Eco/365

Current Market Conditions Competitive Analysis Paper

Luis Carmoega, Ada Diaz, Josue Gonzalez, Frankie Bibiloni

ECO/365 Principles of Microeconomics

February 12, 2015

Professor Evaristo Medina-Irizarry

Current Market Conditions Competitive Analysis Paper

Technology it seeing to be everything these days! when we talk about computers, cell phones and anything that has to do with technology most of the people think about a specific product. At least when some one mentioned to me cell phone I think about an

I phone. I phone is a smart phone manufactured by the company Apple. Apple was created on April 1, 1976 by Steve Jobs and Steve Wozniak in Cupertino California. For more than thirty years Apple has predominate on the manufacture of computers and now is a company that closed with $700B market cap and $122.02 per share. Apple has been very successful with the I phone product and this past year 2014 they launch the new I phone 6. This product is a smart phone that can take pictures, keep your appointments in your calendar, take hight resolution videos, a GPS, digital music and many others amenities that are requested by the high demand of this product.

There are a few factors that can affect its demand for example its price and their competitors. Its Demand is so strong that its supply and the equilibrium of its price have been consistence for the past years. Apple has a big competitor named Samsung that created the android phone. This phone can have the same futures than the Im phone or even better for a better price. The potential customers for I phone are the executive luxury market that has the money to afford one and every young person that wants to have everything that technology can offer in one device. Apple has is aware that Samsung is working hard to take over the top rank in the phone market today. A very strong strategy that Samsung has is the price for their units. This can definitely harm the I phone 6 demand but I phone 6 (Apple) has many applications for their units that Samsung can not use with the android. This give Apple’s product an exclusivity with and some times make it unique.

Current Market Conditions Competitive Analysis Paper

As it is known, the cellphone market is heavily saturated with multiple companies and products. Nonetheless, since its conception, the iPhone from Apple, Inc. has been a market leader driving furthers the development of that specific industry. Regardless of said advantage, it hasn’t been without its problems. There are very good products out there in the market that give the iPhone a very strong run for their money, something that pushes further innovation in Apple to stay ahead. The Android platform being the strongest competitor, and one that has gained significant market shares in the last few years. Clearly Apple filled an empty space in the smartphone market as prior to the iPhone, smartphones were in their infancy as a technology.

On the consumer side, the iPhone provides a multiplatform of usability that captures pretty much all the needs that the customer may have like Internet, music, video or movies, email, games and many more applications. That makes the platform an intrinsic necessity for its users. At the enterprise level it also provides advantages as it can integrate with corporate applications to create a virtual environment in which the employee can still be productive even when away from the office. All of this maintains the product a constant necessity amongst its users providing continued profitability for Apple. It is important to mention that innovation and creativity have been key and will continue to be key in maintaining their competitive advantage as other platforms currently offer very much the same features.

One thing that Android has done to Apple is that it being a cheaper product, it has reduced the demand for the more expensive iPhone, at least on the low budget section of the market. Apple has been somewhat flexible on their prices, but not that much as they as a company have the vision of a better product, one of higher quality and they want customers to pay more. One of the things that they do to maintain profitability is mass produce their mobile phones in countries with cheap labor. This allows them to drive the cost of production of the equipment itself down significantly allowing them to invest more on product presentation and promotion.

Factors affecting variable costs, including productivity and others that change the supply of and demand for labor

Please see Annex document. It would show the Chart.

The understanding of competitive forces in a market segment is crucial towards the realization of success in new product rollout. This paper performs a competitive market inquiry to establish the potential success of Apple’s new iPhone 6 smartphones. Although Apple is a household name when it comes to manufacturing phones, the company competes with Samsung, the world’s market leader in smartphone manufacture and sale which also has a seemingly similar product in Samsung Galaxy Note.

The iPhone 6 is Apple’s latest phone and is seen to compete with another high end product, the Samsung Galaxy Note. While Samsung has launched the Galaxy Note already, it is the main rival of Apple’s iPhone 6 in the race for the market’s biggest share.

Demand and supply forces

The demand and supply forces always work to reach a point of equilibrium in the competitive market (Cusack, Iversen & Rehm, 2006). The smartphone industry has lately been very competitive as Chinese companies flood the market with cheap gadgets. However, when it comes to the high-end smartphone market, two market leaders in Apple and Samsung stand out. While both firms have a strong brand following, Apple should take note of the low key sales made by Samsung, perhaps suggesting that Apple are losing a significant amount of the market share.

Opportunity and challenge

The Asian population is in an ever-exponential rise. Also, the number of middle level income earners is also on a sharp rise in all developing nations. This presents an opportunity for Apple to sell more gadgets now and in the future.  The company must however overcome the push by numerous Chinese white labels for market share as well as their main rival, Samsung. This can be circumvented through consumer friendly price tags and enhancement of the product features so customers are sure to spend money on the right product.

Fixed costs

Fixed costs present the biggest hurdle for Apple in ensuring that the venture is highly profitable. Fixed costs are costs sustained independent of the amount of products produced (Nix, 2008). There are usually four groupings of cost that affect the fixed costs of producing the iPhone 6. These include the bill of materials, commonly referred to as BOM, which represent the expenses incurred in the acquisition of components that are incorporated into the device. Bill of materials is paid to the various suppliers of the phone. Another cost that needs to be factored in is warehousing and transportation costs. This cost is incurred during the transportation and storage of the product prior to sale. The company pays this cost to shipping companies as well as warehousing companies. A third cost is manufacturing cost, which includes labor and is compensated to contract manufacturers. There are also warranty costs that are paid back to product buyers for product returns that cannot be resold.

Cutting down on fixed costs results to improved profit margins and decreased costs of doing business and that is why cost control should be the first step for Apple to take so as to guarantee profitability in iPhone 6. Product differentiation is also important in that Apple will be able to produce the highest quality smartphone and be able to command better prices than the rivals such Samsung Galaxy Note. Companies that can differentiate themselves by providing top-quality products or services often are able to command higher prices in the market. Apple should however ensure that it attracts more customers and makes more sales. Consequently, costs will go down and profit margins expand.

 

Apple’s iPhone 6 has experienced quite a competition from its primary competitor Android as well as Samsung Galaxy, therefore it is our responsibility as part of Strategic planning committee mandated with doing a thorough analysis of the current market to determine the iPhone 6 potential success in the market. This analysis will put much effort in trying to analyze how the competitors directly affect the revenue amassed in the market together with costs likely to be incurred.

To understand the competitor, an analysis of the strengths and weaknesses associated with Android is important to determine if a defensive or offensive approach should be undertaken. Comparing iPhone 6 and Samsung Galaxy, there are quite a number of differences that suit different consumers one way or another. Apples effort to gain a larger market share has experienced good fortunes as well as bad times in equal measure. iPhone 6 is bigger and better and therefore we believe with proper analysis of the market it can be a huge success (Hutt, M.D. 2013).

Success in any business organization is indicated by profits in its operations, keeping in mind that the profitability levels expected by Apple will be directly affected by costs incurred in acquiring revenue, measures need to be taken to minimize costs of operation. According to Apple website, currently in the market phone gadgets are averagely sold at 300 US dollars, fixed costs as well as variable costs need to be kept in check. Competition with substitute products often mean on competitor can implement one of these two recommendations; either Apple reduces its price or produce gadgets suited more to company needs.

Fixed costs may be incurred during marketing in form of cost incurred to carry out advertising campaign or hosting Apple website, these are commitments made to try and increase the sales revenue. They in turn will affect the unit cost of iPhone 6 gadget which need to be reflected in the price of each unit.

Apple has potential to make profits if they implement successful strategies to compete with their primary contenders. For example by reducing the price of each gadget we could sell more units and go for higher turnover as the means to make more profits. In this case Marginal revenue which results from the sale of any additional unit of output can be increased. If the marginal cost of producing each additional output at the new price level is well below the marginal revenue received from the sale of that unit, then this will translate to higher profit levels for Apple. In this regards Apple can aptly consider the threat of substitute products from Samsung, exploit the weakness of their devices while at the same time major Apple innovations will help in fostering a greater say in the market.

References

Colander, D. C. (2013). Microeconomics (9th ed.). New York, NY: McGraw-Hill.

Vitez, O. (2015). Substitute and Complement Goods: An Economic Definition with

Cusack, T., Iversen, T., & Rehm, P. (2006). Risks at work: The demand and supply sides of government redistribution. Oxford Review of Economic Policy, 22(3), 365-389.

Dunn,M. (2009).The Marketing Accountability Imperative: Driving Superior Returns on Marketing Investments, John Wiley and Sons

Hutt, M. D., & Speh, T. W. (2013). Business marketing management: B2B. Australia: South-Western, Cengage Learning.

Krantz, M. (2015). USA Today Money. Retrieved from http://americasmarkets.usatoday.com/2015/02/10/apple-just-made-history-again/

Nix, J. (2008). The John Nix farm management pocketbook (No. Ed. 39). The Andersons Centre.

Smartphone Suers Worldwide will total 1.75 billion. (2014). Retrieved from http://www.emarketer.com/m/article/smartphone-users-worldwide-will-        total-175-bilion-2014/1010536