Organizations adopt various strategies to thrive in the ever competitive business world. The primary objective of firms is making profits; hence, measures should be taken to ensure the enterprises achieve that goal. One of the tactics that Apple Ltd has employed to ensure profitability in the firm is price discrimination in their products. In this article price discrimination will be discussed, and the products that will be considered are Apple Watch Sport, Apple stainless steel watch, and Apple Watch Edition, which are the smart watches the firm has introduced in the market.
Price discrimination refers to a pricing policy where similar goods are sold at different prices by the same producing company. The sales are made in varying markets, and the profitability depends on the soundness of the prior economic analysis conducted in those particular markets. Apple brand has efficiently applied price discrimination through the creation of market sectors where they charge a different price in each area. Apple brand has been prevalent in the gadgets market which makes its watches unique compared to other brands such as Rolex. The firm can decide to charge a high price because there is imperfect competition making it the price maker in the market. In gadgets and devices market, the customers are price sensitive hence; the firm has used a penetrative pricing policy (Colombo). The Apple Watch Sports is the cheapest costing at around $349, with the Apple edition which is gold cased costing more than $10000. The Apple Stainless Steel Watch is the standard one in the market costing at a region of $700. Apple Ltd has set out relatively high prices for their products but their clients are loyal to their products and will pay higher prices for the gadgets.
Differential pricing is beneficial to the company in that the firm can reach all watch customers through the sale of the Apple Watch Sport, which is considerably cheap selling at $349. The firm has been able to maximize profits through charging a high price for the gold-cased watch edition. To recover the capital invested in the development of the watches, Apple has to sell a significant number of the Apple Watch Sport, which is considerably cheap and use the margin obtained to pay back the capital outlaid (Jeitschko and Thon). The sale of the gold watches at $10000 or more is set to bring in more profit for the firm which depicts a shorter capital payback period. The situation raises a question whether the watch’ prices are fair especially the gold watch cost.
Apple Watch Edition is developed to suit the desires of high-income earners who are willing to pay the price. Typically, high-income earners are prepared to pay an amount higher than the standard price for products that are slightly differentiated. Such individuals are interested in quality, and Apple Ltd fulfills that desire through provision of quality, fashionable and classy gold watch edition. The watch comes at a price that justifies its uniqueness and class. Also, since it is the same high-income earners that value the innovative features and technologies, it proves fair for them to be highly charged so that they can be part of the investment. In the process of pricing, the middle-class benefits because the firm cannot sell every unit of such a gadget at the same price since it would lead to financial losses in the organization. The pricing strategy Apple Ltd adopts also enhances the sales volume since many people can at least afford the Apple Watch Sport, which is reflected by the high sales of the watch compared to the other editions.
Through price discrimination, the Apple Watch Edition spreads fixed overheads over the masses since the watch has high-profit margins. The profits gotten from the gold watches help subsidize the charges of the other watches to consumers making the firm make significant sales to a broad market. However, the case is not sufficiently evident in Apple Ltd because the company is associated with charging relatively high prices for their products. One would expect the price of the Apple Watch Sport would be dropped to less than $300, but that is not the case in the firm. The company instead focuses on increasing the price of the Apple Watch Edition to a region of $20000 which significantly adds up the turnover of the enterprise. Still, the company can be able to make sales because there is a section of individuals who are prestigious and associate high price with quality.
All the Apple watches have the same features and qualities just that they are differentiated through size and appearance. The charges for the watches differ significantly yet the services derived are same which represents price discrimination. Apple stainless steel watch is the standard model and costs in the range of $500-$1000 dollars depending on the specifications. The large interval of the charges of the standard model depicts an attempt by the firm to confuse the customers and earn profits from irrational and exploitative sales. All the Apple watch models show a degree of price discrimination since they prove to be quite expensive in some markets while they are cheaper in other markets (Wang). For the middle class, sport and standard watches are appropriate since they serve them just the same as the Apple Watch Edition. The golden watch is more of a luxurious product and intended for the wealthy people from who the company can make significant profits.
The analysis of the Apple watches depicts the extent of price discrimination effect in the market. Apple Ltd has efficiently applied the strategy through differentiation of their watches via prices. Through the mechanism, the firm has gained revenue from the sales of all the watch models. The efficacy in the company has been influenced by the organization's ability to reach all the consumers through different pricing of their similar watches. Through this, the enterprise has served its objective of profit maximization and at the same time has ensured that the market needs are adequately met.
Colombo, Stefano. "Imperfect Behavior-Based Price Discrimination". Journal of Economics & Management Strategy (2015): n/a-n/a. Web.
Jeitschko, Thomas D., and Dominique Thon. "Third Degree Price Discrimination and Price Elasticities". SSRN Electronic Journal n. page. Web.
Wang, Zizhuo. "Technical Note—Intertemporal Price Discrimination Via Reference Price Effects". Operations Research (2016): n. page. Web.