Generally, Apple is successful. It is one of the best performing companies in mobile and computer technologies. It is financially strong and has a strong global presence. It also has sufficient assets, and does not rely on long term debts. It also pays good amount of dividends to its shareholders. The success of the company is attributed to its strategic thinking. When Steve Jobs became the CEO of the company, he brought in strategic management which has enabled the company to pursue various strategies. One of the strategies that have caused success in Apple is innovation and customer focus. The company produces innovative products and focuses on the needs of customers. Other strengths of the company include: marketing and advertising savvy, customer loyalty, strong financial performance, numerous retail stores, and brand reputation (Andresen 2010). However, the company also has its own weakness: high prices and decreasing market share. With the increasing competition from companies such as Samsung, Dell and Android, the company has lost its market share. This is exacerbated by the fact that the company maintains high prices despite the competition. Therefore, the company should develop improvements on their pricing in order to maintain a good market share and competitive advantage in the market.
Proposal – Competitive Pricing Policy
Apple should a competitive pricing policy to sell its superior and innovative products at a similar price to those of competitors in order to maintain its customers and attract new ones. This will lead to a competitive advantage and a good market share for the company. The company already has an exceptional innovative strategy that enables it to produce the best quality products (Apple Inc 2013). If the company offers competitive prices like those of other competitors, it can use its innovative strategy to win customers for itself. It will mean that the company offers superior products at the same prices as competitors. Since customers also consider other factors than price, Apple is in a better position because it offers all the other product qualities and services that customers look for using its customer-focus strategy. However, price is the primary consideration by new customers (Nagle and Holden 2002). In this regard, the company should offer the same prices as competitors and use its superiority in product quality and innovation to claim a great portion of the market share.
In order to adopt an appropriate competitive pricing policy, it is important to set the company’s prices within a comparable range with the prices of competitors (Kent 2004). It may act as the market leader, or the market follower. However, the company has already set its prices above the prices of its competitors but competitors don’t seem to follow suit. For instance, the new Apple’s iPhone 5s is priced at $649 while Samsung’s Galaxy Note 3costs only $299. Generally, the prices of Apple’s iPhones start from $600 while Samsung’s Smartphones cost even as low as $100, especially in international markets. This has caused Apple’s world-wide market share in the first quarter of 2013 to fall from 19% to 14%. Samsung’s market share rose from 30% to 32% worldwide (Worstall 2013). Despite the high prices, the company still maintains its customer loyalty because of its superior products. However, it is important in a competitive market not only to retain customers, but also to attract new ones. The company should therefore follow other companies in lowering prices because other companies have not followed the company to raise their prices. The reason why competitors do not follow Apple is because the market is highly competitive and the products offered are homogenous. Apple should therefore lower its prices to the competitive pricing level. In other words, the company should allow competitive forces of demand and supply to demand the prices of products in the market.
Implementation of the proposal
The competitive pricing strategy can be implemented after the company seeks enough information about the prices of competitors and conduct a customer survey to determine their response to price changes (Strategic Management Insight 2013). Prices can then be set slightly above competitive prices on the basis of its superior customer service, innovation, extended warranty and product quality. For instance, iPhones should be lowered from over $600 to about $400, which is just $100 above Samsung Smartphones. Once the competitive price has been established, the volume of sales of the company should be monitored and measured to determine whether the competitive pricing policy is working for the benefit of the company, and whether it increases its market share.
The counterargument of the thesis/argument is based on the argument that competitive pricing policy narrows the profit margins of the company. This is because lower prices with the same costs of production leads to lower revenue from a given product. In fact, Apple incurs more costs by using innovation to produce goods of higher quality and providing superior customer service. However, such costs can be incurred for the benefit of the company if they lead to increased number of customers; hence increased sales of the company. Lower revenue per unit for a lot of units is better than higher revenue for just a few volumes of sales. The company already has numerous stores, a network of businesses, global presence, brand reputation and an effective marketing savvy. These strengths enable the company to gain competitive advantage and incur low costs of production. Therefore, lowering pricing will not cause detrimental effects on profit margins, but it will serve to increase maintain or increase its market share which can be threatened in the future if the company keeps maintaining high prices (Strategic Management Insight 2013).
From this analysis of the competitive pricing proposal, it is clear that lowering the prices of Apple’s products is an important step towards attracting new customers, gaining competitive advantage and increasing the company’s market share. However, the company should be careful while developing an appropriate competitive policy because lowering prices too low will diminish the company’s profit margins, while raising the prices too high will cause loss of customers and decreasing market share. Apple should establish prices of competitors and conduct a consumer survey to determine how consumers can be influenced by changes in product prices in the market. From the information gathered, the company can then fix prices at the correct competitive prices. These prices can be slightly above the prices of competitors but not below. This is because the company offers superior customer service, product quality and innovation. This superiority enables the company to win customers even at higher prices than those of competitors. However, the prices should be within a good comparative range in the market. This increases or maintains competitive advantage and market share for the company.
Andresen, D. Case Study (or Critical Analysis): Apple Computer, Inc.: Maintaining the Music Business while Introducing the I-Phone and AppleTV. Minnesota School of Business. 2010.
Apple Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.Washinton: Securities and Exchange Commission. 2013.
Kent, Monroe B. The Pricing Strategy Audit. Cambridge: Strategy Publications. 2004.
Nagle, Thomas and Holden, Reed. The Strategy and Tactics of Pricing. London: Prentice Hall. 2002. Print.
Strategic Management Insight. SWOT analysis of Apple. 2013. Web.
Worstall, Tim. Why Samsung Beats Apple or Perhaps Vice Versa. Forbes. 2013. Web.