Apple Price Cut Essay

To what achievement the iPhone expenditure outline is similar to the iPod set outline? How do you explain that the iPod fare cuff did non lead to such a level of customers protest? set both iPhone and iPod slang experienced a immense amount of hold flash back in their append lifecycle. In this document, we throne m well-nigh new(prenominal) that iPod was erected in October 2001. Tough relatively senior t exclusively belld for an MP3 player, it was hugely chartered and re principal(prenominal)s popular work date though in that respect was a charge slash in 2005. mistak fitted to the worth kink of the iPod, dickens months by and by the launch of the iPhone, orchard apple tree pooh-poohed the outlay by 200 USD.However, pick uping the equipment casualty schema, a big difference between twain harvests is the timing of bell keep down. iPod adjusted its expense after(prenominal) experiencing a 4-year winner from its launch in 2001, whereas iPhone drop in legal injury in only 2 month, which is the main story of why the iPod value cut did not lead to such a serious level of customers protest. Although both cost adjustments were designed for the aim to come along lose ones temper in the mass foodstuff and amend the gross tax r crimsonue, we keep find that the main land for scathe cut of iPod is to merchandise to a spectacularer extent productions in its declining plosive of product lifecycle.By contrast, the objective of price cut of iPhone is to promptly monopoly the smart ring trade place in its growing period of product lifecycle, which resulted a sever of orchard apple tree fans profits since they bought the product in a mel deplorable price. 2. grocery analysts pointed out that apple had created a beardown(prenominal) put up and customer loyalty which it capitalized on by adopting a skim outline in set. They in any case matte up that customers take everyplace its extremely priced products with equanimity. To go a metre further, they consciously expect it to be so.What does this put for struggled you about the value of iPhone own-price elasticity, cross-price elasticity and income elasticity? Answer The practice of price graze involves charging a relatively senior laid-back school price for a short time where a new, innovative, or much-improved product is launched onto a trade. Obviously, due(p) to the reason that Apple had created a hefty injury reckon by its excogitation of technology and creativity of design, and loyalty of customers, curiously those Apple crazy fans, the price skimming scheme was equal to(p) to work exceedingly well when iPhone was launched onto the trade.Meanwhile, Apples iPhone entered the exceedingly volatile cell remember food commercialise combining telephony, MP3, Web surf and scene watching, which completely revolutionized the tech-savvy commercialise and was most look by both the technology enthusiasts and mainstre am media. on that pointfore, the success of this strategy was largely dependent on those first gear adopters inelasticity of consume for the product all by the market as a whole. However, in the cell foretell diligence, where the product lifecycle is relatively short and the market is highly contendring.Before several(prenominal) opposite 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 shout out industry, the demand from mass market is price elastic, which is the main reason that Apple require to drop its price to increase its sales according to its mass-market strategy. In monetary value of cross-price elasticity, we keep think about this question from two aspects complements and substitutes.Firstly, due the reason that the demand of iPhone is price elastic in mass market, price of iPhone fall, quantity demanded of components increases, which leads Apple to get a get off price of components from its supplier and further guarantee its gross margin of iPhone. In addition, the increase of sales also manner the increase number of customer acquire 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 ware are able to recuperate the loss from cost cut. We muckle put one across the conclusion that regarding to the income elasticity, a decrease of price of iPhone has a positive usurpation on its total revenue. 3. Based on the in regu new-fashionedation provided in the case would you distinguish that the market for smartphone is closer to monopoly or to noncompetitive contention? Justify. Answer Yes, base on the information provided in the case, I regard the smartphone industry as a noncomp etitive competition.Monopolistic competitionis a form of imperfect competitionwhere many competing producers denounce products that aredifferentiatedfrom one another. Smartphone industry has following characteristics* There are many(prenominal) producers wish Apple, Blackberry, Nokia, Motorola etc. , and many consumers in the market, but no company good deal 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 shit a degree of control over price. 4. Is the price cut decided by Apple two months after iPhone initial launch consistent with the smartphone market social system described above? Answer Yes, the cognitive operation of iPhone is consistent with the smartphone market structure. Firstly, the MC debaucheds sell products that confirm real or perceive 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 alike basic functions but arouse differences in qualities such as design, style, reputation and mien. Secondly, self-supporting last-making is another characteristic of monopolistic competition. The theatre gives no consideration to what effect its decision may have on competitors. In other words each watertight feels free to set prices as if it were a monopoly. Lastly, Apple has some degree of market power. Market power signifys 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 timeserving pricing strategy initially change the iPhone at a high price to take advantage of holiday placate high spending habits and then dropping the price to stimu tardily market ontogenesis? Is this consistent with Apple pricing strategy in its other product lines like information process systems and iPod?Answer I dont entirely believe that iPhone lunched at a high price was due to it attempt to take the advantage of holiday gruntle high spending habits. From my point of view, there are two main reasons why iPhone priced high at the beginning Firstly, the warmheartedness consumer groups of iPhone are enthusiastic fans of high-tech gadgets and some of them are loyalty customers of Apple. These parts of hoi polloi are not handsome for iPhones price. What describe them are its quality, design and innovation. The first adopters inelasticity of demand is a good chance for using the price skimming strategy.Secondly, high price strategy is an effective mode to build a h igh-end brand image. Its much easier that a high brand image product cuts its price for onward motion than a low brand image one raises it. For the tech-savvy market, the product lifecycle is short. We can much find on the market that a product of Apple or other brands cuts its price when it has been launched for a period of time. exclusively 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. beholding the price of iPhone must be in line with iPod receive, this strategy is special for Apple, comparison with other products. 6. According to Apple executives the scarper had been planned long ago and felt that the pricing strategy was conceived in part to keep the iPhones pricing in line with its new iPod touch. Explain to what extent a high-priced iPhone could be an restraint to the success of the new iPod Touch. Based on what you know about Apple late development 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 function of a phone. This determines that the prices of these two types of products must be in a line, which intends, 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 lifelike one. We conquer that, if iPhone 4 GB move being sold at 499USD, iPod Touch may be sold at 400 or 450USD. As an mp3 player, it would be much more than than 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. compounding with what I know about the late development of these two types of products, I set up although the price cutting off had a transitory 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. just now the sharp price cut suggested that even Apple, which has long lived in a pricing bubble insulated from other private figurer take uprs, is not immune from the brutal pressures of the cellular phone business. Does this statement mean that the individual(prenominal) information processing systems market is different from the cellular phone business in other words, the cellular phone market is more competitive than the personal wee-wee reckoner market? wherefore? Do you share this view? Justify.Answer From this statement, I cant make the conclusion that the cell phon e 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 insulated from other personal computer makers. That means Apple has definitely blind drunk 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 cutting often occurs when a mobile phone has come onto market for a period of time. The objective normally 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 mental capacity Apples range of high priced products which gives it an aura of exclusivity, was Jobs decision to reduce the price a right one? With a 50% gross margin, Apple is screen background itself up for aggressive price declines waiver forward. Do you believe that Apple move is a sign that it is go under to enter a price war? Would this mean that Apple is leaving the corner market position 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, voguish 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 result 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. unless a cell phone product innovates relatively faster than other cargos. When a product successfully attracted some first adopters, how to sell them to more pursual should be the core problem.Cutting the price and firing in to the mass market is a universal method. Apple also adopted this strategy on iPhone. Pros of difference to mass market * 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 represent 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 bonus revenue from the carrier. Cons of going to mass market * It made the brand image be lower than before. * rock-bottom 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.