The assignment deals with the strategy move of the Apple as part of the study of strategic management. Strategic management concept deals with the strategies/acts taken by the organisation to achieve competitive advantage. In this process the company must have strong knowledge of the business that is strengths, weaknesses, opportunities, and threats. On conducting the SWOT analysis the company can utilise the strengths to minimise the weaknesses. It should grab the opportunities while ignoring the threats. It is simply management of the unfeasible contingencies (Hill et al., 2014). In the assignment the central focus is on the strategy or move of the company in recent time. It is an American based multinational technology company established on April 1, 1976, by Steve Jobs. The company offers various products. It sells computer softwares, consumer electronics, entertainment devices such as DVD players, flatscreens, video games, and others. In the communication category the company sells cell phones, telephones, and laptops. It also designs and sells printers, computers. The products of the company have always been powerful (www.apple.com, 2018). This is the rationale for the choice of the organisation for study of strategic management. In regards to the organisation chosen the assignment covers the strategy move, why and how the strategy is implemented. Assuming the role of the manger an alternate strategy is suggested with rationale. The report then presents recommendations for the company followed by conclusion.
The recent strategy move of the organisation is the iOS storage prices. It went up due to higher NAND flash costs. Apple has been the beneficiary of the NAND flash revolution. The pricing system is considered much better than previous. It is considered favourable for larger capacities. The last Apple SSD prices $2 per gigabyte. It may even rise in 2018. In June 5, 2017, the organisation first announced about the 192GB increment to the base configuration, costs $0.52 per gigabyte. It then announced the next increment, 48GB, costs $0.67 per gigabyte. Further the prices of the iPad Pro models were raised. The price for the models 256GB and 512GB was increased by $50 each. Overall with the strategy the prices have become very competitive (Harris, 2018). Earlier in 2016, the company made huge profit with the users buying 64 gigabyte model of the iPhone 6s /6s plus instead of the 16 gigabyte model. It only takes extra $12 to make the 64 gigabyte model where it earns extra $100 over the 16 gigabyte model. In the 64 GB model the storage is four times bigger (Stenovec, 2018).
The storage prices of the company are constant across the capacity. New pricing was later not announced. A couple of weeks later it was found that first 192GB now costs $0.78 per gigabyte. It was also same for the 448GB costs and the same increment was observed in MacBook Pro flash. There was overall parity between the iOS and Mac in storage pricing (Harris, 2018). When compared to 2017, in 2016, the flash storage prices have increased dramatically, which means 50%. The demand for the flash is high. It is due to this demand and the continued growth of the sales of smartphones new iPhones have moved from16GB to 64GB. It is also attributed to the strategy of the large storage capacity in every model (Hern, 2018).
The factors considered by the company in product pricing internationally are cost of business, local import laws, currency exchange rate, tax laws, and business practice. The new products of Apple has same price may it be dollar or pounds. It is anticipated that the company is taking advantage of British customers accepting the hike in prices as per EU referendum (Hern, 2018).
Analysis of strategy
It can be considered a smart move for apple as it removed the price disincentive for the larger capacities. The company has launched a useful product for its customers. The company is using strategies to make the product personal for the consumers. The storage makes the product “my iPad” for the clients (Shekhar, 2017).The strategy move was possible as the company always focused on the storage and can be believed to be right. It is the high margin part of the business. As the consumers mainly focus on the applications and to ensure the desired performance storage is the tax. There is no doubt that Apple has sincerely invested in the “improved flash storage technology”. It has enabled the vendors to built more capacity. Although the industry of semiconductors has been through ups and down, it has been of major concern because of the fab’s rising cost. Apple can be successful with the flash plants. It is the biggest consumer and innovator, which made it come out successful with the investment in the unprofitable plant (Gershon, 2016).
In the strategic management study the pricing is considered to be the four Ps of the marketing. It includes product, price, place and promotion. In every B2C strategy the pricing part is one of the key elements. It is also one of the challenging part. Apple has been successful in implementing this strategy. The company could well define its position and created brand strategy. It effectively identified its distribution channels (Hill et al., 2014). According to Kienzler & Kowalkowski (2017), the pricing strategy of Apple is known as “price skimming”. It is the strategy where the price is set high for new products in the market with few competitors. However, with the increase in competition, the prices may be lowered. The pricing strategy indicates about the company’s confidence in the flash supply. It appears to be driven by the Toshiba’s flash business and its winning outcomes. However, it might be better if the Apple resumes on its lower costs considering the Toshiba's new fab launch. It will relive the supply constraints. The strategy move of Apple seems favourable for the customers and the company. In addition there is the presence of profitable segment with the spot price ($0.11 per gigabyte) for MLC flash chips (Harris, 2018).
In the 64 GB model the storage is four times bigger and hance more expensive than the 16 GB model. Kirshner & Nediak (2015) considers the scalable pricing system as the answer to design pricing that scales up and down. In this pricing system the organisation is able to capture both types of customer segments. It includes the small customer segment going for cheaper products and other segment that can go for bigger deals. The common weapon for the scalable pricing is the product feature. By packing different versions of the product as in Apple, the version with higher functionality is set at higher price. The number of users and the depth of usage is the other two important parameters considered by Apple in setting high storage price. It means with the increase in number of users, the customer can derive more value. The depth of the usage increases with the increase in storage space and customer want to pay more. Therefore, pricing around storage is automatically increasing the revenue from existing customers every year (Dub? & Misra, .2017).
According to www.researchgate.net, (2018) Apple has the multi-pronged strategy as per which small numbers of products are offered at high profit goal. Therefore, people starve for new products. Using this strategy the company launches premiere product at premium price. The company prices its cheapest product at a mid range with a high quality features. The competitors are trying to develop features same as Apple but at lower prices. Premium pricing is the strategy of offering the newly launched product in the market with similar products at a competitive advantage. The company has effectively used this strategy at the first stage of the product life cycle (Pantelous & Passalidou, 2015).
The pricing strategy so far was justified as the results of the differentiation method of the Apple. According to Ray Gehani (2013), product differentiation in marketing is the method of distinguishing the product from other products in the particular target market. Product differentiation means manufacturing the product differently from the competitor’s products as well as the own products of the company. Apple has always been successful in manufacturing its products in innovative manner. Every time the company was successful in creating different products right from 1984 including macintosh to iMac, iPod, and iPad in 2010. The innovation made even the rivals appreciate the product- IOS 7. Hence, the customers are bound to have clear thought about the device and design. Further, credit also goes to strong supply chain of Apple. Three times in arrow it has been ranked first for supply chain (Nielson, 2018).
The product strategy of the company has improved the gross margin on the iPhone line. It significantly increased the profits of the company. The strategy of the company is different from other companies like Samsung. The later being vertically integrated makes its own features like memory and display. Samsung is thus creating demand for the AM-OLED technology. In this context the Apple’s move to leave the base model at 16-gigabytes is very tactical. The global market of Samsung comprises of 32% out of which 12% may be for Apple. Against the 46% of the Samsung, the sales volume of Apple is increased to 23% (Harris, 2018).
Despite the product excellence, the premium pricing and price skimming strategy used by Apple to have its own limitations. It is the platform nature of the Smartphone and in this type of the market the competitive advantage is the huge market share. As this is the merging market the smartphones and tablets manufacturers experience maximum growth. Consequently, there are many outstanding quality gadgets sold at lower prices. The company has the edge in product quality. It is the matter of preference by individual customers. Since people have different viewpoints it may be debatable. There are many countries where the alternatives from Samsung, Amazon, are attracting customers. The alternative products although much cheaper than the Apple’s products are improving day by day. This is the matter of concern given the fact that it is the platform market. It may be difficult for Apple to lead the market in the future as it is surrendering more market share in India, China and other countries (Derdenger & Kumar, 2013).
Alternate strategy and rationale
As the manger of the company the aim would be to deliver value through product leadership. The aim would be to avoid discounting heavily. The strategy would be to reduce the price conflicts with channel partners and avoid competing on price. The rationale for the move is the influence of the price on the perception of the market about company offerings (Reimann, Schilke, & Thomas, 2010). It is not goal to let the market perceive the product as the commodity. Therefore, the focus will be on innovating the methods to keep the prices low and yet make the profit. The only concern with Apple’s product in the market is the expensive nature for high quality, when compared to other products such as Google, Amazon, and other vendors. As a manger I will try to link the price to the value gained by customer on using the product. I believe in having clear alignment between price and the value.
According to Nagle, Hogan & Zale (2016) the price should have strong message for the consumers and reflect the company’s values. Since the operational efficiency is ensured the price must be high. Setting lower price and aiming for customer intimacy may let people doubt if the luxury item is even luxury. Therefore, competitor’s prices must be analysed properly. Owing to the Toshiba's new fab launch, the prices must be lowered anyway. At this point the company may opt for the penetration pricing. On the other hand, innovative measures are required to not compromise on the operational efficiency. The markets where the consumers are very sensitive to the price fluctuations, it would be effective to increase volume while selling at lower price (Osei, 2017). Penetration pricing is the strategy to gain the market share, by lowering the prices of the products when the market has many more competitors (Spann, Fischer & Tellis, 2014). After the strong market penetration I would aim for raising the prices to a profit level and to level where more number can afford to buy product.
The above mentioned alternate strategy would be justified considering the fact that premium strategy would be beneficial only till the product is sustaining its competitive advantage. In future, there are high chances that the brand may lose its aspiration status with increasing competition from low cost smartphones. Further, there are also chances that Apple’s products may gain saturation in the developing market (Zhang, 2017). Therefore, I believe that it would be risky to continue with high end niche name. In the last the few years Apple has showed slow iPhone sales with nose-divided iPad sales growth. Although Apple has very strong position in iPhone in US market, it is losing shares in other countries. There are many instances in past where Apple has underperformed trying to maintain the super-high profit margin. On the other hand the Google’s Android is trying to dominating the smartphones platform (Blodget, 2018). Therefore, the overall aim would be to maintain simple price strategy to avoid confusing buyers with too many options.
The trend to built brand awareness by low cost devices is expected by the experts to continue and intensify in coming years to come. It means in the future the focus should not be on the low-end gadgets. Instead the objective should be to use the phenomenal profitability as a competitive tool argued (Spann, Fischer & Tellis, 2014).). It is suggested by the experts that Apple should sell some of its old gadgets (and not the latest one) at lower prices. It may be sold if the prices are very high than the similar local alternatives. The different product line of 5S and 5C, of iphone has premium pricing strategy. It is suggested that Apple should not have same price for both the products. If the company is offering any of its products at cheaper price then it is either weak or small and old. Despite having high quality alternative in the market Apple is selling Mini at price which is greater than high quality alternatives. It is recommended that the pricing strategy should be such that the company must sell its latest version of particular product (say Mini) at high price while keeping a competitive price for other recent models. The modification in prices are recommended by the experts as Apple is high profit making company and it would be easy for the organisation to spare a little profit. It is believed that the slight modification in the pricing strategy would not cost too much for the company.
Further, action of the company that is under criticism is not competing on price under the right condition. The company is catering to the “mainstream price sensitive market” through iPhone 5C. It is only good method to set lower price at the time of development of the product during early stage of new company. It is not considered to maintain the same pricing system when rivals like Samsung are offering products in high-end and low-end markets. The sales of the smartphones are surging and hence Samsung is gaining traction in emerging market. In this situation it may be called right condition to call for lower cost options. There are buyers who buy a branded product when the price is justified according to them. Apple’s decision to serve price sensitive market with low iphone price can pay off in a big way. It may happen so if it continues to sell its high end products to higher-end consumers (Wambui, 2013).
Since the company has well tired its products with different models of iPods, iPad, laptops and desktops, it could appeal a wide variety of buyers. The company never sacrificed on the “high-end brand reputation”. Chiang) recommends tired pricing as it would be effective for Apple’s SaaS business as et al. (2018), it can appeal different customer segments. The main objective of the tired pricing is to focus on value instead of dollars as profit.
The report clearly highlights the pricing strategy of Apple for competitive advantage. In this context the report explains the iOS storage prices of Apple. The report has explained as to bow the strategy was implemented and underling causes. The premium and price skimming strategy of Apple has been beneficial for the company in many ways. Apple well defined its position and created brand strategy. Owing to the product differentiation method, the storage pricing system was successful. The high price system of Apple may be beneficial in generating high profits for the company, it came out with limitations. The company has the edge in product quality, but alternative products from rivals at cheaper prices are a matter of concern in long run. It is considered to better to deliver the product leadership strategy. As a manager, personal decision would be to innovate the methods to keep the prices low and yet make the profit with new products. I would aim for raising the prices to a profit level and to level where more number can afford to buy product. I would opt for penetration pricing strategy after the strong market penetration. It is justified as in future; the brand may lose its aspiration status with increasing competition from low cost smartphones and saturation in market. Overall I would ensure the pricing strategy is simple enough. Further, the company is recommended to take advantage of the phenomenal profitability. Due to emerging alternative products at lower prices from rivals the Apple’s decision to serve price sensitive market with low iphone price can pay off in a big way. Apple is also recommended to go for tired pricing strategy. The assignment has enhanced my knowledge on the strategic management especially in regards to pricing and product strategy.
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