When new products are put out on the market, one of the major things that needs to be determined in the product’s price. This can be done many ways and throughout the following paragraphs I will analyze the likely steps that Apple went through to price their recently released iPad.
The first thing Apple had to consider is its pricing objectives which it had to develop. When doing this, Apple had to decide between making the product aim for a sales or market share, hit certain profit objectives, have competitive effect objectives, aim for customer satisfaction, or set pricing to reflect its image. In my opinion Apple went with a profit objectives approach because they already have such a great reputation that price is rather inelastic in most respects and they also may have utilized an image enhancement approach to avoid customers thinking the iPad is a cheap product if it was priced cheaply.
Apple then had to estimate demand and they could do this based on surveys or based on current sales of their other similar products such as the iPhone and iPod. Following this they had to determine costs and to do this they had to first determine their variable costs and their fixed costs. With these costs in mind they would need to decide on pricing and to decide on pricing they also would want to take into considering competitors prices, consumer’s spending habits, and countless other factors that are essential when determining the price. This is called evaluating the pricing environment.
Apple’s next step would be to choose a pricing strategy. They could utilize a cost-plus pricing strategy where they would just take the total costs and add a profit on top or they could use demand based pricing. There are two types of this: target costing and yield management pricing. Apple more than likely used target costing because price points are very visible and somewhat standard in this industry and this can be important. Apple’s final step is to develop pricing tactics which deal with how to charge, what to bundle, if discounts will be offered, etc. Regardless of what Apple did throughout these steps, clearly they did the right thing seeing as iPads have flown off the shelf since release and promise to be a big holiday shopping item as well. Pricing is important no matter what product you plan on selling and can be critical to the product’s success.
