Q1: Apple faced with two main pricing decisions for its range of iPhones. The first one is a skimming price decision and the second one is a penetration pricing decision. 1. Skimming price decision
When Apple first launched the new iPhone 3GS, it made a skimming price decision which means it aims to sell to the top of the market and focuses on maximizing profits in short term so it could recover the research and development costs.
2. Penetration pricing decision
As the iPhones have moved through their product life cycle (from the introduction to the growth or maturity stage) Apple adopted a penetration pricing strategy which means selling products at very low price to attract more customers. The rationale behind this decision was that the cost of producing has dropped and competitors such as Blackberry and Nokia have entered into the smart phone market. In order to counter those competitive threats, Apple lowered prices to maintain high market shares.
Q2: Apple had to consider both internal and external factors before it could implement its pricing decisions. The internal factors include its product life cycle and costs of the new product. The main external factors are the demand and the pricing environment such as the economy, the competition and consumer trends. 1. The product life cycle
Before Apple could implement its pricing decisions it need to consider where the product is in its life cycle and how fast it is moving through the cycle. Skimming price strategy may maximize profits in the market introduction stage for its innovation, especially if there is little competition. (Quester et al.2005) However, when the product enters into the growth stage, there will be more competitors so the company needs to reduce the initial price to counter the increasing competition. 2. Costs
Determining costs of products is the basis of making pricing decisions because if a company wants to gain profits, it must ensure that the price is higher than the total...
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