People love iPhones. They love them so much that they will wait in line for hours to buy the first models. They love them so much that they get the company logo tattooed on their bodies. They also love them so much that they will pay a premium price. How much of a premium? As it turns out, quite a bit.
New iPhones retail for $649 and higher, but the cost to manufacture the product is considerably less – $227:
- Screen – $41.50
- Battery – $3.50
- Camera – $16.50
- Logic board – $126
- Speakers – $7.00
- Other costs – $32.50Use this product as a topic for a discussion about how Apple prices its products.
- Group Activities and Discussion Questions:
- Show the video: http://youtu.be/IghsmsAAlvw
- Discuss the six steps for establishing a price: determining objectives, estimating demand, determining cost/profit relationships, select price level, set list price, and make adjustments.
- Discuss the various pricing models in class: demand-oriented, cost-oriented, profit-oriented, and competition-oriented.
- For the iPhone, divide students into groups and have each group work on any/all of the six steps.
- When setting the price level, assign each team a different model to use (demand-oriented, cost- oriented, etc.).
- Debrief the exercise. Compare the various pricing models and discuss advantages/disadvantages of each.
Source: CNN Money, Manufacturing Business Technology