Posted by & filed under Apple, EXAM ARTICLE, Supply Chain Management.

Description: Something unexpected has happened at Apple, once known as the tech industry’s high-price leader. Over the last several years it began beating rivals on price.

Source: NYTimes.com

Date: Oct 23, 2011

People who wanted the latest Apple smartphone, the iPhone 4S, were able to get one the day it went on sale if they were willing to wait in a line, spend at least $199 and commit to a two-year wireless service contract with a carrier.

Or they could have skipped the lines and bought one of the latest iPhone rivals from an Apple competitor, as long as they were willing to dig deeper into their wallets. For $300 and a two-year contract, gadget lovers could have picked up Motorola’s Droid Bionic from Verizon Wireless, or they could bought the $230 Samsung Galaxy SII and $260 HTC Amaze 4G, both from T-Mobile, under the same terms.  READ THE REST OF THE STORY

Questions for discussion:

  1. Using Michael Porter’s Competitive Strategy model, which generic strategy do think apple is pursuing? Explain?

2.  Is this a different strategy than apple has pursued in the past?  Explain.

9 Responses to “Apple’s Lower Prices Are All Part of the Plan”

  1. Lindsay G

    1. Using Michael Porter’s Competitive Strategy model, which generic strategy do think apple is pursuing? Explain?

    By progressively decreasing the price of various devices, Apple has adopted Porter’s Cost Leadership coupled with Differentiation as a competitive strategy. Cost Leadership centres around a company’s use of lowering product prices as a means of increasing sales and encouraging consumers to choose their product over the available alternatives that are comparable. Differentiation, on the other hand, it focused on developing products that are distinctly different that others that are currently available. For much of Apple’s company history, they have focused on producing innovative gadgets that the general public wanted and would purchase if they were able to afford it. Originally there was prestige associated with owning these products, but as more people began to own some type of Apple product is has become a “must-have” brand name. As such, other companies continued to invest time and money in to developing their own versions of Apple products. By purchasing much of the materials needed to manufacture such products in advance, competitors have to pay a premium for supplies, which is then reflected in their pricing. Because Apple is able to drive up the cost of competitor products, they are able to reduce their costs. Apple is able to make products cheaper and as such they can couple this with brand recognition to increase sales – even when the cost of a competitor product is similar.

  2. Andrew Douglas

    I think that Apple is now pursuing a cost leadership strategy by securing large quantities of their supplies all at once, they are not only able to keep their costs down by negotiating large contracts and taking advantage of economies of scale, they can also have an effect on the industry as a whole, driving up the price of the parts that are left over because many other companies need these items too. This cost leadership strategy is reflected in their recent pricing of products either cheaper than their competitor’s product, or at nearly the same price as their competitor’s product.

    This is quite different than their previous strategy of differentiation. Previously, Apple had very high prices and lured customers to them with promises of top of the line products that came with a certain level of prestige. Their pricing was rather exclusionary and this limited the number of potential customers available to them because many people were either unable or unwilling to pay these prices. It is not that Apple has abandoned their differentiation approach, they are still quite adamant that their Mac is different than an ordinary PC, but more that Apple has now also included a cost leadership portion to their strategy that seems to be working out fairly well for them so far.

  3. adam smith

    Apple is focusing on a cost leadership approach which I feel is a great approach for them to be taking at this stage. A few years back Apple made them a name of being a company providing superior products and leading innovators, things in the smart phone and tablets industries, the iphone and ipad were the first big things in those industries that revolutionized the market. So now when one thinks of apple or the iphone they think of the leading technology and a superior product. That’s in people’s minds of their view of apple but with their expensive prices they couldn’t reach all the markets and people who desired them. So now with lowering its prices and with the superior name they have built its hard to compete, people have in their minds that apple is the best in the industry and a main reason people were going to their competitors was that the competitors were cheaper, but now that people can get apple products which they feel exceptional at the same price as the others it makes them stand out and is now in a great position to obtain a greater market share.

  4. Kristin Schneider

    Michael Porter created a model called the “Competative Advantage” model, defining how a firm can actually create and sustain a competitive advantage in its industry. These four elements consist of cost leadership, differentiation, cost focus, and differentiation focus. Cost leadership means the lowest cost of operation in the industry with a broad target. Differentiation is the process of distinguishing a product or offering from others, to make it more attractive to a particular broad target market. Cost focus is when the firm sets out to be the best in being the cheapest in the industry with a narrow target. And differentiation focus is when a firm sets out to be the most different in the industry with a narrow target. In my eyes, Apple used to focus on a differentiation focus strategy. This means that they had a narrow target, and a differentiation focus. Today, I think that Apple today is stuck between cost leadership and differentiation. Their prices are cheaper than their competitors, they have a broad market now (ranging from ten year olds with ipods, to eighty year olds with ipads), but they are still thinking that they are the best, and different from everyone else. That isn’t the case, and they need to shift into one column to be successful.

  5. D. Kozak

    Apple continues to develop with technology and with the economy. The current strategy of offering their product for less but the same great technology, is causing apple to be more recognized and become a leader in development and being held by many more users. Apple has always been known for there new products and new designs that have changed the way we view the world. It has always seem to lead the market with the new and greatest, which has left many companies a few months to catch up. When the first iPhone was introduced the product was largely unknown to the world and the strategy of high cost for a product that everyone wanted was working, simply their was no alternative. With the introduction of Google’s android phones, it has made the market for Apple more competitive, which in turn has cause price competition in order to hold market share. In today’s society you can have the leading in technology, but if you can’t compete with prices other companies offer for a similar product it makes it hard to compete. Especially with the continual development and progression of technology. If you only rely on the name (that is the company such as “Apple” or “Microsoft”) or use of new and latest technology, you will eventually run out of ideas to stay ahead and the development of a product with never last long enough to fully be appreciated or have all the kinks worked out.

  6. Jian Li

    Electronic product industry is one of the most competitive fields. The most advanced technology, the lowest cost, the most efficient distribution channel, the successful publicizing strategy are all the competitive advantages. Pricing strategy is also one of the important factors; however, the price setting depends on who a company’s target market is. Cellphone like Vertu, its target market is the wealthy, those customers are less care about the price, and they tend to make themselves stand out by using an unordinary brand. In that case, lowering down the price becomes less necessary to enlarge the market even will cause a result of loss some current customers because they think it’s not attract them anymore and more people can afford it will make it not a label of their social status. If a cellphone’s target market is some price caring people, they may gain more customers. China is the biggest luxury consumption in the world. Many people idolize Apple in the past because it used to be considered as a luxury (when Apple has a few stores in China and the price is much higher than any other brands). But now, with Apple entered in the market and have more stores across the country, lower cost brought down the price, people change their view of this brand. Facing to have more average consumers or stay in the overprice level which is perused by the wealthy class, Apple needs to set their target market before setting the price strategy.

  7. Thomas Davies

    2. Is this a different strategy than apple has pursued in the past? Explain.

    I think that Apple in the past have priced they’re phones at a more higher price and were able to succeed this way for a number of reasons. In regards to the mobile phone market, when Apple first entered the market, there was a huge anticipation for the product to be released. This was an easy tactic for Apple to use by having higher prices and to be seen as a premiere product when compared to its competitors. Another reason why Apple had higher prices in the past was because they’re product line was seen as innovative and extremely appealing. People that were seen with an iPhone had a rise in social status.

    Today, Apple has taken advantage of its manufacturer agreements and are able to price low and still have excellent profits over its competitors because of the inexpensive parts they have. As a result, competitors are unable to keep up with Apple, and find it difficult to enter the such markets like the tablet market.

  8. Blair Watkins

    I think that apple has definitely changed there strategy over the past few years, and it’s amazing to see the impact that it has had on the world. I think that it all started not just with the first iphone, but with the first ipod. It was crazy to think that all someone had to do to get music was to go on to the internet and download a song and you could listen to it on a little device smaller than a cell phone. That lead to the iphone which was completely revolutionary. The things that a phone could do was mind blowing. Then there little small laptops like the macbook and the macbook air, which lead to there Ipads. Apple definitely started out focusing on differentiation rather than cost. They wanted people to see what they could do with technology, and what awesome devices they could create. That generated a desire to have apple. People want apple. Now that they have such a high demand there strategy approach has adapted. They have to be more cost oriented to get that hot product to people that want it but don’t have a ton of money. The way the did it was genius too. By being the largest buyer of microchips in the world they have enormous buyer power, which in turn allows them to price there products a lot cheaper and still be profitable. While other companies struggle to keep there prices low due to the fact that they can’t buy there part for as cheap. Steve Jobs is a genius.

  9. Taylor Elderton

    Apple, currently, is pursuing the cost leadership strategy. They are trying to buyout as many parts as possible, so that other companies will have issues getting enough for themselves, thereby raising the cost. Aside from that, they are also using their higher sales to get an economy of scale, and continue to drive the price per product down to a very competitive level.

    This is definitely a different strategy than Apple has pursued before. A few years ago, anybody who owned a Mac of any kind was thought to be reasonably well off (or just terrible at making financial decisions). The average Mac was double the cost of a PC with equivalent insides. Apple used to be a product that was for an elite few, but now it is shifting to try and put one of their products into every household. They are hoping that with integration, user friendliness and competitive pricing that they can dominate every electronic in a family.

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