Apple Inc - Current Market Conditions - Essay Example

?Apple Inc Apple Inc Apple is a manufacturer of consumer electronic that is best known for its PDA that goes with the of iPhone. The firm is a leader in its industry and has managed to garner a lot of success in the market. This has been achieved through leading innovation and understanding of customer needs even before customers are aware of these needs. As a result, the firm is always producing new technology products especially phones, entertainment electronics and computing electronics. A good example is their smart phone called iPhone that has come to be synonymous with smart phone. When the market thinks of a smart phone, they think of Apples iPhone. The firm is estimated to have the majority of the smart phone market with the main competitors being the Research in Motion of Canada, Samsung of North Korea and the upcoming Huawei of China. On its launch of the Smartphone, the firm was able to sell over ten million units within a month which was a record not only for the firm’s product sales but also for the market. New version of the same product has been very successful with million units in sales made for each new version which is after every two years. Apple has proved to the world that it is a future firm and that it is here to stay. This has to do with its history of innovation and surprising the consumers with new products just when the customers thought they had everything there is to have in the electronics industry. Generally, Apple is a successful company with a growing future. Though it faces threats such as competition from other providers in its line, it stands a better chance for success due to opportunities and market venture it has not touched. Law of diminishing demand Mentioning of recent or upcoming purchases of cars and computers suggests a strong consumer demand for the commodities. The confidence of consumers is measured by Consumer Confidence Index (CCI). Consumers’ confidence shows the optimism of the consumers on the economy. This can easily be expressed in their saving and spending activities (Barnes, 2012). Household surveys are carried out every month about the ongoing conditions and the expectations of the future regarding the United States economy. Data is available by age, region, and income for consumer attitudes and buying intentions. A healthy economy means consumers are willing to spend their money. The CCI is calculated from data gathered from 5000 households every month. Five questions are asked in the survey and each question is given a relative value. The values are calculated and compared against a benchmark value that was calculated in 1985. The 1985 benchmark value is as is because that is when the CCI was first calculated. From the results, an index value is obtained for each of the five questions. The average index values of the questions are obtained and forms the consumer confidence index. Consumer spending is very imperative to a countries’ financial health. Consequently, the CCI is closely and accurately watched economic indicator. Changes of below 5% are usually said to be inconsequential. On the other hand, changes of 5% and above show very strong change in the direction of economy (Barnes, 2012). Competitors and the market While Apple is a leader in the industry, this does not mean that the firm does not have competition. The main competition is from Research in Motion who is the manufacturers of yet another market leading Smartphone, Samsung, which is a Korean electronics manufacturer that is catching up very quickly with the American manufacturers and finally Huawei which is a Chinese mobile communication devise manufacturers who have recently entered the market for Smartphone (Russolillo, 2012). Huawei especially offers a very different kind of competition because apart from having the advantage of the Asian cheap labour from china, it has a very keen focus on manufacturing low cost Smartphone and have entered into strategic coalitions with such giants as Google and a number of mobile phone operators in the world. The market in which Apple is very competition and the competition is reaching perfection (perfect completion) especially due to the globalization of commerce. The main challenge in the industry is the uncertainty of the industry (Brady, 2012). The firms in this industry including Apple have to always be on their toes because if any of the other competitors come up with a leading edge technology their products would be rendered obsolete in a matter of one day. As a result, Apple has to continuously invest hugely in research and development to continually come up with the next being thing in their product lines. These huge research costs have to be reflected in the price of the firm’s products and thus the demand is pushed down. However, because Apple focuses on the upper market, the competition is lower on it especially with regard to the fact that the firm is a leader in the market. Demand elasticity for Apple’s products Apple’s products are an envy of many a consumers and anyone will want to have one. As a result, the demand for these products is highly elastic and the lower the prices the more products the market will demand. Due to the fact that Apple is a technological leader, the products of the firm are usually launched into the market at a very high product price and many people, while wanting to own these products, cannot because the prices can sometimes be quite prohibitive especially in these hard economic times (Russolillo, 2012). However, after the product is launched into the market at a high price, the product then gradually reduces in price and more people are able to buy the product. This is also especially important because the firms launches a new version of its products very often and therefore it is important for the firm to use the elasticity of demand in order to clear the stock for the upcoming new products. Using this type of price manipulation, Apple is able to maximize its profits for each innovation that to comes up with and helps in making sure that all the levels of the available market, such as high end and low end markets are served equally. This is unlike some of its competitors such as Huawei of China that has focused on the low-end market for all its consumer products such as the Smartphone and tablet computers (Russolillo, 2012). Pricing strategy of Apple Inc Apple’s pricing strategy is that of price or market scheming. As discussed above, apple is a leading technological firm and most of its products are usually market-leading products. In other words, Apple leads, others follow. The implication of this however is that the firms has to incur more research and development costs than its competitors and the firm has to recover as much of this as possible before the technology they have invented floods the industry. To do this, they have to sell their products at high prices at first to recover the research and development costs. This kind of pricing works for any innovative product because the high-end market is not shy of spending a few more dollars on cutting edged product when it is new to the market before everyone owns it (Barnes, 2012). It works for Apple very well because their products are very innovative and usually when they launch a product, it is new and of its own kind. Apple also launches new products and new versions of these products very often and this means that the firm is able to benefit from price scheming because every occasionally they will have a product to be introduced into the market. However, with new competitors such as Huawei showing up in the market, Apple may need to review its pricing strategy and consider producing products that are specifically directed to the low-end market rather than producing expensive products. Further, the company schemes its products down to the low-end market. A good example of Apple’s competitor that is using this strategy is Huawei and it is doing this by producing both products for the high-end market as well as for the low-end market (Brady, 2012). Cost categories Research and development R&D costs are the highest costs that Apple has to deal with. As explained, Apple is a leader in the industry and this means the firms has to invest a lot in research and development. As a result, these costs can be said to be well managed and there is no need to revise them since the driving force of the firm is based on the research and development. Investing in research and development has helped Apple to a have a firm grip on the market. A good thing to know about R&D costs is that there are no boundaries and the firm’s management has been prudent in identifying how far they should go in terms of funding their research and development. The firm can use metrics and historic data to determine the relationship between the amount of finances invested in R&D and the returns on sales and profits. This can be used to identify the equilibrium and identify the optimal investments in research for Apple (Barnes, 2012). Salaries and wages, labor Salaries and wages have become a very big problem for American firms and most of them are doing whatever they can to make sure that they are able to cost on costs. One strategy that most of these firms are using includes migrating manufacturing jobs to places where the cost of labor is quite low such as in Asia (Russolillo, 2012). Apple has already done this and most of its manufacturing jobs have been exported to China to help in cutting labor costs. However, this is not a long term plan because research has shown that as more and more firms transfer their labor to China and India, the cost of labor in these places is increasing to fulfill the laws of demand and supply (for labor). Distribution costs Apple has a number of Apple shops in major cities that sell its products. It also has a number of independent distributors to help in reaching a wider market. With regard to its distribution costs then, it can be said that Apple is doing very well and there are no specific ways to reduce the costs. Profit maximization Apple has been very good at maximizing its profits. Its profit maximization strategy can be seen in the following two things that Apple uses. Cost management: Apple has managed to cut its costs by large by exporting its manufacturing jobs to China where it is able to acquire cheap labor. By tapping this cheap labor, the firm is able to increase; its profits by increasing the profit margins because products that gave been producing using lower costs will have wider profit margins (Brady, 2012). It also manages to increase sales and thus increasing profit volumes. This is because low production costs allows Apple to sell its products at lower prices and thus sell more, because as it has been discussed in this paper, the demand for Apple’s products are elastic. Price scheming: price scheming has helped Apple to increase its profitability because the firm is able to get high returns from its new products once the product is launched into the market. Because Apple produces high quality and innovative products, the high-end market is ready to pay a lot of money on Apple’s products when they are new in the market. During this time when the products are sold at high prices, the firm is able to recover its research and development costs as well as gain many profits (Barnes, 2012). Once the high-end market is exhausted, Apple schemes down its prices for such products and lowers the prices to tap the low-end market. As it does this, it launches another innovative product and the chain continues in such a way that the firm always have new products giving it high returns while the older products are used to collect any potential sales in the low end market. Conclusion Apple Inc is a leading manufacturer of consumer electronics. The company has developed unique products which has made it to dominate the electronic industry for a long time. Key to its success is the high rate of innovation and research, which has enabled it to come up with unique products that its competitors are finding it hard to beat. Further, the demands of Apple’s products are on the increase because the company manufactures high quality products than its competitors especially Samsung. Reference Brady, S. (2007, September 07). Apple, iPhones, and Demand Curves, and “Price Discrimination”. Retrieved April 9, 2013, from Professional Notes: http://theprofessornotes.com/archives/224?utm_source=rss&utm_medium=rss&utm_campaign=apple-iphones-and-demand-curves-and-price-discrimination Barnes, R. (2012). Economic Indicators: Gross Domestic Product (GDP). Retrieved April 9, 2013, from Investopedia.com: http://www.investopedia.com/university/releases/gdp.asp#axzz25sz9sORt Russolillo, S. (2012, August 20). Apple Market Value Hits Record High. 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