Problem Definition:
Apple Inc., one of the largest companies in the world, has introduced the revolutionary IPhone 3G in the market. The managing team’s goal is to sell 10 million units in 2008, giving them a 1% market share. The issue for Apple was that when they experienced high customer satisfaction for the IPhone, they decided to make these devices more affordable by dropping the price by $200 after two months of going on sale. This affected the sales of IPhones as they were declining on a daily basis and their initial customers of the IPhones were very upset that they had to pay a higher price when the product came out on sale. Therefore, Apple must develop a price segmentation strategy to cater to their highly price sensitive customers and their less price sensitive customers in order to achieve their goal and ensure sustainable profits. They must also ensure they remain competitive, as they are entering a highly competitive market with large players such as IBM and Android.
Alternatives and analysis for critical issues:
Price segmentation is important when there is heterogeneity of demand. One of the alternatives for Apple is to use 3rd degree price discrimination strategy (including versioning) to target different consumers’ needs. Another alternative is to focus on complementary goods and add on price structures. Lastly, Apple can solely focus on a niche market such as the high-end consumer market, which includes technology enthusiasts.
Alternative 1 – Versioning
Third Degree price discrimination is charging different market segments a different price. Versioning or price discrimination is when different variations of a similar product are sold simultaneously. Some versions offer more features and benefits than others. Apple has already implemented the versioning strategy as seen in exhibit 1. They can, however, modify this strategy. Instead of