The download music industry is a growing sector with firms still adjusting to the demand patterns in the industry to maximize their revenues and profits. One of the most significant players in the market is Apple whose iTunes platform controls the majority share of the recording companies. The firm previously priced all their content at $0.99 per song with up to $0.70 going to the pockets of the music owners. Later in 2009, Apple adopted a three-point variable pricing strategy, which enables Apple to set higher charges for new hit songs while lowering their prices for old and less popular video and audio products. Compared to the flat pricing method, the new approach allows the firm to implement group pricing and bundling strategies when necessary, as well as to maximize revenue by taking advantage of the varying demand patterns in the industry.
Variable pricing strategy enables Apple to improve sales from their iTunes music store given the current consumer trends. People have varying ways of expressing themselves, and individual songs can also exhibit different demand levels even within the same genre. According to Brickley, Smith, and Zimmerman (2016), it is always vital for firms to implement pricing methods that incorporate the interaction of costs and demand levels of products in the market. While Apple the strategy enables Apple to improve their profits by selling new hit songs at higher prices, the company will also be able to increase their revenue by giving out the old and less popular audios and videos at a bargain (Edible Apple, 2009). The slightly lower charges are likely to enable the firm to earn some revenue from the old stock that would otherwise go to waste. The variable pricing strategy also allows Apple to cover for the losses from lowly priced songs using the sale of newer hits.
Moreover, the new strategy enables the firm to explore bundling and group pricing strategies to specially design their packages and prices to different segments of the market. Managers often place consumers into specific categories with regards to their country of residence, age, and other demographic factors, which influence the consumption patterns (Brickley, Smith, " Zimmerman, 2016). Based on such categorization, it is possible to implement the group pricing method, which enables the firm to charge their product differently in each region. Such a strategy can help Apple to grow their business all over the world by setting lower prices for less developed countries and slightly higher prices for the consumers in wealthy nations (Knutsson, 2011). Bundling, on the other hand, might be used to allow customers to access all their favorite products in one package instead of having to buy separate albums (Steinberg, 2015; Merritt, 2018). The move would make Apple’s music store a more attractive option for the customers.
However, there are potential threats that may hinder Apple’s success in implementing a more variable pricing strategy for music content. In most circumstances, copyright rules and legal disputes often limit the freedom that online music retailers can exercise (Brickley, Smith, " Zimmerman, 2016). Again, the company might also lose customers to the illegal downloading platforms if for some reason the consumers believe that their pricing of popular songs is unfair. The adverse effects could be heightened by the fact that paying for downloaded music is still a new concept in many places.
Despite maintaining a sharp focus on their image and the development of the iTunes platform, Apple could be on track to accrue significant benefits from their innovative variable pricing strategy. The new method will help the company to grow their revenues from the sale of downloadable music videos and audios. Additionally, the firm can improve their market share by implementing group pricing and product bundling strategies to attract and retain different types of customers.
References
Brickley, J., Smith, C., " Zimmerman, J. (2016). Managerial economics and organizational architecture (6th ed.). New York: McGraw Hill/Irwin.
Knutsson, E. (2011). Bundling for consumers? Understanding complementarity and its effect on consumers’ preferences and satisfaction. Studies in Business Administration, 79(B).
Steinberg, M. (2015, March 16). Creating advanced discounts with group pricing. Retrieved November 3, 2018, from https://www.checkfront.com/creating-advanced-discounts-with- group-pricing.
Merritt, C. (2018, June 26). Bundle Pricing Strategy. Retrieved November 3, 2018, from https://smallbusiness.chron.com/bundle-pricing-strategy-67049.html
Edible Apple. (2009, June 22). Retrieved November 03, 2018, from http://www.edibleapple.com/2009/06/22/variable-pricing-on-itunes-already-generating- more-revenue-for-record-labels/
