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PMBA 315 Midterm Project Assignment............




Question;This paper provides an economic analysis of the Apples iPhone 3G product, specifically: marketstructure, determinants of demand, elasticity and non-price competition.Article summary:Apple has made its name by offering luxury products and technology services, last year itwas recognized by Fortune Magazine as the most admired company in the world. This articleshows how Apple has capitalized on the success of its latest i product line and addresses theshortcomings of the original design. The birth of the original iPhone has already set the bar basedon the design and ease of use. The new iPhone 3G improvements include GPS satellitepositioning technology that will compete with the external GPS device. It will work with the newgeneration of mobile networks, running at faster speeds. Lastly, the new security systems willbenefit corporate customers.In addition to the improvements, the iPhone 3G is available at an affordable starting rateof $199. Apple has created an affordable yet powerful phone that should surely gain attention ofconsumers. Of course, while the device itself is discounted, the monthly usage fees will be at anincreased rate. With this new business model approach, Apple will be competing against Nokiaand Samsung.Comment: Effective and concise summaryMarket structure:Apple is competing in one of the fastest changing markets. Market structure measures thelevel of competition Apple faces within the industry. Apple has competitors such as HP, Dell,Acer and Asus making it appear as Apple is participating in a competitive market, in acompetitive market, each firm is so small compared to the market that it cannot influence theprice of its product and therefore, takes the price as given by market conditions. Apple isparticipating in a competitive market but more closely fits into a oligopolized market, one inwhich 3 or 4 large firms supplies the entire market for a good, and those firms can choose anyprice and quantity on the market demand curve. Apples competitors are offer similar, yet notidentical products. There have been competitors trying to enter the market, selling fake iproducts in fake i stores, however, this market share is debatable because of the narrowcharacteristics of an iPhone or iPod. Apple is able to maintain a unique product line and continuethe monopolistic nature of its i products. Comment: I like how you focused on the issue ofdefining the industry when determining the market structure.Determinants of demand:With our knowledge of the market structure, we now understand Apple, specifically in theiPhone market, participates in a oligopolized competition. This coincides with determinants ofdemand because the market structure sets the stage. As defined by our textbook, determinants ofdemand is the amount of the good, in this case, iPhones, which buyers are willing and able topurchase. Demand determinants include:Own price,Prices of related products (including substitutes and complements),Income,And tastes and preferences.Per the article, the iPhone 3G is selling at a bargain rate of $199, just below what theindustry sees as the pain threshold for the mass market. The iPhone price is set at a reasonableMidterm ProjectPMBA 315rate creating a strong demand. Consumers can validate justify their purchase of the phonebecause the other options available are similar in price. Also, iPhones do not decrease in priceuntil the next version becomes available. There is no incentive to purchase the existing productbecause each version tends to address the shortcomings of the previous one.The prices of related iPhone products are competitive, however, most users tend to purchasean Apple product based on the Apple name and customer service. The components thataccompany the iPhone such as wall chargers, car chargers, headsets, etc. are unique to the Applebrand. In addition, the purchase of the iPhone is all inclusive, serving as an iPod, extra storagespace and as a GPS. This eliminates the need for additional purchases of these capabilities.Statistics show that with the release of the iPhone 3G model, the growth rate of lower incomeindividuals purchasing the phone increased. When Apple lowered the base cost to $199, itinstantly became a viable, affordable, and more attractive option for consumers who wouldntpay upwards of $400 for a cell phone.Apple creates an image of luxurious items, with the iPhones sleekness and strategicallylocated stores (trendy regions). People want to be affiliated with luxury to appear wealthy.Elasticity:Elasticity is the percentage change in one variable resulting from a 1% increase inanother. The iPhone is not a pure luxury good, but is categorized more closely to a luxury vs. anecessity Comment: I agree with your observation. It helps that is priced competitively, however,there are other phone options available for a cheaper price Comment: Good set up for youranalysis on price elasticity. Consumers can also postpone the purchase for a later date, it is not anessential item. The iPhone is not a good that is required to survive like food or water, examplesof purely inelastic goods. Apple has done a good job in benchmarking the competition to set itsprice which has helped to maintain its inelasticity. The inelastic tendencies of the iPhone are to apoint because if the iPhone was priced too high, consumer demand would begin to seek outalternatives.Based on the devoted and loyal i customers, I would argue that the iPhone has a fairlyinelastic demand because a reduction or increase in price should not affect the quantitydemanded. On the other hand, statistics did show that the starting price of $199 introduced a newconsumer base.Elasticity describes the price sensitivity of a good. If the price of the iPhone 3G wasdouble the introduction price, for example, $400, consumers would still purchase the phone.Apple would still enjoy the similar success even if the phone did not compete with the othersmart phones available in the marketplace. There would still be a high demand for the iPhonedue to the dedicated customers and non-price competition.Non-price competition:Non-price competition is a marketing strategy "in which one firm tries to distinguishits product or service from competing products on the basis of attributes like design andworkmanship. This is Apples competitive advantage and results in their success. Their productline is unique and like no other. Others attempt to emulate but rarely innovate as well as Appledoes. Apple is one step ahead, offering something better that the rest. Apples differentiator is notin technological innovation, rather, technological designs. One example is their magnetic plugthat connects the power to their laptops. Another example would be their solid aluminumunibody product. Apples product differentiation makes their iPhone unique and creates a loyalcustomer base-half of US homes own Apple products. Per the article, Apple has succeeded inMidterm ProjectPMBA 315revolutionizing the consumer technology market. Comment: Good set and follow through witha specific example of differentiation.In addition to the technical designs setting the iPhone apart from its competitors, Appleused custom built apps and programs to entice consumers. Only certain apps were available onthe iPhone and if you wanted access to this specific app, you had to purchase the iPhone. Ofcourse, this is no longer the case because apps that were solely available on the iPhone are nowavailable on other devices.The iPhone is not just a mobile phone, but an expansion of the iPod. Apple was able tocarry the iPod customer base with its release of the iPhone. Thus, when Apple entered the mobilephone market, the release of the iPhone was highly awaited by the Apple community. By merelyutilizing their already successful branding strategy, Apple was able to create anticipation of anew product, one outside their forte of the music device. With this momentum, Apple has alsoguided the community to make the iPhone a success.Comment: You did a very good job on this project. Your paper was clear, concise, andeffectively linked to course concepts.


Paper#55721 | Written in 18-Jul-2015

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