Peer Review business proposal

Business Proposal

Matthew De Point

Apple Business Proposal

Apple is a company that is a leader in the consumer electronics and computer industry. Apple primarily sells its products to retailers and wholesalers that market to products to the consumer. Apple believes that sales of its innovative and differentiate products are enhance by knowledgeable salespersons who can convey the value of the hardware and software integration and demonstrate the unique solutions that are available on its products (Apple, 2014). Apple is proposing an expansion of its product line to add a product to meet the demand of the market and consumers. This proposal includes market structures, competitors, pricing and nonpricing strategies.

Market Structure

Apple is a top competitor in the technology, specifically in the computer industry. Apple has few competitors that can out-perform or out-service them. Apple falls under the oligopoly market. Apple offers products that are differentiated in the market. According to McConnell (p. 229) because of their “fewness,” oligopolists have considerable control over their prices, but must consider the possible reaction of rivals to its own pricing, output, and advertising decisions. Computers and consumer electronics qualify as differentiated oligopolies and heavily rely on nonprice competition, mainly through advertisements.

Apple maintains specific price levels to generate optimal revenue generation. Because consumers flock to Apple specifically for high-quality products and services, Apple can maintain their “price maker” status in the oligopoly market. Apple is in a highly competitive market, and rivals are aggressive in all areas of the electronics industry. Rivals often go to extremes and cut prices of their products dramatically to increase sales which in turn affects their overall profit and revenue considerably to gain or maintain market share. Principal competitive factors important to Apple include price, product features, relative price/performance, product quality and reliability, design innovation, a strong third-party software and accessories ecosystem, marketing and distribution capability, service and support and corporate reputation (Apple, 2014).

Introduction of a New Product and Differentiation

The MacBook is Apple’s top line of portable personal computers. Macs feature Intel microprocessors. The proposal for a new generation of MacBook computers will include an option for the user to complete actions using a pressurized sensor on the retina display. The new MacBook Touch is a first of its kind for portable personal computers for Apple. Offering a touchscreen option is currently available in the iPad and iPhone but never for the MacBook series.

Apple faces aggressive competition from Microsoft, specifically. Microsoft currently offers a touchscreen tablet, which Microsoft describes as a computer and tablet in one. Although the two products offer the similar touch screen capabilities, Apple’s product will continue to dominate the market by offering the classic, elegant style, powerful processing, and long lasting battery life as former MacBook products. Apple expects Microsoft to intensify attempts to imitate software features.

Pricing and Nonpricing Strategies

Developing a strong pricing strategy will ensure the introduction of the new MacBook Touch is successful. Apple prices products higher than competitors but can justify pricing by providing substantially superior products. Microsoft offers the new Surface Pro 3 starting at $799 for a standard product while the Apple suggests pricing MacBook Touch at $1599. Although Microsoft offers the Surface Pro 3 at a lower price, Microsoft does not offer accessories with the product that drives up the cost for the consumer. Additionally, Microsoft also has a reputation for numerous operating system issues calling for improvements and updates that require the consumer to purchase a completely new product.

Apple predicts that Microsoft will combat the new MacBook Touch will strategic price alterations to the elasticity of demand. Apple has many advantages, including consumer loyalty and brand identity which will draw in revenue. Consumers are attracted to and responsive to movement in pricing, specifically pricing that can save money. Because of consumer attraction to price changes, products are relatively elastic due to dramatic changes in the demand of quantities. Although Apple proposes to market the new product at a higher price, the sensitivity of the market will decrease as consumers purchase and review the quality of the product. Additionally, Apple predicts Microsoft will discount the Surface Pro 3 to help boost sales and win over the market share. Apple predicts a slowdown is sales. Apple will lower prices as an incentive to move units. Apple will need to include nonprice strategies to maintain market revenue shares.

Nonprice strategies are critical for Apple and the success of the MacBook Touch. Apple will have the daunting task of proving the differentiation of MacBook Touch, iPad, and other touchscreen products. The goal of product differentiation and advertising, nonprice competition, is to make the price less of a factor in consumer purchases and make product differences a greater factor (McConnell, 2009). Apple also proposes that product display is precise and eye catching. Apple is investing in initiatives to enhance reseller sales by placing high-quality Apple fixtures, merchandising materials and other resources at selected third-party reseller locations (Apple, 2014). Other forms of nonprice strategies include extensive training and expertise for resellers to be able to provide premium quality service to consumers. If all aspects of nonprice strategies are successful, the demand curve will shift the right, and the product will become less elastic (McConnell, 2009).

Entry Barriers

Apple is aware that the oligopoly market structure requires entry barriers to maintaining a level of domination amongst competitors and new companies making way into the market. According to McConnell (p. 230) in the computer and consumer electronics industries, patents have served as entry barriers. Moreover, oligopolists can preclude the entry of new competitors through preemptive and retaliatory pricing and advertising strategies. Apple regularly files patent applications to protect innovations arising from its research, development and design and is currently pursuing thousands of patent applications around the world (Apple, 2014).

Marginal Cost and Marginal Revenue

Apple products compete for new technologies and components. Although most components essential to the MacBook Touch are available from multiple sources, some of the components are currently obtained from single or limited sources. Many of the components Apple uses are subject to industrywide shortage and pricing variations that could unfavorably affect the profit and revenue margins.

Out put  in Bil.	Price Per Unit	Marginal Revenue Per Unit	Total Revenue In Bil	Total Cost Per Unit	Fixed Cost	Variable Cost	Marginal Cost	Average Fixed Cost	Average Variable Cost	Average Total Cost Per Unit
0
1	$1599	$450	$450	$1149	$290	$120	$60	$290	$120	$269
2	$1599	$450	$900	$1149	$290	$120	$60	$145	$60	$474
3	$1499	$399	$1197	$1100	$290	$210	$50	$96.6	$70	$383.4
4	$1499	$399	$1197	$1100	$290	$210	$50	$72.5	$52.5	$425
5	$1449	$449	$2245	$1000	$290	$300	$40	$58	$60	$252

Although, Apple manufactures some Macs in the United States, Apple utilizes outsourcing to manufacture a substantially large portion of the hardware. Outsourcing manufacturing is cutting down costs for Apple, but the unpredictability of outsourcing leaves Apple vulnerable to schedule and production limitations. Future operating results depend upon Apple’s ability to obtain components in sufficient quantities (Apple, 2014). Maintaining components specifically for the MacBook Touch can alter the variable and fixed costs to ensure Apple has enough product available to meet market demands while remaining in line with the budget.

Conclusion

Apple is one of the largest producers of consumer electronics and computers. Apple competes against rivals in an oligopoly market structure. Because product differentiation is vital in the oligopoly market structure, Apple has to manufacture and produce a new product to stay ahead of the competition. Although being hesitant to enter the touch screen market, Apples proposes the implementation of the MacBook Touch. The MacBook Touch would encounter aggressive competition and elastic pricing from fierce competitors such as Microsoft. Introducing the MacBook Touch at higher price levels and gradually decreasing the price as more units sell and will help combat the demand curve and make the product less elastic. Outsourcing delays are a major concern for Apple and the production of the MacBook Touch. Ensuring components are in stock and available is key to operational and marginal success.

References

Apple. (2014). Investor Relations. Retrieved from http://files.shareholder.com/downloads/AAPL/0x0x789040/ED3853DA-2E3F-448D- ADB4-34816C375F5D/2014_Form_10_K_As_Filed.PDF

McConnell, Campbell, Stanley Brue, Sean Flynn. Economics, 18th Edition. McGraw-Hill Learning Solutions, 2009. VitalBook file.