Introduction
Apple Inc. is widely known technology company incorporated in the United States. The company focuses on producing electronic products ranging from personal computers, i Phones and computer software. Since its formation in April, 1 1976, the company has merged as one of the fiercest rivals in the technology industry. The company has managed to open over 400 retail stores.
Over the years, the company has managed to diversify its products which have become popular around the globe. Consequently, the company has introduced fierce competition against popular electronic companies such as Samsung, Blackberry, and HTC. This report will focus on analyzing market condition of Apple Inc including price elasticity of demand, and cost and market structure of the firm.
Price and Income Elasticity of Demand of Apple Inc
In essence, demand of the product is measured on the amount of quantity demanded due to fluctuation of price. In other words, firms measure price elasticity of demand by measuring the change in percentage of quantity demanded that correspond to 1 percent change in price while other determinants such as income of consumers remain constant. Apple Inc produces electronic products ranging from Mac, iPad, iPod, iPhone, Apple TV, Apple watch, Electric Vehicles, and software. Among these products, Apple phones dominate the market among other electronic products (Apple Inc. 2015).
Price elasticity of demand of the iPhone is dependent on the location of the market where the products is being traded. Research reveals that iPhone trading in the United States market experiences inelastic demand because many target consumers of the product can easily afford to buy the phone since their average income is high compared to other countries. In other words, many people in the United States consider iPhone as a luxury other than necessity. The situation is similar in many other developed nations where the price fluctuation of the iPhone product does not affect the amount quantity demanded.
On the other hand, income elasticity of iPhone experience low income elasticity of demand due to the fact that some the American customers would alter their decisions to prefer purchasing the product. In other words, a proportionate increase in income of the American people would slightly increase the demand of the iPhone brand.
The experience is different in low income countries where the price elasticity of demand is considered elastic. Price fluctuation of the phone affects the quantity demanded since the brand is considered highly expensive in these countries. To elaborate, if the company increases the price of the iPhone in developing countries, the quantity demanded will decrease with increasing prices despite the fact that the popularity of the phone remains.
In developing countries, the income elasticity is considered unitary where an increase in the income of the citizens in such countries results in a proportionate increase in iPhone products demanded. Customer from these countries are highly conservative with their income, implying that they prefer investing in long term assets other than electronics that have close substitutes.
Regarding Apple iPad, research reveals that the brand experiences elastic price. The brand comes in different storage capacities, that is, from 16, 32, to 64 gigabytes. 16 gigabyte iPad cost $260 while 32 gg cost $289, and the 64 gig brand cost $348. Their prices are as follows; 16gig costs $499, 32 gig cost $599 and the 32gigi iPad cost $699.
An economist, Jim Garven concluded that the brand experience elastic price demand where the 16gig iPad records -2.09, 32gig brand -1.93 and the 16 gig recorded elasticity demand of -1.99. These figures indicate that if the Apple Inc adjust prices from the current level, that is increasing, many people will not be willing and able to purchase the brand. The reverse will be true, where the company would reduce the prices from current level.
The Apple Mac brand is considered to experience relatively elastic demand in the sense that many people will be willing and able to purchase when prices reduces. Over years, the prices of Mac brand have been relatively high attracting a few customers living on high wages. This change will likely be experienced in both high and low income countries since the brand is considered a necessity, not a luxury as it is the case with iPhone.
This means if the company raises the price of the Mac brand from its current price, the quantity demanded will certainly reduce. On the other hand, due to the popularity of the brand, an increase in income of customer leads to a high income elasticity of the quantity demanded of the brand, especially in developed countries.
The Apple TV brand, Apple Watch, Software, and Electric vehicles are considered to experience elastic price demand. Many consumers will be willing to buy these products when the price falls from its current level. On the other hand, many people, both from high and low income regions will not be able to purchase the brands if the company decides to increase the prices.
On the other hand, these Apple brands experience high income elasticity where the brand will experience a huge increase in demand due an increase in income of consumers. This case will be a bit different in developing countries that experience unitary income elasticity of demand. An increase in income of consumers based in these countries results to proportionate change in in quantity demanded of Apple TV brand, Apple Watch, Software, and Electric vehicles. This analysis indicates that both the price and income elasticity are different across countries mainly attributed by economic prospects.
Illustration of price elasticity demand curve of Apple Products
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Global Competition
Apple Inc. against Samsung
In recent years, Apple Inc and Samsung have experienced fierce rivalry to an extent that it has attracted legal intervention. The two companies are considered giants in the production of smartphones. Samsung has achieved a bigger market share, but has faced significant competition from Apple Inc implying that Samsung has to establish a better competitive strategy. The study conducted by Consumer Intelligence Research Partners between July 2012 and June 2013 indicates that Apple smartphone have attracted potential users compared to Samsung.
Further research reveals that Apple Inc, put significant effort in creating market entries. For instance, the company established a deal with China Mobile to become a carrier supporting the iPhone. Many consumers consider iPhone brand as highly advanced phones compared to other Android phones. Therefore, striking a deal with China Mobile was one of the greatest competitive strategies that Apple Inc considered to attract ten million users in the long run .
The report further reveals that Apple Inc has managed to convert a big number of Android users to adapt to iOs phones. Statistics confirm that only 7 percent of customer converted to Android phones produced by Samsung while 20 percent of consumers shifted from Android to iOs phones. The rivalry triggered Samsung to try to convert customers using non-feature phones to its Android phones by a margin of 37 percent. Samsung managed to beat Apple Inc where the American company managed to only convert 26 percent of consumers to convert from non-feature phones (Forbes, 2013).
Source: Consumer Intelligence Research Partners
The competitive trend indicates that Apple has managed to hold its customers from switching from iPhone to android phones produced by Samsung. It’s a major achievement in the phone market since Samsung if the leading Android producer around the globe. Additionally, it is evident that Apple Inc has retained a higher brand loyalty compared to Samsung. Where Apple records a margin of 42 percent, while Samsung records 38 percent of customer retention.
Furthermore, Apple has put greater efforts in switching 19 percent of customers loyal to Samsung against 7 percent margin where Samsung convert only 7 percent of customers loyal to Apple Inc. Further research reveals that iPhone users have a greater tendency of retaining their phones with a margin of 79 percent while Samsung user record a margin of 75 percent with a period of 1 to 3 years.
The fierce rivalry of the two giant smartphone producers created a historic corporate war in August 2010. The war emerged when Samsung introduced the Galaxy S brand. The Apple Inc executive claimed that the brand resembled the design of iPhone. Some features such as icons, zooming device, the screen and the box appeared much a like to iPhone prompting the war.
The Apple executives revealed their tension that Samsung had maliciously stolen their design which they had been created for years. The war became intense to an extent that Apple executives held a meeting at the Samsung Electronics Building for a hearing on the alleged accusations. The jury established that Samsung had intentions of stealing technology and appearance of iPhone. The California jury found Samsung guilty of stealing Apple Inc patent, thereby instructing Samsung to compensate Apple .
The outcome of the litigation adversely affected the market share of Apple Inc, Samsung by currently grabbing 31 percent of market share compared to 15.6 percent of market share owned by Apple Inc. The company created an exclusive innovative features and products. This strategy has in recent years created overwhelming competitive transition which appeared to be strategy plotted by Samsung.
Apple executives interpreted that Samsung made a breakthrough in technology by producing cheap versions of products by copying ideas created by Apple Inc. With increasing competition, Apple has consequently become innovative by introducing iPhone 6 and iPhone 6 plus which has contributed in grabbing some market share. It is alleged that the two newly introduced brands have borrowed some appearance from large-screen smartphone strategies invented by Samsung (VF News, 2014).
Competition against HTC
HTC has also become a significant competitor against Apple in terms of smartphone production. HTC has come up with distinct designs that have prompted Apple to put great effort in changing is phone design and materials used. Back in 2010, iPhone 3Gs phones were covered by plastic while HTC smartphone were uniquely covered by aluminium plate. This prompted Apple to change its way by using glass, then, aluminium, similar to that of HTC brands.
The global competitive rivalry between the two smartphone producers attracted a law suit. Apple sued HTC over patent inventions stealing. The two rivals, however, settled the issues by deciding each firm will compete fairly by creating products using own invented technology.
Nevertheless, in recent years, HTc has ceased to be a major competitor against Apple. Apple experienced a significant commercial success in 2014 by introducing aluminum coated iPhone 6. This trend triggered HTC to come up with a master design by launching One M9 with an aim of conquering iPhone 6.
Consequently, the HTC new brand possesses unique features aimed at confusing customers to check again when selecting iPhone 6 smartphones. HTC equals Apple in terms quality of hardware, especially, when comparing with iPhone 5 models. Furthermore, the company has invested in modifying its software such as camera and videos. It is evident that the company would in the near or far future be able to compete with Apple (Forbes, 2015).
Competition Against Blackberry
Research reveals that Blackberry is no longer a match against Apple. This situation has led to terrible performance in the global market and therefore making low sales. Consequently, the Blackberry country has realized that many consumers would like to operate with iOs other than Blackberry android smartphone. Therefore, it will be true to conclude that Blackberry has caused Apple minimal competitive edge in the global market (International Business Times, 2011).
Changes to current operations
Upon reviewing the global competitors against Apple Inc, it is clear that that the company needs to expand its current operation to realize long term gains. The company needs to invest heavily on innovation and thus new plants and equipment. Company like Samsung and HTC have proved to be serious competitors that may pose declining sales in the future if the rival companies advance in technology. Further studies indicate that a strong competitor like Samsung has dominated the market of Smartphones.
Samsung has made a breakthrough in the smartphone market due to the fact that it has invested in diversification and innovation of its products mainly through the copying idea of Apple technological innovation. This incidence indicates that the company has to invest in new equipment that will produce unique phones with distinct features from that of Samsung, Blackberry ,and HTC.
Merger strategies could be a solution of the last resort if the company faces stiff competition from the global producer, Samsung. The company could join efforts with popular smartphone producers’ operations that are yet to grab market share. This strategy would be profitable in the sense that it would help the Apple Inc. to acquire any significant market share in regions where the companies set to form merger are popular.
Additionally, the merger strategy will help the company diversify its products that many consumers, especially based in low income countries could afford. The primary reason why Apple grabs a smaller market share compared to Samsung, is the fact many middle and low income countries are not able to meet the high price of its products. Therefore, investing in cheaper and reliable technology will give the company massive boost in grabbing market share against Samsung.
However, the expansion strategy would likely face some global competition implications. Other major smartphone producers will certainly innovate their products to overcome the stiff competition that will exist. This will cause the existing smartphone companies suffer from a significant drop in sales leading to the unprecedented exit in major markets.
Eventually, the company would realize that the competition would reduce leading to a major decline in innovation strategies. Essentially, the Apple company would likely face serious patent issues where some companies will start producing products similar to that produced by the company at a lower price. Eventually, the company will suffer significant loses trying to win patent suits as it has been the case with Samsung.
Government Policies and Business Ethics
Both local and foreign governments will likely cause some implications when the company expands its business with an aim of beating the competition. For instance, would likely impose additional taxes, especially where the company would likely open new retail stores or even obtain a license to produce new brands of smartphones. The foreign government may also be forced to impose higher duties to raw material, thus adversely affecting the production level of the company in the short run. This may happen with an intention of protecting local manufacturers.
An issue such as political stability in the target region could equally cause global competitive implication. The company will certainly realize a healthy competition in countries where political culture is friendly to foreign investors. Essentially, countries with a stable political system will offer a good habor to the company’s expansion strategy by promoting local investors and attracting popular foreign company to operate in its country.
On the other hand, the company would face adverse competition when it deiced to open branches in foreign regions where political policies are not favorable to foreign investors. This would probably cause the negative business environment and thus a sharp decline in sales.
The company would also likely face adverse trade regulation in target markets such federal minimum wages, license requirement environmental compliance. The company might end up investing huge finance with an aim of meeting the requirements yet some may just be unnecessary. Consequently, the company would end up acquiring a smaller market share leading to a dismal business growth in the target foreign market. Other smartphone companies existing in the region may take full advantage of the situation.
The interest rates imposed by the government in the target market would certainly affect global competition of the company. Consumers would be able to meet the price of the company’s’ products if the cost of borrowing is more affordable than where the cost of borrowing is high. In other words, the rate of consumer to spend on products produced by the company will depend on interest rate imposed by the foreign government which may also elevate inflation in the target market.
Eventually, the company would fail to acquire the intended market share. Some existing smartphone producers will avoid such market to avoid declining sales. The company would likely face stiff global competition in the sense that other producers will be operating in regions where interest rates are favorable.
Government spending in the target market will likely affect the ability of the company to compete globally with other smartphone producer. Some governments impose high tax policies depending on the level of their spending. The company would certainly invest a massive pool of its financial resources in meeting the taxes.
Business Ethic implications
In essence, companies investing in foreign market have obligations of displaying responsible corporate citizen in the country of operations. This can be achieved by incorporating environmental, social, and economic codes as their business strategy. The company would likely face difficulties in adopting socioeconomic and distinct systems of the foreign country of operations. The company will nevertheless be forced to build an ethical culture to build its reputation, finances and the intended expansion. The ethical responsibility should be extended to employees who will come from the target country, suppliers, communities and customers.
The company will likely face difficulties in identifying and adopting stipulated ethical culture within the first year of operations. This challenge would adversely affect the ability of business to experience the intended growth and thus lose some competitive advantage to fierce rivals like Samsung and HTC. Communities surrounding the company will certainly be attentive in learning how the company tats it employs, thus determining the company’s reputation in the short and long term duration of operations. In case the reputation diminishes in new locations, the product of the companys’ product would lose the good reputation especially in the global market.
However, the company would certainly overcome these ethical challenges as long as it’s target countries where citizens are ready to build a reputable social relationship due to the fact that the company has maintained a positive reputation over the years.
Conclusion
The report analyzes the current market condition of the Apple Inc. It is evident that most products of the company experience elastic demand where many customers would prefer buying more products with decreasing prices. The only exception is the iPhone products existing in high income countries where the product is viewed as a luxury other than necessity. The company faces serious global competition from Samsung and HTC. Blackberry poses minimal threat to Apple Inc as far as a market of smartphone is concerned.
The three companies have invested heavily in innovation to an extent that they have encounters corporate wars on alleged patent cases. Due to the fierce competition posed by Samsung, the company should consider expanding its operations in foreign countries with reputation of supporting foreign investors. However, the company would likely face global competitive implications posed by unfavorable government policies and business ethical posed by communities around. Nevertheless, these implications can be managed through efficient corporate strategies.
References
Apple Inc. (2015). Apple. Retrieved from https://www.apple.com/
Forbes. (2013, August 20). Apple Vs. Samsung: Who Could Win The Smartphone War? – Forbes. Retrieved from http://www.forbes.com/sites/chuckjones/2013/08/20/apple-and-samsung-who-could-win-the-smartphone-war/
VF News. (2014, June). The Great Smartphone War: Apple vs. Samsung | Vanity Fair. Retrieved from http://www.vanityfair.com/news/business/2014/06/apple-samsung-smartphone-patent-war
Forbes. (2015, March 3). iPhone 6 Vs One M9 Review: HTC Bungles Apple Hunt – Forbes. Retrieved from http://www.forbes.com/sites/gordonkelly/2015/03/27/iphone-6-vs-htc-one-m9-review/
International Business Times. (2011, July 26). Apple iPhone Market Dominance Killing Competition: BlackBerry, LG, HTC All Fall Victim. Retrieved from http://www.ibtimes.co.uk/apple-iphone-ios-rim-blackberry-job-cuts-loss-htc-samsung-lg-smartphone-sensation-optimus-desire-186813