INTERNATIONAL PRICING STRATEGIES.
MEANING:
Price is an important element of marketing mix. Price is the
exchange value. Developing a right international pricing strategy
is critical to an organizations success. Price is a significant
variable, as in many cases; it is the main factor affecting
consumer choice. Its significance is further emphasized as its the
only element of marketing mix that generates revenues and the
others produce costs.
OBJECTIVES
The first step in developing a pricing strategy is to develop
pricing objectives what the pricing decisions must accomplish.
Pricing objectives must support the broader objectives of the
marketing department (such as increasing market share) and that of
the organizations overall objectives (such as enhancing
shareholders wealth or enhancing corporate image).1. SURVIVAL-It is
the most important objective of pricing; especially when companies
are faced with the problem of over capacity, intense competition,
or changing consumer wants. Most firms adopt survival objective
during recession, when customers on an average have less money to
spend.Prices are reduced in order to maintain sufficient flows of
cash for working capital. Profits are less important than survival.
As long as prices cover variable However, survival is a short-term
objective, as price-cutting is not always the answer. Marketers
need to be careful with the pricing strategy that brings short term
benefits at the expense of long-term goals.Reducing prices in order
to increase sales can cause customers to be price sensitive.
2. PROFIT OBJECTIVE:-One of the main objectives of pricing is to
earn profit. The profit objective of pricing can be expressed in
two ways:
Return on investment: a good number of firms fix their prices to
stimulate consumer interest in their brand over other competing
brands. Attractive prices result in higher sales ,which in turn
helps to achieve a certain level of return on investment or return
on capital employed. This in turn helps a firm to achieve its one
of the overall objectives- enhancing shareholders wealth.
Profit maximization:A profit maximization objective seeks to get
as much profit as possible. Profit maximization does not
necessarily involve fixing high prices. Low prices may bring in
higher sales and profits.
3. SALES OBJECTIVESFirms also fix prices in order to attain
sales objectives. The sales objectives can be expressed in two
ways:
Market share growth: A firm may fix the price of its products at
a certain level so as to defend its current market share, and if
possible to increase the market share. for this purpose a firm may
adopt penetration pricing for its existing prices.
Sales growth: some marketing managers would like to achieve
sales revenue growth in terms of unit sales growth or in money
terms. Increase in sales is an important indicator of a firms
success. However, increase in sales targets does not necessarily
result in other objectives, such as profits. This is because, sales
may increase, but profits may actually decrease, or a firm may even
suffer losses despite growing sales. Therefore, pricing objectives
should not just focus on growth in sales, but also on profits.
4. COMPETITIVE-EFFECT OBJECTIVES: at times, a firm may
deliberately seek to reduce the effectiveness of one or more
competitors. It may fix its prices in such a way that it would
enable it to win over competitors customers. For instance, a
departmental store can offer a heavy discount in early November on
garments, footwear, etc.
5. IMAGE DIFFERENTIATION:Some firms may create image
differentiation through pricing. They may change a premium price
for their products to create a distinct image vis-a- vis the
competitors, in the minds of their target audience. Firms like
Mercedes Benz, Rolex watches, and others have adopted this
strategy. Some other firms may charge a moderate price for high
quality products. For instance, a firm may position its product on
the moderate price vis--vis high quality.Market skimming
objectives: the firms that launch a new product in a market may
adopt the market skimming strategy. in this case, the product is
launched at a high price, and then gradually it is reduced over a
period of time. Skimming, apart from other benefits, helps a firm
to recover high development costs associated with new products.
6. EARLY CASH RECOVERY:Firms that face liquidity problems or
those that believe that life of the product or market is likely to
be short may adopt a pricing strategy designed with the objective
to generate a high cash flow and lead to an early recovery of cash.
Such firms may provide a series of special offers and discounts,
and adopt a strict credit policy, so as to increase immediate sales
and achieve prompt payment.
7. PREVENTING NEW ENTRIES:Firms may adopt low price strategy
with the objective of preventing others from entering the market.
The potential entrants would recognize the low returns available
and the dangers of getting involved in a price war. In this way,
existing firms may be able to minimize the amount of competition in
the market.
8. CUSTOMER SATISFACTION OBJECTIVE: A good number of
quality-focused firms believe that profits result from customer
satisfaction, as the primary objective. They believe that by
focusing solely on short-term profits, a company loses sight of
winning customers and retaining them. These firms instead develop
pricing objectives based on pleasing customers over the long term.
They may adopt a high value strategy. where product quality is high
and the price is moderate instead of adopting premium strategy
where high quality product is sold at high price. However, it is to
be noted that some customers, especially, belonging to the
upper-upper class would be satisfied with premium strategy, as they
enjoy prestige status with highly price items.
9. SOCIAL RESPONSIBILITY OBJECTIVES:Social responsibility
objectives often play a major role in pricing decisions of the
government and of non-profit organizations. Even professionals like
doctors may adopt social responsibility as their pricing objective.
For instance, some doctors may charge consulting fee on the basis
of ability to pay. Poorer sections may be charged less, whereas the
richer sections may be charged more. Also professional business
firms may pass on the economies of large scale production and
distribution, at least partly, to the consumers, with the objective
of fulfilling social responsibility towards the consumers.
FACTORS AFFECTING INTERNATIONAL PRICING
A. INTERNAL FACTORS
1. COSTS: Firms while fixing prices should consider the costs
for producing the product.in case of several products, costs
constitute a large part of the price. The firm must plan to recover
both the variable cost and the fixed costs. However, a firm selling
bulk of its supplies in the home market and a part of the
production in the overseas market, then all the fixed costs may be
recovered from the home market, and the only variable costs may be
charged for the overseas markets.
2. OBJECTIVES OF THE FIRMS: the marketer must consider the
objectives of the firm, while fixing prices. Price of products is
directly related to objectives of the firm. For instance, if the
objective of the firm is to increase return on investment, then it
may charge a higher price, and if the objective is to capture a
large market share, then it may charge a lower price.
3. PRODUCT: the product plays an important role in fixing price.
If the product is of superior quality, then a firm may either adopt
premium strategy or high value strategy. In premium pricing, the
firm would charge high price for high quality, and in the case of
high value pricing. The firm would charge moderate price for high
quality. There are also firms that adopt super value strategy,
where a high quality product is sold at low price.
4. IMAGE OF THE FIRM: the firms enjoying the good image in the
market may charge a higher price, as compared to those firms which
do not enjoy reputation in the market. This is because; consumers
have trust and confidence in the firms enjoying nae and reputation
in the market. For instance, firms like P&G, HLL can command a
higher price for their brands, as they enjoy goodwill in the
market.
5. BRAND IMAGE: the image of a brand can affect its price. Those
brands, which command a good image in the market, would fetch
higher prices. For instance, in India, the titan brand of watches
enjoys a good image, and as such, it can command higher price as
compared to other Indian brands of watches.
6. PROMOTIONAL ACTIVITIES: pricing is related to promotional
activities. If a firm undertakes heavy advertising and sales
promotion, then price planning must ensure that these promotional
costs will be recovered, at least in the long term. It is often
observed that highly advertised or promoted brands command high
price as compared to lowly promoted brands.7. PRODUCT LIFE CYCLE:
the stage of a products life cycle affects pricing. For instance,
when a firm introduces a product in a competitive market, then it
may charge a lower price to attract the customers. During the
growth stage, a firm may increase the price, especially in a low
competition market.
8. PRODUCT LINE: pricing can be affected by the pricing of
various products in the product line. For instance, when other
products in the product line are priced higher, then the firm may
charge a higher price for a newly introduced product. However,
these are firms that introduce a products variant at low price to
fight competition in the market, even though the other products in
the product line are of higher price. B. EXTERNAL FACTORS.
1. COMPETITION: the marketer has to consider the degree of
competition in the market. When there is high competition, prices
may be lower, and vice-versa. Price of competing brands, as well as
those of substitutes must be considered while fixing prices.
Normally, the price must be within the range of that of the
competitors.
2. DEMAND: price of goods to a great extent depends upon demand.
For instance, an increase in demand may lead to an increase in
price, even though there may be no rise in costs. Demand may
increase due to economic conditions in the market, problems with
the supplies of competitors and so on. It is to be noted, that
increase in demand need not result in increase in prices, as
nowadays, socially responsible marketers pass on a part of the
benefits of large-scale production and distribution to the
consumers.
3. CONSUMERS: the marketer should consider various consumer
factors while fixing prices. The consumer factors that must be
considered include the price sensitiveness of buyers, purchasing
power, buying pattern, and so on.
4. GOVERNMENT CONTROL: the government control and regulations
must be considered while fixing prices. In case of certain
products, government may announce administered prices, and
therefore, the marketer has to consider such regulation while
fixing prices. The marketers catering to foreign markets must
consider the incentives, and trade barriers while fixing prices.
The taxes and duties levied by the government authorities must be
considered.
5. ECONOMIC CONDITIONS: the economic conditions prevailing in
the market must be considered while fixing prices. During the times
of recession, when consumers have less money to spend, the
marketers may reduce the prices to influence buying decision of the
consumers. However, during economic boom, the marketers may charge
a higher price.
6. CHANNEL INTERMEDIARIES: the marketer must consider the number
of channel intermediaries and their expectations. The longer the
chain of intermediaries would increase the price of the goods.
INTERNATIONAL PRICING PROCESS.
Firms need to follow a systematic process in fixing
international prices. the pricing process is briefly stated as
follows:1. SET PRICING OBJECTIVES:The first step in pricing is to
set pricing objectives keeping in mind the international market
factors. The pricing objectives must be in line with the overall
objectives of the firm and that of the marketing department. The
marketer may set any or the following pricing objectives:
To ensure survival of business. To learn a fair return on
investment. To increase market share. To achieve a desired level of
sales etc.
2. EVALUATE THE FACTORS AFFECTING PRICING:The marketer should
identify and evaluate the factors affecting pricing. There are
several factors that affect pricing, which include: Cost of the
product. Demand for the product. Nature of competition in the
market. Nature of consumers and their price perception. Product
life cycle. Nature of the product, etc.
3. DECIDE PRICING STRATEGY AND METHOD: The marketer must decide
about the pricing strategy and method. For a new product, a
marketer may normally adopt either skimming pricing strategy or
penetration pricing strategy. For existing products, a marketer may
adopt follow-the leader pricing strategy, standard or one-price
strategy, and so on. The marketer must also decide about the method
of pricing. He may consider markup pricing method, or going-rate
method, or perceived value pricing or so on.
4. SET INITIAL PRICE:After selecting the pricing strategy and
method, the next step is to set the initial price. For instance, to
price a new product, the marketer selects skimming pricing
strategy, and then he may adopt the markup pricing method, with a
high markup for the marketer, and may be for the dealers as well.
Again, if the marketer is planning a heavy a high promotional
strategy to emphasize the superiority of the product vis--vis that
of the competitors, then the marketer may be able to set a
relatively high price.
5. MAKE PRICE ADJUSTMENTS:The marketer may make price
adjustments, if required. There are several reasons for making
adjustments in the final consumer price. Marketers may temporarily
quote a lower price to attract buyers to the product. Marketer may
also make to attract buyers to the product. A marketer may also
make necessary adjustments for different customer groups. For
instance, lower price may be quoted for large orders, and
vice-verca.
6. REVIEW:The marketer must constantly monitor the price of the
product considering the objectives of the firm, the prices charged
by the competitors, sales and profit position, and so on. Such
review would enable the marketer to make necessary changes in the
prices, if so required.
COST-PLUS PRICING- Set the price at your production cost,
including both cost of goods and fixed costs at your current
volume, plus a certain profit margin. For example, your widgets
cost $20 in raw materials and production costs, and at current
sales volume (or anticipated initial sales volume), your fixed
costs come to $30 per unit. Your total cost is $50 per unit. You
decide that you want to operate at a 20% mark-up, so you add $10
(20% x $50) to the cost and come up with a price of $60 per unit.
So long as you have your costs calculated correctly and have
accurately predicted your sales volume, you will always be
operating at a profit.
TARGET RETURN PRICING- Set your price to achieve a target
return-on-investment (ROI). For example, let's use the same
situation as above, and assume that you have $10,000 invested in
the company. Your expected sales volume is 1,000 units in the first
year. You want to recoup all your investment in the first year, so
you need to make $10,000 profit on 1,000 units, or $10 profit per
unit, giving you again a price of$60 per unit.VALUE-BASED PRICING-
Price your product based on the value it creates for the customer.
This is usually the most profitable form of pricing, if you can
achieve it. The most extreme variation on this is "pay for
performance" pricing for services, in which you charge on a
variable scale according to the results you achieve. Let's say that
your widget above saves the typical customer $1,000 a year in, say,
energy costs. In that case, $60 seems like a bargain - maybe
eventoocheap. If your product reliably produced that kind of cost
savings, you could easily charge $200, $300 or more for it, and
customers would gladly pay it, since they would get their money
back in a matter of months. However, there is one more major factor
that must be considered.
PSYCHOLOGICAL PRICING- Ultimately, you must take into
consideration the consumer's perception of your price, figuring
things like:POSITIONING- If you want to be the "low-cost leader",
you must be priced lower than your competition. If you want to
signal high quality, you should probably be priced higher than most
of your competition.POPULAR PRICE POINTS- There are certain "price
points" (specific prices) at which people become much more willing
to buy a certain type of product. For example, "under $100" is a
popular price point. "Enough under $20 to be under $20 with sales
tax" is another popular price point, because it's "one bill" that
people commonly carry. Meals under $5 are still a popular price
point, as are entree or snack items under $1 (notice how many
fast-food places have a $0.99 "value menu"). Dropping your price to
a popular price point might mean a lower margin, but more than
enough increase in sales to offset it.
FAIR PRICING- Sometimes it simply doesn't matter what the value
of the product is, even if you don't have any direct competition.
There is simply a limit to what consumers perceive as "fair". If
it's obvious that your product only cost $20 to manufacture, even
if it delivered $10,000 in value, you'd have a hard time charging
two or three thousand dollars for it -- people would just feel like
they were being gouged. A little market testing will help you
determine the maximum price consumers will perceive as fair.Now,
how do you combine all of these calculations to come up with a
price? Here are some basic guidelines:Your price must be enough
higher than costs to cover reasonable variations in sales volume.If
your sales forecast is inaccurate, how far off can you be and still
be profitable? Ideally, you want to be able to be off by a factor
of two or more (your sales are half of your forecast) and still be
profitable.Your price should almost never be lower than your costs
or higher than what most consumers consider "fair".This may seem
obvious, but many entrepreneurs seem to miss this simple concept,
either by miscalculating costs or by inadequate market research to
determine fair pricing. Simply put, if people won't readily pay
enough more than your cost to make you a fair profit, you need to
reconsider your business model entirely. How can you cut your costs
substantially? Or change your product positioning to justify higher
pricing?Pricing is a tricky business. You're certainly entitled to
make a fair profit on your product, and even a substantial one if
you create value for your customers. But remember, something is
ultimately worth only what someone is willing to pay for it.
*INTERNATIONAL PRICING STRATEGIES FOR A NEW PRODUCT
I. DEFINITION OF 'PRICE SKIMMING'
A product pricing strategy by which a firm charges the highest
initial price that customers will pay. As the demand of the first
customers is satisfied, the firm lowers the price to attract
another, more price-sensitive segment.Therefore, the skimming
strategy gets its name from skimming successive layers of "cream,"
or customer segments, as prices are lowered over time.Firms often
use this technique to recover the cost of development.
Skimming is a useful strategy when:-There are enough prospective
customers willing to buy the product at the high price.-The high
price does not attract competitors.-Lowering the price would have
only a minor effect on increasing sales volume and reducing unit
costs.-The high price is interpreted as a sign of high
quality.Types of skimming pricing: Rapid skimming pricing-Where
high prices are charged,and the product is promoted with heavy
promotional expenditure. Slow skimming pricing-Where high prices
are charged, and there is limited promotional effort to promote the
product.
suitability: this strategy is suitable to those products that
offer important benefits to the target audience, and that the
target audience doesnt mind paying higher price. Secondly, for
skimming pricing to be successful, there should be little chance
for competitors to enter the market in a short period of time. This
is possible in the case of highly technical and complex
products.
ADVANTAGES OF SKIMMING PRICING: It enables higher profits per
unit sold during the initials stages of product launch. It helps to
recover development and launch costs within a short period of time.
It helps the marketer to sense the demand in the market at higher
prices, and then gradually reduce it over a period of time. It
brings prestige status to the users, as only high class of the
society can afford to pay high prices. A high price reflects high
quality of the product, as normally customers equate high prices to
high quality.
I. DEFINITION OF 'PENETRATION PRICING'
A marketing strategy used by firms to attract customers to a new
product or service. Penetration pricing is the practice of offering
a low price for a new product or service during its initial
offering in order to attract customers away from competitors. The
reasoning behind this marketing strategy is that customers will buy
and become aware of the new product due to its lower price in the
marketplace relative to rivals.Penetration pricing can be a
successful marketing strategy when applied correctly. It can often
increase both market share and sales volume. Additionally, the high
sales volume can also lead to lower production costs and higher
inventory turnover, both of which are positive for any firm with
fixed overhead.
The chief disadvantage, however, is that the increase in sales
volume may not necessarily lead to a profit if prices are kept too
low. As well, if the price is only an introductory campaign,
customers may leave the brand once prices begin to rise to levels
more in line with rivals.*TYPES OF PENETRATION PRICING STRATEGY:
Rapid penetration pricing strategy- where low prices are charged,
and the product is promoted with heavy promotional expenditure.
Slow penetration pricing strategy- where low price charged, and
there is limited promotional expenditure to promote the
product.*suitability-This strategy is suitable to those newly
introduced products, which can generate a large volume of
business.
ADVANTAGE It helps to capture a large share of the market. It
discourages potential competitors to enter the market due to low
profit margin. It brings in quick sales, and as such a firm can
make good amount of profits. A firm can enjoy economies of
large-scale production and distribution. A firm introducing a new
product at low prices can enjoy brand leadership in the market.
II. PROBE PRICING STRATEGY: A marketer may adopt probe pricing,
when a new product is introduced in the market. In this case, a
higher price is fixed to find out the reaction of the buyers
towards the price. If the firm gets enough business at high prices,
then high prices would be continued, otherwise, the price might be
reduced.
III. TRIAL PRICING: in this case, a firm may launch a new
product with low pricing for a limited period of time. The purpose
is to win customer acceptance first and make profits later. Often,
trial pricing is seen as an alternative to giving away samples of a
product in order to make people to have a trial of the product.
IV. ONE-PRICE STRATEGY: a firm that introduces a new product may
adopt one-price strategy. One price strategy can also be used to
sell existing product. A one price strategy offers the same price
to all customers,eho purchase products under same conditions and in
the same quantities. Most of the reputed firms follow this strategy
mainly for administrative convebience and to maintain goodwill
among customers.
V. FLEXIBLE PRICE STRATEGY: in this case, a firm offers the same
product and quantities to dofferent customers at different prices.
Foe instance, when a new product is introduced, a firm may sell it
at a special price to its loyal customers. Also, a retailer may
offer special price to frequent-shopper as compared to other
customers,who do not buy frequently from that store. The special
price is a reward for customers loyalty.
VI. VALUE PRICING: nowadays, some firms adopt value pricing.
They charge a low price for high quality products and services, so
as to offer super value to customers. Value pricing is undertaken
so as to attract a large number of value conscious customers. Value
pricing involves not just setting lower prices as compared to
competitors, but also redesigning the firms operations to become
low-cost producer without sacrificing quality.
VII. STANDARD PRICING STRATEGY: the seller may charge the same
price in all the markets.
VIII. DIFFERENCIATED PRICING STRATEGY: the seller may charge a
different price in different markets depending upon local
competitions, price sensitivity of customers, demand
potential,etc.
IX. FOLLOW THE LEADER STRATEGY: a marketer introducing new
product in the market may follow the pricing of the leader in the
market. He may charge more or less the same price as charged by the
leader.
APPLE INC.
INTRODUCTION:Apple Inc., formerlyApple Computer, Inc., is an
Americanmultinational corporationheadquartered
inCupertino,Californiathat designs, develops, and sells consumer
electronics, computer software and personal computers. Its
best-known hardware products are theMacline of computers,
theiPodmusic player, the iphoneSmartphone, and theiPadtablet
computer. Its consumer software includes theOS XandiOS operating
systems, theiTunesmedia browser, theSafariweb browser, and
theiLifeandiWorkcreativity and productivity suites.The company was
founded on April 1, 1976, and incorporated as Apple Computer, Inc.
on January 3, 1977.The word "Computer" was removed from its name on
January 9, 2007, the same day Steve Jobs introduced the iPhone,
reflecting its shifted focus towardsconsumer electronics.Apple is
theworld's second-largest information technology companyby revenue
afterSamsung Electronics and theworld's third-largest mobile phone
makerafter SamsungandNokia.Fortunemagazine named Apple the most
admired company in the United States in 2008, and in the world from
2008 to 2012.However, the company has receivedcriticismfor its
contractors' labor practices, and for Apple's own environmental and
business practices.As of May 2013, Apple maintains 408retail
storesin fourteen countries as well as the onlineApple
StoreandiTunes Store,the latter of which is the world's largest
music retailer.Apple is thelargest publicly traded corporation in
the world by market capitalization, with an estimated value of
US$415 billion as of March 2013. As of Sept 29 2012, the company
had 72,800 permanent full-time employees and 3,300 temporary
full-time employees worldwide.Its worldwide annual revenue in 2012
totaled $156 billion.In May 2013, Apple entered the top ten of
theFortune 500list of companies for the first time, rising 11
places above its 2012 ranking to take the sixth position.
Mission Statement"To make a contribution to the world by making
tools for the mind that advance humankind."Apple Computer is
committed to protecting the environment, health and safety of our
employees, customers and the global communities where we operate.
We recognize that by integrating sound environmental, health and
safety management practices into all aspects of our business, we
can offer technologically innovative products and services while
conserving and enhancing recourses for future generations. Apple
strives for continuous improvement in our environmental, health and
safety management systems and in the environmental quality of our
products, processes and services.Vision and valuesApple is
committed to bringing the best personal computing experience to
students, educators, creative professionals and consumers around
the world through its innovative hardware, software and Internet
offerings.
FOUNDING AND INCORPORATION:
Apple was established on April 1, 1976, bySteve Jobs,Steve
WozniakandRonald Wayne[1]to sell theApple Ipersonal computer kit, a
computer single handedly designed by Wozniak. The kits were
hand-built by Wozniakand first shown to the public at theHomebrew
Computer Club.The Apple I was sold as a motherboard(withCPU,RAM,
and basic textual-video chips), which is less than what is today
considered a complete personal computer.The Apple I went on sale in
July 1976 and was market-priced at $666.66 ($2,690 in 2013 dollars,
adjusted for inflation). Apple was incorporated January 3, 1977
without Wayne, who sold his share of the company back to Jobs and
Wozniak for $800. Multi-millionaireMike Markkula provided essential
business expertise and funding of $250,000 during the incorporation
of Apple.During the first five years of operations, revenues
doubled every four months, an average growth rate of 700%.TheApple
II, also invented by Wozniak, was introduced on April 16, 1977, at
the firstWest Coast Computer Faire. It differed from its major
rivals, theTRS-80and Commodore, due to its character cell-based
color graphics and anopenarchitecture. While early models used
ordinary cassette tapes as storage devices, they were superseded by
the introduction of a 51/4inchfloppy diskdrive and interface,
theDisk II.The Apple II was chosen to be the desktop platform for
the first "killer app" of the business world,VisiCalc,
aspreadsheetprogram. VisiCalc created a business market for the
Apple II and gave home users compatibility with the office, an
additional reason to buy an Apple II.[Apple was a distant third
place toCommodoreand TandyuntilVisiCalccame along.By the end of the
1970s, Apple had a staff of computer designers and a production
line. The company introduced theApple IIIin May 1980 in an attempt
to compete with IBMandMicrosoftin the business and corporate
computing market.Jobs and several Apple employees, includingJef
Raskin, visitedXerox PARCin December 1979 to see theXerox
Alto.Xeroxgranted Apple engineers three days of access to the PARC
facilities in return for the option to buy 100,000 shares (800,000
split-adjusted shares) of Apple at the pre-IPO price of $10 a
share. Jobs was immediately convinced that all future computers
would use a graphical user interface (GUI), and development of a
GUI began for theApple Lisa.On December 12, 1980, Apple went public
at $22 per share, generating more capital than any IPO sinceFord
Motor Companyin 1956 and instantly creating more millionaires
(about 300) than any company in history.
PRESENCE IN INDIAApple has seen increased success inIndiaand is
looking to significantly expand its presence in the country. The
Economic Times, a daily Indian newspaper, isreporting that Apple
plans to triple its exclusive stores(Apple Premium Resellers) from
over 65 to about 200 by 2015 and expand the use of multi-brand
stores vs. previously being focused on selling through carriers and
premium resellers.Key Takeaway: India is such a large market with a
growing middle class that Apple can grow significantly. It has
recently ramped its efforts and is seeing success. However it is
late to focus on this country so Samsung (market share of about
38%) and others have established themselves.While the Smartphone
market share is about 10% in India due to their costs, given the
potential growth and size of the Indian Smartphone market (IDC
estimates it could grow from 19 million units in 2012 to 108
million in 2016) all the major players will be very focused on this
opportunity.Apple has increased its share significantly over the
past nine months. It is estimated that the companys revenue market
share was 3.9% in the July to September quarter and grew to 15.6%
in the October to December quarter.Apple started an advertising
campaign that promotes an upfront payment of 5,056 rupees ($93) for
an iPhone 5 vs. the total cost of about $840. The Mobile Store, an
Indian retail chain which says it sells 15% of iPhones in the
country, tripled its iPhones sales from December to January which
it attributed to the payment plan.Another indication of Apples
recent gains is an Apple premium reseller saying that its sales
have gone from Rs 35,000 lakh ($65,000) a month to Rs 2 crore
($370,000) a month per store.Due to Indias requirement that 30% of
a product be sourced in Indiait will be difficult if not impossible
forAppleto open any of its own stores in the country.
APPLE PRODUCTS
Apple designs, manufactures and markets personal computers and
related solutionsfor sale primarily to education, creative,
business, and consumer customers. Thecompanys key products and
services include the following:
Mac:
MacBook Air: Consumer ultra-thin, ultra-portable notebook,
introduced in 2008.MacBook Pro: Professional notebook, introduced
in 2006.Mac Mini: Consumer sub-desktop computer and server,
introduced in 2005.iMac: Consumer all-in one desktop computer,
introduced in 1998.Mac Pro: Workstation desktop computer,
introduced in 2006.
iPad:
On January 27, 2010, Apple introduced their much-anticipated
mediatablet, theiPad, running a modified version of iOS. It offers
multi-touch interaction with multimedia formats including
newspapers, magazines, ebooks, textbooks, photos, movies, videos of
TV shows, music, word processing documents, spreadsheets,
videogames, and most existing iPhone apps.
iPod:
On October 23, 2001, Apple introduced theiPoddigital music
player. Several updated models have since been introduced, and the
iPod brand is now the market leader in portable music players by a
significant margin, with more than 350 million units shipped as of
September 2012. Apple has partnered withNiketo offer theNike
iPodSports Kit, enabling runners to synchronize and monitor their
runs with iTunes and the Nike+ website.iPod Shuffle: Ultra-portable
digital audio player, currently available in a 2GB model,
introduced in 2005.iPod Nano:Portable media player, currently
available in a 16GB model, introduced in 2005. An earlier model
featured the traditionaliPod click wheel, though the current
generation features amulti-touchinterface and includes anFM
radioand a pedometer.iPod Touch: Portable media player than
runsiOS, currently available in 32 and 64GB models, introduced in
2007. The current generation features theApple A5processor, aRetina
display, and dual cameras on the front (1.2 megapixel sensor) and
back (5 megapixeliSight), the latter of which supports HDvideo
recordingat1080p. iPod Classic: Portable media player, currently
available in a 160GB model, first introduced in 2001.
iPhone:
At theMacworld Conference & Expoin January 2007, Steve Jobs
introduced the long-anticipatediPhone, a convergence of an
Internet-enabledSmartphoneand iPod.Theoriginal iPhonewas released
on June 29, 2007 for $499 (4GB) and $599 (8GB) with
anAT&TcontractOn February 5, 2008, it was updated to have 16GB
of memory, in addition to the 8GB and 4GB models.It combined
a2.5Gquad bandGSMandEDGEcellular phone with features found in
handheld devices, running scaled-down versions of Apple's Mac OS X
(dubbed iPhone OS, later renamediOS), with various Mac OS X
applications such asSafariandMail. It also includes web-based and
Dashboardapps such asGoogle MapsandWeather. The iPhone features a
3.5-inch (89mm) touchscreen display,Bluetooth, andWi-Fi(both "b"
and "g").Apple announced on September 1, 2013 that its iPhone
trade-on program would be implemented at all of its 250 specialty
stored in the US. For the program to become available, customers
must have a valid contract, and must purchase a new phone, rather
than simply receive credit to be used at a later date. A
significant part of the program's goal is to increase the number of
customers who purchase iPhones at Apple stores rather than carrier
stores.Upon the launch of theiPhone 5SandiPhone 5C, Apple sold over
nine million devices in the first three days of its launch, which
sets a new record for first weekend smartphone sales.This was the
first time that Apple has simultaneously launched two models and
the inclusion of China in the list of markets contributed to the
record sales result.
Apple Tv:
At the 2007 Macworld conference, Jobs demonstrated theApple TV,
(previously known as the iTV),a set-top video device intended to
bridge the sale of content from iTunes with high-definition
televisions. The device links up to a user's TV and syncs, either
via Wi-Fi or a wired network, with one computer's iTunes library
and streams from an additional four. The Apple TV originally
incorporated a 40GB hard drive for storage, includes outputs
forHDMIandcomponent video, and plays video at a maximum resolution
of720p.On May 31, 2007 a 160 GB drive was released alongside the
existing 40GB modeland on January 15, 2008 software update was
released, which allowed media to be purchased directly from the
Apple TV.
APPLES IPHONE INTERNATIONAL PRICING STRATEGY: GOOD, NOT
GREAT!
I Phone release, Apple changed things up by going to a
good-better-best pricing strategy on its new devices. As it always
does, the company showcased a new and improved iPhone model the 5S
which provides faster processing, a better camera, and James
Bond-like fingerprint security technology. Prices for the 5S in the
U.S. start at $199 for customers who commit to a 24 month contract
and $649 for those who prefer not to be tied to a two-year
financial obligation. Apple also released a lower priced iPhone,
the 5C (many view theC as a moniker for cheaper), which in essence
is old technology similar to the current iPhone 5 in a plastic
backed case available with a variety of new colors. 5C prices in
the U.S. start at $99 on contract and $549 off-contract.But in my
view the good-better-best pricing strategy (in this case
better-best) makes sense for Apple for a couple key reasons:
Giving customers more choice will generate growth.I often use
the analogy of early-bird, regular, and chefs table options that
are available at many gourmet restaurants. This strategy allows
customers to choose the price that works best for them. Newly
married couples on a budget, for instance, opt to arrive before
6:30 PM while dining high rollers willingly pay a hefty premium to
hob nob with the chef. A similar type of self-selection will occur
with these two iPhone options. By serving the price sensitive
market, Apple will grow its business with new early-bird customers.
It will preserve the 5Ss margins.In my consulting work with
companies, Ive been in similar situations as Apple now faces. Often
times a premium product with large market share encounters a new
wave of competition that is winning customers via rock bottom
prices. For proof of Apples woes in this area one need look no
further than the recentSiri-bashing Windows 8 Tablet ads, whose
punch-line is $250 cheaper price tag than the iPad. To combat this
pricing pressure, I inevitably recommend introducing a lower priced
version a fighter brand which competes with new entrants and serves
price sensitive customers. With the 5C in place as a fighter brand,
the 5S is now better positioned to customers who highly value the
handset and can continue to command a premium.Thestock market
reacted harshlyto Apples new strategy primarily due to the 5Cs $549
off-contract price. But why does the high off-contract price
matter? In emerging markets such as China, buying handsets
off-contract is very popular and the 5Cs relatively high price isnt
going to generate long lines of I must have it now
customers.Analysts had previously predictedthe off-contract 5C
price to be around $400 and when the actual price of $549 was
announced yesterday, investors got skittish.The analysts blew it
and Apple is now a victim of unrealistically set expectations. For
the right to offer iPhones to their customers, wireless carriers
typically pledge to sell large volumes. Verizon, for instance, has
reportedly committed to purchase over $23.5 billionin iPhones in
2013 alone. Because of these deals, theres no way that Apple would
have offered a cheap off-contract 5C price. This would induce
customers to buy off-contract which would hurt its wireless supply
partners who are hustling to meet their commitments. In fact, it
wouldnt surprise me if these high volume deals with wireless
suppliers such as Verizon prohibit Apple from selling cheap
off-contract phones.The 5C will accomplish exactly what Apple
intended in the on-contract market provide an early-bird $99
option, which is good. But what prevents this strategy from being
great is the lack of a viable pricing-related growth strategy in
emerging markets, which I believe is easily solvable.
APPLE STICKS TO HIGH-PRICE STRATEGY WITH NEW IPAD AIR!
Apple unveiled new iPads Tuesday as the technology giant tries
to beat back rising competition from Google, Samsung and Amazon.com
in the fast-growing tablet market.Apple executive Phil Schiller
introduced a new 9.7-inch tablet called iPad Air. It weighs 1 pound
28% lighter than the previous mode and is 20% thinner.The tablet
has Apple's faster A7 chip, a new camera, dual microphones and
comes in silver or space gray. The 16GB Wi-Fi version costs $499 in
the U.S., while versions with a cellular connection start at $629.
The iPad Air will be available Nov. 1 in about 40 countries. China
will be included in the initial launch for the first time.The new
iPad Mini gets the crisper Retina display and the new A7 chip. It
costs $399 for the 16GB Wi-Fi model, while a cellular version
starts at $529. The new iPad Mini will be available later in
November, Apple said, without being more specific.Apple's
announcements confirmed that the company is sticking to its
high-price strategy, says Gene Munster, an analyst at Piper
Jaffray. Apple raised the entry price for the latest iPad Mini to
$399 from $329, he noted.Apple is keeping the older iPad Mini and
will drop the price to $299 for the entry model. It's also keeping
the larger iPad 2, which will sell for $399 for the base model.
However, there are a slew of cheaper, mostly Android-based tablets
out there, such as Google's Nexus 7, which costs $229 with a
high-resolution display.Apple shares slipped 0.3% to close at
$519.87 following the new product announcements."These new devices
are not cheap," said Brian Marshall, an analyst at ISI Group. "They
are not going after the low end of the tablet market, which means
good margins for the company."Still, Marshall said buyers may
gravitate to the lower end of Apple's new iPad range, going for
16GB Wi-Fi models rather than 64GB cellular versions.Apple's share
of the tablet market has been sliding as cheaper tablets running
Google's Android operating system become more popular.
IPAD AIR STEALS SHOW WITH FAMILIAR FEEL:Android will have 49.6%
of the worldwide tablet sector this year, while Apple will have
48.6% making 2013 the first year Android will lead, according to
Gartner estimates. In 2011, Apple's share was almost two-thirds,
and Android was below 30%.Still, there's a lot to fight for. Tablet
shipments are expected to surge 43% to more than 263 million units
in 2014, making it almost as big a market as PCs, Gartner
estimates.A revived iPad line is crucial for Apple, because Wall
Street has begun to think of the company as a "one-product" story
again,Barclays analyst Ben Reitzes wrote in a recent note to
investors.Apple unveiled new iPhones in September, and the
smartphones account for the largest part of the company's
profit.Third quarterglobal Smartphone sales came out earlier this
week.The message was clear:Apple is getting its clock cleaned by
Samsung, which is now by far the dominant smartphone maker in the
world. (Samsung had 32% of the global market in Q3, the same share
as a year ago. Apple, meanwhile, had only 12% of the market, down
from 14% a year ago.)Yes, both companies sold more Smartphone this
year than last year. But Apple's sales badly lagged both Samsung
and, importantly, the broader smartphone market.Apple's sales
increased 23%. Samsung's increased 46%. The smartphone market as a
whole, meanwhile, grew 46%.There are two big problems with this
analogy. First, unlike cars, Smartphone are a "platform market" -
third parties build products and services that run on top of
Smartphone - and in platform markets, market share is a huge
competitive advantage. Second, in emerging markets, which is where
most of the growth in Smartphone and tablets now is, there just
aren't that many people who want to buy BMWs when many very
high-quality gadgets are available for much lower prices.Apple fans
can keep telling themselves that this is just fine, that Apple
doesn't want or need to sell gadgets to earthlings of more average
wealth, but what these fans need to recognize is that this is
effectivelya major change in Apple's pricing strategy.In the first
few years after the iPhone and iPad launched, Apple led the market
not just in product quality but in product price. The iPhone and
iPad were not just way better than the competition; they also cost
the same or less.Now, Apple may still have an edge in product
quality (this is debatable and a matter of personal preference),
but in most countries, its gadgets are considerably more expensive
than the alternatives. And those alternatives - from Samsung,
Google, Amazon, and many other vendors - are getting better and
better.Now that Apple has "forked" its iPhone product line into the
5S and 5C, for example, it could sell the 5C at a sharply lower
price point. Instead, Apple is still charging almost as much for
the 5C as the 5S. (Yes, Apple is selling the iPhone 4 at a
significantly lower price than the 5s, but this phone is now old,
weak, and small.)Similarly, in iPads, Apple is selling its "Mini"
at prices that are radically higher than high-quality alternatives.
Instead, it could sell the latest, greatest version of the Mini at
a high price and other recent models at a very competitive
price.Importantly, this would cost Applenothing more than some
near-term profits. And Apple has plenty of profit to spare. (In
fact, it has so much profit to spare that it has no idea what to do
with the cash piling up on its balance sheet.)Significantly
increasing its market share in key markets around the world would
make Apple's long-term competitive position much stronger. It would
help Apple increase the value of its content and app "ecosystem" in
these countries and, thereby, strengthen the "lock-in" of its
products and services.
APPLE'S TABLET SALES, MEANWHILE, HAVE HIT A WALL.
When confronted with these statistics, Apple fans generally
point out that Apple still has a very strong position in the U.S.
market and that Americans keep scarfing up Apple's top-of-the-line
iPhones.Apple's market share in the United States is indeed
strong,But the U.S. is an anomaly. In most other countries, Apple
is losing share fast. And that means that, at best, Apple is
missing a massive opportunity.The bottom line is that, by trying to
maintain its price points and super-high profit margin, Apple has
radically underperformed the market for the past couple of years,
especially in tablets. Because of the importance of the platform
and ecosystem for long-term value, this is a shortsighted
decision.Meanwhile, Google's Android has become the world's
dominant smartphone and tablet platform.
If it continues to pursue its current pricing and
maximize-short-term profit strategy, Apple may continue to increase
its profits for the next couple of years. But it will continue to
lose platform and ecosystem share in most of the world. Apple fans
can talk all they want about how Apple is "like BMW," but in a
couple of key competitive respects, it isn't. And if the gadget
platform market behaves the way other platform markets have (think
Windows), Apple and its fans may come to regret this short-term
thinking in the end.
LESSONS FROM APPLES PRICING STRATEGY DILEMMA
For years, no one has questioned Apples product or premium
pricing strategies. But now, in the face of increased competition
from Samsung, Google, HTC, and Motorola cutting into the iPhones
market share, the company is revisiting its strategy with the
iPhone 5S and 5C. What lessons can SaaS companies learn from Apples
gamble on price?
LESSON 1: COMPETINGSOLELYON PRICE IS A BAD PLAY.
When competition gets stiff or youre trying to quickly acquire
as many customers as possible, it can be tempting to try to win
with lower prices. However, in doing so you run the risk of a race
to the bottom in pricing that might prove to be your undoing.As
Patrick McKenzie points out inthis excellent post for the blog SaaS
Pricing, very few SaaS businesses can scale (let alone survive) by
selling their products for slightly above zero. While there are a
few exceptions to that rule, of course (e.g., Netflix, Dropbox, and
others), it is not a prescribed course of action.
Competing on price alone is problematic for growing companies
for three big reasons:Someone will always be able to do what you do
cheaper(namely, bigger competitors with bigger budgets).Lower
prices are an unsustainable competitive advantage, particularly for
smaller businesses without the benefit of economies of scale.Lower
prices attract lower-value customers that still cost your business
the same amount to acquire and support.Traditional PC makers such
as Dell, Gateway, and IBM have learned those lessons the hard way.
The fierce competition between the PC makers pushed prices down and
resulted in razor thin margins. In the end, both Gateway and IBM
ended up exiting the PC business and Dell continues to
struggle.
LESSON 2: COMPETING ON PRICECANACTUALLY WORK (UNDER THE RIGHT
CONDITIONS).
Businesses can and have succeeded by being the low-cost option
in their market, and price is often a quicker route to capturing
market share in emerging markets like the ones that Apple is
currently competing for.In fact,as serial entrepreneur and investor
David Skok writes in this post, setting low prices in the early
days of a companys development can actually prove to be a smart
strategy. Doing so ensures that a business doesnt scare away price
sensitive users, while also giving the company a way to compete for
more customers in a crowded marketplace. Good examples of that
approach include tech businesses like 37Signals and Ever note,
which essentially gave away their products early in their
development in an attempt to quickly acquire users.The iPhone 5C,
while not the lowest cost product, is Apples first attempt at
catering to the mainstream price sensitive market.AsChen points out
in the aforementionedNew York Timespost, the companys profit growth
has been slowing for some time, as competitors like Samsung have
made significant headway by offering Smartphone inboththe high-end
and low-end markets. This has enabled Samsung to gain traction in
emerging markets such as China and India where smartphone sales are
surging. Lower-cost options are popular in these markets as they
appeal to what analysts call inspirational consumers buyers who
will only splurge on a fancy brand if the price is right.If Apple
is able to cater to that market and continue to sell its higher-end
products to higher-end consumers then the companys decision to
cater to price sensitive markets with lower cost iPhones could pay
off in a big way.
LESSON 3: TIERED PRICING CAN BE INCREDIBLY EFFECTIVE.
The chief problem with Apples iPhone 5C strategy is that the
companys newest product offering might not be cheap enough to
appeal to a broader market.The primary goal of this move was to
broaden the iPhones potential market in emerging markets where
Smartphones are not subsidized by the cell provider. Despite
offering a lower cost phone, the iPhone 5C is still an astounding
$549.According to this Venture Beat post, that translates to one
months salary for average Chinese and Indian workers. That is
compared to an average smartphone sales price of around $300. As a
result, some have wondered whether Apple was better offoffering a
iPhone 4C. It would have offered a more significant reduction in
price while preserving the attractive packaging.Its surprising
becausefor years, Apple has successfully offered an array of
products in their other product lines.
With several different models of laptops, desktops, iPods, and
iPads, the company has successfully tiered its products to appeal
to a variety of buyer types, without sacrificing its high-end brand
reputation. Andas Apple CEO Tim Cook recently told theNew York
Times, each of those models had a reason to exist. For instance,
the classic iPod appealed to hard-core music fans that needed more
storage, while the iPod Mini targeted exercise fanatics who wanted
something that wasnt cumbersome to carry. The key to their success
was each product maintaining the look, feel, and quality that the
consumer expects out of an Apple product.Tiered pricingcanbe
effective for SaaS businesses that offer different levels of
products or services, because it gives them the ability to
accommodate different customer segments, market to low-entry
buyers, and up sell existing customers on feature upgrades.Skok
refers to that strategyas multi-axis pricing in this post, arguing
that its actually one of the best tools for growing SaaS revenue,
whileKISS metrics Lars Lofgren points outthat the ultimate key to
tiered pricing is to focus on value, not arbitrary dollar
amounts.
APPLE'S IPHONE 5C PRICING SEEN AS RIGHT MOVE, HOLIDAY SALES
EXPECTED TO PICK UP STEAM
Maynard Um of Wells Fargo Securities believes Apple's pricing
strategy with the iPhone 5c, making it the company's mid-range
phone with a $99 on-contract price, will pay off in the long run.
He noted that last year's mid-range Smartphone, the iPhone 4S, saw
its sales ramp up heading into November and December, as more
casual buyers showed interest during the holiday shopping
season.
Some market watchers believe Apple should have priced the iPhone
5c more aggressively, in an attempt to take market share away from
low-end Smartphones running Google's Android platform. But doing so
would have been too risky of a move, Um believes.
If Apple had taken lower margins and hoped for unit volumes to
offset, there would have been "no guarantee of price elasticity
driving volumes," he said. In addition, a cheaper iPhone 5c may
have resulted in even greater margin pressures as Apple
transitioned to its next models in 2014.
"We believe the certainty was the right choice and would not
necessarily discount demand yet," Um said.
The analyst's comments came in response to reports this week
from bothThe Wall Street Journaland Reuters, which citedanonymous
sourcesas indicating that Apple was cutting orders for the iPhone
5c. TheJournalinitially speculated that changes in the supply chain
could signal "weaker-than-expected consumer demand," butlater
clarifiedto say that any apparent reductions "may not be all
bad."
Apple Chief Executive Tim Cook himself warned analysts earlier
this year that reading too much into supply chain data can be a
critical mistake. Maynard Um of Wells Fargo Securities isn't
concerned about supply chain data, and he believes iPhone 5c sales
could pick up heading into the holiday season.
"The supply chain is very complex, and we obviously have
multiple sources for things," Cook said. "Even if a particular data
point were factual, it would be impossible to interpret that data
point as to what it meant for our business."
To that end, Um said in his note to investors on Thursday that
supply chain data has been "hit or miss," suggesting he's not
concerned by the latest reports.
"Regardless, we believe it would be more prudent for Apple to
manage the channel (despite potential holiday demand) as the risk
of excess inventory is much higher than ramping unit orders later,"
he said.
As for aseries of discountsoffered by retailers for the iPhone
5c, Um noted that this is a typical strategy for third-party
resellers. He doesn't see discounts on the newly released model as
concrete evidence of soft demand for the iPhone 5c.
"As has been the case in the industry for years, third-party
resellers derive profits from carrier 'finder's fees,' which can
amount to $250 depending on a number of factors, including whether
it's a new contract or an upgrade," he said. "Thus, a price 'drop'
is not necessarily a reflection of materially weak demand, but,
rather, a business model strategy to drive volumes."
Wells Fargo Securities has maintained its "outperform" rating
for AAPL stock with a share valuation range of between $525 and
$575.
APPLES STRATEGY (CEO)On low-end devices, Apple CEO Tim Cook
toldBloomberg Businessweekin aninterviewlast year, We never had an
objective to sell a low-cost phone. Our primary objective is to
sell a great phone and provide a great experience, and we figured
out a way to do it at a lower cost.Cooks thoughts echoed those of
his predecessor, Steve Jobs, whose strategy for Apple had four
pillars:1. Offer a small number of products.2. Focus on the high
end3. Give priority to profits over market share4. Create a halo
effect that makes people starve for new Apple products
DIFFERENTIATIONApple attempts to increase market demand for its
products through differentiation, which entails making its products
unique and attractive to consumers. The companys products have
always been designed to be ahead of the curve compared to its
peers. Despite high competition, Apple has succeeded in creating
demand for its products, giving the company power over prices
through product differentiation, innovative advertising, ensured
brand loyalty, and hype around the launch of new products. By
focusing on customers willing to pay more and maintaining a premium
price at the cost of unit volume, Apple also set up an artificial
entry barrier to competitors.This price strategy is effective in so
far as it prevents retailers from competing directly with Apples
own stores, and it also ensures that no one reseller has an
advantage over another. So Apple is able to keep its distribution
channels clean as well as make more money on its direct sales. The
Macworld article noted that iPhones werent under a strict pricing
model, as they sold at a lower price with wireless contract deals,
as retailers gain a commission from carriers.PREMIUM PRICESJobs
vision for Apple was always to create a premier product and charge
a premium price. Apples cheapest products are usually priced in the
mid range, but they ensure a high-quality user experience with
their features. The hardware and user interface are designed to
provide a lot of value for the price, which keeps profits high.
However, a company can charge a premium price as long as it has a
competitive advantage, and analysts believe the brand is on the way
to losing its aspirational status. Withincreasing competition from
Android and low-cost smartphones, as well as saturation in the
developed markets, analysts feel that the company could risk
becoming a high-end niche name.According to IDCs mobile phone
forecast in 3Q 2013, a number of trends co-exist in the global
smartphone marketbut none have more of an effect on driving market
growth than the steady decline in average selling prices (or ASPs).
Android has enabled a number of new manufacturers to enter the
smartphone market, supported by a variety of turnkey processing
solutions. Many of these handset vendors have focused on low-cost
devices as a way to build brand awareness. In 2013, IDC expects
smartphone ASPs to hit $337, down 12.8% from the $387 recorded in
2012. This trend will continue in the years to come, and IDC
expects smartphone ASPs to gradually drop to $265 by 2017.
CONCLUSION
Over the past 30 years Apple Inc has amplified from computer
design to developing consumer electronics. The company was started
by Steve Jobs, Steve Wozniak, and Ronald Wayne in the 1970s. Tim
Cook is the current CEO of the company. It uses different
international business strategy. This means that all employees
& departments work together in the creation of their product.
What we found to be the most interesting about Apple is how they
are very innovative and early adapters. Apple is usually 1st
company to come with a new product before anyone else. This is very
risky but it seems to be working to apples advantage. This shows
that taking risks can sometimes make or break you.
BIBLIOGRAPHY
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