Sunday, October 27, 2013

Apple's dual iPhone strategy in doubt?

The WSJ ran a story which suggested that Apples decision to introduce the iPhone 5c. It is a good introduction to the problems firms face when offering multiple versions of a product. 

FYI: Apple thinks that the story is inaccurate and based on conjecture rather than fact.

Here is a summary and questions.

SUMMARY: Apple hoped to broaden its appeal with a cheaper version of the iPhone. But that effort appears to be faltering after a few weeks.

CLASSROOM APPLICATION: Students can evaluate Apple's strategy of second-degree price discrimination, in which the company is offering a price-quality menu. Two interesting issues are whether Apple mispriced the two phones or set too small of a quality difference between the phones.

QUESTIONS:
1. (Introductory) Why are the sales of the iPhone 5S doing well while the sales of the iPhone 5C are not? Discuss the quality and price differences of the two phones?

2. (Advanced) Evaluate the statement: "The reduced orders could indicate weak demand, or could signal that Apple wanted to ensure adequate supply of the 5C so that potential buyers, who were more likely to be switching from competing phones, didn't have to walk out of a store empty-handed." Is empty-handedness is the driving force of the greater inventories of the 5C? If so, would Apple have done better by producing more 5S models and fewer 5C models?

3. (Advanced) What is second-degree price discrimination? By offering both the 5C and 5S models, is Apple practicing second-degree price discrimination?

4. (Advanced) When introducing the 5C, should Apple have changed the price of the 5S?

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