Skimming Pricing Model: Explained by Samsung & Apple

Many smartphone manufacturers use the skimming pricing model to launch their new product, including such multinational organizations as Samsung and Apple. Skimming pricing model entails the process by which manufacturers charging high prices for the newly launched products and lowers the prices gradually over time while incorporating a more improved version of the existing product. The achieve the objective of charging high prices, the manufactures may skim and start by charging lower prices to attract demand, but quickly shift to high prices. The gradual lowering of prices is affected by the satisfaction of first customers and competition experienced in the market. Therefore, the manufacturers lower the prices while targeting the second set of customers, which are more price sensitive and loyal to the associated brands.

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The primary objective of this model is to realize more revenue as possible when he demands still high, with less competition in the market. Therefore, once the above objectives are achieved, the manufacturer can lower its brand prices to attract more conscious customers. Notably, the model principle is supported by the S-curve theory of innovation, which stipulates that an industry product or service model evolves over time. With the high incorporation of functionality features of the new product, smartphone manufactures can advantage and charge high prices, and this the S-curve starts slowly steeps and gradually reach optimum satisfaction point as the next generation of target market buy the product at a lower price accompanied with increased demand.

The S-curve theory stipulates that the manufacture's product or business model evolves over time, accompanied by the gradual rise of profits until a point of maturity. However, as the product approaches the maturity stage, the organization should ensure it has new, improved brands in place to generate future profits. Notably, the new products are often an upgrade of the old version with improved and unique features.

Pricing Adjustment Strategy

Companies must adjust their product prices according to different circumstances, including such pandemic as Coviod-19 facing the telecommunication globe. Smartphone manufacturers and not an exemption since the pandemic has also hit them. Ideally, smartphone manufactures should incorporate dynamic pricing adjustment strategy. The strategy entails a continuous adjustment of prices to meet the need and characteristics of a different situation like the Covid-19. The strategy is based on the negotiation principle, where the prices are determined by the current situation prevailing in the target market, which, in the long run, would maintain brand loyalty. Notably, fans of big brands are likely to remain loyal. As such the strategy affected the Smartphone manufacturers positively as the manufacturers would fix their prices according to the pandemic situation hence, the current prices of a smartphone would factor in the prevailing situation, and this may lead to increased loyalty since it may attract more customers from other smaller brands who may not have adjusted their strategy.

Q2. Innovation Offshoring

Innovation offshoring refers to how third parties in the foreign market conduct innovation-related activities. It also refers to the process by which organizations create an opportunity to access more qualified personnel from other countries. The primary objective of innovative technology is to create more productive results and launch new products in new markets more easily. Notably, offshoring has been embraced by the smartphone industry due to reduced cost, high expertise overseas, and improved technological linkage. Therefore, with the Covid-19 pandemic accompanied by travel bans across the globe, smartphone manufacturers are not capable of transporting their products to reach their retail customers. For instance, most components of smartphones, including hardware and software, and does not take place in one country. As in the case, 70% of manufacturing takes place in China while other components of the smartphone are done on Daegu South Korea. Therefore, with the pandemic that restricts shipment, innovative offshoring can facilitate the manufacturing of smartphones in different offshore markets to meet customers' demand and accessibility.

Problems of Innovative Offshoring

Innovative offshoring has been impacted negatively by the Covid-19 pandemic. The smartphone industry stands at great risk of exposing confidential information that may compromise their operations. For instance, as Emile Nau's notes, the most important component of the phone is the software rather than hardware. The software can be developed remotely, including offshore operation bases. However, testing the new devices may be hard to exercise since smartphone manufacturers are wary of the threat posed by carrying home prototypes of the devices to test as a result of confidentiality concerns. The scenario would apply to offshore innovation as with the pandemic, smartphone industries would be tempted to issue prototypes to their offshore outlet providers, which might lead to a confidentiality breach. This will hinder the production and assembly of a complete device if the corporation is to keep their secrecy, and thus sales would reduce. Consequently, if the corporations release their prototypes, confidentiality and interest can be compromised and used against them by their rivals.

Opportunities of Covid-19

The brighter side of Covid-19 also exists, since it has created an opportunity for green technology. Green technology includes all innovations that contribute to the development of new products, services, and processes with the main objective of reducing harm to the environment and promoting the use of natural resources. Product and service innovations are aimed at improving human experiences and wellbeing. Notably, drivers of green technology include legislation push, technological, and market pull. Manufacturers have had the opportunity to invest in green technology to maintain their businesses as going concerned. For instance, the case study reveals that Chinese consumers will buy 33 million lesser phones in the first three months of the year.

Therefore, smartphone companies should invest in green innovation to fill the void of reduced demand for their products. Smartphone manufacturers should invest in Virtual reality and mobilize their offline sales force and encourage customers to use social media for better engagement, with the closure of learning systems, including high schools and colleges. Manufacturers should also invest in virtual reality by enabling multiple technological, communication, and learning platforms enabling students to learn from home. Moreover, smartphones can suspend the launch of their new products, including the iPhone 12, and change the delivery model of its existing products in the market priced according to dynamic strategy. This will allow clearing of existing stock, which will pave the way for more improved sales for a new product launched once the pandemic is over.

Appropriability Mechanisms

Several pieces of evidence show that most organizations that have shifted to offshore processes have failed to generate desired financial benefits due to inappropriate measures of protecting interest. Therefore, most corporations have aimed to protect their core competitive advantage by making it a confidential issue that is only protected at the parent corporation headquarters. For instance, most smartphone corporations have protected their testing prototypes, which may be harder to be disclosed to offshore outlets. It this testing prototype that gives the corporation a competitive advantage and thus interest.