ECON 344 GA- 3 PDF

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Group Assignment- Price ...

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Price The Apple Inc. has always been considered one of the luxury brands. This renowned brand has set a high market value for itself. AirPods are one of the great products of Apple Inc. whose current market value is priced at $269.00 with wireless charging case. AirPods with regular charging case is priced at $219.00 and wireless charging case separately at $99.00 [ CITATION App191 \l 4105 ]. Airpods have no discounts if bought directly from the apple’s website or instore. But there are great deals available for Airpods on the Best Buy, Walmart and Amazon. However, Apple doesn’t disclose the sales of Airpods particularly, but group it into the category of “other products”. According to Apple Q2 2019 reports other products contributed to 6.5% of revenue, that is, $17.4 billion revenue [ CITATION Tre19 \l 4105 ]. In terms of price, AirPods seems to be underpriced as compared to its competitors. Keeping the price low in the wireless headphone category seems a fair strategy for the Apple. According to the Apple’s Q2 2019 report, the gross profit margin of Apple is 37.61% [ CITATION YCH19 \l 4105 ], assuming that all the product line has same profit margin, the potential profit per each product could be $101 approximately. Whereas the manufacturing cost is approximately $168. To improvise its pricing strategy Apple can adapt following alternative strategies. In order to increase the profit margins while maintaining the same price and to keep the target market intact, Apple can consider switching its manufacturer to reach the lower cost of manufacturing of AirPods. Inventec, a china-based computer manufacturing company are the current manufacturer of Airpods. Their revenue has been climbed up by 10% with the AirPods production and have a potential profit margin of 34.61% [ CITATION Lau18 \l 4105 ]. Airpods plays a key product line for Inventec and would be willing to keep the product to themselves

even if they must reduce the manufacturing cost. Besides, the growing demand of Airpods requires mass production at large scales, lowering the cost of production and hence, increasing the profit margins for both Apple Inc. and Inventec. Alternatively, Apple can follow its traditional price strategy that is keeping the entry-product at low prices and then increasing the prices with each model. Apple can reduce the price of the AirPods with the launch of the new model, expanding the target market. Lowering the price of Airpods will target the lower-middle income bracket customers while the high-income bracket customer can shift to the new model of Airpods. AirPods are one of the best-selling products of Apple, it seems a compelling product getting a positive feedback from a wide range of consumers having a potential profit margin. Apple is using a stable pricing strategy by underpricing the product to have a competitive advantage and can adapt the alternative strategies suggested above in-order to increase the profits in this product line. Working: Price of 1 AirPods with wireless charging case = $269 Gross profit margin per 1 AirPods = 269*37.61/100 = $101 approx. Manufacturing cost of 1 Airpods = 269-101 = $168

References Inc, A. (2019, February). Airpods. Retrieved From: https://www.apple.com/ca/shop/select-airpods Li, L. (2018, August 15). Asian Review: AirPod maker Inventec has alternatives to China production, executive says. Retrieved From: https://asia.nikkei.com/Business/Companies/AirPod-maker-Inventec-has-alternatives-to-Chinaproduction-executive-says

Team, T. (2019, May 2). Key Takeaways From Apple's Q2 Results And What To Expect In Q3. Retrieved From: https://www.forbes.com/sites/greatspeculations/2019/05/02/key-takeawaysfrom-apples-q2-results-and-what-to-expect-in-q3/#6540cf2c249b

YCHARTS. (2019, June 21). Apple Gross Profit Margin . Retrieved From: https://ycharts.com/companies/AAPL/gross_profit_margin...