Article "Real Choices for the Apple iPhone" from Marketing: Real People, Real Choices, Seventh Edition by Michael R. Solomon, Greg W. Marshall, and Elnora W. Stuart
1. What is the dilemma facing Apple?
2. What factors are important in understanding this decision?
3. What are the alternatives? Which do you recommend?
4. What are some ways to implement your recommendation?
The dilemma facing Apple is that first it has decreased its price from the introductory price, angering its core customers. The reduction in its price from $499 to $399 is a part of a well known marketing strategy known as price skimming. According to this strategy the marketer sets a relatively high price for a product or service and then reduces the price over time. This strategy price discriminates over time. This strategy allows Apple Inc. to recoup its research and development costs of the iPhone. This recovery of costs must be done before competition enters the market and lowers the price. The purpose of price skimming is to capture the consumer surplus. This strategy induces the customers to pay the maximum they are willing to pay. In practice, Apple core customers are innovators. Apple customers are those that are willing to try new products. In trying to implement the price skimming strategy Apple has hurt its core customers who feel that they have been made to pay more for the iPhone. The dilemma for Apple is either it should recoup its research and development cost by using the skimming strategy or cause dissatisfaction to its customers.
The second dilemma is its tie up with AT&T. The tie up with AT&T allows Apple to use the distribution network and the retail outlets of AT&T. For this it has to allow the tie up with AT&T's cellular service. From the business perspective, this is a perfectly balanced deal. However, the customers of Apple had different ideas. They did not want to be restricted to one service provider and that too AT&T. They found ways of unlocking the iPhone and begin using services provided by other providers. The dilemma faced by Apple is that if it does not enter into a tie in with AT&T it would not have access to the retail facilities of AT&T and its sales would probably be far less, on the other hand a tie in with AT&T leads to dissatisfaction with customers. This dilemma has been exacerbated by European countries that have laws that protect customers from being forced to buy something as a condition for buying a product. Apple gets accused of using restrictive trade practices.
The factors that are important in understanding the tie up decisions are that if Apple tried to open its own retail facilities to sell iPhones it would ...
This posting gives you a step-by-step explanation of the dilemma for Apple Inc . The response also contains the sources used.