Apple Watch (A) - The Launch

The case describes the introduction of a newly designed Apple Watch, a smartwatch, and the market for wearable technology at the time of the launch. Apple Inc. unveiled the Apple Watch in April 2015 with great fanfare, generating buzz in the media and among Apple brand aficionados. Apple Watch entered the market with its Sport model (hereinafter simply referred to as Apple Watch) at a price of $349. Samsung was the first mover in this market and held the largest market share at the time of the launch. Samsung sold its Gear S for $380. Pebble held the second largest market share and differentiated its products by simplicity and long battery life. Was the R&D choice at Apple in designing features of the new Apple Watch aligned with the best market opportunities? What was the objective of the initial pricing strategy? What kind of market dynamic might have ensued as a result of the product definition and pricing decisions at launch? The case provides a concise description of the market for wearable technology, characteristics of the products in the market, and estimates of the demand forecast facing Apple at the time of launch. How did Apple position its product in the market? How did the demand forecast for Apple Watch align with revenue and cost data?

Use the estimated demand function and cost information to analyze the decision to launch the Apple Watch at a price of $349. As a member of the launch team, would you have argued for a higher or lower price point? Support your answers with quantitative analysis.

1. What is Q_AW, given the introductory price of Apple Watch?
2. What is the price elasticity (E_AW) of Apple Watch? What is the type of demand?
3. What is the cross-price elasticity (E_GearS) of Samsung GearS? What is its relationship with Apple Watch?
4. What is the cross-price elasticity (E_Pebble) of Pebble? What is its relationship with Apple Watch?
5. What is the advertisement elasticity (E_A)? What impact would advertisement have on the sales of Apple Watch?
6. Construct the quantity demanded equation of Apple Watch (Q_AW) with respect to its price (P_AW).
7. Construct the marginal revenue equation of Apple Watch (MR_AW) with respect to its quantity (Q_AW).
8. What is the profit maximizing output of Apple Watch (Q*_AW)?
9. What is the profit maximizing price of Apple Watch (P*_AW)?
10. What is the revenue maximizing output of Apple Watch (Q_RevMax)?
11. What is the revenue maximizing price of Apple Watch (P_RevMax)?

1. Explain the pricing strategy of Apple Watch at $349