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Analyzing Managerial Decision: Itunes Music Pricing

1551 words - 7 pages

Analyzing Managerial Decision: iTunes Music Pricing

by

HCM-540, MBOL5, Health Care Organization
Instructor:
Saint Leo University
Distance Learning

November 10, 2013







Abstract
Apples’s Itunes music store came upon the music industry in 2003. It quickly became supreme within the music industry. The iPod, Apple’s MP3 players, and iTunes software were all interfacing, making it one of the more popular technology favorites among consumers. At odds with iTunes were the music companies crying foul over infringement and pricing. Buying overpriced CDs were quickly becoming a thing of the past. Music had been illegally accessed through peer-to-peer file sharing networks. With ...view middle of the document...

A variable pricing strategy would allow Apple to charge a higher price for popular music and a lower price for the songs with less popularity, with hopes that higher sales would be generated. This would make up for decline in sales of the more expensive songs but eventually striving in the direction of increasing overall sales. Billboard of Nilesen SoundScan suggests, that 21% percent of music with a higher price point saw almost a 21% decline in sales but achieved a 29% positive performance in price that more than makes up for the loss (unknown, 2009). Top 40 was more resistant to price fluctuations, and saw a near 11% decline in revenue after being increased to $1.29. These top 40 songs, which have an inelastic demand should be unchanged by the increase in price. Consumers of the top 40 songs that demonstrate price insensitivity will contribute greatly to the increasing revenues because the optimum price can be gauged at a value that is greater than marginal cost. ITunes Music Store would be better equipped to take on the growing opposition of large wireless carriers presenting downloadable musical content to its cell phone users. Maximized returns are supported by the variable pricing strategy by permitting the company to amend the value per-unit price increasing revenues.

Potential Pricing Policies

There several pricing policies to explore for Apple’s iTunes Music Store. One pricing method is the Product Bundling strategy. Bundling would allow Apple to bundle and sell a mix of different songs; old and sell them at an acceptable price. Bundling allows Apple to remove older music from its inventory serve as a means to attract other potential customers. Both customers have opposite relative valuation of each product. The minimum bundle value has a greater value than the sum of minimum reservation prices for each product (Brickley, J, Smith, C & Zimmerman, J,2009). Another strategy is the group pricing policy. The group pricing policy would allow Apple to target group sensitivity by analyzing the attributes of the target group. For example, Apple might segregate its music customers by age, income, or dress group. If using age, Apple knows that a certain age group may prefer rap music of the today as oppose to the rap music in the era of 1990. Additionally, it offers the ability to limit product transfer in submarket groups. Block pricing takes advantage of the multiple unit of purchase by consumers. The individual demand for products slopes downward as the purchase of products increases. For Apple’s iTunes management, it could charge customers a price equal to the marginal cost of each unit purchased. For example, the first song purchase may be for 99 cents, second 98 cents and so forth. Another way is to charge a block price for multiple units with a declining price for each successive purchase. Two-part tariffs take advantage of customers paying an upfront fee for purchase rights of a product. This strategy is often used by amusement...

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