Apple has taught many entrepreneurs the importance of design, how to create buzz when introducing new products to the marketplace, how to pioneer new technology and the importance of superior quality.
But Apple also has wily pricing experts who have used pricing strategies to create extra profits.
The most recent example is the Apple response to Samsung’s huge presence in the India market. Apple’s products are too pricey for the average Indian, where many people still survive on $2 per day. Smart phones make sense in countries where electricity supplies and telecoms infrastructure is weak and prone to frequent blackouts. Phones add value to people’s lives by bringing them close to the markets. This has already happened in some poor fishing communities that dot the coastline. When heading back with the catch of the day, they can check the spot prices at various ports within reach and choose the best paying one. Clearly smart phones are an economic accelerator. So, how to get more smart phones into Indian hands?
Apple has used a price skimming strategy for the consumer market. Early adopters pay greatly for the newest and brightest toys. But Apple also knows that competitors can enter the market easily and quickly after Apple has pioneered the technology. So constant innovation is a hallmark of Apple products.
But that means the earliest smart phones are soon obsolete. Apple could NOT “dump” the old phones on the American or early adopter market, for fear of cannibalizing its own consumer segment. So Apple took the older phones to India, effectively buying market share with a great if outdated product that has already generated all the profits Apple expected.
But not all of us have the luxury of dumping our old products on a foreign market. How can Apple’s leadership in this pricing gambit be put to use in a Canadian small business?
If your pricing model demands a profit margin on each and every inventory item you sell, you will not be able to sell the end of season or dust covered items for a dollar. You will lose money.
But Apple has a simple idea. Not all inventory moves equally. If you sell seasonal or fashion products, some product will be left over after the majority has sold. If your pricing model allowed for this hangover – check your records in prior years -, then you could sell the leftovers for $1 and make a profit. See my prior articles on how the big box stores price this way or take a look at my book, Pricing Strategies for Small Business. If you sell strategically, you can gain new clientele. By contacting your customer list and advising of a tremendous sale, you move inventory that would otherwise gather dust and gain loyal customers at the same time.
This column focuses on business problems and how to solve them. Andrew Gregson, BA, MA , M.Sc.Econ is an economist, author and a Senior Partner in iNTENT Financial Inc, a Kelowna based finance and consulting company. The 4 partners specialize in finance, pre-determined profitability, sales and marketing. If you need further information, please contact us through the website at www.intentfinancial.com.