Product_Channel_and_Pricing_Strategies

Product Channel and Pricing Strategies Apple Inc. opened 33 brick-and-mortar stores in 2012, of which 28 were outside the U.S. totaling 390 stores worldwide (appleinsider.com, 2012). The company plans to replicate 2012 market growth by opening an additional 30 to 35 stores during the 2013 fiscal year (sec.gov, 2012) according the Apple’s 10-K filing with the Securities and Exchange Commission (SEC). Apple would like to increase its market visibility internationally, expanding the 140 international locations to narrow the gap of the 250 U.S. stores. Despite the decrease in retail’s total contribution to the company’s profit index, individual store achievement was greater year-to-year, with each location garnering an average 51 billion dollars in revenue (Appendix A). Apple began selling the iPhone 4S in China during 2012 adding a second carrier in the country as accession outgrew expectations and was reflective in stock expansion (Appendix B). Market Trends During 2012, sales and smartphone usage surpassed that of the more common “dumb” phones, now capturing more than half of all American mobile consumers (cnn.com, 2013). With Android making up 51% of all smartphones in the U.S., Apple’s iPhone that commenced the revolution has untapped growth margins with only a 30% market share. The consumer trends of new innovation, which elevated the Apple iPhone movement in years past, could be achieved again with the introduction of the iWatch. Market Growth and Size Global smartphone growth during Q4 of 2012 reached 224 million units, representing almost 40% year-over-year growth due primarily to strong consumer demand (idc.com, 2013). Strong smartphone growth, which the iWatch could capitalize on, is a result of a variety of factors; including arduous device subsidies from carriers, especially in mature economic markets, as well as a growing collection of sub 250 dollar smartphones in emerging markets. However, the high price point of the iPhone relative to other smartphones will make it cost prohibitive for many consumers. In order to maintain current growth rates, Apple will need to examine the possibility of offering less expensive models, similar to its iPod line, or an innovative new market design such as the proposed iWatch. Market Profitability The smartphone industry is predicted to be jostled in 2013 by growing price competition and slowing demand in developed markets, despite record earnings for 2012 (ft.com, 2012). It becomes ever more vital for Apple to develop new innovation to remain competitive in an industry that has become increasingly fractionalized with the top major players churning out devices that bundle together different product characteristics catering to different market segments. With Apple and Samsung essentially owning the entire mobile phone market (Appendix C) it is prudent for Apple to remain innovative in its product design inasmuch as believability in the product is already well rooted with the consumer, hence only needing to explore the gap level of consumer interest in developing the iWatch. Channel Strategy In an effort to successfully market and distribute the new iWatch, Apple must determine the best marketing strategy while engaging the marketing channel system. Constructing the right decisions concerning the channel system is critical because it affects all other marketing decisions including pricing and advertising (Kotler & Keller, 2007). Apple has the option of adopting a push or pull strategy or a strategic combination of both strategies, to compliment the channel distribution, making the iWatch an efficacious product in the marketplace. A push strategy would involve Apple utilizing its sales force and trade promotion finances to encourage intermediaries or distributors to carry, promote, and sell the product to end users. While a pull strategy encompasses Apple using advertising and promotion to persuade consumers to ask intermediaries for the iWatch insomuch as encouraging them to carry the aforementioned in their product mix (Kotler& Keller, 2007). Apple will establish a balanced combination of push and pull strategies in marketing the iWatch utilizing the same methods as with the iPod and iPad merchandises. In the meantime Apple has high brand loyalty and considered a leader in its industry, the pull strategy would be justified and prove to be effective. With millions of loyal customers, it is anticipated that the iWatch will be as successful as the iPod and iPad series products that have already set the path and created a reliable market for the “next big thing” from Apple. Employing the pull strategy will make it easy for Apple to persuade or encourage distributors such as Target, Wal-Mart, Best Buy, and other market retailers to keep the iWatch on inventory and available for the many loyal customers of Apple. In addition, Apple may employ a push strategy through Apple stores using its own sales force and resources to sell the iWatch directly to the end user. Ultimately, Apple ought to strategically employ both push and pull strategies in different areas of the marketing channel upon launching the new iWatch to make certain maximum exposure and ensure product success. Domestic and International Pricing Strategies The nature of technology is defined by creative destruction. As new products are launched, engineers should begin discerning and designing the next one to come. For instance, various consumers have been anticipating iWatch type technology ever since Apple introduced the iPod Nano in 2010, which some consumers soon began improvising and strapping to their wrists. Setting the right pricing for the iWatch is fundamental to the success of the product and long-term marginal profit of the company. Pricing is influenced by many factors such as manufacturing costs, product positioning, product features, quality, market place, channel decisions, promotion, and competition. It is fundamental to find the appropriate price level in which Apple will make the most possible revenue at a price that customers are willing to pay. Companies generally set prices according to the geographical demand and cost, market segment requirements, purchase timing, order levels, delivery frequency, guarantees, and other factors (Armstrong & Kotler, 2009). Pricing managers look to set pricing according to local market. The value that a product should have may vary from one country to another. It is strictly related to factors such as economy, local competitors, regulatory laws, and selling systems. International trading brings additional operational costs such as shipping, insurance, import and export tariffs and taxes, exchange-rate fluctuations, and physical distribution (Armstrong & Kotler, 2009). The iPod industry has begun a progressive decline within the last few years. For this reason alone, Apple may consider the iWatch as a potential substitute. In order to replace iPod sales, the iWatch would need to produce an average of one billion dollars or more per quarter. At the end of the 2012 holiday season, Apple sold over 12 million iPods at an average price of $169 dollars, which generated $2.14 billion dollars during those three months (Apple Inc., 2012). As a controlling variable for the iPhone, the iWatch would have the advantage of curtailing the attention of customers that already own iPhones or iPads. This represents over 300 million consumers that could be tapped (Apple Inc., 2012). If successful, the iWatch would be able to drive a large number of sales to early adopters. In order for the iWatch to produce a billion dollars in returns, it would require that Apple sell 10 million units at an initial $100-$200 dollar unit price during a targeted quarter. Target quantity of units sold may likely vary according to pricing fluctuations. Environmental Implications The marketing environment creates opportunities or threats in two basic ways; changes in the marketing environment that directly affect specific markets and through direct influences on specific marketing activities (Kotler & Keller, 2007). The critical point that marketers must understand is the marketing environment to be able to make good decisions. Fluctuations in the marketing environment may create opportunities or threats either by affecting markets or directly influencing marketing activities. Innovation and technology * Key innovations and technologies available to an organization make it indispensable to review the company’s plans to sustain as well as improve its success, in today’s business environment. Apple will explore all avenues, particularly when devising new and innovative ways of launching the proposed iWatch product. With the success of smartphone technology Apple’s iPhone has revolutionized the market, thus it is prudent to identify some of the key innovations, concepts, functions and benefits of the new iWatch. The iWatch will capitalize on a variety of factors; including arduous devices such as the smartphone. The growing assortments of smartphones are some of the latest emerging markets innovations. * The advantage of changing technology for the organization will be based on research conducted. Inasmuch as the smartphone industry is predicted to be the growing competition in the developing markets, the iWatch could become an essential product that will enhance the industry. Ultimately, the advantages are high profit margins, stability and longevity of this product. * Social and demographic * Cultural diversity can be used to add value to the organization if the organization is not limiting its possibility or demographic to one particular group. The organization will not survive in its business venture, if minorities are not viewed as important or included when the organization plans to pitch its new products. Selling products only to a single group would be impractical on a large scale. The organizational benefits of cultural diversity include; increased opportunities for different ethnic groups, increased profit and sales in of international business sales, diverse viewpoints may be essential for conducting international business, and a heterogeneity workplace that is diverse reflects the actual presence of the environment. * The costs involved in acquiring those skills are intrinsic of the benefits. People are people and profit is profit. Currency has no face and an organization that is willing to spend a significant amount of money and resources to increase its diversity awareness will minimize litigation relating to discrimination. Furthermore, differences should be handled based on cultural values and society of groups. * Government and Economic Cost decisions require an examination of the factors that influence the value and a complete budget analysis to arrive at the right price. The right price should meet company profits and remain attractive to consumers. As Apple and the iWatch decide to expand into the international market, it must evaluate the risks involved. Domestic and international pricing decisions have a duty to consider cost, customers, competition, and regulations. The firm ought to consider the implications of multiple currencies and their exchange rates, trade barriers, and lengthening of the distribution channels and intermediaries. With Apple’s iWatch entry into China greater exposure of the brand to a larger marketplace will be the result. Therefore, the price structure would be compelled to align with the market objective of increasing customers, revenue, and volume of market share. Profit goal will depend on the targeted return on investment in the new market (Kotler & Keller, 2007). Cost is an important component in the price but not the only consideration for customers. The fixed costs and variable costs for the iWatch must be accurately determined in the price setting process. In setting the price, Apple must remain competitive as it enters this new market. The economies of scale available and the ratio of fixed costs to variable costs will affect the pricing strategy. The iWatch will need to present itself as an innovative product while promoting its benefits to attract customers. Demand for a product determines price. Demand alone does not move customers to a product. Apple must take into consideration other factors such as customer service, reliability, and perceived benefits. In considering the price, Apple will evaluate how much market share it can command, and if lower prices in a new market is sustainable. Apple must further establish its brand image, and seek to earn a level of differentiation which makes it attractive to consumers based on more than price levels. Government regulations and requirements will need to be taken into interpretation in setting the prices as it enters foreign markets. Finally, Apple may take the cost price approach in which costs and the profit objective markup determine the price. The company may choose incremental cost pricing, which would satisfy variable costs as well as ensure the recovery of fixed costs. Conclusion The iWatch has bargain appeal for shoppers and avid users of this technology. Company marketing plans are geared towards worldwide consumers. Consumers have an unquenchable desire for new connectivity technologies and a foldable hybrid Smart phone is just the technological solution the consumer will want. Apple’s intention is to increase market visibility internationally and explore innovative new market design such as the proposed iWatch. Impasses that may occur include inadequate design, developed products consumers are not acquainted with and stiff market competition. In order to overcome these hurdles Apple will need to develop market strategies that will address those set forth in this research report so that it will not only increase Apple’s market share in the smart phone field, but they will have a unique product not offered by the competition. References Apple Inc. (2012). Apple Corporate Information. Retrieved February 25, 2013 from apple.com: http://investor.apple.com/faq.cfm'FaqSetID=6 Apple Insider. (2012). New Apple Market. Retrieved February 25, 2013 from appleinsider.com: http://appleinsider.com/articles/12/10/31/up-to-35-new-apple-stores-set-to-open-in-2013 CNN. (2013). Technology Growth. Retrieved February 25, 2013 from cnn.com: http://money.cnn.com/2012/05/16/technology/smartphones/index.htm Financial Times. (2012). Retrieved February 25, 2013 from ft.com: http://www.ft.com/cms/s/0/c34df6b6-6719-11e2-8b67-00144feab49a.html#axzz2Kp1aXyfQ International Data Corporation. (2013). Retrieved February 25, 2013 from idc.com: http://www.idc.com/getdoc.jsp'containerId=prUS23818212 Kotler, P., & Keller, K. (2007). Marketing Management. Pearson Education Company. Retrieved February 04, 2013 from University of Phoenix.edu: https://ecampus.phoenix.edu/content/eBookLibrary2/content/eReader.aspx Securities and Exchange Commission. (2012). Retrieved February 25, 2013 from sec.gov: http://www.sec.gov/Archives/edgar/data/320193/000119312512444068/d411355d10k.htm Appendix A Appendix B Appendix C