The case of Apple iTunes discusses pricing strategies for downloaded music and how they can affect the sales. A more variable pricing policy might indeed increase sales revenue. This is because people are likely to be willing to pay more for new and popular tracks, while lower prices on old records would also encourage more purchases. Apple’s decision to change its pricing strategy from one to three pricing points fits in with this suggestion.
Hence, it was motivated by the influence of prices on the users’ willingness to buy specific tracks. Before implementing the changes, the company stated that there would be a lot more songs priced at $0.69 than at $1.29 (Apple Inc., 2009). This allows suggesting that under the new scheme, the price depended on the recency and popularity of individual tracks. For instance, old records that are not very popular would be priced at $0.69, whereas recently released songs by famous artists would cost $1.29.
Other options could help iTunes to increase the volume of sales. For example, subscription services are becoming more and more popular among Apple and Android users. This pricing policy includes charging users a set price every month, three months, six months, or a year while giving them access to use the application without restrictions. Subscription services are a growing market in e-commerce, and it is expected to continue expanding in the future (Columbus, 2018).
Subscriptions are appealing to users because they are easy to track and can be canceled anytime. They are also beneficial for companies, including Apple, because the price of a subscription is typically higher than what an average user spends on products in a given period (Columbus, 2018). Thus, a subscription-based pricing strategy would result in increased sales revenues and volume.
Another example of a beneficial pricing policy for the Music Store would be to introduce more pricing points and expand the range of prices for songs. This would have a similar effect on sales as three-points pricing, but it would result in more sales if prices for older tracks would be lower than $0.50. However, the increased complexity of pricing schemes in both cases would be associated with additional costs and risks. First of all, it would be necessary for the company to spend time and dedicate human resources for reviewing the pricing of each song or creating an efficient algorithm that would allow doing so automatically.
This means that the implementation process could incur substantial additional costs, particularly if new technology is required. Secondly, there is a risk that the highest price set for the most popular tracks would be too high for consumers, and they would switch to competitors. Thirdly, it is also possible that the distribution of sales will change, with more customers buying cheap tracks than expensive ones. This poses a risk of reduced sales revenue and impaired relationships with record companies, which would be impacted by reduced revenue.
Apple’s pricing objective is to maximize the revenue from the sales of downloaded music. This is mainly because the existence of Apple Music Store relies on the company’s access to available tracks (Apple Inc., 2018). The access is provided by record companies, the revenue of which depends partly on the sales of downloaded music. Therefore, both Apple and record companies aim to use a pricing strategy that maximizes the revenue from downloaded music.
Although Apple has managed to maintain control over the price of downloaded music so far, the situation is likely to change over the next few years. This is because iTunes’ key competitors, such as Amazon Music, are becoming more and more popular. Hence, if the prices set by Apple become too high, or if Apple’s competitors manage to negotiate lower prices with record companies, Apple will most likely lose customers and will be forced to set a different pricing strategy.
References
Apple Inc. (2009). Changes coming to the iTunes Store. Web.
Apple Inc. (2018). Form 10-K. Web.
Columbus, L. (2018). The state of the subscription economy, 2018. Forbes. Web.