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Objectives

Examine the factors that determine the price of iPad in a free market. In recent years, the prices of iPad have continued to fall even in the face of increasing demand.  Analyse with the aid of a diagram how this has occurred.

The iPad was launched in 2010 and from the technological point of view it can be said to be highly incredible, revolutionary and something which will provide a brand satisfaction. In a span of 2 years it has been witnessed that it has not only been successful but also dominated the market. The purpose of this assignment is to shed light on the price establishing mechanism of the iPads. It is to be note that there are various methods and factors which are observed before taking a price decision. The dominance can be gained only when there is a good policy and the price determination is well placed. In the further discussion we will complete material on the price making mechanism of iPads. The second part will shed light on the falling prices of iPads inspite of rise in demand. There are many factors which paves the way for fall in prices such as too many entrants, technological advancement, price war, etc (Braeutigam, 2010). The secret behind Apple and its products (iPad) is by dint of product line, as well as design standards. It has the best of the features and factors which drives the brand. Be it a design firm to software powerhouse to a computer builder it is all in all.

How Apple sets the prices

New products come to the market and it is a great fun to shed light on the features and compare it. Apple hardly matters about the critics and leave it entirely on the numbers to speak (Opocher & Steedman, 2009). With a cool head along with luck good deals can be grabbed with a simple vision and an alert sense of mind.  As a matter of fact the provision of discount is one of the primary tool that enables the retailers to compete with each other in a formidable manner. All bet s, as well as rivalry is due to the apple iPads.  Apple devices and Macs are the ones that accelerated the discount game (Buchanan, 2010). It is very difficult to find such a huge difference between retailers but is really a major point of attraction.

Factors Affecting Prices of iPads

There are various laws which regulates competition among leaders but the question crops up how does Ipads (Apple) did an amazing achievement.  The answer is simple and straightforward which is price maintenance. This is one of the major tool of Apple that helps in establishing price and when it comes to iPads it was majorly done. Hence, this allotted the advantage to iPads and enables them to pass on the advantage to the retailers too. There are plenty of products which move from manufacturers to retailers by a channel of distributors.  It is to be noted that even the product has a pre-defined price, individual retailer is provided the advantage to set own price.

When it comes to Apple, it stretch only a little wholesale discount on its Macs, as well as iPads to the retailer of choice. The actual numbers remain a secret which is protected by strong confidentiality between Cupertinno, as well the resellers. On the contrary the difference exists only in few percentage points which is seen at Apple stores. Hence, retailers cannot offer big discounts when it comes to iPads.  When it comes to other products there is a huge difference. In case of products there is a huge difference as regards to manufactured suggested retailer price. A laptop with a MSRP of $600 might appear for the retailer as $ 300 to buy and may have the sticker price of $400 which is even backed up by a strong 30% discount. Different retailer might act differently in this regard and tune the sales in his favour. But, iPad is not determined by any such concepts. The retailer cannot make such discounts on the iPad as it is properly regulated. Only a small fraction of wholesale discount is provided.

The concept of price maintenance is also a major factor which determines the prices of iPad in the market. In this scenario, it needs to be noted that the retailers have less incentives to have the iPads, or to dedicate advertising space to them.  Hence, the retailers cannot sell the iPads at below cost which is done in case of others products.  This is the place where the strategy of Apple is strong in case of iPads and other related products. As a matter of fact Apple retail strategy is more define din nature (Huang, 2010). The price of iPads is determined by the strategy of the company. The company supplements the tiny wholesale discounts to resellers and provides benefits which are in monetary terms and this  is done only when the resellers advertised products above a certain price which is known as the minimum advertised price. This support and arrangement enables retailers  to make money on per sale basis but the customers are unable to get discounts in this regard.  This helps Apple to embark on a homogeneous iPad pricing.  

How Apple sets the prices

This strategy helps in establishing the prices of iPad in the free market. This helps the company head towards more sales and does not have to compete against the sellers which are generally offered by the resellers. It is to be noted that the retail operations of Apple is the best in the world and therefore profitable. Hence, this tends to determine the prices of iPads. The undercutting of prices is absent and hence it leads to be a better course of action and pricing strategy (Mankiw & Scarth, 2011). In simple terms the individual retailer are unable to influences the pricing and hence the price model is entirely on the basis of the company’s strategy. Hence, undercutting the prices will tend to make it underproductive.

The pricing of iPad is based on the market scenario and prevents any single retailer to build a strong market position.  Hence, advantage cannot be gained through this product.  The narrow range in price variability is the important consideration and this helps to keep the prices intact and does not allow any single retailer to make a profit out of it. Hence, it can be said that the pricing of Apple iPads is in strong collaboration with that of the company’s policies and that there is no scope that the external events can hamper or change the pricing. This enables the pricing of the iPads to be on an even basis.  The distribution channel helps the company in maintaining the standard.

The pricing of the iPads also depends upon the push that is generated by Apple. It has its own retail channel which helps in addition of margin which cannot be seen when it is provided to a retail store. This provides a psychological positive advantage and hence the pricing is provided acute stability. The provision of own retail channel cements the stability and therefore Apple does not have to depend on other retail stores for its sales. Hence, the iPad have a better platform and price is determined with ease and flexibility. Moreover, with the benefits such as clean and well crafted ambiance is the major prospect which is hardly found elsewhere (Shaw, 2012).  Few years ago there was no such provision but with the new prospect and a high tech world there is so much demand for a tablet which automatically ranks over laptops. It is to be noted that the first impression is the most valuable one which provides a great class to the product. The stores of Apple provide customers a great impression of the iPad and hence enable the iPads to be sold at a good margin without having a little consideration into profits.  (Laerme, 2007)The distribution of system is well placed and it leads to proper price mechanism. Hence, this method influences the price because the price of a product is determined by the free interplay of demand and supply forces. Now, it is seen in this scenario, that the iPads have a better market and with the role of the Apple stores it has ease of reach and availability.

House Advantage

Apple has generated a lot of profits which is a unique stand. It has moved technology in a great manner which has ultimately boosted the entire market. Apple has exclusive access which has provided it a big advantage and since it has great command over this, the pricing of it products is done with ease and that too not depending upon the retailers. Apple has always been unique in terms of appeal and this where the products stands apart from the rest.  The pricing of iPads is  influenced by the responsive touch screens, better displays, slim devices, proper bodies and other differentiating factors. These factors are the major ones in determining the prices of iPads and since Apple has a major chunk in the market with a mass appeal it has benefitted from such acts. The price is set keeping the class and appeal in focus.

Apple launched iPad in the year 2010 and it was done with a low of euphoria. It was well placed so as to reach the customers and create a huge impact. From scratch in the beginning of 2010 the tablet market enhanced to more than 100 million units at the end of the year 2013. By 2016 the expected figure is to reach a mammoth 2016.  Beyond question the growth is formidable, as well as astonishing.  As a matter of fact Apple is the biggest player in this market and retains over 45% of the market share. On the contrary, it faces huge competition from Android OS which is coming to the same status as that of Apple. Apple carries several advantages in its favour as it is highly profitable and gains a lot by charging higher prices (Goodin, 2010). Apple has various advantages in the form of

  • Initial mover in the market and whatever it does becomes a trend. It is similar for the iPad. It gained popularity because of the unique features and the backup by Apple.
  • Compatibility factor of Apple and various other products.
  • Brand loyalty which is very formidable.
  • Technological advantages making it a powerful brand.

Since the introduction of the Apple iPad in 2010 where the price was more than 700$, the average price of the tablet has been in a constant declining state and according to the market prediction the same is bound to happen (Madway, 2010). It is to be noted that this fall has been witnessed inspite of rising demand. Several factors are responsible for this which adds to the reason of falling prices of iPads, as well as other tablets. The table below provides a clear cut indication that the sale of iPad has fallen over a period of time and this is due to various factors which will be discussed in the later section of this project.

Ipad Sales year by Year

2010

7.46 million

2011

32.39 million

2012

58.31 million

2013

71.04 million

2014

67.99 million

2015

21.42 million (one quarter)

Carrot and stick


The fall in the prices and rise in the demand can be justified by this figure provided below. The price slumped by the demand has taken a new position which is indicated by D2.

In this scenario we can witness that there is an increase in both the demand as well as supply factors. But, the increase in supply is more than the demand. This is the sole reason why the price has fallen inspite of the demand.  From the above diagram it is clearly noted that the price has fallen even in the wake of rising demand. The demand of iPads is there in the market but the price has reached a low limit and hence the new equilibrium is framed. The price of iPad was tagged at $700 and it was available at Q1 which indicates the price and the quantity demanded. The meeting of supply and demand was the equilibrium point (Mankiw, 2011).

But in the second case, the demand increased and inspite of increment in demand the price fell. This can be due to several reasons.

When apple launched iPad the product was tagged at $700 which was due to price skimming. Under this scenario high price is charged to them who are willing to pay high price for iPads . But, it needs to be noted that at that point of time there were few competitors in the market but the revolution in the area of technology brought many firm into action. Moreover, the process of iPad can also be said as premium pricing which means the price reinforce the status that Apple is the best quality.  The entrants of new tablets in the market have provided a stiff competition. Therefore, the players are more in the market and since there  are too many players, the price strategy or price war is the major weapon (Homburg,2009). This has severely affected all the competitors and this can be justified by the scene of falling prices even for Apple iPad.

The technological development has provided wings to the firms and as a result we can witness high class tablets and computers with low costs. This has resulted in a stiff competition. Consumers are inclined in purchasing of tablets which adds utility and can be purchased at minimum price. Considering this there has been a drastic fall in the price of the tablets. Since one firm imitates other, there is a huge competition and ultimately all have reduced their prices in order to accommodate change (Lee, 2011). Even iPads encountered this problem. Even in the wake of demand it witnessed a low price level.

Retail Channel

 With the due passage of time there has been numerous models in the market which boasts of the same performance.  For example, in UK there are good budget models being sold by companies like Argos, Asda and Tesco. The budget models are for those who are sensitive to price and have a good linking for the functions.  Customers who do not have the same loyalty may purchase them with ease and flexibility (Lee, 2011). This factor led to change in demand, the demand for the tablets increased and even the demand for iPads increased as the result of popularity of tablets but the price of iPads continued to fall even in the wake of demand because there was a strong boom in other budget models and in order to accommodate such situation the price came down to a lower level.

 Many companies are looking to cement their place in the market and as as a result of it the profit margin is very low. This is done in order to gain a formidable position in the long run in case of tablet market. It is to be noted that high sales would result in selling of secondary products. Apple iPad sales enhance the purchase of music from iTunes (Sarah, 2014). Tablets may not be profitable but the case of Microsoft is a glaring example. The operating system (Microsoft) can be seen in majority of the PCs which tend to provide a strong monopoly (Lee, 2011).  Similar case can be observed in case of iPads where the price is settled for low in order to gain a commendable position and once the market is settled it will lead to significant result in the long run. This is an excellent manner of extracting more profits but needs to be noted that at the current level the price may be tagged too low. This is exactly the policy of iPads even in the situation of huge demand, the prices are less.

 There has been a widespread growth in the tablet market which have enabled firms to take advantage of the economies of scale.  This has enabled to cut down costs.  Similar thing is witnessed in case of Apple iPads where the economies of scale and the technological development have shown a major turnaround. This has led to mass scale production and has lift the sales. This has provided the company the advantage to lower down costs and inspite of huge demand the product is available at lower prices. Moreover, when it comes to the competitive arena it can be said that price wars is the major weapon and drop in the prices along with the demand increment can be a strategy to gain a major chunk of the market (Murphy, 2013).

Overall, Apple sold more than million during the past  years sales. The sales figures is clearly reflected in the picture. From the figure and chart it can be seen that the sales in October fell more than 13% in comparison to the month of October in the last year (Murphy, 2013).

Conclusion

Apple products are well settled in the market and enjoy a great deal of dominance which can be justified by the sales as well as brand popularity. The pricing of iPads clearly highlights the unique concept which is followed by Apple in order to promote as well as enable maximum reach of the iPads. The unique method is followed so as to cut down competition and make the product easy available. Apple does not allow the retailers to gain a huge percentage on margin because it has well defined reach, as well as availability. Therefore, it is able to meet the customers demand in a unique manner. On the other hand, when it comes to decline in the prices of the iPads it can be said that there are various factors which influences such move. The demand of the product varies and this can happen not only from the action of that particular product but also the competitors product. Increase in demand with declining products for iPads indicates the motive  of the Apple brand to cement the stability. Since there are number of players therefore such action has been taken into consideration. Due to this a new equilibrium of demand and supply will come into picture and will keep on happening when there is a new change.

References

Braeutigam, Ronald (2010). Microeconomics (4th ed.). Wiley.

Buchanan, Matt  (2010). Official: iPad Launching Here April 3, Pre-Orders. Gizmodo.. Retrieved June 4, 2015

Goodin, Dan (2010). Hackers release jailbreak for iPad and newer iPhones. The Register. Retrieved June 4, 2015

Homburg, Christian; Sabine Kuester, Harley Krohmer (2009): Marketing Management - A Contemporary Perspective (1st ed.), London.

Huang, Joyce (2010). Best Under a Billion: Batteries Required? . Forbes. Retrieved June 4, 2015

Laermer, Richard; Simmons Mark (2007) Punk Marketing, New York : Harper Collins,

Lee, Matt (2011). Apple's iOS: smaller package, bigger restrictions. Free Software Foundation. (2007)

Madway, Gabriel (2010). Special Report: iPad striptease: It's what's inside that counts". Reuters. Retrieved June 4, 2015

Mankiw, N.G.; Taylor, M.P. (2011). Economics (2nd ed) Andover: Cengage Learning

Murphy, Samantha (2013). Apple's 128GB iPad Now on Sale. Mashable. Retrieved June 5, 2015

Mankiw N. Gregoryand Scarth, William M. (2011) Macroeconomics. Canadian ed., 4th ed. New York: Worth Publishers

 Opocher, Arrigo Steedman, Ian (2009) Input Price-Input Quantity Relations and the Numeraire.  Cambridge Journal of Economics, 3(2), 937-942

Sarah Perez (2014). iTunes App Store Now Has 1.2 Million Apps, Has Seen 75 Billion Downloads To Date". TechCrunch. Retrieved June 4, 2015

Shaw, E. (2012) Marketing strategy: From the origin of the concept to the development of a conceptual framework. Journal of Historical Research in Marketing, 4(1), 30
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