MARK 3383 Pricing Strategies and Tactics

Individual Case Analysis on

The IPhone SE

Oscar A. Ramos Chacon

20227796

Spring 2016

Instructor: Michael Nguyen

05/05/16
 Innovation and technology are facilitating mankind advancement and

communications like no other factors in our lives. Currently, the United States counts

with countless businesses that support this same very objective. However, there is only

one company who has not only reshaped how people interact with mobile technology the

US, but it has also changed the entire world’s mobile device systems. Welcome to Apple.

Apple leads the digital music revolution with its iPods and iTunes online store. Apple has

reinvented the mobile phone with its revolutionary iPhone and App Store and is defining

the future of mobile media and computing devices with iPad. (Blodget, H, 2013).

Apple, Inc. designs, manufactures, and markets mobile communication and media

devices, personal computers, portable digital music players, and sells a variety of related

software, services, peripherals, networking solutions, and third-party digital content and

applications. Its products and services include iPhone, iPad, iPod, Mac, iPod, Apple TV,

a portfolio of consumer and professional software applications, the iOS and OS X

operating systems, iCloud, and accessories, service and support offerings. The company

also sells and delivers digital content and applications through the iTunes Store, App

Store, iBooks Store, and Mac App Store. It sells its products worldwide through its retail

stores, online stores, and direct sales force and third-party cellular network carriers,

wholesalers, retailers, and value-added resellers to the consumer and also sells third-party

iPhone, iPad, Mac and iPod compatible products, including application software, and

accessories, through its online and retail stores. This company was founded by Steven

Paul Jobs, Steve Wozniak, and Ronald Gerald Wayne on April 1, 1976, and is

headquartered in Cupertino, CA (America's Best Employers, 2016).

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 Apple recently launched its new IPhone SE on March 21st at the Apple Special

Event. Apple defines its phone as the most powerful 4‑inch phone ever. It counts with

several features such as

• The A9 is the same advanced chip used in iPhone 6s.

• The 12‑megapixel camera captures incredible photos and 4K videos.
• Live Photos bring your images to life.
• The result is an iPhone that looks small. But lives large.

At the core of iPhone, SE is the A9, the same advanced chip that’s in iPhone 6s.

With 64‑bit desktop-class architecture, the A9 chip brings a spectacular speed and

responsiveness. And with console-class graphics performance, your favorite games and

apps are incredibly rich and immersive. Making it a mighty chip for maximum

performance. (IPhone SE, 2016). Having a great product requires a heavy and well-

planned pricing strategy, Apple, considered one of the best if not the best business on

earth, has succeeded because it understands how to price the market and take advantage

whenever possible. To put it into perspective, Business Insider revealed that the

manufacturing cost of an IPhone 6 is approximate $227 (Business Insider, 2014), but

Apple sells the IPhone at $600 plus. Therefore, it is very obvious that Apple utilizes a

value-based pricing strategy where they make Apple’s brand stronger than their

competitors in order to capitalize on that in the long-run. In terms of the competition, the

IPhone SE is appealing the generation who like small mobile devices and surprisingly,

Apple still maintains its vitality with this new product line in the market. Taking a look at

the new iPhone SE specs alongside the iPhone 6S Plus (for high-end Apple context), as

well as up against the Moto X Pure Edition, and the Nexus 6P. The GS7 can be nearly

twice the price of the iPhone SE (depending on which storage option you go for

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Samsung's latest). Also, assuming the LG G5 will come in closer to the high-end than

not. So the Moto X makes sense in that respect, as does the Nexus 6P. Price varies

between $400 and $500 here. The Nexus 5X could well be compared, too, but there is a

tendency to recommend the Nexus 6P more than the smaller one. (Nickinson, P, 2016).

The following is a comparison table of the latest competitors in this industry,

“competition by the numbers.”

Apple’s price structure comes from their historical data widely accumulated by their

previous successes with older and newer versions of the IPhone. As stated above, Apple

creates a huge value in its products that it can set a very high premium price and mass sell

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all over the world. The logic? Simply that based on building up a great brand with care

and vitality, this company can introduce several products to the market without worrying

too much about its price because they have achieved an adequate worldwide brand

recognition. Most of the time, Apple uses price-skimming strategies, however with the

IPhone SE, they change to a more neutral strategy where they still charge $399, but it is

not as expensive and not as cheap. That's indeed the lowest price tag that a new iPhone

has ever had, and it basically means that the world's most profitable smartphone just got a

price cut. Even the two-year-old iPhone 5S, which the SE has replaced on Apple's

website, previously cost $450 for a new one without a contract. It seems as if Apple has

finally realized that it might have tapped out the upper-end of the smartphone market, and

to find growth, it needs to cut prices. Even when Apple announced what was said to be a

cost-effective iPhone in the past, the iPhone 5C, it started at $549 – a hefty sticker price

for a "cheap" phone when there are perfectly acceptable Android devices retailing for

under $100. Apple's insistence on keeping prices high has worked in its favor: the iPhone

and its iOS software remain the choice for anyone looking for a premium smartphone

experience. In fact, Apple's dominance at the high end has pushed Google's top phones,

like the Nexus 5X, into the $300-$400 range now being targeted by the iPhone SE. And it

hasn't significantly hurt iPhone sales in China, which has been the engine behind Apple's

historic growth for the past few years (Leswing, K, 2016).

At $400, the iPhone SE could be significantly more attractive to Indian consumers

than the pricey new $649 iPhones Apple pushes in the United States. In fact, the iPhone

SE will cost 30,000 rupees in India, slightly more than the 25,000 rupees the iPhone 5s

currently costs in the country. On a monthly installment plan, the cost will be much more

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palatable for many Indians than the latest and greatest. (Leswing, K, 2016).

But Apple also signaled that the iPhone SE isn't even going to be the least expensive

iPhone. In a prelude to the product announcement, Apple environmental director Lisa

Jackson touted how many iPhones find a second life after they've been exchanged and

refurbished. - "We're happy to say that thanks to their durability, the majority of iPhones

we get back end up being reused –including the phones we get back from our iPhone

upgrade and iPhone trade programs," Jackson said. Apple doesn't sell refurbished (or

pre-owned) iPhones in the United States, but there's one country that could have a serious

appetite for them: India, Jackson said. (Leswing, K, 2016).

I believe Apple knows what they are doing and that, of course, some challenges will

arise because competitors are always looking at the leader. In the first place, this

company knew that the size of the IPhone was the major reason why they create a new

product. They wanted to address this need and satisfy customers with the best possible

IPhone and technology. I forecast an increase in sales for the IPhone SE, however, there

is going to be a cannibalization effect towards the IPhone 6, 5, and 5s. These negative

consequences will be outplayed by the several product lines Apple have. In sum, this

product will be successful not because it gained the most market share, but because it

solved the need of the customers Apple cares of. Ultimately, the iPhone SE pricing does

two things: give it a new affordable device to encourage holdouts in the U.S. and Europe

to upgrade, and also gives it not one but two cost-sensitive models to continue propelling

growth in the developing world. (Leswing, K, 2016).

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 References

America's Best Employers. (2016). Retrieved May 06, 2016, from

http://www.forbes.com/companies/apple/

Blodget, H. (2013, August 03). Apple's 'Mission Statement' Is Making People Worry
That The Company Has Gone To Hell. Retrieved May 06, 2016, from
http://www.businessinsider.com/apples-new-mission-statement-2013-8

Business Insider (2014, September 22) Here's How Much Every Part Of The iPhone
6 Really Costs [Video File] Retrieved from:
https://www.youtube.com/watch?v=Xk2bI2jg7aM

IPhone SE. (2016). Retrieved May 06, 2016, from http://www.apple.com/iphone-se/

Leswing, K. (2016, March 21). The iPhone just got its first real price cut. Retrieved May
06, 2016, from http://www.businessinsider.com/the-iphone-just-got-its-first-real-price-
cut-2016-3

Nickinson, P. (2016, March 22). Taking a look at the iPhone SE vs. some of Android's
best. Retrieved May 06, 2016, from http://www.androidcentral.com/taking-look-iphone-
se-vs-some-androids-best