What will you do after creating a massive marketing buzz and successfully launching a new product? For many entrepreneurs, we’ll say time to reap what we sow. Not for Apple. Two months after launching the ultra cool and revolutionary iPhone, they reduced the selling price by $200! While many investors reacted negatively, some business analysts believe there was wisdom in that move. MarketingBlurb says this price cut has far reaching effects.
Welcome to price-cutting strategy 101. It’s not an insane idea, only unconventional. In fact, it is proven effective for some established brands. However, this strategy is not advisable for startups. The value of this post is to give you a preview about the different strategies available to your competitors. There are two reasons why a company should employ this strategy:
Defensive strategy
Reducing your price increases barrier to entry, logically making the lives of startups more difficult and less profitable. Most startups base their pricing strategies on the current market price of leading brands. It means any significant drop in market price prompts a new player to look for a cheaper supplier, delay development, and suffer losses. Given this situation, many entrepreneurs will simply back out.
Expand the Market
Sometimes a price cut is aimed to increase usage or expand the market. Some experts think this is the reason why iPhone called that shot. The new price will attract more buyers and encourage other mobile users to switch to iPhone. However, this is an open declaration of price war. Apple is not worried because they have a very strong brand anyway.
