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Pricing Strategies - Dell

1. Introduction

Pricing strategies usually change as the product passes


through its life cycle, because there is constrains on the
company’s freedom to price a product at different stage. The
purpose of this report is to determine and elaborate the
elements in pricing strategies of Dell’s notebook.

2. Key Objectives

Price is the amount of money changed for a product or


service, or the sum of the values consumers exchange for
the benefits of having or using the product or service (Kotler
et al., 2003, p.332).

Historically, prices were determined through


bargaining or negotiations between buyers and sellers.
Different prices were set based on the buyer needs and
bargaining skill. The establishment of one price for every
customer is relatively new phenomenon that came about
with the rise of retailers but price still remains a major factor
in affecting consumer buying decisions. In addition, it is the
most flexible of those components. The ability of price to
affect consumer decision and its flexibility makes pricing
strategies important in meeting Dell’s objectives in a
competitive environment. The main objective of Dell is to
produce the low price and profitable notebook for the
customer.

For Dell Company, all the prices that they sell are
posed to the internet and they usually based on the e-
commerce market. The main reason for successful pricing
strategy is having a reasonably accurate idea of supply and
demand. Too high a price and demand fall as less buyers
purchase the product. Too low a price can increase volume
of sales but reduce margins profit. So, Dell has aimed for the
e-commerce which is the multiple markets operates at
different times of day and may interact or affect each others.

Dell Company had set different types of price based


on the home user, small business user and medium or large
business user. The pricing structure changes as the products
move through their life cycle.

Pricing Strategy of APPLE

Apple is a premium brand of computer. Apple doesn't try to


compete with PCs directly on price for several reasons that
are well known. Cut throat pricing leads to diminished profits
and loss of shareholder value. It diminishes the hard won
reputation of the Apple brand. Finally, it's too early for Apple
to jump on price decreases before it fully understands the
the impact of the Jan-Mar quarter sales.

Another reason is that dropping prices for a premium brand


has to take into account Apple's experience with the price
elasticity of its products. Price elasticity is defined as the
response in demand for a product as the price decreases.
For example, if Apple were to drop the price of the low end
Mac mini from US$599 to, say, $399, would the demand
increase so much that the new production rate would lower
costs and make more money for Apple? Or would the price
reduction simply reduce Apple's earnings? Based on what
we've seen from Apple lately, the answer has to be the
latter.

I suspect that Apple has some fairly sound computer models


that suggest what the impact would be of various price
reductions. To put it euphemistically. Tim Cook, Apple's COO,
has a sharp pencil and a sharp mind. He knows, to the
penny, the bill of materials for each Apple product, what the
new cost would be based on an increased order, and how his
gross margins would be affected.

Recession Realities

It's a fact of life that people who are concerned about getting
laid off tend to avoid premium products. That said, Apple still
has to ask itself some hard questions about what the impact
of lowering prices would be on the company. Eventually, the
U.S. and the rest of the world will climb out of this economic
mess. How would customers react in the future to Apple
raising prices back to original levels? (I remember the outcry
when Apple actually raised memory prices a few years ago.
One would think Apple ran over a grandma, on crutches, in
the parking lot.)

Does Apple have enough cash assets to weather a 10


percent drop in sales in order to preserve its premium brand
for the future? (The answer is yes.) History has shown that
Apple appeals to prosperous customers, so will a 9 or 10
percent unemployment rate affect a company that only has
10 percent of the total market share of computers in the
U.S.? And 3.5 percent worldwide? Will the current mental
state of of American consumers drive sales down
dramatically or just a bit. Apple is watching and evaluating.

When observers of the Apple scene suggest that Apple sell a


$500 netbook or lower the prices of their notebooks
drastically, it seems more like a knee-jerk reaction and wish
fulfillment for a "cheaper" Mac than a considered judgment
about all the factors I've mentioned above.

Pricing strategy of IBM

IBM is a global IT manufacturing and consulting company,


with 335,000 employees across nearly every industrialized
country in the world2.Once largely focused on the sale of
mainframes and related software contracts, IBM has evolved
into lucrative technology and business consulting, supported
by a wide range of IBM software platforms and
products.Figure 1 shows IBM’s value system in the
marketplace, demonstrating a reliance on knowledge- based
transformation and processes.Products such as hardware
and software are either sold outright, or used (along with
competitor’s products) as a basis for consulting
engagements.

Our business strategy consultants support clients in the


translation of innovative and core competencies into real
business value by formulating strategies, managing change,
and realizing benefits. Working collaboratively with clients,
we provide solutions to the business needs that your
organization is confronted with, such as growing revenues,
streamlining costs and linking strategy to execution.

Our consultants have demonstrated experience creating


value for clients and serving as trusted business advisors.
And we can bring value to your organization through the
unmatched worldwide capabilities, relationships and
research of IBM.

With nearly 3,500 strategy professionals worldwide, the IBM


strategy and change practice is part of IBM Global Business
Services, one of the worlds leading management consulting
practices. Working across all major sectors, IBM has inherent
business expertise across more than a dozen industries. This
includes communications, distribution, financial services,
and the industrial and public sectors. Our consultants have
demonstrated experience creating value for clients and
serving as trusted business advisors to our clients worldwide.