New Product development and pricing poly in the market
Product Overview
New products and services are coming into the market as the business world continues to become more innovative and competitive. Both the services and the manufacturing sector come up with new innovations into the market. Therefore new product development may be real goods being entered into the market or a service. In some cases, the product or service may not be new but the market itself. For this case, a new product is being introduced into the European Market. The iPads have been gaining prominence in different markets globally. This paper focuses on the introduction of the third generation iPad into the European market (Clegg, 2011).
The ipads are technological products which are manufactured and distributed by the Apple Incorporated which is a United States based Company. iPads are highly sophisticated communication tools operating like computers but with more advanced application software. IPads are relatively small in size. They are smaller than laptops but relatively larger than the smartphones. IPads acts as a platform for the audio-visual media which includes periodicals, books, music, movies, applications, games and web content. There are three generations of iPads. The first generation of iPad was released in the year 2010 with the second generation being released a year later. The third generation of iPads was released two months ago. Each emergent generation marks an improvement in the content and features of the iPad (Zimmerman, 2012, Lin and Chang, 2010).
The target group/market
The first and second generation iPads have a large market in US, Europe and the entire world. The third generations target a very large market which is composed of the youths and those people who are technology conscious. Because of it has an internet application, the third generation are best suited for students in the higher learning institutions. Entertainment and general business companies are also customers for the company. The third generation of iPads is an improvement of the second generation. It processes data at a high speed as it utilizes the 4G technology. These products are more tailored to fit the needs of the current markets. A majority of the inhabitants of Europe live above the average line thus they have the economic power to acquire the new iPads. To be precise, the target market for the product is the entire population of Europe – both youths and adults in all sectors of the economy (Snell, 2012).
Product image
IPads are fairly recent products in the market. However, the attention that they have gained in the market speaks volumes about them. They were introduced to the market first in the year 2010 preceding other technological products from Apple like the iPods and iPhones. Their entry and growth into the market are dealing resonates from the high i-technology which is used in manufacturing them. Many people have consumed products form the Apple Company especially the first two generations of the iPads. The apple company has attained a good name amongst the customers. Therefore customers always look forward to better and more sophisticated products from the company. The company and the products can be termed as having formed a good name and impression thus a good image to its customers. The new iPads are therefore expected to catch the eye of the consumers who are looking up to the Apple Company to produce more advanced products. According to marketing experts, the images of products are built in different ways including pricing, branding and quality of products and services. The Apple Company has build image in the competitive information technology market through the quality of its products. The new iPads have better screens, optics, processors and networking which combine to make them more impressive than the other generations of iPads. The new iPad has been based on the improvement made to the iPad and the iPad 2 (Pride, Hughes and Kapoor, 2012).
Distribution Channels
When a new product is designed, it has to reach the intended market through the distribution channel. The distribution channel plays a part in the marketing function of a product or a service in the market. It is the means through which the product is set or goes through to reach the consumers of customers. Apple has stores in different destinations which are used in distributing its products. To increase its channels of distribution through the rise in the demand for the new iPads, the company will open more stores in Europe. This is the main target market for the company. The two major targeted markets are Germany and France. The Apple Company will ensure that it has established as many stores as possible in these countries so that it can bring its products in close proximity with its customers. Retail stores help in simplifying the marketing exercise thus apart form the main apple stores, the company will pick on other retail distributors (McDonald, 2011).
Pricing studies
Pricing is a substantive component of the product mix which is an important part of marketing. The setting of prices for product and services is a crucial component of marketing. This is mostly done through a pricing policy (Boone and Kurtz, 2012). Pricing policy is a set of rules that are used by the company in tagging prices on their products that are being released into the market. The pricing policy is formulated basing on different pricing strategies. There are a number of standardized pricing policies which are used by companies in setting prices for their goods or services. Marketing specialists emphasize on the need for conducting research in order to choose on the best policy for setting price on goods and services (Smith, 2012, Pride and Ferrell, 2013).
Marketing research studies will be conducted about the possible market for the iPads before settling on a policy that will be favorable to the customers. Both qualitative and quantitative marketing researches are important and they help the product marketers to better understand the market in which they are entering. Marketing researchers maintain that it is essential to do a general market research before setting prices on new goods and services. It gives the firm a detailed picture of their product relative to the market in which they want to introduce or market their product (Meehan, 2011, Grewal, Roggeveen, Compeau and Levy, 2011).
The first research that will be done will be aimed at establishing the need for the new generation of iPads in the market. This will give the company a good basis on which to enter the product in the market. Also, this research will be aimed at determining the prevailing prices for the same lane of products in the market. This will help the selection of prices that match the new iPads (Tyson and Schell, 2012).
After the general marketing research is done, it becomes essential to conduct specific studies on pricing. Pricing studies are conducted using a number. The main aim of pricing studies is to come up with a price on the product. The price must be favorable to the customers – the customers must be willing and able to purchase the product at that price. For Apple and the new iPads, the pricing study will be quite easy as the company has already has other products in the European market. The new study will be based on the pricing studies that were done prior to the introduction of the second generation iPads in the same market (Tyson and Schell, 2012).
Pricing studies are followed by consumer mapping studies as concerning the price ranges suggested by the company. Pricing studies differs as applied to different products. The pricing studies that will be done will be based on the pricing model for technology products. The pricing curve for IT products behaves different from that of the normal consumer goods. This is due to the effect of industry gurus in the market. There are firms that have specialized in marketing research for information technology products. Such firms fully understand the IT market and the policies and market conditions affecting the prices of such products. The European market is very large therefore conducting a pricing research will be quite costly. Therefore the services of specialized research firms which can easily cover the entire region will be sought for. The Apple Company will contract Stelacon to do the pricing study on its behalf. Stelacon is an experienced research and strategy firm which specializes in Information Technology and Telecommunication market (Shankar and Carpenter, 2012).
Objectives of the iPad 3 price strategy
The formulation of pricing strategies is complex task especially in the competitive market like Europe. Firms formulate diverse pricing strategies due to the diversity of products and the objectives which they set to guide the strategies. There is no much literature to describe the real pricing strategies for commodities more so the customization of pricing strategies. The actual pricing strategies are dependent on firms, their customers and competitors among other factors. The pricing strategies have to touch on every level of product development with the most important price being the retail price because this is what the real consumer gets the product at (‘International symposium, ISAEBD’, 2011).
There are three major approaches or strategies for pricing products and services. These are customer-based pricing in which prices are set basing on what the customers can pay according to the belief of the firm. Cost-based pricing is the second strategy. In this strategy, prices are set by adding profit on the cost of manufacturing the product. The other strategy is competitor-based pricing where the prices of competitor products are the basis on which prices are set. The choice of either of these strategies goes with a firm and is influenced by the pricing objectives. Pricing objectives often go with the pricing strategies (Shankar and Carpenter, 2012).
For the case of Apple and the pricing of the new iPad 3 in the European market, there are a few core objectives. The first objective of the pricing strategy for the new iPad 3 is the maximization of profits for the iPod in the European market. Profit making is the chief aim of any given business firm. The profits will be maximized by balancing the price of the new iPads with the demand. The overall profit for the company will be considered at each of the stages of supply. As is with the rule of microeconomics, the best prices will be selected at the intersection of demand and supply. Such prices are called optimum prices which will bring optimum profits for the company. The projection of revenues by the company will be used to adjust the supply of iPads in Europe (Snell, 2012).
The second objective of the pricing strategies is enhancing promotion of the iPads in the market. The price of the new iPads has to be strategic so as to enhance marketing campaign. Promotion encourages customer knowledge of the product and the subsequent purchase of the product. Prices can be lowered through coupons, discounts and special offers. Several pricing strategies can be used in promotion for example seasonal promotions, bulk discounts, and customer- loyalty discounts. The discounts offered on prices of iPads are critical in rising quantity of sales especially among consumers who are sensitive to prices. Promotion basing on prices will raise the value proposition of the new iPads (Snell, 2012).
By selling the new iPad in the European market, Apple expects to recover all the costs that are incurred in the manufacture of the products. The company invests a lot in the manufacturing of the iPads and the output of this investment comes out of the sales. Therefore the other objective of setting price on the products is to ensure that the cost on investment is recovered. Prices are set in a manner that they do not become unsustainable to the customers or that the company does not go at loss – too low prices. For iPad 3 which is a new product, the company will use a cost-recovery pricing strategy in the initial stages. This strategy can only be used when the company wants to maximize the flow of cash from sales so as to cover for the initial investment cost. The products have to be priced in such a way that they encourage the speed at which they are sold (Snell, 2012).
Product prices are also used in differentiating and positioning products in the market hence objectives of pricing strategies. Higher prices are at times used in denoting higher quality of products. The prices of the new iPads are expected to be high because of the quality and value of the products. However, depending on the competitor companies and their products, the prices will be adjusted (Snell, 2012).
Competitive leadership is pegged on price also thus Apple will formulate price strategies that will position the iPads in the market. The pricing strategy used has to match with the market leadership objectives of the company so that the impact can be maximized (Snell, 2012).
Pricing strategy of the new iPad 3
The pricing strategies are the approaches that a company takes in pricing its products. It is easy to price a single set of products in the market than many sets of products. The third generation iPads is a single product which contains different flavors in it. Marketing scholars are advocating for the use of strategies which are based on consumers. The strategies used in pricing the products have to factor in the market as well as the needs or expectations of the company marketing the product (Pride, 2011).
The customer-based pricing strategy will be used by Apple to price the iPads. Setting the penetration prices will be the first step. The European market is not new to the Apple products. The objective of penetration pricing is to raise the market share of the product. Once the product has attained a significant market share, prices can easily be raised. Penetration pricing is closely linked to the marketing objectives of raising the market share. It is a short-term sub-strategy. The prices are set lower as more customers acquire the product. At this stage, the prices fetch minimal profits for the company. However, the ultimate goal is attained as more customers buy the product causing swell in the market-share (Lamb, 2012).
Penetration pricing will be followed by price skimming. Price skimming is mostly used for technological products with high levels of innovation. Once a sizable number of customers are gained, the company can raise the price of the product as long as competitive products do not exist. It is at this point the company makes huge profits. As other competitors launch and introduce competitor products in the same market, the company is forced to lower the prices for its products. If the company is highly innovative then it can gain more from the market by challenging its own products and maintaining the market and the high prices. After exploring the market with the second generation of iPods, Apple has come the third generation of iPad which is the main competitor to the iPod 2 (Hirschey, 2009).
Calculating the price for the new iPads
In the calculation of the real prices of a finished product in the market, two factors are of utmost importance. These are the cost of producing the product and the competition in the market. The cost is the most of the two factors. The new iPad three has many models therefore this is a general procedure of calculating the price of any of the iPad 3 models (Barrow, Barrow and Brown, 2012).
The first procedure of costing or calculating the price at which a commodity will be sold in the market is calculating the material costs of the product. It is important to keep record of all the materials that are used in making the products. The cost of purchasing or procuring those materials is calculated and added to the cost of assembling the product. All the details must be reflected and added to the cost. These include the labor costs, costs to do with technical services among others (Whittington and Delaney, 2012).
The second step is to calculate the cost of marketing. This includes the cost of distributing the product and the amount that is being spend on advertising or promoting the products. The transportation cost is included in this cost. Most importantly are the charges from taxation that will be incurred in taking the product to the market. All the costs related to or incurred in marketing must be included in the sum. None should be left out as this can lead to underpricing of the product (Whittington and Delaney, 2012).
The third step is to identify the prices of the competitor products in the market. Though, this also forms part of marketing research. Competitor products are either compliments or the supplement goods in the market. After establishing the competitor products and their prices, the company can now compare the costs and come up with the price or the cost of the product. The highest cost is expected to be in the manufacture of the product though at times, companies spend more finances in marketing than what goes in the manufacturing of the products (Entrepreneur and Turner, 2010).
The next step is to sum up the cost of production and the cost of marketing. After summing up all the costs, the firm with arrive at the real cost of the product. It is important to understand that the real cost of the product is not the actual price of the product. The actual price of the product will be reached by looking adding expected profit to the product. This is where the price of competitor comes in. The company will set the expected profits by looking at the price at which competitor products like the Samsung Galaxy tablets go. The final price which is the market price of the commodity is reached at this stage. Markets prices are shifted basing on the changes and the events that are happening in the market (Forsyth, 2009, Pride, Hughes and Kapoor, 2012).
Changes in price is imminent and is determines by the pricing objectives of pricing by the company (Ferrell andHartline, 2011). As explained earlier, there are long –term pricing objectives and short-term objectives. Companies set lower price limits for their products. Such prices rarely go below the total cost of the product (Forsyth, 2007). Lower prices are usually set on product at the introductory phase of the product in the market. Once the objective is achieved for instance gaining a substantive number of customers, the prices are adjusted (Lamb, Hair and McDaniel, 2011). The long term lower prices are set when competition completely sets in. At such a time, the number of highly competitive products in the market is high. This forces the firm to maintain low prices which is what will keep their customers (Furtwengler, 2010, Kurtz and Boone, 2010).
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