
Hoboken, N
space. Apple iCloud is one of many ways in which Apple and Google are
fast becoming arch rivals.
Apple's Original Apple Macintosh Marketing Strategy
Stanford University has published contemporary records and original
documents of the marketing strategy for the Apple Macintosh launch in
1984, including the original Apple marketing strategy and the Apple
Macintosh product introduction plan written by Regis McKenna.
It is now 25 years since the launch of the Apple Macintosh (on January
24, 1984). Having proven itself and already gained considerable
popularity with the Apple II, Apple chose to announce the Apple Mac in
one of the most famous-ever commercials, aired during the third quarter
of Super Bowl XVIII on 22 January 1984.