Pricing Strategy

Good, Better, Best: What Is Your Pricing Strategy?

Pricing a product or service is a process – there is estimating the demand curve, calculating costs, environmental factors, etc. There are many different pricing strategy objectives that companies use to set their product or service at just the right price.

There are three basic pricing strategy approaches:

1) Cost-based pricing considers both the price of the product or service, as well as the profit the company wants to earn. This sounds like a reasonable approach, but is usually least effective.
2) Customer-based pricing considers the price that the average customer is willing to pay. This is based solely on the value the customer places on the product.
3) Competitor-based pricing considers what the competitors are charging; the main objective being to price under competitors, but still offer a better value.

Since Apple’s release of the iPhone 5s and 5c, the company has priced their phones according to all three pricing strategies. Now, still offering their earlier models like the 4s and 5, they are able to price their phones as “good, better and best.”

Rafi Mohommed of Harvard Business Review commented on Apple’s pricing strategy being effective because the different choices allows customers to pick which phone (and price alike) is suitable for them.

There are four types of consumers, and by giving the choices of the 5s and the 5c, Apple is targeting two. These are possibly two of the biggest groups:

1) Poor consumers who have less money and shop at discount.
2) Status consumers purchase things because they are brand new. They want the latest and greatest items.

Not to say that the early models of the iPhone are for unemployed poor people, because the price is still fairly expensive. But it is for those who want to stay loyal to Apple and save money, giving up some of the features of the 5s. The 5c is almost an exact replica of the iPhone 5, which came out a year before. The price of the 5c is much less than the 5s, and the 4 still remains to be marketed cheaper than ever before.

The status consumers will be purchasing the 5s, because of these new features, and despite the price. Targeting these two types of consumers and giving them choices that meet their different needs will result in higher profits for Apple. 

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