The iPhone from the Apple Company - Case Study Example

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Title : The iPhone from the Apple Company Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2010 The iPhone from the Apple Company Introduction Apple is a multinational company based in America that deals with the design and production of consumer electronics and software. It has other well known hardware products such as iPods, computers and iPhone. The Apple Company unveiled a long awaited product of an iPhone three years ago and the product has peaked in the market enlarging the business of the company. The company has also started a new accounting method that seems to be working well for the company. For a period of three years, the iPhone has developed and has become the largest product for the company whose business was getting to zero (Gizmodo, 2009). The iPhone is a smartly developed information communication device that is forged form silicon and steel. The iPhone has features of a smart phone and a graphical interface that is projected on a ‘big multi-touch’ screen. The Smart Phone features include the touch technology that allows one to make calls by pointing a contact on the contacts book or by dialling the contact by touching a pad keyboard. The contacts then get updated automatically with other devices that are connected to the similar network and voicemails can be accessed by selecting an email type list. The paper looks at the major economic factors that are likely to influence the price and output of the iPhone for a period of the coming five years. Market Analysis of Apple iPhone The performance and the operations of the company are highly affected by many macroeconomic and microeconomic factors. These factors influence the price and the output of the iPhone and of the entire company. Some of the macro economic factors that affect the performance of the company include the fact that the company depends on the global economics conditions that face many uncertainties. These uncertainties in the global economy cause a risk to the businesses and their associated consumers who may postpone their plans of spending due to the difficult economic moments. The consumers are also suffering unemployment and this may have a negative impact on the demand of the company’s products. Economists explains that the demand for Apple’s iPhone and of its other products may also go down since the company may raise the prices of the products that they sell in the markets outside America to counteract the impact of strengthening the U.S dollar, a trend that has recently gained popularity. The performance of the iPhone from the Apple Company may also get negatively affected by the political and legal factors since the company relies on third-party’s exclusive rights and this may affect the output of its products if they may be found to have breach the intellectual property rights. The company may also not be able to offer a broad variety of products and at affordable prices. This is because its ability to offer different products may become subject to certification and control by the government and the standardizing agencies. Sources states that almost half of the sales of Apple iPhones are made outside the United States. This means that it has international markets and it gets affected by the international events. Issues such as war, terrorism, natural disasters and market policies of its market countries may lead to delay and inefficiencies in the supply process. A recent study conducted on demographic trends in the United States to investigate the income power of the consumers using iPhones revealed that the adoption rate is high among those households with disposable income. This calls for 50% reduction in the prices. There are other factors that positively enhance the output of the Apple iPhone in the international market. The company has streamlined it’s directly and indirect distribution channels to meet the demands of its customers. The company has recruited knowledgeable sales persons in all its market outlets who will be able to communicate its innovativeness and its differentiated products. Due to the high technology that is invested in the iPhone, the company has ensured that it has direct contact with its customers so that they can demonstrate to them the advantages of the technological device (Gregg 2008). Some of the microeconomic factors that affect the prices of the iPhone includes the competition that it faces form other manufactures of communication devices. However, Apple Company struggles in the highly competitive global market that is characterised by insistent price reduction which results in decreasing pressure on gross margin, regular introduction of new products and technological advancements. The market in which the iPhone is sold is therefore characterised by very competitive market environment, a weak economy and a highly innovative environment. Demand and supply characteristics of the iPhone Looking at the demand figures for the Apple iPhone, the company has never experienced customer shortages for the iPhone. This is because Apple used the price of the iPhone to control it’s demand. This helped them to prevent the demand that would have gone down after the initial release of the iPhone. The iPhone came into the market with $599 and with their target of 10 million customers; the price could leave around 9 million out. However, those who did not manage to buy at that price; they waited for the price of the iPhone to go down. Later, Apple released the phone with a price of $434, and this brought in a big number of customers. The demand for the iPhone became extremely high but to meet this demand, the company released the iPhone model in phases. The company at some point faced supply constraints but they kept this a secret to the customers. Implications of Price elasticity for demand cross elasticity and Income elasticity on the price and output of iPhone Price elasticity for demand is defined as the reaction of the quantity of a product that is demanded by a change of one percent in price of the product. It can also be calculated as the percentage change in demand divided by the percentage change in price. The quarterly reports from Apple on the figures of iPhone indicate a price change form $599 to $434 in the first quarter and supply change from 270 000 iPhones to 1,119 000 iPhones (Tech Trader Daily, 2007). The curve below shows the price elasticity for demand curve. Following the formula in the curve, the price elasticity for demand for Apple iPhones is 4.7 percent sale of iPhone per one percent price increase. Price elasticity for demand can affect the output of the iPhone since the company may tend to lower the prices so that they can increase the demand for the item. Another factor that affected the pricing strategy of the Apple iPhone is the cross elasticity for the demand of the iPhone. This is the responsiveness of the demand for the iPhone to a change in the price of another item which in this case is the iPad. It measures the percentage change that occurs in one item in response to the percentage change of the price of the other item. After Apple launched the iPhone, it introduced another computer device known as the iPad. The data below indicates the relationship between the demand and price for iPad and that of the iPhone six weeks after the iPad was launched. (Retrieved from http://salilsethi.com/think/?p=50) Form the data above, the cross elasticity for the iPad is -0.53 while that for iPhone is -2.22. This means that the uses of the iPad are more price inelastic than the iPhone users. In other words, the iPad users are more willing to pay for its applications than the iPhone users. This may affect the pricing of one item so that the low prices can increase the demand for the other item and vice versa (Salith, 2010). Another factor that may affect the pricing or the output of the Apple iPhone is the income elasticity for demand. This is the measure of the responsiveness of the demand for a certain product to change in the income level of its consumers. IPhone is luxury good and according to the law of economics, the demand increase with increase in income level. The curve below is an example of income elasticity for luxury goods such as iPhones. The income elasticity affects the pricing in that when the income is high among the users, the demands rises and the company may increase the price following the increase in demand (Core Economics, 2007). Macroeconomic environment for Apple iPhone for the next five years The company is currently being affected by the economic environment of the countries where it operates. Most of the countries are facing unemployment and this may affect the demand for its items. It is however observed that when unemployment is high in the economy, the income level is high and the income elasticity will go down. However, if the current economic status is not corrected in the next five years, the company may continue to experience reduced demand for its iPhones and other products. The economic analysts reported that spending on technological devices is going down and the consumers are reducing their use of handsets, televisions and mp3 players. The consumers are giving priority to other things rather than the technological ones due to the economic crisis that they are facing. This may also continue for the next five years before the economy is streamlined. Conclusion Apple iPhone has however been doing well in the market since its launch. Regardless of the difficult macro and micro economic factors that have been surrounding its operation, it has won a large proportion of market in the U.S and in other countries. Looking at its elasticity for demand, price and users income, it is found to be doing well but this might be affected by the macroeconomic difficulties that have started to develop globally and may continue for the next ten years. Bibliography Gizmodo, 2009, Apple, the iPhone Company, retrieved on 7th July, 2010 from < http://gizmodo.com/5457420/apple-the-iphone-company> Gregg, K., 2008, AT& T iPhone Marketing and Indirect Distribution, retrieved on 7th July, 2010 from Tech Trader Daily, 2007, Apple: Needham Boosts Price Target To $135 On iPhone Sales; Sees 135 Million iPhones Sold In 2016, retrieved on 7th July 2010 from < http://blogs.barrons.com/techtraderdaily/2007/01/29/apple-needham-boosts-price-target-to-135-on-iphone-sales-sees-135-million-iphones-sold-in-2016/ > Core Economics, 2007, iPhone margins and what they mean retrieved on 7th July 2010 from Salith, S., 2010, Apple’s pricing strategy for iPad applications, retrieved on 7th July, 2010 from Read More