Apple's Success Leaves Little Room for Improvement. Essay

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Apple's success leaves little room for improvement. However, there are few areas where improvements can be made. Pricing strategy is one of them. There are two common tactics that Apple is reticent to make use of. One is discounts -- aside from Black Friday most of Apple's core products are seldom discounted. One example is the MacBook Air. When launched, it was a best in class machine with a best in class price. Premium pricing is logical when the company has a monopoly, which was the case for the second iteration of the MacBook Air for around a year. Now, however, new competitors are entering the market including Toshiba, Asus, Samsung and Sony. It is recommended therefore that Apple makes more use of competitive pricing, including discounts.

The argument can be made that Apple offers a highly-differentiated product at a premium price point, and in many cases this is true. But when competition enters the market, the company's degree of differentiation is reduced. This should have a downward effect on the firm's pricing power. The market is in a state of monopolistic competition, which means that firms do not necessarily need to adapt to each other's pricing moves if their products are sufficiently differentiated. Apple does have proprietary design and software that delivers some differentiation. However, the new pricing strategy of offering more frequent discounts on their products is derived from the concept of penetration pricing.

With some products, Apple's market share is still very low, and this is the case for computers. Thus, Apple still needs to win over customers who would otherwise buy a competing computer. While this was easy regardless of the price when a product like the Air is superior to all other competitors, when the competition catches us, consumers must weigh the utility of the different products. Price is a significant factor in utility, but if price is matched with the closest competitors then Apple must take that into consideration and should lower its prices -- even if sporadically -- in order to compete better and build out market share.

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This recommendation is rooted in a number of managerial economics concepts. Pricing strategy is dependent on the bargaining power that the company has over buyers. Buyer bargaining power is affected by a wide range of factors, including the availability of substitutes, supplier concentration and buyer information. Buyers today have ample access to information to compare specs of different computers and even to receive anecdotal evidence about the switch to an Apple operating system. Thus, buyer information is high and this increases buyer bargaining power. Additionally, Apple's bargaining power will start high when it has a virtual monopoly in a product segment but as other firms enter the market that bargaining power will wane -- the smartphone industry is an example of this. Thus, in situations where Apple begins to lose its monopoly it should engage in more discounting in order to remain price competitive and win customers.

The second pricing recommendation for Apple is to engage in bundling of products and services. The company does very little of this at present, yet bundling is one of its most important market development strategies. Apple's products are well-integrated, more so than just about any other family of consumer electronics devices. As a result, it is easy to bring consumers into the family by leveraging the popularity of a single device. For most of the 2000s this was the iPod and then it became the iPhone. Consumers who purchased these devices were compelled to use iTunes and from there the integration with other Apple products began. Thus, bundling is essential to bringing non-Apple consumers into the fold, and it begins with a single hit product. We know that Apple is successful at developing hits, some of which are quite innovative and enjoy monopoly status for a period of time, bringing in customers who would otherwise be uninterested.

Bundling is putting multiple complementary products together in one pricing package. It is worth noting that complementary products are a factor in the bargaining power of buyers. For the seller,….....

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