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Saved Recents Uploads My Answers Account Products Home Essays Drive Answers Texty About Company Legal Site Map Contact Us Advertise ©2016 StudyMode. com Home > Smartphone > Iphone Iphone Consumer theory, IPhone, IPod Touch By lightning24 Apr 25, 2013 2300 Words 137 Views Page 1 of 6 This report will undertake an analysis of one of the most famous household gadgets, the iPhone. Through use of economic theory and analysis we will assess the mobile phone market and make predictions as to future prospects of the product.

IPhone was first introduced by Apple’s CEO, Steve Jobs in 2007. The first generation iPhone took the world by storm in 2007 as it was the first smartphone in the world. With its sleek glass multi-touch touch screen display, boasting internet services, music player and multifunctional applications available for the phone itself. It is said that Apple has sold more than one million iPhones just 74 days after its released date on June 29 20071. The first iPhone was sold at the price of $600 in America.

IPhone is definitely a differentiated product as it runs a unique system invented by Apple which is known as the iPhone Operating System (iOS) and also allows users of iTunes to sync all of their music albums and pictures into the phone . This is the main features that clearly distinguished iPhone from the other smartphones. Last month, Apple just released their latest generation which is the IPhone 4s. The new iPhone 4s has many upgraded features and better performance as compared to their first generation such as a 3. 5 inch wide screen, 9.

3mm ultra-slim body 8 megapixel autofocus camera along with a secondary VGA front camera for video calling, dual core processor that delivers more speed, Facetime and not forgetting the new Siri, the intelligent assistant and many more2. IPhones are easily available at any Apple stores worldwide and also some telecommunication companies. IPhone is a huge hit around the world and show us versatility as it caters a range of customers from teenagers to business users. The iPhone has many apps to suit different individuals, some applications come free, and some requires payment.

The phone has integrated people from around the world with programs such as Skype, Msn Messenger and Whatsapp. Without a PC, the iPhone was seen to be the mini substitute whenever people go. The table below shows the prices of iPhones over the years. In the third quarter of this year, the iOS is the third dominating operating system in the smartphone market globally with market shares of 15% ,whereas Android has a strong lead ahead the others boasting a high market share of 52,5% , followed by Symbian with a market share of 16. 9% .

It is said that the market share of Apple dropped as much as 15% for the third quarter as most of the Apple fans were expecting the arrival of the iPhone 4s3. This shows us that oligopoly exist as the accumulation of concentration ratio of the three main firms are 84. 4% . Apple, Samsung, Blackberry, Nokia, LG, Sony Ericsson, Motorola and HTC are all well known brands in the phone industry. . Apple’s first iPhone set a new benchmark in the phone industry, resulting in many phone brands inspired to produce products similar to the iPhone . However, Apple & Samsung takes the crown for producing sleek and efficient smartphones in the world.

Currently, Samsung maintained a strong lead against Apple who seems to be at the top manufacturer for smartphones, boasting an amount of 27 million units sold worldwide as compared to Apple’s 17 million units 4. Apple’s current main rival is Samsung, the Korean phone company who strived to disrupt Apple’s dominance over the past few years in the smartphone market by producing Samsung Galaxy S2. The Samsung Galaxy S2 is sold around ? 500 for the handset 5. In the mean time, Nokia recently launched their Windows 7 smartphone, the Lumia 800 comes with a price tag of around ?

399 without contract6. This clearly shows us that the price competition in the smartphone market is relatively fierce. The smartphone market has a high barrier of entry as high technology and advanced machines are needed to produce ever-changing smartphones. It is never easy to break brand loyalty of smartphone users as one tends to be loyal towards the brand they’re using overtime. New entrants have to maximize sales revenue before maximizing profits to gain market share initially. This will incur additional cost for advertising, marketing and also branding.

Purchasing land, equipment and plants will end up being a sunk cost if the new entrants fail to gain a stand in the competitive market. Most of the smartphone companies are going through patent wars throughout the lifetime of smartphones. On June 2011, Apple agreed to pay compensations of over $300m- $600m7 along with royalties of €8 per iPhone8 sold in future to Nokia to end the patent dispute. The most recent patent war involves the battle between Apple’s iPhone and Samsung’s Galaxy tablet PCs which was ongoing since April 2011 across ten countries.

Samsung and Apple went into a legal battle where Samsung hoped to ban sales of iPhone 4s in Germany, Australia, Japan and also South Korea. Samsung has its plan backfired and had the tablet banned in Germany, Europe’s largest economy and Australia while the ban was lifted in other parts of the Europe9. Not a single ban was incurred onto Apple’s products. All goods are part of an economic category, where they are defined as normal goods or inferior goods; this gives reaction to shifts in demand & supply (D&S) with accordance to change in income.

IPhones are considered as Normal goods which have an increase in demand as income level rises, if consumers would experience an increase in their income they would allocate it to purchase additional normal goods, normal goods have a positive association between quantity demanded and income. This is in contrast to the negative association an inferior good has. With increase of income a consumer will purchase less of an inferior good demanding more normal goods. Conversely, should income fall, the demand for inferior goods would increase as appose to the decrease in demand for normal goods.

The stretch, to which the shifts in D&S behave, is known in economic theory as elasticity of demand of which there are 2 forms - income elasticity of demand and price elasticity of demand. To calculate the elasticity of a given product we divide the % change in quantity demanded by the % change in income/price. If the result is 0<x<1 the good is inelastic meaning that changes in income/price has little influence on demand (essential goods), alternatively if the result was x>1 the good is elastic and any change in income/price would influence the change in demand (luxury goods).

The iPhone cannot be considered as an essential good, but as a luxury good which has substitutes and purchases can be easily postponed in the case of decrease in income. In 2007 when apple introduced her new iPhone 3G, they were one of the first to enter the global mobile market with the new smart phone generation, awarding iPhone to reach their goal of 1 million sales in their first year. This is due to the considerably low elasticity of demand their product had owing to the highly devoted consumers and the absence of direct substitutes to their trendy and desirable good, factors which are usually found in inelastic products.

However following the 2008 crisis, a point where consumer’s income level had decreased, the demand for the luxury good had also decreased and there was need for a cheaper substitute. “The main determinant of elasticity is the availability of substitutes”. “A product with close substitutes tends to have an elastic demand; one with no close substitutes tends to have an inelastic demand”. (Lipsey and Chrystal, 2007 p71). The mobile phone market has been declining ever since the introduction to the new smart phones.

Nokia the mobile phone giant, one of the first in the market to introduce the Symbian operating system, awarded them more than half the global phone market share at 52. 9% in the last quarter of year 2007 . From that year onwards, mobile phones are being replaced with the new smart phones. When the new high standard technology iPhone was introduced, using their patented iOS, they became an extremely strong brand, using skimming marketing strategies to maximize their revenue. Initially the elasticity of income/price did not influence the demand, allowing Apple to sell at high price.

However once income level declined as discussed earlier, competitors such as Samsung and HTC took advantage by producing smart phones using Android operating system (OS) for a cheaper price. As a consequence of substitutes offering a cheaper price, the elasticity of demand for the iPhone increased, meaning that now any change Apple should make to the price will have a great influence on the quantity demanded. Below is a graph demonstrating the increase in market share Android took over, ever since their cheaper patented OS was introduced in order to compete with the iPhone:

(Adapted from Guardian. co. uk) Another reason for the increase in iPhone’s elasticity of demand is consumer difficulty. Consumers who choose to buy an iPhone are restricted to one exclusive carrier per country. This might discourage first time buyers from purchasing an iPhone, increasing the substitution effect which causes an increase in elasticity. Apple uses great marketing skills inspired by Steve jobs in order to increase the demand for the product.

They put great importance to the quality and design of the products as well as being the leader in the mobile phone industry, these all transformed to the overall consumer perspective of apple, that of a high quality brand. In addition, Apple realizes that not only can it rely on its brand name; they must also consider the long term influence of the price elasticity of demand. Acknowledging the fact that there are potential competitors producing cheaper substitutes in the market, Apple reacts with price cuts of her iPhone few months after they have released it at a high demanded price.

By that they maximized profits from their devoted customers and assured themselves a grasp of the market share from the cheaper phones. From this, it is possible to get an estimated elasticity value: when iPhone was launched it was priced at 600$ selling 270,000 after 3 months the price was reduced by 33% to 434$ and during the following 3 months they sold 1,119,000 iPhones. Using the elasticity calculation 33% change in price / 76% change in quantity = 4. 3% elasticity meaning that for every 1% change Apple would make in price there would be a 4.

3% change in demand. Apple understands their considerably high elasticity of femand, especially now with the presence of strong competitors (Samsung and HTC) reacts with price cuts in order to maintain in the top 3 mobile market share. In summary, we have seen that the global smartphone industry has changed drastically by the entrance of new smart phones into the market. Nokia and Apple were of the first two to grab share of that market, while iPhone began to lead the way with the high tech patented iOS iPhones.

However relying on the low level of elasticity it occurred (mainly due to the lack of competition), Apple charged a high price for the iPhone, which paved way for new cheaper substitutes. Samsung & HTC saw the market opportunity and launched their own patented OS called Android for a much cheaper price, as a consequence it has now lead them to control more than half the market share at 52. 5%. It is not likely for new entry in the market to be occurred, as it requires a great amount of money invested in research & developments of new patented mobile technology.

Therefore, for Apple to compete successfully with the 4 mobile giants it must take advantage of her strong brand name, but also consider to reduce prices due to the long term influences such as substitutes and lower income, that have increased the level of elasticity. References: 1. Apple, 2007. Apple Reports Fourth Quarter Results. [Online] http://www. apple. com/pr/library/2007/10/22Apple-Reports-Fourth-Quarter-Results. html [Accessed 21 November 2011] 2. Apple, 2011. iPhone 4S specs [Online] http://www. apple. com/iphone/specs. html [Accessed 20 November 2011] 3. Jay. Y. , 2011. Android Market Share Doubles, iOS drops In Q3. [Online]