A Competitive Market Analysis of the Potential Success of one of Apple's Existing Products - Case Study Example

A competitive market analysis of the potential success of one of the Apple’s existing products

Introduction

Apple is the US-based company, offering a wide range of various products and service including PCs, laptops, MP3 players, smartphones, tablets, wearable devices (Apple Watch) as well as software products. The company successfully operates in many different countries on the five continents. Below is provided a more detailed analysis of UK market of mobile phones and a competitive market analysis of the potential success of Apple smartphone (iPhone) in the UK.

Market Overview

In 2015, the mobile phones market in the UK has grown in terms of its value by 3% up to 1.7 billion (Ballaben, 2016). Partially, this growth is attributed to the successful launches of iPhone 6 and iPhone 6 Plus by Apple in September 2014 (Balleben, 2016). Apple Inc. has developed significant market share in the UK smartphone market. According to the estimates, Apple retains about 30% of the UK mobile market share, while the leader is Samsung with 32% of the market share (Ballaben, 2016). The other major players are Sony, Nokia, HTC, Microsoft Lumia, BlackBerry, Google Nexus and others (Ballaben, 2016). Below is presented graphical illustration of the UK mobile market share breakdown by brands.

(Source: Ballaben, 2016).

Factors that drive customer’s choice of mobile phones in the UK

While analyzing the customers and their choices of mobile phones it is important to identify most important factors that are taken into consideration while choosing a new mobile phone. According to the research carried out by Mintel, such additional factors as longer battery life and better camera resolution are two important factors that influence consumer purchasing behavior. Some other important factors are: wireless charging, better design, fingerprint scanner protection, mobile payment capability and dual SIM (Balleben, 2016). However, the consumer’s choice of the brand of the mobile phone is often associated with trade-in programs, which helps consumers to make the most of the remaining value of the old model of smartphone (Ballaben, 2016). Trade-in programs have become a standard in the industry, whereas such major players as Carphone Warehouse, O2 and Apple offer to their customers the opportunity “to trade-in” (Ballaben, 2016). Thus, on the customers are encouraged to reduce the cost of new phone by upgrading to a newer model of device. This opportunity allows manufacturers to retain their consumers and to keep control over the second-hand market. Another critical factor that influences the consumer’s choice of smartphone is sticking with the same brand. Users of mobile phones tend to demonstrate high brand loyalty towards specific brands, offering additional market opportunities for existing manufacturers and posing threats to new players (Ballaben, 2016).

Analysis of comparative advantages and international trade opportunities

Apple Inc is a globally recognized brand, which is beloved by consumers of different ages, professions and lifestyles worldwide. The company has a strong brand differentiation strategy promoting exclusive design and lightness of devices, sophisticated user’s experience and status of the brand. This factor is an important competitive advantage of the Apple Inc. as it allows the company to retain its customers and to attract new customers for long-term period (Barrett, 2015).

Another comparative advantage is associated with the Apple’s horizontal and vertical integration model. The company offers its users wide range of technology devices and uses its own operating system iOS, which allows to keep consumers within one brand and to increase switching costs accordingly. Consumers who already have Apple PC are more likely to buy iPhone and AppleWatch as all these devices can be synchronized via iOS (Barrett, 2015). Moreover, the company offers its users to buy/download apps, programs and media in Apple Store, which also adds value to the Apple’s infrastructure. Thus, the company differentiates itself from major competitors and is able to set premium prices for its products. Consumers also demonstrate strong loyalty to the brand, supplemented even with some kind of addiction and fanaticism.

Apple operates more than 460 stores in 18 countries. The US market remains to be the main market for Apple, accounting for 51% of total corporate sales as of FY 2015 (Barrett, 2015). In October 2015, the consumer electronics giant entered the Middle East markets ((Barrett, 2015). New international markets offer great opportunities for the American brand, as consumer income in key emerging markets is growing and consumers are increasingly influenced by the Western shopping culture. Therefore, expansion strategy into emerging markets especially such markets a China, Saudi Arabia, Iran, Nigeria, Egypt, and India will allow Apple to establish stronger retailing position and to increase company’s sales (Barrett, 2015).

The factors that will affect demand, supply, and prices of that product

The demand, supply and prices of the product, such as Apple iPhone 6 or a newer model of device depend on a set of factors, including: the preferences of consumers, degree of innovation of device and product life cycle, change in income levels, cost of production, competition, etc.

The preferences and tastes of consumers predetermine the demand for specific product. If consumers are not aware about the benefits and advantages of using Apple iPhone 6, the demand may be low. However, Apple is a well recognized brand with established positive reputation, whereas its product innovations are supported with effective marketing campaigns. Increasing popularity of iPhone 6 and positive feedback of users will drive demand up, shifting the demand curve to the right.

Degree of innovation (new features, new design, and additional technical capabilities) also may stimulate demand growth and drive the prices for the product due to first-mover advantage. Product life cycle also will have impact on demand, supply and prices of the smartphone. Once the iPhone 6 reaches maturity stage, the demand will decline, causing negative shift in supply (Prasch, 2008).

Changes in income levels also may significantly impact the demand and supply of the iPhone 6. The higher the income levels are, the greater amount of people can afford buying iPhone instead of cheaper versions of smartphones (Samsung, HTC, Lenovo). However, reduction in incomes will more likely supress demand for premium/luxury goods (Prasch, 2008).

Cost of production may impact the price of the product. Apple is a company that outsources production of its major hardware products and parts to selected third party contractors in Vietnam and China. However, changes in labor/wages standards, or any other legal/political factors may increase the company’s outsourcing costs, posing challenges to the Apple’s profit margins (Barrett, 2015). This factor will inevitable impact the product’ supply and price.

Finally, competition is another critical factor that will affect the demand, supply, and price of the iPhone 6. Emergence of new brands and development of existing brands offering high quality smartphones with more sophisticated features and design may have negatively impact on the demand for the iPhone 6 and therefore, cause reduction in supply in specific market. The price will hardly be affected by competitive forces as Apple is positioning itself as premium, luxury brand (Barrett, 2015).

Factors that will affect Total Revenue

Price elasticity of demand

Price elasticity of demand and the total revenue of the company are strongly interrelated issues. Inelastic demand for iPhone 6 will cause rise in price and therefore will lead to higher prices and increased total revenue. Elastic demand will imply the fall in price for iPhone 6 and therefore, the total revenues of the company for this specific product category also may rise due to increased sales stimulated by reduced prices. In case of perfectly inelastic demand, the change in price is more likely to lead to the similar change of total revenue (Prasch, 2008).

Factors that influence productivity

The firm’s productivity depends on a variety of factors that include both tangible and intangible factors. One of the factors relates to man power and managerial efficiency. Management team develop the strategy on firm’s productivity and therefore, its skills predetermine the success of the business. Moreover, availability of trained employees who have to perform specific job and effective utilisation of labor power also greatly influence the firm’s productivity (Chand, 2014). The other factors include machines, equipment, and input materials. Production time is another factor that influences firm’s productivity. Slow manufacturing, or increased time for inspection of input materials and finished goods will reduce the manufacturing productivity (Chand, 2014).

Various measures of costs, including opportunity costs

The company’ costs directly impact the company’s total revenues and profits. The firm’s costs of production can be differentiated into two types of costs: explicit and implicit costs. Explicit costs are the costs, which require a direct outlay of money by the company, while implicit costs do not require an outlay of money. Both implicit and explicit costs are the opportunity costs of the firm. Furthermore, the firm’s costs may be divided into fixed and variable costs. Fixed costs are the costs that do not vary with the quantity produced and may include such costs as: plant maintenance or headcount costs. Variable costs, in contrast, are the costs that depend and vary with the quantity produced (in case of iPhone these can be: raw materials costs, marketing costs, etc.). Externalities and government public policy and their effect on marginal revenue and marginal cost

Externality is defined as a cost or benefit, which influences someone who is not involved directly in the process of product production or consumption. Externalities may be either positive or negative. Government may resolve the issues caused by externalities and increased the economic efficiency on the market. More specifically, the government may control externalities in two different ways: by introducing correction policy or internalization policy (Bruce, 2000). Correction policy will imply the necessity to impose corrective penalty or introduce rewards. Internalization policy will imply changes in the institutional arrangements that caused externality. If the government will impose penalties or fines/increase taxes, the marginal revenues of the firm might be negatively affected.

Recommendations

As it has been already discussed Apple is a company with strong globally-recognized brand, extensive geographical presence, well-developed retailing and distribution networks. In order to maximise the firm’s profit-making potential and increase its presence within the UK market, Apple needs to focus on development of effective marketing and sales strategy. The company faces with fierce competition and thus should focus even more on its competitive advantages of differentiation and trade-in service. However, the company should focus on targeting more business segment as consumers. By developing B2B segment, Apple could increasingly penetrate the professional market, whereas high quality smartphone supported with specialised unique apps (apps for engineers, business managers, clinicians, etc.) will help the company to expand its market share and to grow the sales. Cooperation and close collaboration with the national government also may offer significant benefits due to potential positive externalities. Also, the company may launch some PR campaigns, participate in social events, reinforce its focus on sustainable development in order to increase brand awareness and retain customer’s loyalty towards the American brand.

Despite the fierce competition, Apple is not recommended to lower its prices in order to match the average market pricing standards. Instead, the company has to work continuously in order to introduce new features, innovative solutions, new apps, etc. that will add value to the product.