Finance for Enterprises: Evaluating Pricing Strategies for Apple

This report evaluates the effectiveness of pricing strategies, specifically price bundling and mark up pricing, for enterprises. It begins with an introduction to both strategies, explaining their core concepts and applications. The report then delves into the advantages and disadvantages of each method, supported by market research and examples. Price bundling, where products are offered together at a single price, is examined for its potential to increase customer preference and sales, particularly for high-technology products, while also addressing drawbacks such as transparency issues and potential customer dissatisfaction. Mark up pricing, which involves adding a percentage to the product's cost, is analyzed for its simplicity and ability to ensure profit, but also critiqued for its lack of consideration for demand elasticity. The report then applies these strategies to Apple, analyzing the suitability of each method based on Apple's market position and product offerings. The report concludes by summarizing the findings, highlighting the strengths and weaknesses of each pricing strategy and their relevance to the case study of Apple. References and a bibliography are included to support the analysis.

Running head: FINANCE FOR ENTERPRISES
Finance for enterprises
Name of the Student
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Author Note

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Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Advantages of Price bundling:...................................................................................................3
Disadvantages of price bundling:...............................................................................................3
Advantages of Mark up pricing:................................................................................................4
Disadvantages of mark up pricing:............................................................................................5
Evaluating the appropriateness of each method to Apple Company:........................................5
Conclusion:................................................................................................................................6
References list:...........................................................................................................................8
Bibliography:..............................................................................................................................9

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Introduction:
The report is prepared for evaluating the effectiveness of the pricing strategies that is
mark up pricing and price bundling strategy to a particular company. It also demonstrates the
advantages and disadvantages of each pricing methods that would be discussed. Price
bundling strategy is a pricing technique when two or more products are offered together at
one price to consumers instead of buying the items separately at their own individual price.
Companies employing this strategy benefits due to demand heterogeneity that implies
different products are valued by different customers differently. Mark up pricing on other
hand is a strategy where the computation of price of product is done by adding the cost of
product and a percentage of that cost as mark up (Liang et al. 2017). The company uses the
required rate of return to determine the mark up. In this report, example of Apple has been
taken that uses the strategy of price bundling to sell of their computers.
Apple is a multinational company of America that is headquartered in Cupertino,
California. The company is engaged in development, designing and selling of computer
hardware, consumer electronics and online services. Some of the products offered by Apple
includes i phone, i pad, watch, television and Mac. Services offered by Apple include Apple
store, apple pay and i tune store along with range of support offerings and services. Apple
had adopted the pricing bundling strategy of selling the software and computers as one
package. Using this particular pricing strategy, there is physical integration of the products
and selling customers only this integrated bundle of product (Vohra 2016).
Discussion:
In this section, the advantages and disadvantages of each methods of pricing has been
explained.

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Advantages of Price bundling:
It is indicated by the market research that it is the pricing solution that required more
attention from managers.
 Customers has the preference of purchasing products in group it helps in saving time
and enable them to enjoy the versatility in a single purchase act.
 Price bundling of products may be optimal as it helps in increasing the likelihood of
purchase from individual customers and decrease the sensitivity of price.
 Compared to products with high marginal cost, price bundling strategy provides
generally gain for goods and services having high development cost such as high
technology products.
 The perception of customers for the functionality of new products may improve with
the help of price bundling strategy as the existing complements are bundled.
 Price bundling are used by retailers as it helps in applying competitive pricing to a
particular product group so that the competitors are outsold. Furthermore, it also helps
in fueling revenue, intensifying sales, increasing cost efficiency and testing new
channels of market.
Disadvantages of price bundling:
 It is not always preferred by customers to have products in group and making
payment for all of them. One of the disadvantages of such strategy is that even if
customers do not want the product, they have to purchase it.
 For the bundled products, it is difficult for retailers to maintain transparency in their
pricing decisions and find a balance between total value of items for customers and
company as a whole.

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 The strategies of product bundling always calls for the attention on the bundling
process cost.
 Another disadvantage that can be listed down is that for the bundled products and
services, company has to give discount leading to loss of revenue.
 Sometimes, customer views the bundled product as inferior as they perceive it as the
additional effort taken by company to sell the outdated along with the main product.
This might turn away the customers away from the company to their competitors
resulting in fall in sales value (Sanchez and Leon 2019).
Advantages of Mark up pricing:
 One of the advantages of mark up pricing strategy is that the pricing is very simple to
understand and easy to calculate. Hence, company need not waste time in computing
the level of margin to be added to cost for arriving at the total cost of the product.
 Using of mark up pricing helps in reducing the price competition in the market if all
the firms in the industry employ the same type of strategy because the price of
product tends to be similar.
 Firms are able to achieve satisfactory profit if they keep their mark up price high
enough for allowing cover shrinkage, price discounts and deduction and any other
expenses that has been anticipated.
 A guarantee against loss making is offered to the firm with the help of this cost plus
method. It is so because appropriate steps can be taken by making variation in the
output sold and price if they found that costs are rising.
 Customers enjoy price stability when costs are stable sufficiently for considerable
period of time which leads to less irritating customers and retailers and is also
administratively cheaper (Williamson et al. 2017).

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 Mark up pricing is considered as an important strategy when it is expensive for
company to gather information or becomes impossible.
Disadvantages of mark up pricing:
 Mark up pricing does not take into account elasticity of demand concept which makes
it naïve. The cost plus price would be lower when the price elasticity of demand is
low and vice versa.
 Adhering of the pricing strategy to the price rigidity is one of the grounds of its critic.
Instead of adopting a rigid pricing policy, firms follow the independent policy as they
tend to raise price during rising cost and lower the price during recession (Shuai et al.
2018).
 Demand being an important variable in the pricing strategy is ignored in mark up
pricing as it is based only on costs.
Evaluating the appropriateness of each method to Apple Company:
Apple adopted the strategy of price bundling as one of its products Macintosh was
sold as a pure product bundle of software and hardware. It was an optimal strategy because
the product offered ease to customers in using due to its graphical user interface and its
uniqueness in performance. However, the uniqueness of Macintosh was lost with time
because the improvement in products making other suppliers to rapid gains on the market of
Apple. There was a decline in the market share of Apple due to availability of choice
possibilities and facilities to customers (Personal.eur.nl 2019). In such scenario, it would be
suitable for Apple to adopt mix product bundling strategy. Therefore, the strategy of price
bundling is not suitable for Apple.

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The market in which Apple operates is an oligopolistic market where imposition of
such markup pricing is common (Sobolewski et al. 2017). However, Apple can employ the
markup pricing strategy for their product because they enjoy an enviable position due to their
products uniqueness. Nevertheless, with increasing creation, such uniqueness is lost.
Moreover, Apple apart from selling the product, it is also engaged in their development and
designing so the base of the price will be the product cost. All the cost for producing and
developing the product is borne by the company itself. Therefore, as a general rule, price of
the product should be set in such a way that it is able to cover the fixed overhead expenses
and the cost of production and thereby allowing the space for profit. Hence, mark up pricing
strategy can be adopted by Apple. If the company is able to lower its cost of production by
manufacturing the product while maintaining economies of scale as this would help the
company to maximize their profit (Mittal and Agrawal 2016).
Conclusion:
The objective of the paper is to evaluate the effectiveness of the pricing strategy
adopted by the company along with listing down the products and services offered. From the
analysis of several key points mentioned above, it has been deduced that both the methods of
pricing strategy has its advantages. Undoubtedly, both the strategies have their shortcomings
which make the strategy lose its optimality. When evaluating the effectiveness of bundled
pricing for Apple, it is ascertained that the centrality of such strategy has been underscored as
it lost its optimality. When making reference to the case analysis of Apple, it is ascertained
that price bundling strategy adopted did not prove superior as the company lost its market
share. Nevertheless, the strategy proved to be optimal as selling of one of its product as
bundled product was a success initially. When evaluating the effectiveness of mark up pricing
for the company such as Apple, it can be said that adoption of mark up pricing might prove

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beneficial and offers advantages. This is so because Apple being a manufacturing company, it
would be feasible for it to set the price of the product by adopting markup strategy because
profit can be maximized by lowering down their cost of product. Setting the product price
using mark up pricing requires the company to account for the demand of their services and
products, cost of producing the product and determination of mark up on the product.

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References list:
Liang, X., Ma, L., Wang, H. and Yan, H., 2017. Examples from Industry. In Inventory
Management with Alternative Delivery Times (pp. 9-15). Springer, Cham.
Mittal, D. and Agrawal, S.R., 2016. Price transparency reflects assurance and
reliability. Journal of Retailing and Consumer Services, 31, pp.43-51.
Personal.eur.nl. (2019). [online] Available at:
https://personal.eur.nl/stremersch/artikels/Strategic%20Bundling%20of%20Products
%20and%20Prices%20A%20New%20Synthesis%20for%20Marketing.pdf [Accessed 25 Feb.
2019].
Sanchez-Cartas, J.M. and Leon, G., 2019. Multisided Platforms and Markets: A Literature
Review.
Shuai, J., Yang, H. and Zhang, L., 2018. Dominant Firm and Competitive Bundling in
Oligopoly Markets.
SOBOLEWSKI, M., MIERNIK, I. and KOPCZEWSKI, T., 2017. Bundling or Unbundling?
Analysis of Profit Gains from Bundling.
Vohra, R., 2016. Rethink the Economics of Textbook Market. International Journal of
Humanities and Social Science Review, 2, pp.6-11.
Williamson, S., Stevens, R. E. Silver, L. S. and Clow, K. E., 2016. STICKER SHOCK:
MANAGEMENT PROFESSORS’PERSPECTIVES ON THE RISING COSTS OF
COLLEGE TEXTBOOKS. Administrative Issues Journal: Connecting Education, Practice,
and Research, 1(1), 468.

FINANCE FOR ENTERPRISES
Bibliography:
Paczkowski, W.R., 2018. Pricing Analytics: Models and Advanced Quantitative Techniques
for Product Pricing. Routledge.
Simon, H. (2018). Price Management: Strategy, Analysis, Decision, Implementation.
Springer.
Smith, T.J., 2016. Pricing Done Right: The Pricing Framework Proven Successful by the
World's Most Profitable Companies. John Wiley & Sons.
Vasigh, B. and Fleming, K., 2016. Introduction to air transport economics: from theory to
applications. Routledge.