Apple Inc iPhone pricing strategy and market segmentation analysis

Apple's Pricing Strategies

Analyzing the World of Marketing & Technology:

Apple's Pricing Strategies

Technological gadgets govern life in American society. With every step, one is bombarded by advertisements touting the newest and the best in electronic devices. Smart phones, for instance, are seemingly everywhere, from a teenager's texting hands to a board meeting presenting growth figures. Yet one company has managed to outdo all others. Apple has survived through decades of changes in governance and fluctuating stock values, and has finally surfaced as the enterprise with the most coveted electronic devices. Apple has not only created a new vocabulary for this segment of business with its omnipresent "i," but has managed, with Steve Jobs' shrewdness, to advance, in mass numbers, things that society absolutely does not need, at ridiculous prices. One must, thus, wonder, how Apple does it. For this reason, the paragraphs below will focus on analyzing how the company creates value for its products and how it utilizes different price offerings to promote them, as well as how it communicates value and price, and how it develops policies for price objections, increases, and other economic phenomena.

In order to begin to explain how the company creates value for specific market segments, one must analyze how the company has created value, as a whole. In this respect, it is important to mention that Apple has been in business since the 1970's. In fact, in 1976, Steve Jobs and Steve Wozniak found Apple Computer, Inc. with just $1,300.[footnoteRef:1] The fact that the company has not only persisted, but has grown to such an extent as to almost take over the communications technology and personal computing markets is a testament both to its fantastic products, as well as to its shrewd marketing strategies. [1: Apple Computer, Inc. (n.a.). (2011). Funding Universe. Retrieved October 30, 2011, from < http://www.fundinguniverse.com/company-histories/Apple-Computer-Inc.-Company-History.html>. ]

Apple has, thus, been very astute in creating value for its market segments, and very successful in doing so, and has succeeded in this mission by utilizing very simple brand strategies. As mentioned above, Apple has but cornered the market with its breakthrough products. In the last decade alone, Apple has not only introduced a number of never before seen products, but has redefined how society engages with electronic devices and therefore pulled in many new customers, as well as stressed sustainability and encouraged others not only to compete but to follow its lead, thus leading to the customer having more and better products from which to choose.[footnoteRef:2] [2: Phipps, B. (2010). The Simple Secret of Apple's Branding Strategy. Brands Creates Customers. Retrieved October 30, 2011, from < http://tenayagroup.com/blog/2011/03/31/the-simple-secret-of-apples-brand-strategy/>. ]

One would think that with such innovative practices, the brand would have to have a complex marketing and branding strategy. Yet the company creates value for its customers, which are found mostly in the middle and upper middle/upper classes, and most recently, with price "drops" one can add the lower-middle classes, and do so with an astonishingly simple, yet very smart philosophy. The "simple secret" focuses on an operational brand that "goes in" before it "goes on," and that has a systematic and integrated method to create value.[footnoteRef:3] [3: Phipps, (2010). ]

For instance, as opposed to other companies' marketing messages, Apple has always focused on a method, which has comprised asking simple questions, such as making great products and making products that customers want and which they will use. Furthermore, the company has claimed that it has had, as its goal to change the culture of how customers communicate and help them engage in meaningful ways, no matter where they are located. In simple terms, Apple's products are "appetizing" not just for their looks but also for the multitude of actions that they can perform, be they the computer (a sleek, modern looking screen), the iPad, or, most importantly, and most necessary, the iPhone. With the latter product, Apple has been able to create value not just through looks and usefulness, but also through reducing the price of the iPhone from its initial $245.83 to $199, and when compared to the $499 plus value of an iPad, the iPhone looks like a bargain.[footnoteRef:4] [4: Zimbardo, P. (2010). What's Behind Apple's iPhone Pricing Strategy?. Seeking Alpha: Read. Decide. Invest. Retrieved October 30, 2011, from < http://seekingalpha.com/article/211063-what-s-behind-apple-s-iPhone-pricing-strategy>.]

Another way through which Apple advances its smart pricing strategy and creates value for customers is by utilizing perceived price differences for different market segments, all of which are extremely successful when one looks at the company's ever-rising popularity, and revenue. These pricing strategies, in part reference in the above paragraph, are very simple. In fact, according to one article, what Apple really sells is pricing, above all, and states "Jobs is a master of using pricing decoys, reference prices, bundling and obscurity" and make a customer think that all the Apple products, despite final prices are great deals.[footnoteRef:5] [5: Kunz, B. (2010). How Apple plays the pricing game. MSCBC. Retrieved October 30, 2011, from < http://www.msnbc.msn.com/id/38980367/ns/business-us_business/t/how-apple-plays-pricing-game/>. ]

With regards to the iPhone, for instance, Jobs has set a price of $199 for the device alone, with a 16 Gb, yet for a 32 Gb, the iPhone costs $100 more, with a price of $299.[footnoteRef:6] This difference between the 16 and 32, though double, does not need to cost as much as it does, yet what Apple sells is image, or in this case "space" so the person who actually buys the phone for storage will not mind paying the extra hundred. Furthermore, the person who buys the extra storage may be from another strata than the person who buys the 16 Gb phone. For instance, the former may be a businessman, while the latter may be a student. [6: iPhone (n.a.). (2011). Apple.com. Retrieved October 30, 2011, from < http://www.apple.com/iPhone/>. ]

Yet another seemingly impossible strategy that leads to selling more iPhones is Jobs ability to get customers to compare these devices, not with his competitors, but with other devices within the Apple store. For example, when, as stated above, comparing the iPhone with the iPod Touch or even the iPad, one will always consider the $199 iPhone a better value than the $229 iPod or the $499 iPad, yet without a carrier the iPhone is much more, in the end, than its original $199 price point. These "price decoys" are a very effective strategy, for the very reasons mentioned above.[footnoteRef:7] [7: Howe, C. (2007). The Gutsy Strategy Behind Apple's iPhone Price Cut. Seeking Alpha: Read. Decide. Invest. Retrieved October 30, 2011, from < http://seekingalpha.com/article/47881-the-gutsy-strategy-behind-apple-s-iPhone-price-cut>. ]

With regards to communicating value and price, Apple does this by introducing new products at what a consumer would consider a reasonable price, thereby predicting that a buyer will most likely order more iPhones, for example, than more iPads, and thus sets a comfortable base price for the iPhone, while introducing, with it, an incredible value in other features, such as apps, video conferencing, etc. without allowing the consumer to compare the high price point of the iPhone with other phones on the market, and rather focusing on the value, or perceived value, of the product, to the customer. It is mostly due, as described above, to its strategic market pricing that apple has been able to be so successful.