Okay, so we all know what ‘Price’ is (apart from the fact that it is one of the most dreaded words). In simple terms, it is the money charged for a product or service. Fair enough, right? So what’s the big deal, you ask? Well the answer, or rather the question is how do companies go about this process of pricing?
As one would imagine, it definitely is not a cake walk, with a lot of factors coming into play. You’ve got your objectives, strategy, organisational considerations, nature of the market, demand, economy, government, etc.
Competition is one of the key areas of concern for any organisation and pricing has to do a lot with it.
Despite all the fuss, one of the companies that continues to astound us is our good old Apple Inc, based in Cupertino, California. The company designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players, and Apple sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications.
With all the competition around, one wonders how Apple Inc. manages to survive and enjoy premium pricing as well! The answer is a simple strategy – price maintenance.
It dwells on its popularity and exploits the market by controlling the way retailers advertise their products. Although, the price tag is very much there, the retailer is free to set a price. So, a laptop with a price tag of $999 might cost $699 to the retailer and carry a retailer price tag of $799 along with a bold discount of $200. Life’s good, Isn’t it? All of this is possible because of the large difference between wholesale price and Apple’s price tag. Another retailer could lower the price tag still further and attract more customers. But does this actually happen? Well, the actual numbers, of course, are a secret between Apple and the retailers.
However, there is a catch though! Apple gives a tiny wholesale discount on its products to retailers. In reality, there’s a narrow gap for the retailers to play with and offer discounts to customers. This means, retailers have little incentive to sell apple products or to dedicate advertising space, given that potential profit is not up to the mark.
Just when we start scratching our heads, wondering what on earth is so fascinating about this strategy? This is where Apple’s game plan kicks in – monetary incentives. These incentives are provided to retailers only if they advertise the products above a certain price – the minimum advertised price. Sounds evil? Nah! Retailers are now able to make more out of each product sold, also preventing them from giving huge discounts to customers. So what does this mean, well, we pay almost what Apple wants us to pay! Well played Apple! You’ve avoided competition against low prices by your own re-sellers!
Having said that, we must agree to the fact that this pricing strategy has ensured high-quality goods. It is hard to come across a faulty Apple product!