Current Market Conditions Competitive Analysis

Factors that affect demand, supply, and equilibrium prices in the market in which the competing organization operates; define the market for your chosen product, including an analysis of its competitors, potential customers, or potential buyers. The cell phone market is a massive market; some studies conclude that more than half of the United States has cell phone accounts (Simon, 2004). One attribute that defines the cell phone market is the idea of consumers giving up their land line use. Many individuals are now giving up their land line use in favor of using only a cell phone. This causes a large influx of customers into the market for cell phones. As technology continues to advance new types of cell phones are developed and marketed to different segments of the population. Now cell phones are available for business purposes and social purposes such as social networking, text messaging, or gaming, and the leader in cell phone sales is Apple Inc. “Started by Steve Jobs, Steve Wozniak, and Ronald Wayne, Apple has expanded from computers to consumer electronics over the last 30 years, officially changing their name from Apple Computer, Inc. to Apple, Inc. in January 2007.”(CrunchBase, 2012)

Among many products that Apple Inc. offers, the iPhone, which is available in over 90 countries, is the most innovative in the cellular world and is constantly evolving. The iPhone is a cellular device that also acts as a media player, a way to instant message, an iPod, a computer of sorts as it surfs the web over wi-fi, a GPS system, a camera and video camera, a tool to control home lighting and the starting of a car, and much more. It has a 3.5 inch touchscreen that can be used horizontally or vertically and has a full keyboard. “Moreover, the iPhone has a built-in spell-checker, predictive word capabilities and a dynamic dictionary that retains new words.”(Nowak, 2012) The demand for this device is very high and has proven that Apple is at the top of the food chain. Apple Inc., like any other corporation, supply and demand is affected by variety of factors. In fact businesses create products and offer services based on their customers’ demands and the demands of the customers or the lack thereof affects the available supply. One of the main issues that drive demand of a product is customer preference. The preference of the customer and the desire of the product that a company sells can affect the demand curve.

As more customers want a product like the IPhone the demand curve shifts to the right. Families, friends and colleagues strongly contribute to a person’s choice of cell phone. When all of an individual friends and family members have an IPhone the consumer is more likely to purchase the phone because everyone else is getting it and talking about it. Apple Inc. marketing strategies caused the IPhone to become very popular and its strategy keeps Apple products in the news media. Because of increased advertising Apple Inc. was able to raise the demand of the IPhone, the rising demand of the IPhone caused a temporary shortage of the supply because Apple Inc. was not able to produce IPhones fast enough to meet the demand (Yahoo Inc. , 2012). To regulate the demand for the product Apple Inc. then raised the price of the IPhone to restore equilibrium.

A technological breakthrough allowed Apple Inc. to produce more IPhones for cheaper and easier (LaPedus, 2007). The breakthrough caused the Apple to be able to supply stores with more IPhones but with the increased price the demand for the IPhone did not keep up with the supply. As a reaction to the increased supply sitting around Apple dropped to the price of the IPhone to eliminate the surplus. The size of the market also has an effect on demand for a product like the IPhone. Cell phone usage is almost a necessity by many people. Therefore since the number of potential buyers that want to or need to purchase a cellphone is large, the influx of potential buyers increases the market size which allows different companies like Apple Inc. into the market. If the size of the market increases the demand curve shifts to the right. When the IPhone first came to the cell phone market in 2007 it offered an alternative in the cell phone market, generally competition between cell makers can cause the demand for a product to drop (Yahoo Inc., 2012).

As an example if Samsung were the market leader before the IPhone’s initial debut and just as many people are still buying cell phones the introduction of the IPhone caused several consumers to leave to Samsung for Apple Inc. This eventually leads to price wars were companies must the lower the price of their products and may require a cut in supply to fall in line with the decrease in demand. Price elasticity is a tool designed to identify the overall change in demand or supply of a product compared to the overall movement of price. Apple frequently talks about the whether they should change the price of the current iPhone. Apple uses elasticity of demand to determine if their profits will go up or down by lowering its price. Before the iPhone was released it was estimated to be sold at a very high value. So with that being said, Apple lowered the price tremendously, especially if you think about all the features you get. Apple sold a very large amount of these phones the first day. One thing that gave them an advantage is that all Apple products are compatible. It is the “i” series. You can gain access to all of the applications and things you have on your iPad through your iPhone.

Apple has lowered some of the prices on their electronics to attract customers and to keep existing customers happy as well. Price elasticity is something that Apple is using very well as they continue to set the bar in electronic devices. To compete with the Apple iPhone, any new device must offer consumers something new, something better. A daunting task considering the technological advances that Apple’s iPhone has brought to the world of smart phones since it was first launched in 2007. The most recent release of the iPhone has new added voice command features, upgraded camera capabilities and an intelligent interactive voice system, called Siri. All of these features and the glamour surrounding the iPhone have made it a must have device for many. There are some features, however, that have not been addressed that could provide an opportunity for product differentiation. Many enterprise customers are reluctant to switch to the iPhone platform because of the known security risks. The iPhone is designed primarily for recreational use with enormous focus on music, texting, and gaming applications. A new device that incorporates these features, but also meets the stringent demands of enterprise customers would set this new product apart from the iPhone and other “smart” devices.

Putting the needs of the enterprise consumer to the forefront can set this device apart from all the others devices on the market. Developing a phone that is secure enough to transmit critical data, has the latest encryption technology, and has all the functionality of current smart phones will offer consumers something different, something better, and something they can feel safe using both at work and at home. “The law of diminishing marginal productivity is the law that states that the marginal increase in total output declines with an increase in additional units of a variable input after a certain point.” (Nayab, 2011, pg 1) At first the output will grow with an increase in input, but eventually it will even out and decline. There is a relationship between the amount of labor and capital employed and the law of diminishing marginal productivity. For example, if Apple had an increase in their labor, they would be able to produce a greater output of iPhones. However, the sales will eventually decline and the output will decline.

This will end up in an uneven amount of labor in regards to what is needed to produce the output needed. You can only put so much money into the production of a product before you are spending more than you can make off of the product. The cost structure would consist of a variety of expenditures, each affecting the demand of labor. The variable cost of producing the iPhone includes the amount of people it takes to produce the phone in the quantity demanded in the market place. When there is demand in the market place for the newest iPhone, Apple must buy new supplies and have enough employees to make and distribute the newest models. The advancements in technology would also change the cost of the phones making the older phones drop in price as new models become available. Once the market has the desired number of new phones and no more are demanded, the cost of producing them becomes a fixed or sunk cost.

Fixed costs include items that have been purchased that cannot be altered or used for new product production. For example, if Apple purchased production equipment that made their phones a certain shape and size but could not change the part that gives it its unique style, they would have to go through the expense of purchasing new machines to produce the phone with the new design. No matter how many phones are produced, Apple will still have the same fixed cost. If the machine originally cost $2,000 (fixed cost) and the cost of labor is $800 (variable cost) to make 10 iPhones, the total cost would be $2,800 or $280 dollars per phone. Thus the total cost equals fixed costs plus variable costs.

Apple Inc. can maximize their profit making potential by adhering to their basic business model which is to sell hardware, and to sell high end peripherals that support their hardware like iTunes, Apps, and operating systems. This is to make their hardware more valuable. The main goal of this strategy is to maximize the value of the firm. Customers are willing to pay high prices to obtain products of high value and high quality. Apple Inc. can and does increase the attractiveness of their products, making the products stand out so customers will purchase their products over another. Apple’s strategic positioning choice is to have high valued electronics that all customers want. Apple products are unique compared to the rest of the world. This allows Apple to charge a higher price. Many people are willing to buy Apple products because they are well produced, have a high quality and are known as a luxury item to the customers of Apple. Apple’s main goal is to maximize all values for the firm.

Reference

CrunchBase. 2012. Apple. Retrieved from http://www.crunchbase.com/company/apple, August 6, 2012. Nayab, N. 2011. When you Start Expecting Diminishing Returns. Retrieved August 5, 2012 from http://www.brighthub.com/office/home/articles/77174.aspx Nowak, Adam. 2012. iPhone Product Description. Retrieved from http://www.streetdirectory.com/travel_guide/123068/iphone/iphone_product_description. html, August 6, 2012. LaPedus, M. (2007). Can iPhone sizzle prevent chip market fizzle? Electronic Engineering Times, (1483), 1-1,12. Retrieved from http://search.proquest.com/docview/208082083?accountid=35812 Yahoo Inc. . (2012). Apple, Inc.: Company Supply, Demand and Financial Status. Retrieved from http://voices.yahoo.com/apple-inc-company-supply-demand-financial-status-636114.html?cat=15 Simon, E. (2004, Dec 19). U.S. lags world in usage of cell phones. Orlando Sentinel, pp. H.1-H1. Retrieved from http://search.proquest.com/docview/280164074?accountid=35812