Ipad2 - pricing decisions

Executive Summary - Pricing Decisions of the iPad 2
● Apple Inc. was established on April 1st, 1976 in Cupertino, California. Tablets existed before the iPad, but Apple was the first to create asuccessful tablet in 2010. Since then other competitors have entered the market. With intense competition at hand, Apple took the initiative to come up with something above its competitors and thereforecreated the iPad 2. ● As Apple had to introduce this new product to the market, the company had to consider which generic new product pricing approach to use. The company had to choose between a priceskimming strategy and a penetration strategy. Taking the high end image of Apple Inc. into account, implementing a skimming strategy would be appropriate. Advantages of using this strategy for Applewould be establishing a positive quality image, quickly recovering initial investment, and considering consumers willingness to pay. ● There are two different kinds of price differentiation that arerelevant in Apples case: Demographic price differentiation and benefit-based price differentiation. Demographic price differentiation becomes relevant when Apple provides student discounts, andbenefit-based differentiation takes place when companies charge different prices depending on Internet service (3G or Wi-Fi) and capacity (Gigabytes). This also exploits the fact that consumers havedifferent willingness to pay. ● Apple is aware that customers subconsciously have relative threshold prices, therefore a price of 499 € makes more sense than a price of 500 €. The underestimation effect isalso considered in this situation because individuals read from left to right in Western cultures. That means that people perceive the first digit in the price first, making 499 € seem much cheaper than500 € despite the one euro difference. ● Although Apple Inc. does not use price bundling, it is a pricing tool that is relevant for the company in order to increase sales in the product line. Apple...