Market Conditions and Competitive Analysis

Published: 2019-09-30 10:00:00
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Apple Inc was founded in 1976 as a manufacturer of household and computer electronics. Headquartered in Cupertino, California, the company has diversified its product portfolio to include smart phones, personal computers, smart watches, laptops, music players, digital libraries, and selected software ("Apple Info - Apple", 2016). Today, Apple is one of the biggest companies in the Smartphone industry owing to their range of smart phones uniquely branded as iPhones. This year, the company is set to release its newest product in its Smartphone range of products dubbed the iPhone 7. This essay elucidates and discusses elements of the iPhone 7 as it pertains to competition, demand, and supply, and other variables of the current market conditions.

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Type of Market, Competitors, and Consumers

The iPhone brand was launched in mid-2007 with the unveiling of the first-generation iPhones. At that time, the smart phone market was relatively young with less than 60 million Americans using smart phones. However, the number has more than tripled since then as statistics estimate that 207.2 million people will be using smart phones by the end of 2016. Globally, it is estimated that 2.1 billion people out of the total population of 7 billion use smart phones (Falaki et al., 2010). Consequently, iPhone 7 is set to compete in all realms of the market that include the physical consumer markets, physical business markets, non-physical markets, financial markets, and illegal markets. Physical markets entail direct sales of iPhone 7 devices to consumers while business markets entail convincing retailers and wholesalers to stock these devices. On the other hand, non-physical markets comprise of the digital media and platforms that iPhone 7 users will have access to once they purchase them as opposed to other digital platforms accessed via other devices. Further, the rise in software piracy will force the iPhone device to compete in the illegal markets as users seek cheaper ways to acquire software and applications without using substitutes such as Android devices.

The current smart phone industry is saturated with various devices from many manufactures that all boast of unique features, efficiency, cost effectiveness, and the best aesthetics. Consequently, it is impossible to single out a single device that will compete directly against apple's device. However, the biggest threat to its market infiltration is the Android operating system, which almost all other smart phone manufactures opt to embed in their products. As of 2015, statistics indicated that the operating system in iPhone devices was only used by 18% of all smart phone users as opposed to the popular android platform that had a market share of over 75% ("Mobile Software Statistics 2015 - mobiForge", 2015). Nevertheless, some giant smart phone makers such as Samsung, Nokia, and Sony continually provide strong competition for iPhone devices by unveiling high-quality products, which retail at lesser prices. This competition coupled with entrant of new industry players such as Huawei, ZTE, Lenovo, and Xiaomi has contributed to the current perfect competition type of market system in the smart phone industry.

-913094508938Fig 2.0: Number of smart phone users worldwide from 2014 to 2019 (in millions)

19050267970Fig 1.0: Number of smart phone users in the United States from 2010 to 2019 (in millions)

Comparative Advantages

Apple products, particularly smart phones, are hailed to be top of the range products with higher efficiency, durability, and superior capabilities. Moreover, their operating systems and digital platforms give users a sense of uniqueness or belonging to a unique social class. Consequently, these features will inadvertently give the iPhone 7 comparative advantage over other similar products from other manufacturers. However, this advantage enjoyed by Apple products is slowly being eroded as software developers bridge the gap between different platforms making it easier for users to cross platforms and enjoy services from other digital platforms.

Internationally, the iPhone brand has not been as popular as other android devices primarily because if its cost implications ("Mobile Software Statistics 2015 - mobiForge", 2015). Therefore, there are infinite trade opportunities globally if the product prices are adjusted to compete actively with other cheaper substitutes. Moreover, the global economic situation is predicted to improve over the next half a decade due to political stability in various world-leading economies. This will translate to an increase in the expendable income of people in lesser-developed countries who will be more willing to spend on quality phones and other services. Consequently, there will be an increase in international trade opportunities as the iPhone 7 penetrates new markets in developing countries.

Factors that affect demand supply, and prices

Factors Affecting Demand, Supply, and Pricing

Tastes and Preferences of the Customers

Tastes and preferences of the consumers is a principal factor that determines the demand for iPhone 7. Seventeen percent of consumers purchase iPhone 7 meaning that the tastes and the preferences of the customers are minimal. The demand will not be high, and the demand curve will lie at a lower level. The tastes and preferences of the consumers keep on changing, and the same applies to the need for that particular good (Supply and demand, 1997).

Peoples Income

The demand for any particular product depends on the income of individuals. If the income of people is high, many people will purchase the product and vice versa (Supply And Demand, 2003). The current global economy is rapidly growing, and this increases the income of individuals leading to a high purchasing power of iPhone 7.

The Number of Consumers in the Market

The number of the buyers in the market will affect the demand for iPhone 7. Currently, few people purchase iPhone 7, and this has led to the low demand of the phone. Many consumers substitute iPhone 7 with android phones and this leads to a low demand of the iPhones since the number of purchasers in the market will decrease (Supply And Demand, 2003).

Consumers Expectations Concerning the Future Prices

It is expected that in the near future, the prices for iPhone 7 would fall due to the threat of new entrants. Because of this, consumers demand would be low because, in the future, the prices would drop (Supply and demand, 1997).

Factors Affecting the Supply of iPhone 7

Price

This is one of the chief factors that determine the supply of a particular product. A direct correlation exists between supply and the price of a product. The prices of iPhone 7 have always been high, and the same applies to supply. The analysts of iPhones predict the fall in prices of iPhone 7, and this will affect the availability of the phones. When the prices fall, the supply will be low.

Natural Conditions

Climatic conditions influence the supply of goods. Recently, an earthquake occurred in Taiwan, and the Apple supplier companies were destroyed. This will influence the provision of the product. The supply of the iPhone 7 will decrease leading to increasing prices (Supply and demand, 1997).

Technology

With the advancements in technology, the production of iPhone 7 has grown. This has increased the supply of the iPhone 7 (Supply And Demand, 2003).

Transport Conditions

Excellent transport facilities always raise the number of products. The various nations in which IPhone 7 is manufactured and assembled such as Taiwan, United States, Germany, and South Korea, and have good transport systems. Good transport system means that the iPhone 7 will always be in the market at the required time (Supply And Demand, 2003).

Factors Affecting the Prices of iPhone 7

Cost of Production

The advancements in technology have led to increase in the cost of production of various products. Therefore, the price of iPhone 7 has increased due to the increase in the cost of production. There exists an inverse correlation between the cost of production and the supply of an individual product. This means that when the cost of production continues to be high, fewer quantities of iPhone 7 will be provided, and the prices will remain to be high.

Competition

There is a stiff competition in the phone industries. Various companies that produce smart phones have emerged in the market. The result of this is that the different companies developing in the market offer low prices for their products. Due to this competition, the Apple Company has been forced to reduce the prices of iPhone 7 to avoid losing their customers to their competitors. Due to this competition, the prices are still expected to decrease.

Fiscal Policies

Government regulation may affect the prices of a particular product. Tax restrictions have increased the prices of iPhone 7. The restrictions have increased the prices of iPhone 7.

Factors that affect total revenue

Price elasticity

Apple depends mostly on pricing as a means of recovering production cost as opposed to sales volume, which is most common with other smart phone companies. The average price of a single iPhone device dropped by only $50 to $650 from 2010 to 2013 as compared to android devices that saw a drop in price by over $100 over the same period to retail at $276 from $441 (Siegal, 2014). Consistent with its tradition, Apple is predicted to retail the iPhone 7 for not less than $600. However, apple's profits have remained consistently high even with a drop in their market share translating to high total revenues from lesser sales. Even with price inelasticity, the demand for iPhone 7 is expected to be higher than average owing to compelling factors such as future technology incorporated in the device, sleekness, security, high resolution, and application flexibility.

Factors that influence productivity

Since its inception, Apple has been adamant in ensuring that it outsources manufacturing of various components to different companies. This has ensured that its devices comprise of the top of the range components. The company, therefore, outsources manufacturing of smart phone parts to South Korea, China, Japan, Taiwan, and Germany. Consequently, the high production costs have had a significant impact on its products' ballooning prices, as factors of production in the U.S and other developed countries are collectively higher than if manufacturing was done in a single country. The price of the iPhone 7 is testament to increasing production cost. However, the total revenues have remained comfortably high as the company has resorted to transferring the high production burden and the tax levied due to exportation to the consumers. Therefore, the production cost has significantly little impact on the total revenue.

Measures of cost

The diversity in Apples supply chain means that the company invests very little in upgrading hardware as most of the hardware from older models remains almost similar with only memory, camera, and resolution changes improved. Moreover, since the company develops all its software in-house, software upgrades, which constitute almost 90% of new models, are cheaper. Consequently, the fixed cost associated with producing newer brands is very small. For example, the estimated cost of producing iPhone 7s predecessor9iPhone 6S plus) is estimated at $236 while that of the iPhone 7 is estimated at $250 yet both these models retail at thrice that that figure. Therefore, the fixed cost will have little impact in the decline of total revenues (Minasians, 2016).

The marginal cost to the company will remain relatively low as the company is set to discontinue production of older and obsolete products after the introduction of the iPhone 7 in the market. In so doing, the company will cut back on non-prof...

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