Apple's premium pricing strategy, product differentiation (2024)

About low-end devices, Apple CEO Tim Cook told Bloomberg Businessweek in 2013interview“Our goal has never been to sell a cheap phone. Our primary goal is to sell a great phone and provide a great experience, and we've figured out a way to do that at a lower price. "

Strategy apples

Differentiation

Apple attempts to increase market demand for their products through differentiation, which involves making their products unique and attractive to consumers. The company's products have always been designed to have an edge over the competition. Despite fierce competition, Apple has managed to create demand for its products.

As a result, the company has power over prices through product differentiation, innovative advertising, assured brand loyalty, and hype surrounding new product launches. By focusing on customers willing to pay more and maintaining a higher price at the expense of unit volume, Apple has also created an artificial barrier to entry for competitors.

Apple markets its products and sells third-party products in most of its major markets. It sells directly to consumers andsmall to medium sized enterprisesthrough its stores and online stores. The company also uses a number of indirect distribution channels, such as third-party mobile network providers, wholesalers, retailers and value-added resellers.

Retail prices

Apple uses a MAP (minimum advertised price) retail strategy. The MAP policy prohibits dealers or retailers from advertising a manufacturer's products below a certain minimum price. MAPs are typically enforced through marketing subsidies that a manufacturer offers to its dealers.

According toMacworldApple maintains the popularity of its expensive products by offering retailers like Walmart or Best Buy only a marginal wholesale discount. This small percentage of savings is not enough of a profit margin for retailers to offer big discounts on Apple products. Therefore, customers end up paying a price close to the manufacturer's suggested retail price. However, a retailer could give up this small profit margin and offer discounted products to attract more customers. Apple prevents this scenario by offering retailers monetary incentives to sell items at the company's set MAPs.

This pricing strategy is effective because it keeps retailers from competing directly with Apple's own stores. It also ensures that one dealer has no advantage over the other. This allows Apple to keep its distribution channels clean and at the same time earn more money from its direct sales. Macworld also noted that iPhones were not subject to a strict pricing model. They are sold at a lower price under wireless contract agreements because retailers receive a commission from the carriers.

Apple's premium products and prices

Jobs' vision for Apple was always to create a premium product and charge a premium price. Apple's cheapest product prices are usually in the mid-range, but the features of the products ensure a high-quality user experience. The hardware and user interface are designed to provide great value for the price and keep profits high. However, a company can only charge a higher price as long as it has a competitive advantage, and analysts believe that Apple is on its way to losing its 'aspirational' status. Ofincreased competition from Android and cheap smartphonesIn addition to the saturation in developed markets, the company is in danger of becoming a high-end niche name.

Turnover is increasing

Falling smartphone prices have boosted their sales in recent years. With advanced technology, smartphone companies have managed to reduce the cost of handsets.Global smartphone manufacturers, especially Chinese companies, have significantly reduced the prices of smartphones, making them more accessible to the mass markets.

Android has enabled a number of new manufacturers to enter the smartphone market, supported by a number of off-the-shelf processing solutions. Many of these cell phone vendors have focused on low-cost devices as a way to build brand awareness.

By comparison, Apple's iPhone sales have been declining lately. In the first nine months of fiscal 2019, Apple's iPhone sales felldropped 15%year after year. Thanks to the good quality and longer lifespan of phones, consumers do not have to replace them often. Additionally, the newer versions don't offer enough incremental features to warrant an upgrade.

But Apple's iPhone 11 and iPhone 11 Pro are getting good responses,according toto the company. Although concerns about how Apple will grow in an increasingly competitive smartphone market have persisted for more than five years, the company has always managed to grow its profits.