A Case Study on Apple Iphones

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“We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost.” Tim Cook, CEO Apple uses a retail strategy called “minimum advertised price” (or MAP). Minimum advertised pricing policies prohibit resellers or dealers from advertising a manufacturer’s products below a certain minimum price. MAP is usually enforced through marketing subsidies offered by a manufacturer to its resellers. (Tabini, 2013) This fairly straightforward strategy takes advantage of the popularity of its products and exploits a quirk in the way retailers are allowed to advertise their merchandise.

Apple maintains the popularity of its high-priced products by only offering retailers such as Wal-Mart or Best Buy a marginal wholesale discount. This small percentage in savings is not enough of a profit margin for retailers to offer big discounts on Apple’s products, which means customers end up paying a price close to the manufacturer suggested retail price. However, a retailer could give up this small profit margin and offer products at a discount to attract more customers. Apple prevents this scenario by offering monetary incentives to retailers to sell goods at the MAPs fixed by the company. (Tabini, 2013)

This price strategy is effective insofar as it prevents retailers from competing directly with Apple’s own stores, and it also ensures that no one reseller has an advantage over another. So Apple is able to keep its distribution channels clean as well as make more money on its direct sales. However, iPhones were not under a strict pricing model, as they sold at a lower price with wireless contract deals, as retailers gain a commission from carriers.

This strategy benefits Apple in a number of ways. First, the company makes more money on direct sales and doesn’t have to compete against marked-down prices offered by its own resellers. Since Apple’s own retail operations are among the most profitable in the world, undercutting their prices for the sake of a wider distribution network would be counterproductive.

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References

Apple. (n.d.). Apple-history. Retrieved from Apple: http://apple-history.com/iphone

Arvidson, E. (n.d.). The Product Strategies for the iPhone. Retrieved from Small Business: http://smallbusiness.chron.com/product-strategies-iphone-32460.html

Casteleyn, J. (2013, Apr 16). Apple’s iOS and Google’s Android lead the land grab for new enterprise shelf space. Retrieved from Market Realist: http://marketrealist.com/2013/04/apples-ios-and-samsungs-android-lead-the-land-grab-for-new-enterprise-shelf-space/

Kovach, S. (2015, Feb 02). 9 reasons why iPhones are better than Android phones. Retrieved from Business Insider: http://www.businessinsider.com/iphone-versus-android-2015-2?op=1

Nielson, S. (2014, Feb 07). Apple’s premium pricing strategy and product differentiation. Retrieved from Yahoo Tech: https://www.yahoo.com/tech/s/apple-premium-pricing-strategy-product-191247308.html

Papke, D., & Williams, A. (n.d.). Apple Inc. Retrieved from Academia: https://www.academia.edu/10330763/Business_Analysis_of_Apple_Inc

Tabini, M. (2013, Jan 14). How Apple sets its prices. Retrieved from Macworld: http://www.macworld.com/article/2024257/how-apple-sets-its-prices.html

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