iTunes Music Pricing
Carlos Albizu University
iTunes Music Pricing
Adopting a variable pricing policy might increase the sales revenue of Apple’s Music Store. Pricing the more popular songs at a higher price and the less popular ones at a lesser rate would generate higher sales for the lesser popular ones. Thus making up for the slight drop in sales of expensive tracks and ultimately working towards overall increased revenues. Although most songs with a higher price point experienced nearly 21 % drop in sales, the 29 % increase in price made up for the loss. Moreover, sales for the top 40 songs have a relatively inelastic demand and are expected to be unaffected by the price rise. The customers of these popular songs are price-insensitive and hence make a greater contribution to the increased revenues since the optimal price can be marked at a value much higher than the marginal cost. With the tiered pricing structure, iTunes Music Store would also be able to tackle the increasing competition by the major wireless companies offering downloadable music to the cell phone subscribers. Variable pricing intelligently supports the maximized returns by allowing the company to adjust the value of per-unit prices to increase revenues and encourage the potential customers to be allured by the lowered prices of specific tracks. Apple’s iTunes Music Store might adopt other strategies such as Product Bundle Pricing strategy to make a bundle of different songs (both popular and less popular tracks) and sell them at reduced prices. This will not only help the sales of the slow moving sound tracks, but also work as a revenue generator by way of alluring potential consumers. The bundling strategy will help in increasing profits by extracting additional consumer surplus. Another strategy that the company may adopt is the captive pricing policy. This approach will require the company to charge higher prices for the songs since they can only be...
References: Forms 10-K, United States Securities and Exchange Commission: Apple Computer, Inc. Retrieved on August 18, 2010 from http://www.sec.gov/Archives/edgar/data/320193/000104746904035975/a2147337z10-k.htm
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