CHAPTER NO 1

1.1INTRODUCTION
In an era marked by the challenges of global competition, rapidly changing technology ,
new consumer needs , and shifting demographics , the development of strategic marketing
skills is essential if companies are to survive , let alone prosper. Because unique strategic
marketing moves are not often transparent to competitors and are nearly always difficult
and time consuming to copy , a focus on marketing strategy yields significant advantage.
Marketing identifies consumers needs and supplies various goods and services to satisfy
those needs most effectively. So the businessman needs to: (a) produce or manufacture
the product according to consumers need; (b) make available it at a price that the
consumers find reasonable; (c) supply the product to the consumers at different outlets
they can conveniently approach; and (d) inform the consumers about the product and its
characteristics through the media they have access to.
These 4 Ps are called as elements of marketing and together they constitute the
marketing mix. All these are inter-related because a decision in one area affects decisions
in other areas. In this lesson you will learn about the basic aspects relating to these 4Ps
viz., product, price, place and promotion.
Marketing involves a number of activities. To begin with, an organisation may decide on
its target group of customers to be served. Once the target group is decided, the product is
to be placed in the market by providing the appropriate product, price, distribution and
promotional efforts. These are to be combined or mixed in an appropriate proportion so as
to achieve the marketing goal. Such mix of product, price, distribution and promotional
efforts is known as Marketing Mix.
Strategy is important because the resources available to achieve these goals are usually
limited. Strategy generally involves setting goals, determining actions to achieve the
goals, and mobilizing resources to execute the actions. A strategy describes how the ends
1

(goals) will be achieved by the means (resources). The senior leadership of an

organization is generally tasked with determining strategy. Strategy can be intended or
can emerge as a pattern of activity as the organization adapts to its environment or
competes. It involves activities such as strategic planning and strategic thinking.

1.2 Objectives of Study

1. To study the concept of Pricing Strategy in detail.
2. To study the Pricing Strategy of Apple Iphone.
3. To compare prices, features and other specifications of Apple Iphone vs Samsung.

1.3 Significance of Study

This study helps us to understand the concept of pricing strategy as an important element of
marketing mix. It helps us to study the history of Apple Company and the pricing strategy
adopted by this company. It has also shown a comparison between upcoming phones of
Iphone and Samsung.

1.4 Research Methodology

This information is been collected from Secondary source such as Reference Book and Edata.

1.5 Review of Literature

Robert M. Schindler1 states that the marketing approach to pricing involves more than
recognising how pricing relates to the other three "4P's" of the marketing mix. His book
addresses that pricing will benefit from an attentiveness to customer needs and
sensitivities as much as will marketing practices such as advertising or product design.

Robert M. Schindler, Pricing Strategies: a marketing approach ,SAGE Publications,

Inc.,2012
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Gordon Mills2 states that pricing is a business strategy of great importance, especially
when the seller has market power. The contemporary marketer is keen to set price at the
value of the product in the hands of the customer - rather than merely by reference to cost.
Pricing strategies depend on the shortcomings in the customer's knowledge of product
quality and of available price-offers. This book examines both a business and a public interest viewpoint.
Thomas T. Nagle and John E. Hogan 3 states that pricing has moved to the top of many
executive agendas driven by monumental and permanent shifts in the business
environment. Intense global competition, which has long been on the horizon, has
become a reality with the emergence of China and India as formidable business powers
capable of competing on both quality and price. This edition of the book provides
practical advice to help marketers build capabilities in their firms, creating such capability
involves tremendous change.

CHAPTER NO 2
CONCEPTUAL FRAMEWORK
Definition: Price is the value that is put to a product or service and is the result of a complex
set of calculations, research and understanding and risk taking ability. A pricing strategy takes
into account segments, ability to pay, market conditions, competitor actions, trade margins
and input costs, amongst others. It is targeted at the defined customers and against
competitors.
Gordon Mills, Retail Pricing Strategies and Market Power ,Melbourne University
Press,2002
2

3 Thomas T. Nagle and John E. Hogan, The Strategy and Tactics of Pricing: A Guide to

Growing More Profitability" ,Dorling Kindersley India Pvt. Ltd., 2009

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Pricing strategy in marketing is the pursuit of identifying the optimum price for a product.
This strategy is combined with the other marketing principles known as the 4 P's (product,
place, price, and promotion), market demand, product characteristics, competition, and
economic patterns. The pricing strategy tends to be one of the more critical components of
the marketing mix and is focused on generating revenue and ultimately profit for the
company.
Pricing strategy refers to method companies use to price their products or services. Almost all
companies, large or small, base the price of their products and services on production, labour
and advertising expenses and then add on a certain percentage so they can make a profit.
There are several different pricing strategies, such as penetration pricing, price skimming,
discount pricing, product life cycle pricing and even competitive pricing.
Pricing is the process of determining what a company will receive in exchange for its product
or service. Pricing factors are manufacturing cost, market place, competition, market
condition, brand,

and

quality

of

product.

Pricing

is

also

key

variable

in microeconomic price allocation theory. Pricing is a fundamental aspect of financial

modelling and is one of the four Ps of the marketing mix. (The other three aspects are
product, promotion, and place.) Price is the only revenue generating element amongst the
four Ps, the rest being cost centres. However, the other Ps of marketing will contribute to
decreasing price elasticity and so enable price increases to drive greater revenue and profits.
Pricing is the manual or automatic process of applying prices to purchase and sales orders,
based on factors such as: a fixed amount, quantity break, promotion or sales campaign,
specific vendor quote, price prevailing on entry, shipment or invoice date, combination of
multiple orders or lines, and many others. Automated systems require more setup and
maintenance but may prevent pricing errors. The needs of the consumer can be converted into

demand only if the consumer has the willingness and capacity to buy the product. Thus
pricing is very important in marketing.
The success in pricing strategies for businesses is heightened with clarity on market
conditions, an understanding of the consumer's unmet desire, and the amount they are willing
to pay to fulfill it. No matter what type of product you sell, the price you charge your
customers or clients will have a direct effect on the success of your business. Before setting a
price for your product, you have to know the costs of running your business. If the price for
your product or service doesn't cover costs, your cash flow will be cumulatively negative,
you'll exhaust your financial resources, and your business will ultimately fail.
To determine how much it costs to run your business, include property and/or equipment
leases, loan repayments, inventory, utilities, financing costs, and salaries/wages/commissions.
Don't forget to add the costs of markdowns, shortages, damaged merchandise, employee
discounts, cost of goods sold, and desired profits to your list of operating expenses.
Most important is to add profit in your calculation of costs. Treat profit as a fixed cost, like a
loan payment or payroll, since none of us is in business to break even. Because pricing
decisions require time and market research, the strategy of many business owners is to set
prices once and "hope for the best."

CHAPTER 3
INTRODUCTION TO PRICING STRATEGY
Pricing has traditionally been considered a me-too variable in marketing strategy. The stable
economic conditions that prevailed during the 1960s may be particularly responsible for the
low status to the pricing variable. Strategically, the function of pricing has been to provide
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adequate return on investment. Thus, the time-worn cost-plus methods of pricing and its
sophisticated version, return-on-investment pricing, have historically been the basis for
arriving at price. In the 1970s, however, a variety of events gave a new twists to the task of
making pricing decisions. Double-digit inflation, material shortages, the high cost of money,
consumerism, and post-price controls behaviour all made pricing important. Since then
pricing continues to play a key role in formulating marketing strategy.
Despite the importance attached to it, effective pricing is not easy task, even under the most
favourable conditioned. A large number of internal and external variables must be studied
systematically before price can be set. For example, the reactions of a competitor often stand
out as an important consideration in developing pricing strategy. Simply knowing that a
competitor has a lower price is insufficient; a price strategists must know how much
flexibility a competitor has in further lowering price. This presupposes a knowledge of
competitors cost structure. In the dynamics of todays environment, however, where
unexpected economic changes can render cost and revenue projections obsolete as soon as
they are developed, pricing strategy is much more difficult to formulate.

REVIEW OF PRICING FACTORS

Basically, a pricer needs to review four factors to arrive at a price: (1) pricing objectives, (2)
cost, (3) competition, and (4) demand. Broadly speaking, pricing objectives can be either
profit oriented or volume oriented. The profit oriented objective may be defined either in
terms of desired net profit percentage or as a target return on investment. The latter objective
has been more popular among large corporation. The volume oriented objective may be
stated as the percentage of market share that the firm would like to achieve. Alternatively, it
amy simply be stated as the desired sales growth rate. Many firms may also consider the
maintenance of a stable price as a pricing goal. Particularly in cyclical industries, price
6

stability helps to sustain the confidence of customers and thus keeps operations running
smoothly through peaks and valleys.
For many firms, there can be pricing objectives other than those of profitability and volume.
Each firm should evaluate different objectives and choose its own pririties in the context of
the pricing problems taht it may be facing. The following list containds illustrations of typical
pricing problems:
1. Decline in sales.
2. Higher or lower prices than competitors.
3. Excessive pressure on middlemen to generate sales.
4. Imbalance in product line prices.
5. Distortion with reference to the offering in the customers perceptions of the firms price.
6. Frequent changes in price without any relationship to environmental realities.

(1) POTENTIAL PRICING OBJECTIVES

Current profit maximization - seeks to maximize current profit, taking into account revenue
and costs. Current profit maximization may not be the best objective if it results in lower
long-term profits.
Current revenue maximization - seeks to maximize current revenue with no regard to profit
margins. The underlying objective often is to maximize long-term profits by increasing
market share and lowering costs.
Maximize quantity - seeks to maximize the number of units sold or the number of
customers served in order to decrease long-term costs as predicted by the experience curve.
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 Maximize profit margin - attempts to maximize the unit profit margin, recognizing that
quantities will be low.
Quality leadership - use price to signal high quality in an attempt to position the product as
the quality leader.
Partial cost recovery - an organization that has other revenue sources may seek only partial
cost recovery.
Survival - in situations such as market decline and overcapacity, the goal may be to select a
price that will cover costs and permit the firm to remain in the market. In this case, survival
may take a priority over profits, so this objective is considered temporary.
Status quo - the firm may seek price stabilization in order to avoid price wars and maintain
a moderate but stable level of profit.
A firm may have more than one pricing objective, even though these objectives may not be
articulated as such. Essentially, pricing objectives deals directly or indirectly with three areas:
profit (setting a high enough price to enable the company to earn an adequate margin for
profit and reinvestment), competiton (setting a low price to discourage competitors from
adding capacity), and market share (setting a price below competiton to gain market share).
As an example of pricing objectives, consider the goals that Apple Computer set for
Macintosh:
1. To make the product affordable and a good value for most college students.
2. To get certain target segments to see the Macintosh as a better value than IBM PC.
3. To encourage at least 90 percent of all Apple retailers to carry the Macintosh while
providing a strong selling effort.
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4. To accomplish all this within 18 months.

(2) COST
Fixed and Variable costs are the major concerns of a pricer. In addition, the pricer may
sometimes need to consider other types of costs, such as out-of-pocket costs, incremental
costs, controllable costs, and replacement costs.
To study the impact of costs on pricing strategy, the following three relationships may be
considered (a) the ratio of fixed costs to variable costs, (b) the economies of scale available to
a firm, and (c) the cost structure of a firm with reference to competitors. If the fixed costs of
the company in comparison to its variable costs form a high proportion of its total cost,
adding sales volume will be great help in increasing earnings.
If the economies of scale obtainable from a companys operations are substantial, the firm
should plan to expand market share and, with respect to long term prices, take expected
declines in costs into account. Alternatively, if operations are expected to produce a decline in
costs, then prices may be lowered in the long run to gain higher market share.
If a manufacturer is low-cost producer relative to its competitors, it wil earn additional profits
by maintaining prices at competitive levels. The additional profits can be used to promote the
product aggressively and increase the overall market share of the business. If, however, the
costs of a manufacturer are high compared to those of its competitors, the manufacturer is in
no position to reduce prices because that tactic may lead to a price war that is would most
likely lose.

(3) COMPETITON
COMPETITIVE INFORMATION NEEEDED FOR PRICING STRATEGY
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1. Published competitive price lists and advertising

2. Competitive reaction to price moves in the past
3. Timing of competitors price changes and initiating factors
4. Information on competitors special campaigns
5. Competitive product line comparison
6. Assumptions about competitors pricing / marketing objectives
7. Competitors reported financial performance
8. Estimates of competitors costs-fixed and variable
9. Expected pricing retaliation
10. Analysis of competitors capacity to retaliate
11. Financial viability of engaging in price war
12. Strategic posture of competitors
13. Overall competitive aggressiveness
The firm with a large market share is in a position to initiate price changes without worrying
about competitors reactions. Presumably a competitor with a large market share has the
lowest costs. The firm can therefore, keep its prices low, thus discouraging other members of
the industry from adding capacity, and further its cost advantage in a growing market.
If a firm operates in an industry that has opportunities for product differentiation, it can exert
some control over pricing even if the firm is small and competitors are many. This may occur
if customers perceive one brand to be different from competing brands: whether the
10

difference is real or imaginary, customers do not object paying a higher price for preferred
brands. To establish product differentiation, however, offers an opportunity to control prices
only within a certain range.
In an industry that is easy to enter, the price setter has less discretion in establishing prices; if
there are barriers to market entry, however, a firm already in the industry has greater control
over prices. Barriers to entry may take any of the following forms:
1. Capital investment.
2. Technological requirements.
3. Nonavailability of essential materials.
4. Economies of scale that existing firms enjoy and that would be difficult for a new comer to
achieve.
5. Control over natural resources by existing firms.
6. Marketing expertise.
In an industry where barriers to entry are relatively easy to surmount, a new entrant will
follow what can be called keep-away pricing. This strategy is necessarily on lower side of
pricing spectrum.

(4) DEMAND
Demand is based on a variety of considerations, of which price is just one. Some of these
considerations are:
1. Ability of customers to buy.

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2. Willingness of customers to buy.

3. Place of the product in the customers lifestyle (whether status symbol or a product used
daily).
4. Benefits that the product provides to customers.
5. Prices of substitute products.
6. Potential market for the product (is demand unfulfilled or is the market saturated?).
7. Nature of nonprice competition.
8. Customer behaviour in general.
9. Segments in the market.
Demand analysis involves predicting the relationship between price level and demand while
considering the effects of other variables on demand. The relationship between price and
demand is called elasticity of demand.
Elasticity of demand refers to the number of units of a product that would be demanded at
different prices. Industry demand for product is considered to be elastic if, by lowering
prices, demand can be substantially increased. If lowering price has little effect on demand,
demand is considered inelastic. The environmental factors have definite influence on demand
elasticity. Sometimes the market for a product is segmented so that demand elasticity in each
segment must be studied. The demand of certain types of beverages by senior citizens might
be inelastic, though demand for same products among a younger audience may be especially
elastic. If the price a product goes up, customers have a option of switching to another
product. Thus, availability of substitute products is another factor that should be considered.

12

To conclude this discussion on pricing factors, it would be out of place to say that, while
everybody thinks businesses go about setting prices scientifically, very often the process is
illogical. Companies seeking to capture potential must make efforts to understand the
behaviour of consumers and find ways to apply this understanding to the thousands of
frontline pricing decisions they make every year. Although businesses of all types devote a
great deal of time and study to determine the prices to put on their products, pricing is often
more art than science.
The following eight steps deal with the essentials of setting of setting the right price and then
monitoring that decision so that the benefits are sustainable.
1. Access what value your customers place on a product or service.
2. Look for variations in the way customers value the product.
3. Assess customers price sensitivity.
4. Identify an optimal pricing structure.
5. Consider competitors reactions.
6. Monitor prices realised at the transaction level.
7. Assess customers emotional response.
8. Analyse whether the returns are worth the cost of serve.
The above eight steps assess the factors affecting price.
Companies need to assess their customers to discover how a product or service is valued.
Variations in the way customers value the same product may be turned to a companys benefit
through clever pricing.
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PRICNG STRATEGIES FOR NEW PRODUCTS

The pricing strategy for a new product should be developed so that the desired impact on the
market is achieved while the emergence of competition is discouraged. Two basic strategies
that may be used in pricing a new product are skimming pricing and penetration pricing.

SKIMMING PRICING
Skimming pricing is the strategy of establishing a high initial price for a product with a view
to skimming the cream off the market at the upper end of the demand curve. It is
accompanied by heavy expenditure on promotions. A skimming may be recommended when
the nature of demand is uncertain, when a company has expanded large sums of money on
research and development for a new product, when the competition is expected to develop
and market similar product in the near future, or when the product is so innovative that the
market is expected to mature very slowly. Under these circumstances, a skimming strategy
has several advantages. At the top of the demand curve, price elasticity is low. Besides, in the
absence of any close substitute, cross-elasticity is also low. These factors, along with heavy
emphasis on promotion, tend to help the product make significant market. The high price also
helps segment the market. Only nonprice-conscious customers will buy a new product during
its initial stage. Later on, the mass market can be tapped by lowering the price.
It is very difficult to start low and then raise the price. Raising a low price may annoy
potential customers, and anticipated drops in price may slow down demand at a particular
price. For a financially weak company, a skimming strategy may provide immediate relief.
The decision about how high a skimming price should be depends on two factors: (a) the
probability of competitors entering the market and (b) price elasticity at the upper end of the
demand curve. If competitors are expected to introduce their own brands quickly, it may be
14

safe rather than high. On the other hand, if competitors are year behind in product
development and a low rate of return to the firm would slow the pace of research at
competing firms, a low skimming price can be useful. However, price skimming in the face
of coming competition may not be wise if a large share makes entry more difficult. If limiting
the sale of a new product to a few selected individuals produces sufficient sales, a very high
price may be desirable.
Premium and Umbrella prices are two other forms of price skimming. Some products carry
premium prices (high prices) permanently and build an image of superiority for themselves.
Sometimes, higher prices are maintained in order to provide an Umbrella for small high-cost
competitors. Umbrella prices have been aided by limitation laws that specify minimum prices
for a variety of products, such as milk.

PENETRATION PRICING
Penetration pricing is the strategy of entering the market with a low initial price so that a
greater share of the market can be captured. The penetration strategy is used when an top
market does not exist and demand seems to be elastic over the entire demand curve, even
when during early stages of product introduction. High price elasticity of demand is probably
the most important reason for adopting a penetration strategy. The penetration strategy is also
used to discourage competitors from entering the market. When competitors seem to make
inroads in the market, an attempt is made to lure them away by means of penetration pricing,
which yields lower margins. A competitors costs play a decisive role in this pricing strategy

15

because a cost advantage over the existing manufacturer might persuade another firm to enter
the market, regardless of how low the margin of the former may be.
One may also turn to penetration strategy with a view o achieving economies of scale.
Savings in production costs alone may not be an important factor in setting low prices
because, in the absence of price elasticity, it is difficult to generate sufficient sales. Finally,
before adopting penetration pricing, one must make sure that the product fits the lifestyles of
mass market.
How low the penetration price should be differs from case to case. There are several different
types of prices used penetration strategies: restrained prices, elimination prices, promotional
prices, and keep-out prices.
Penetration pricing reflects a long-term perspective in which short term profits are sacrificed
in order to establish sustainable competitive advantage. Penetration policy usually leads
above-average long-run returns that fall in a relatively narrow range.

PRICING STRATEGIES FOR ESTABLISHED PRODUCTS

Changes in the marketing environment may require a review of the prices of products already
in the market. For example, an announcement by a large firm that it is going lower its prices
makes it necessary for other firms in the industry to examine their prices. A review of pricing
strategy may also become necessary because of shifts in demand. An examination of the
existing prices may lead to one of three strategic alternatives: (1) maintaining the price, (2)
reducing the price, (3) or increasing the price.

(1) MAINTAINING THE PRICES

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If the market segment from which the company derives a big portion of its sales is not
affected by the changes in the environment, the company may decide not to initiate any
change in its pricing strategy. The strategy of maintaining price is appropriate in
circumstances where a price change may be desirable, but the degree of change is not
determinable. If the reaction of customers and competitors to a price change cannot be
predicted, maintaining the present price level may be appropriate. Alternatively, a price
change may have an impact on product image or sales of other products in a companys line
that is not practical to assess. Politics may be another reason for maintaining prices. Concern
for the welfare of society may be another reason for maintain prices at current levels. Even
when supply is temporarily short of demand, some businesses may adopt a socially
responsible posture and continue to charge current prices.

(2) REDUCING THE PRICE

There are three main reasons for lowering prices. First, as a defensive strategy, prices may be
cut in response to competition. A second reason for lowering prices is offensive in nature.
Technological advances have made possible the low-cost production of high quality
electronic gears. Many companies have translated these advances into low retail prices to
gain competitive control. The third and final reason for price cutting may be response to
customer need. If low prices are must for market to grow, customer need may turn of a
marketing strategy, all other aspects of the marketing mix being developed accordingly. In
adopting low-price strategy for an existing product, a variety of considerations must be taken
into account. The long-term impact of a price cut against a major competitor is major factor
to be reckoned with. In a highly competitive situation, a product may command a higher price
than other brands if it is marked as a different product-for example, as one of deluxe
quality.

17

It is also necessary to examine thoroughly the impact of a price cut of one product in other
products in the line. Finally, the impact of a price cut on a products financial performance
must be reviewed before the strategy is implemented. If a company is so positioned
financially that a price cut will weaken its profitability, it may decide not to lower the price
even if lowering price may be in all other ways the best course to follow.

(3) INCREASING THE PRICE

An increase in price may be implemented for various reasons. First, in an inflationary
economy, prices may need to be adjusted to maintain profitability. During inflation, all types
of costs go up, and to maintain adequate profits, an increase in price becomes necessary. How
much the price should be increase is a matter of strategy that varies from case to case. Price
may also be increased by downsizing (decreasing) package size while maintaining price. In a
recession, downsizing helps hold a line of prices despite rising costs. Under inflationary
conditions, downsizing provides way of keeping prices from rising beyond psychological
barriers.
Prices may be increased when a brand has monopolistic control over the market segments it
serves. In other words, when a brand has a differential advantage over competing brands in
the market, it may take advantage of its unique position, increasing its price to maximise its
benefits.
Sometimes prices must be increased to adhere to an industry situation. Of the few firms in an
industry, one (usually largest) emerges as a leader. If the leader raises its prices, other
members of the industry must follow it, to maintain the balance of strength in industry. If they
do not do so, they are liable to be challenged by the leader. Usually, no firms like to fight the
industry leader.

18

Prices may also be increased to segment the market. Increase in price is seductive in nature.
After all, improvements in price typically have three to four times effect on profitability as
proportionate increases in volume. But the increase should be considered for its effect on long
term profitability, demand elasticity, and competitive moves. Although a higher price may
mean higher profits in the short run, the long run effect on a price increase may be disastrous.
The increase may encourage new entrants to flock in the industry and competition from
substitutes. Thus, before a price increase strategy is implemented, its long-term effects should
be thoroughly examined. Further, an increase in price may lead to shifts in demand that could
be harmful. Likewise, the increase may negatively affect market share if the competition
decides not to seek similar increase in price. Thus, competitive posture must be studied.
Finally, the timing of a price increase can be nearly as important as the increase itself.

PRICE-FLEXIBILITY STRATEGY
A price-flexibility strategy usually consist of two alternatives: a one-price policy and a
flexible-price policy. Influenced by a variety of changes in the environment, such as
saturation of markets, slow growth, global competition, and the consumer movement, more
and more companies have been adhering in recent years to flexibility in pricing of different
forms. Pricing flexibility may consist of setting different price in different markets based on
geographic location, varying prices depending on the time of delivery, or customising prices
based on the complexity of the product desired.

(1) ONE-PRICE STRATEGY

19

A one-price strategy means that the same price is set for all customers who purchase goods
under essentially same conditions and in the same quantities. The one-pricing strategy is
fairly typical in situations where mass distribution and mass selling are employed. Thare are
several advantages and disadvantages that may be attributed to one-pricing strategy. One
advantage of this pricing strategy is administrative convenience. It also makes the pricing
process easier and contributes to the maintenance of goodwill among customers because no
single customer receives special pricing favours over another.
A general disadvantage of this strategy is that the firm usually ends up broadcasting its prices
to competitors who may be capable of undercutting the price. Total inflexibility pricing may
undermine the product in marketplace. Total inflexibility in pricing may also have highly
adverse effects on corporate growth and profits in certain situations. It is very important that a
company remain responsive to general trends in economic, social, technological,
political/legal, and competitive environment. Realistically, then, a pricing strategy should be
periodically reviewed to incorporate environmental changes as they become pronounced. Any
review of this type would need to include a close look at a companys position relative to the
actions of other firms operating within its industry.

(2) FLEXIBLE-PRCING STRATEGY

A flexible-pricing strategy refers to situations where same products or quantities are offered
to different customers at different prices. A flexible-pricing strategy is more common in
industrial markets than in consumer markets. An advantage of a flexible-pricing strategy is
the freedom allowed to sales representatives to make adjustments for competitive conditions
rather than refuse an order. Also, a firm is able to charge a higher price to customers who are
willing to pay it and lower price to those unwilling, although legal difficulties may be
encountered if price discrimination becomes an issue. Besides, other customers may become
20

upset upon learning that they have been charged more than their competitors. In addition,
bargaining tends to increase the cost of selling, and some sales representatives amy let price
cutting become a habit.
Price flexibility with reference to the market can be achieved either from one geographic area
to another or from one segment to another. Price flexibility with reference to the product is
implemented by considering the value that a product provides to the customer. The flexiblepricing strategy has two characteristics: an emphasis on profit or margins rather than simply
on volume and a willingness to change price with reference to the existing climate. A
systematic procedure for reviewing price at quarterly or semi-annual intervals must be
established. Finally, an adequate information system is required to help the pricing executive
examine different pricing factors.

PRODUCT LINE-PRICING STRATEGY

A modern business enterprise manufacturers and markets a number a product items in a line
with differences in quality, design, size and style. Product in a line may be complementary to
or competitive with each other. The relationship among products in a given product line
influence the cross-elasticities of demand between competing products and package-deal
buying of products complementary to each other.
The pricing strategy of a multilateral firm should be developed to maximise the profits of the
entire organisation rather than the profitability of a single product. For products already in the

21

line, pricing strategy may be formulated by classifying them according to their contribution
as follows:
1. Products that contribute more than their pro rata share toward overhead after direct costs
are covered.
2. Products that just cover their pro rata share.
3. Products that contribute more than incremental costs but do not cover their pro rata share.
4. Products that fail to cover the cost savable by their elimination.

LEASING STRATEGY
The major emphasis of a pricing strategy is on buying a product outright rather than leasing
it. Except in housing, leasing is more common in the marketing of industrial goods than
among consumer goods, though in recent there has been a growing trend toward the leasing
of consumer goods. Although there may be different alternatives for setting the lease price,
the lessor usually likes to recover the investment within few years. Thereafter, a very large
portion of the lease price (rent) is profit.
Leasing works out to be a viable strategy for other products as well. From the viewpoint of
manufacturer, the leasing strategy is advantageous in many ways. First, income is smoothed
over a period of years, which is very helpful in case of equipment of high unit value in a
cyclical business. Second, market growth can be boosted because more customers can afford
to lease a product than can afford to buy. Third, revenues are usually higher when a product is
leased than when it is sold.

BUNDLING-PRICING STRATEGY

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Bundling, also called iceberg pricing, refers to the inclusion of an extra margin in the service
over and above the price of the product as such. This type of pricing strategy has been
popular with companies that lease rather than sell their products. Thus, the rental price, when
using a bundling strategy, includes an extra charge to cover a variety of support functions and
services needed to maintain the product throughout its useful life. Because unit profit
increases sharply after a product completes its planned amortisation, it is desirable for firms
that lease their products to keep their product in good condition, thus enhancing its working
life for high resale or re-leasing value. The bundling strategy permits a company to do so
because a charge for upkeep, or iceberg, services is included in the price.
Under bundling strategy, not only costs of hardware and profits covered, expenses foe extra
technical sales assistance, design and engineering of the system concept, software and
applications to be used on the system, training of personnel, and maintenance are also
included. For the company, this strategy (a) covers the anticipated expenses of providing
services and maintaining the product, (b) provides revenue for supporting after-sales service
personnel, (c) provides contingency funds to meet unanticipated happenings, and (d) ensures
proper care and maintenance of the leased products. Bundling strategy also permits an
ongoing relationship with the customer. On the negative side, this strategy tends to inflate
costs and distort prices and profitability.

PRICE-LEADERSHIP STRATEGY
The price-leadership strategy prevails in oligopolistic situations. One member of an industry,
because of its size or command over the market, emerges as the leader of an entire industry.
The leading firm then makes pricing moves that are duly acknowledged by other members of
the industry. Thus, this strategy places the burden of making critical pricing decisions on the
leading firm; others simply follow the leader. The leader is expected to be careful in making
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pricing decisions. A faulty decision could cost the firm its leadership because other members
of the industry would then stop following in its footsteps.
The price-leadership strategy is a static concept. In an environment where growth
opportunities are adequate, companies would rather maintain stability than fight each other
by means of price wars. Thus, the leadership concept works out well in this case.
Usually the leader is the company with the largest market share. The leadership strategy is
designed to stave off price wars and predatory competition that tend to force down prices
and hurt all parties. Companies that deviate from this form are chastised through discounting
or shaving by the leaders. Price deviation is quickly disciplined.
Successful price leaders are characterised by the following:
1. Large share of the industrys production capacity.
2. Large market share.
3. Commitment to a particular product class or grade.
4. New cost-efficient plants.
5. Strong distribution system, perhaps including captive wholesale outlets.
5. Good customer relation.
6. An effective market information system that provides analysis of demand and supply.
7. Sensitivity to the price and profit needs of rest of the industry.
8. A sense of timing to know when price changes should be made.
9. Attention to legal issues.
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PRICING STRATEGY TO BUILD MARKET SHARE

Recent work in the area of marketing strategy has delineated the importance of market share
as key variable in strategy formulation. Although market share has been discussed earlier
with reference to other matters, this section examines the impact of market share on pricing
strategy.
It has been noted that higher market share and experience leads to lower costs. Thus, a new
product should be priced to improve experience and market share. The combination of
enhanced market share and experience gives a company such a cost advantage that it cannot
ever profitably be overcome by any competitor of normal performance. Competitors are
prevented from entering the market and must learn to live in a subordinate position.
Assuming the market is price sensitive, it is desirable to develop the market as early as
possible. One way of achieving this is to reduce price.
The lower the initial price set by the first producer, the more rapidly that producer builds up
volume and a differential cost advantage over succeeding competitors and the faster the
market develops. As volume builds and costs decline, visible profitability results, which in
turn induce new competitors to enter the field. As competitors make their move, the
innovating firm has the problem of choosing between profitability and market share.
Strategically, however, the pricing of a new product, following the relationship between
market share and cost, should be dictated by a products projected future growth.

SUMMARY/CONCLUSION:
Pricing strategy is of interest to the very highest management levels of a company. Yet few
management decisions are more subject to intuition than pricing. There is a reason for this.
Pricing decisions are primarily affected by factors, such as pricing objectives, cost,
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competition, and demand, that are difficult to analyse. For example assumptions must be
made about what a competitor will do under certain circumstances. There is no way to know
that for certain; hence the characteristics reliance on intuition.
This chapter reviewed the pricing factors mentioned above and examined important strategies
that a pricer may pursue. The following strategies were discussed:
1. Pricing strategy for new products.
2. Pricing strategy for established products.
3. Price-flexibility strategy.
4. Product line pricing strategy.
5. Leasing strategy.
6. Bundling-Pricing strategy.
7. Price-Leadership strategy.
8. Pricing strategy to build market share.
There are two principle pricing strategies for new products, skimming and penetration.
Skimming is a high-price strategy; Penetration strategy sets a low initial price to generate
volume. Three strategies for established products were discussed: Maintaining the price,
reducing the price, and increasing the price. A flexible-pricing strategy provides leverage to
the pricer in terms of duration of commitment both from market to market and from product
to product. Product-line pricing strategy is directed towards maintaining a balance among
different products offered by a company. The leasing strategy constitutes an alternative to
outright sales of the product. The bundling strategy is concerned with packaging products and

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associated services together for the purposes of pricing. Price-Leadership strategy is a

characteristic of a oligopoly, where one firm in an industry emerges as a leader and sets the
pricing strategy to build market share. Setting price to build market share emphasizes the
strategic significance of setting an initially low price to gain volume and market share,
thereby enabling the firm to achieve additional cost reductions in the future.

CHAPTER NO 4
HISTORY OF APPLE
INTRODUCTION
Apple Inc., formerly Apple Computer Inc., established in Cupertino, California on April 1,
1976, has revolutionized personal computers and the electronics market. For a variety of
reasons, Apple has engendered a unique reputation in the consumer electronics industry. This
includes a customer base, particularly in the United States, that is unusually devoted to the
company and its brand name. According to surveys from J. D. Power, Apple has the highest
brand name and repurchases loyalty of any computer manufacturer. While this brand loyalty
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is considered unusual for any product, it doesnt seem as though Apple has gone out of its
way to create it.
In 2006, more than 200,000 companies have signed on to create Apple-compatible products, a
26% increase from the previous year including software makers (Info Tech, 2007). A cottage
industry of iPod accessories continues to blossom into something far more substantial.
Apple's online iTunes Music Store has become the world's third-largest music retailer after
Wal-Mart Stores Inc. and Best Buy Co. Apple seems poised to extend its reach even further
by launching its new Apple iPhone. But phonemakers such as Nokia and Motorola are quite
nervous to see if Apple can remake the U.S. cellular business by determining what services
consumers get and leaving the carriers out of the loop. In this, we will analyze Apples
pricing strategies in the United States and Europe which include a combination of skimming
and versioning, also called price discrimination.

1. APPLES NEW INVENTIONS

1.A. APPLE PRODUCT : IPHONE
The Apple iPhone is an elegantly designed information communicator forged from steel
and silicon that runs pioneering software under Apples OS X in a Unix Kernel. The iPhone
combines smart phone capabilities with a simple to use graphical interface projected on a
large multi-touch display. Apple has managed to create a Macintosh computer with mobile
phone capabilities, bundled within an Internet enabled PDA and an iPod body. The iPhones
functionality is accessed through its 3.5-inch touch screen display and one home button.
Using only finger commands, a user can navigate seamlessly through iPhones features,
tricking up a keyboard when needed.
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Some of its FEATURES include:

1) Smart iPhone: provides touch technology allowing users to make calls by simply pointing
to a name or number in an address book or by dialing through a touch pad keyboard.
2) Wireless Internet Communication Device: serves as a Wi-Fi enabled Internet device that
utilizes Apples Safari browser to access: Internet email, web sites, online maps, and search
engines.
3) IPod: offers a 3.5-inch widescreen iPod with touch screen controls.
4) PDA, Computer and Camera: includes PDA features (appoint calendars, contact lists,
photos, emails and documents, literally with a touch of a virtual button); enables users to
take pictures at 2 MB resolution that can be stored in 4 GB or 8 GB flash memory cards or
forward to others.

1.B. APPLES IPHONE STRATEGY

Price
Introduced in June 2007 at a top price of $599 in the United States, the iPhone was
one of the most anticipated electronic devices of the decade. Despite its high price,
consumers across the country stood in long lines to buy the iPhone on the first day of
sales. Just two months later, Apple discontinued the less-expensive $499 model and
cut the price of the premium version from $599 to $399.

Target Group

A study conducted by Rubicon (2008) on iPhone users indicates that 50% of the surveyed
users are age 30 or younger. Most of the users described themselves as technologically
sophisticated. In general, iPhone users were over represented in the occupations that are
usually early adopters of technology: professional and scientific users arts and entertainment,
and the information industry
Moreover, the iPhone user base consists mainly of young early adopters: about 75% of whom
are previous Apple customers. Now, the challenge for Apple is to get their product beyond the
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youthful technophiles and into the hands of mainstream users in order to maintain sustained
growth. While the early adopters are a great group for launching a product, without
mainstream use, the early success would not be lasting. This is why Apple has decided to use
different pricing strategies such as the skimming and versioning.

CHAPTER 5
APPLES PRICING STRATEGY
1. SKIMMING STRATEGY
Skimming is referred to as selling a product at a high price; basically companies sacrificing
sales to gain high profits. This is employed by companies in order to reimburse their cost of
investment put into the original research of the product. This strategy is often used to target
early users of a product/service because they are relatively less price sensitive than others.
Early users are targeted either because their need for the product is more than others or they
understand the value of the product better than others. In any case, this strategy is employed
only for a limited period of time as a way to recover most of the investment of a product.
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According to Kehler (1996), the skimming price strategy is a high price strategy which
provides a healthy margin but risks a depressed sales volume. Since high prices also attract
piracy, protection costs against piracy basically eat up margins. In the case of Apple, the
buyers are not attracted by pirated versions of products because of the image of the brand
linked to the snobbism of the members of the Apple family.
Below, we compared iPod sales with the price of iPod classic from 2002 to 2006. According
to the data, the iPod classic model seemed to have either reduced its price or maintained the
same price from one year to the next. In 2002, iPod classic price was the highest; as a result,
it was also shown as the year with the lowest sales. For example, the
Apple iPod classic costs over the years include: 399$ (2002), 299$ (2003), 299$ (2004) and
249$ (2005).
Foremost, while issuing new generation model of a classic iPod, the company was still selling
the previous version at the reduced price. The skimming pricing strategy is presented at two
levels. First, the price of the same model is diminishing with time, especially when Apple is
issuing the newest version of the iPod. Second, the price of every next generation model
launched on the market is less expensive than its predecessor, which is illustrated by the
above graph.
Here, we took the prices of the iPod classic but the same results can be seen with the iPod
mini (the launching price in 2004 was 249$ while the newest version launched in 2005
cost 199$) and the iPod nano. To gain market share, a seller cannot solemnly rely on
skimming strategies but must also use other pricing tactics such as pricing discrimination,
which has been the case of Apple.

2. VERSIONING (PRICING DISCRIMINATION)

Pricing discrimination is a pricing strategy that charges customers difference prices for the
same product or service. In pure price discrimination, the seller will charge each customer the
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maximum price that he or she is willing to pay. Most often the seller places customers in
groups based on certain attributes and charges each groups a different price. Apparently, price
discrimination is only feasible under certain conditions:
1) companies have short run market power;
2) consumers can be segmented either directly or indirectly,
3) arbitrage across differently priced goods is infeasible.
Given the fact that these conditions are fulfilled, companies typically have an incentive to
practice price discrimination. However, the form of the price discrimination may also depend
on the nature of the market power. Jagmohagn Raju (2007) highlights that Apples price cut is
an example of a strategy known as temporal price discrimination where it charges people
different prices depending on the their desire or ability to pay. Companies such as Apple may
practice this strategy for two reasons. First, they gain wide profit margins from those willing
to pay a premium price.
Second, they benefit from high volume by building a wider customer base for the product
later. Its important to note that price discrimination can also be structured across
geographies, seasons and by adding or eliminating features. As for the temporal price
discrimination, Apple reduced $200 from the original price of the iPhone just two months
after its release. After a flood of complaints by its customers, Apple attempt to rectify
complaints by offering $100 store credit to early iPhone customers. In addition to temporal
price discrimination, Apple practices price discrimination via versioning where it proposes
many versions of products according to the needs and prices of their customers. The
wealthy clients can buy a latest version of iPod classic, iPod nano or iPod touch while
those who are less wealthy can always pay the price of a previous generation iPod (classic
or nano) or an iPod Shuffle (49$).

3. APPLES STRATEGY: UNITED STATES AND EUROPE

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Apples high-tech inventions may be in direct conflict with the high end products made by
Nokia, Motorola, Sony Ericsson and Samsung. However, these companies will not give up
that category without fighting for the end. They are used to studying their phones with more
technology than their competitors as in the case with Nokia's N series, Sony's P series, and
Motorola's range of smart phones. They have high resolution cameras and video recorders,
MP3 players, software and dozens of features; not to mention the fact that they already have
large market shares. The success of Nokia N95 and E-Series phones has also helped Symbian
boost its revenues to about $172 million.
The North-American market is very different from the rest of the world, with strong segments
for Microsoft, Palm (Access), and RIM. In Europe (EMEA) the market is dominated by
Symbian (Nokia), with a small Microsoft pocket and an even smaller RIM market share. It's
also interesting to see the large Linux share in Japan and China.
In Europe, Britain's O2 and Germany's T-Mobile have signed exclusive deals with Apple to
offer the iPhone to their domestic customers. In Britain, subscribers will have to pay between
$74 and $115 per month for an 18-month contract, while in Germany, customers must fork
over $72 to $130 per month for a two-year contract. It appears that Apple is going against the
grain of the European mobile business by charging 269 ($538) for the phone in Britain, and
locking customers into 18-month contracts at monthly rates of 35 to 55 ($70 to $110).
Typically, carriers discount even high-end cell phones in Europe. Such figures are in addition
to the cost of the iPhone handsetwhich is itself a radical departure for the European market,
where most phones are heavily subsidized by operators. British and German customers had to
pay $565 and $439, respectively, for the iPhone, compared with $399 for U.S. consumers. In
France, Apple has chosen Orange as an exclusive carrier for its iPhone, which is sold in
Oranges online and direct retail stores. The iPhone is available in an 8GB model for 399
($592.78) and customers need to sign up for one of the special "Orange for iPhone" plans,

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which range in prices from 49 to 119 per month depending on the usage. Customers can
also buy the iPhone for 549 if they wish to use one of Orange's other rate plans. If not, they
have the option to buy an iPhone for 649 ($964.20) without a plan.
The European market is pretty much dominated by pay-as-you-go customers who have no
contractual obligations to phone carriers and they make up 60% of the phone users (OBrian,
2007). As a result, the iPhone may be insufficient to induce people to sign up for one or two
year service contracts. Currently, the iPhone is available (March, 2008) at 99 in Germany
and in United Kingdom whereas it cost more than 400 in November 2007. On the one hand,
the price cut can be explained by the arrival of a new iPhone in June 2008 compatible with
3G networks. On the other hand, it may be due to the disappointing sales in Europe: 100 000
iPhones sold in France, 70 000 in Germany and 200 000 in the UK while Apples objective
was to sell 10 000 000 globally by the end of 2008.

SAMSUNG NOTE 4 V/S APPLE IPHONE 6

Specifications, Features, Price: the battle line is drawn between Galaxy
Note 4 and Apple iPhone 6
Apple and Samsung had always being giving each other and head to head completion.
Nevertheless, the competition is assuming legendary proportions as both companies are
adding more products to their line up.
This time, the battle line is drawn between Galaxy Note 4 and Apple iPhone 6. Samsung and
Apple do make a strong case and taking sides is not easy. Let us see the specifications,
features and the price of both the devices.
The price of the devices is believed to be around Rs. 50,000.

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iPhone 6 Plus has a 5.5 inch wide IPS display with 1920x1080 pixels resolution and a shatterproof screen. While Samsung Galaxy Note 4 has a slightly bigger display (5.7 inch) and an
AMOLED screen with a resolution of 2560X144 pixels. Gorilla Glass is used for the screen.
Samsung Note 4 weighs around 176 grams while iPhone 6 Plus is slightly lighter with a
weight of 172 grams. The iPhone 6 is 77.8 wide and 7.1 mm slim, whereas Note 4 is 78.8 mm
wide and 8.5 mm slim. But length-wise, the iPhone 6 is bigger than Note 4.
The metal unibody design of iPhone 6 Plus makes it looks more stylish than Samsung's
Galaxy Note 4.
The iPhone 6 Plus comes with a custom Apple A8 chip with 64-bit architecture and M8
motion coprocessor. The chip uses an advanced 20-nanometer process and is faster and more
energy efficient compared to the A7 chip. The Indian variant of the Samsung Galaxy Note 4
will most likely be powered by 1.9GHz octa core (1.9GHz quad + 1.3GHz quad Core)
Samsung Exynos processor with 3GB of RAM, and a 3220mAh battery. It is not clear if the
Exynos chip powering the Note 4 is based on 64-bit architecture.
Apple has always been appreciated for its camera quality and this time iPhone 6 is carrying a
8 megapixels primary camera with a dual LED flash. Apple's front camera is 1.2 megapixels.
Whereas Samsung's Note 4 has a camera of 16 megapixels along with a 3.7 megapixel front
snapper. Both the devices have the revolutionary optical image stabilization technology.
Apple's iPhone 6 will roll out 3 variants with 16 GB,64 GB and 128 GB storage space
whereas Samsung's Galaxy Note 4 will come with internal storage capacity of 32GB, which
is further expandable up to 128 GB.
After all this, last decision will always be yours.

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CHAPTER 6
CONCLUSION
The challenge for Apple is to keep coming up with proprietary products that fuel its business
model, which is based on innovation and R&D for both hardware and software.
Apples pricing strategies include setting the price high at the start of launching a new
product. After gaining some profits from its early customers who are often fascinated with
new technology, Apple seems to reduce its prices in order to make it affordable and popular
among other competitive products. Not to mention the fact that Apples iPhone and iPod
prices change according to its customers as well as geographical locations. Basically, the
company adapts prices according to the customers ability to pay in different countries.
In addition to applying versioning and skimming pricing strategies, Apple also practices
vertical bundling, linking the use of an iPod to the use of its iTunes stores. The company
argues that protecting iTunes codes is in fact encouraging innovation. However, it also allows
the company to control a large part of: portable digital media player market, online music
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market and online video market. At the same time, it maintains sufficient economic power in
these markets in order to control consumer pricing, which ends up having its consumers pay
higher prices.
With its iPhone, Apple has tried to bind users to AT&T in the US, Orange in France, T-Mobile
in Germany and O2 in the UK. However, low sales rates in European countries have shown
that iPhone prices were in fact too in comparison to similar smartphones issued by its
competitors on the phone market. In order to respond to this challenge, Apple has used its
best arm - innovation and will soon issue a new version of the iPhone, which is expected to
relaunch iPhone sales.

BIBLIOGRAPHY
BOOKS:
1. Subhash C. Jain, 2007, Marketing Planning & Strategy, 7 th edition, Sanat Printers,
Kundli Haryana.
2. Philip Kotler, 2003, Marketing Management, 11th edition, Asoke K. Ghosh, New Delhi,
Tarun Offset Printers, New Delhi.

Website links till 2nd October , 2014:

1.
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http://www.nhlabreakaway.net/_content/courses/NHLAMKT101_Module_4.pdf
http://faculty.mu.edu.sa/public/uploads/1361465754.8876marketing%20mix30.pdf
http://economictimes.indiatimes.com/definition/pricing-strategies
http://www.marketing91.com/pricing-strategies/
http://smallbusiness.chron.com/different-types-pricing-strategy-4688.html
http://toolkit.smallbiz.nsw.gov.au/part/3/12/58
http://yourbusiness.azcentral.com/different-types-pricing-strategy-3863.html
http://www.hallels.com/articles/6925/20140922/samsung-galaxy-note-4-vs-appleiphone-specs-features-price-the-battle-line-is-drawn-between-galaxy-note-4-andapple-iphone.htm

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