Image via CrunchBase
The options of Apple in pricing are really tight and product innovation aside, I personally think they are doing quite well in terms of weighing in what they had chosen to launch along with other critical factors. Among these critical factors include:
I) price points that the competition currently fills,
II) extent of cannibalisation that they are willing to absorb,
III) the market share that they are willing to win or cede in the countries that they are in
IV) the shelf life of iPhone 5C before Samsung which is its nearest competitor responds with the next phone
V) the brand as a premium offering to the market
By dropping $160 from their usual offering which is now in its 5S version, Apple has essentially created a cheaper option that will grant it leverage in a price sensitive market. Still too expensive for China they say? I’m doubtful about that. As a personal estimate, that price differential will give it the edge and bring at least 3 – 5pp. of market share more globally. In total, it is likely to make at least the same profit after cannibalisation thrown into the mix. Whether Samsung has its Galaxy Gear in first mover advantage is irrelevant in this consideration at this point because the idea of marrying the phone and the watch has yet to gain much traction to cause considerable shifts.
It is not known at this point of writing how much cheaper the coloured version is in terms of manufacturing cost per unit, but even with the cost complexities now in the mix, it has been calculated to provide Apple with the necessary buffer with the trade-offs of profit margin vs market share balanced well.
In the absence of a blue-ocean strategy at this point in time, if it secures a following in the middle-upper class of rising China for Asia, Baumol-ly speaking, revenue and market share will give it the edge and sustainability for at least 3-5 years of rapid expansion into the pockets of this class. Too low a pricing would hurt the brand and over-cannibalise itself. $160 less in that sense, is optimally balanced.
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