Apple - Demand Estimation and Sales Forecast - Research Paper Example

DEMAND ESTIMATION AND SALES FORECAST: APPLE Name University Course Tutor Date Demand Estimation and Sales Forecast: Apple Executive Summary Apple, Inc. has continued to show involvement in the design, development, and sale of PC and computer services. The organisation boasts of 72,800 permanent full-time workers alongside 437 retail stores in 15 nations. It is also characteristic of operating the online iTunes Store and Apple Store with the former being the largest retailer of music in the world. This paper has key focus in the demand estimation and sales forecasting of Apple, Inc. In the model employed in Apple’s demand estimation, the dependant variable is represented by demand with advertising, sales, income, and price being independent variables. The impact of the independent variables on demand has been used as the basis for their choice. In the course of estimating the demand of Apple’s products, it is essential to have an understanding the structure of the market in which the company ventures. The demand of iPhone (a smart phone by Apple) is a strong point of evaluation while doing the demand estimation for Apple, Inc. Currently, the iPhone exhibits a strong demand implying that estimation could reveal continued high demand for the company’s products. A discussion of the demand estimation illustrates several factors that have contributed to the strong demand exhibited by several products of the company. On the other hand, sale forecasting presents one of the most important components in business. It can precisely be defined as a business’ prospected sales. The forecast of sales is essential in laying out the future plans of the business. For the case of Apple, Inc., it indicates a strong performance despite the presence of some fluctuations. The company is characteristic of strengths and opportunities that favour the strong performance while weaknesses and threats cause a decline of sales. Introduction Apple Inc. refers to an international company based in the US with headquarters in the Californian town of Cupertino (Apple, Inc, 2015). The company is normally involved in the design, development, and sale of PC services. Apple’s most widely known hardware products are inclusive of the iPhone Smartphone, Mac line of computers, iPhone tablet computer, and iPod media player. On the hand, the company’s online services are inclusive of the iTune Store, the App Store, and iCloud. The company’s computer software is inclusive of OS and OS X operating systems, the Safari web browser, and iTunes media browser (Apple, Inc, 2015). The company was founded in the year 1976 by three individuals namely Steve Jobs, Ronald Wayne, and Steve Wozniak, with the objective of developing and selling personal computers (Apple, Inc, 2015). In the month of January 1977, the company was incorporated as Apple Computer, Inc with renaming as Apple Inc. being in the year 2007. Statistics indicate that Apple is the second most outsized information technology company in terms of revenue. In addition, the company is ranked first among the most outsized technology companies by assets and third among the most outsized mobile phone makers. Ideally, the year 2014 saw Apple Inc. become the first American company to have a value tag of more than $700 million. The company boasts of 72,800 permanent full-time workers alongside 437 retail stores in 15 nations. The company is also characteristic of operating the online iTunes Store and Apple Store with the former being the largest retailer of music in the world. In the year 2014, it was reported that Apple had annual revenue of $182 billion for the fiscal year that ended in October, 2014. The company has continued to enjoy an immense deal of brand loyalty with Interbrand Best Global Brands report valuing it at $118.9 billion hence the valuable brand in the globe (Apple, Inc, 2015). At the same time, the company has been managing an immense deal of criticism with respect to its contractors’ labour practices, business and environmental practices, and source materials’ origins. Choice of Variables In the model employed in Apple’s demand estimation, the dependant variable is represented by demand with advertising, sales, income, and price being independent variables. The impact of the independent variables on demand has been used as the basis for their choice. Ideally, economists have realized that these independent variable act as the significant determining factors of demand of goods and services (Delsalvo, Kennon, & Koch, 2005). Income-the demand of goods and services is highly affected by the income of the population from which product consumers originate. The conventional rule has it that increased demand is a consequence of high income levels, where else, a decline in demand is a consequence of low income levels among the people. This draws substantial illustration from various modern economies. For instance, companies operating mostly in third world countries experience low demand for their products owing to a big number of low income earners in those countries. Income has significant effect on the demand for Apple’s products considering that this company mostly deals in luxurious goods and services rather than necessities. Low income earners, will indeed, opt for similar products from other companies which have less valuable brand than Apple Inc. As a result of the high value associated with Apple brand, for example, customers will prefer smartphones from such other companies as Samsung and Nokia to those from Apple, Inc. This practice will mostly affect the third world countries having the primary consequence of falling demand for Apple’s products and services in these particular regions (Parnell, 2006). Advertising-Purchasing behaviours of individuals tend to draw an immense deal of illustration from the mode of advertising used by various manufacturers. This has more profound meaning considering that different –forms of advertising have different levels of influence on people from different age groups. Notably, Apple is a technology company thus the level of technology employed by the company in its advertisements significantly determines the preference of product consumers. This explains why the company is making tremendous effort to enhance its advertisements, and indeed, almost gaining edge of its close competitors. For instance, from the year 1997 to 2002, the company successfully used the “Think Different” slogan to enhance its advertisement campaigns (Angelus & Porteus, 2002). In addition, the company has also been using different slogans for specific product lines. For instance, the company has used the slogan “Say hello to iPhone” in the advertisement of smartphones while the advertisement of iMac has made use of the slogan “I Think, therefore iMac” (Armstrong, 2006). In the course of time, the products of Apple have been met by an immense deal of attention as a result of the use of catchy tunes and eye-popping graphics in their advertisements. Success in the company’s advertisement campaign will thus have increased demand for products and services as one of the consequences. On the other hand, poor advertisement strategies will attract less people to the purchase of products thus a significant decline in the demand for the company’s products. Price-Price is one of leading determining factors of demand. This is because price has directly determines the affordability of a product by an individual or a population. Assuming that all other factors remain constant, an increase in price always has the implication of reduced demand, where else, a decrease in price always has the implication of high demand for products and services. One of the challenges that have been facing Apple Inc. (in the course of competing with other technology companies) is the high value associated with its brand. This has the implication that products from Apple would normally trade at higher prices than similar products from other technology companies. As a result, a significant group of people will do a comparison of prices offered by various companies and go for the cheapest commodities. This explains why the pricing strategy of a company is one of the factors that have greatest influence on the success or failure of the company (Bass, 1969). Ideally, Apple has to put into consideration an array of factors while coming up with its pricing strategy in order to match the pace of competitors. Sales-A company’s sales volume also has some influence on its demand. This has the implication that, the trend of sales recorded by a company is much essence when estimating the demand for products and services of that particular company. In the event that, a certain company’s products are fast moving in the market, people tend to develop the perception that such a company manufactures goods of better quality than its competitors. Consequently, more customers will prefer to do their purchasing from such a company, simply on grounds of pre-set perception. It can thus be said that the past few years have been market friendly for Apple, Inc. as a result of high sales volume that has previously been recorded by the company. Indeed, high sales have enhanced the reputation of Apple, Inc to the level of the second most outsized technology company in the globe. Market Structure In the course of estimating the demand of Apple’s products, it is essential to have an understanding the structure of the market in which the company ventures. Despite the inflated prices of Apple’s products, the company has been able to create an immense deal of brand loyalty. Ideally, the company has been able to market the standards of its products portraying an immense deal of luxurious life. It can be argued that Apple has been operating in a monopolistically competitive market with the company exhibiting control over high prices (Bose, 2002). Ideally, the company has created a standard to their electronics and software in which they place a requirement for their consumer base to be exaggerated price. The unique Apple logo, several trademarks, and quality have enabled Apple differentiate its electronics and software from those of other competing companies. Ideally, the management of Apple, Inc. has been boasting of being completely different from other competing technology companies. Indeed, the uniqueness of Apple’s brand has been the key reason behind the success of the company in the hands of inflated prices for its products (Decker & Gnibba-Yakawa, 2010). This can thus be said to be a significant contributing factor to the strong demand for products and services from the company. Ideally, the strategy by Apple to have key focus on its core competencies to differentiate itself has resulted to the company’s emergence as a technological powerhouse. Notably, Apple exhibits an immense deal of mastery in knowing how to reward its customers, creation of ideas that cannot easily be imitated by competitors, and leverage Apple extensively to several markets and products. The operation in a monopolistic society has made the effect of Apple crumble. The international company has exhibited capability in maintaining product consumers in the short run that had more interest in the details of the company than its prices. In the event a business is capable of making profit in the short run, it eventually comes to an equilibrium point in the long run considering that its demand will finally decline, as it has been illustrated by various brands in the contemporary economy (Utility-Based Approach). As a result of this, in the long run, the monopolistically competitive company will end up in a zero economic profit. Owing to the fact that Apple has gained substantial profits the company’s brand loyalty, it has the certainty that a number of loyal customers will remain purchasing from the company despite the inflated prices. Ideally, companies that are monopolistically competitive (with the example of Apple, Inc.) have establishment of logos and brand names, alongside mass advertising as their main drivers. Notably, high, intellectual connotations act as the main marketers of Apple’s electronics and software (Fildes & Kumar, 2002). There other technology companies that offer electronics and software using the latest technology but the atmosphere of Apple’s outlets and the advertising draw more customers than the competitors. It can thus be said that people are purchasing more Apple products as a result of the logo and the status associated with these products. In the estimation of demand for Apple’s products, it can thus be said that the logo and uniqueness of company brand will keep it high despite the high prices for products. iPhone Demand Estimation Apple’s demand estimation can sufficiently be illustrated by taking a sample product-one of the products by which the company has become highly reputable. The demand of iPhone (a smart phone by Apple) is a strong point of evaluation while doing the demand estimation for Apple, Inc. Currently, the iPhone exhibits a strong demand implying that estimation could reveal continued high demand for the company’s products. As a result of the high demand for iPhone, there is a possibility that the second-quarter of the year could see the company’s sales hit $24.42 billion. The last quarter saw the company sell 18.4 million iPhones as compared to 16.6 million from the previous quarter. A strong demand for Apple’s products can also be illustrated by the presence of higher shipments than expected. In this case, the estimation of demand for the next three quarters is done based on the demand of the two last quarters. Figure 1: Demand Estimation for Apple iPhones (iPhone 6 plus) (Campbell, 2015) Statistical Results Interpretation Increasing demand for iPhones is believed to draw significant influence from the availability of the Verizon iPhone alongside the GSM version of the iPhone. It is worth noting that, this data has been drawn from the estimation of a single product (iPhone) but can possibly reflect the trend in other products sold by Apple, Inc. For instance, the demand of the iPad Air 2 grew with almost the same margin-the 4th quarter of 2014 and 5.4 million while the 1st quarter of 2015 had 6 million. The data provided in this estimate can be interpreted as Apple’s edge on close competitors. The upward trend of demand on various Apple’s products has the implication the company is competing sufficiently with other technology companies. The fact that such a product as the iPhone 6 Plus is showing strong demand implies that the company has substantial strength in brand loyalty. The availability of this version of iPhone significantly boosts the company’s sales thus the conclusion that the company is enjoying substantial support from loyal customers. Analysis for alternative scenarios As it is common with business in all industries, Apple, Inc. faces substantial challenge from products manufactured by other technology companies. An outstanding example is found in the business of smart phones, where by, Nokia and Samsung have making products with similar features but at cheaper prices (Graefe A. & Armstrong, 2011). This can well be defined as substitution threat with prospects that Nokia and Samsung will extend their innovation in the manufacturing of smart phones in order to compete sufficiently with Apple, Inc. Market analysts predict that many product consumers (especially in low income countries) will not sustain the prices of Apple products thus a high tendency of shifting to other manufacturers. Indeed, with high probabilities of financial crises, the future could have strong demand for Apple products only in the developed world. Interpretation of the elasticity and the implication to pricing strategy Apple, Inc. makes use of a pricing strategy that is keen to observe the existence of demand elasticity. Ideally, demand price elasticity examines the margin of change of demand in case the price of a certain product changes. Therefore, a comparison between the price and demand for a certain product sufficiently determines demand price elasticity. In an example, the demand for the iPhone 6 Plus will be expected to be low if Apple, Inc. decides to increase the product’s price with a significant margin. In this case, it is assumed that the prices of other versions of smart phones (including those manufactured by Apple) will remain constant. It is also expected that if the prices of various products go up in Apple, the competing companies will try to lower their prices in attempts to gain a competitive advantage over Apple, Inc. This has been witnessed across all industries in contemporary economies especially as companies try to get international. Ideally, the price and demand for various products will always exhibit changes in the opposite directions (Ivanov, 2009). In other words, the higher the prices of Apple products the lower the demand will be, where else, lower prices of the company’s products will definitely lead to higher demand. Lower demand for Apple products will not only be as a result of high prices for commodities but also lower income levels among the prices. The buying potential of a certain population is determined by its average income level. This explains why the expensive products manufactured by Apple record stronger demand levels in the developed world than the developing and transition economies. The argument of demand versus income is further illustrated by the fact that Apple deals in luxurious products. As a result, a low income individual will not go for inflated Apple products at the expense of his/her necessities. Implication of results to business policy In order to remain relevant in the technology industry, Apple ought to employ professional strategies capable of balancing the positive and negative effects of socio-economical factors on demand. Otherwise, the company’s business could be at a big risk as a result of fluctuations in the global wealth and the recurrence of financial crises (Kahn, 2002). Apple ought to make strategic management polices that can broaden its customer base. This is to ensure that the company competes sufficiently with other technology companies yet at sustainable prices for products. Apple ought to invest more in innovation which has been one of its principal strong points over the years. Indeed, it is believed that Apple does better than its competitors because of an immense deal of innovation which has actually led to its unique brand. Forecasting Ideally, sale forecasting presents one of the most important components in business. It can precisely be defined as a business’ prospected sales. A high profile company like Apple, Inc. is always in need of sales forecasts in order to plan sufficiently for the future. From past experiences, business analysts have found out that sales forecasting is a model that can reveal the trend of business at various times of the year (Kahn, 2006). This is because sales for coinciding quarters of the year will tend to have similar margins of sales and demand. There are two broad categories of sales forecasting which are qualitative and quantitative. Subjective judgment on grounds of non-quantifiable information (like research, management expertise, development, and labour relations is made use of the qualitative method of forecasting. Notably, history of demand of a service or product is not a requirement in the qualitative method of sales forecasting. On the other hand, the use of questionnaires, case studies, focus groups, subjective reports, interviews, and observations dominate the quantitative method of sales forecasting. Outsized companies are faced with the challenge of variation of obtained results as a result of the use of either the qualitative or qunat9itative method of sales fore casting (Malhorta & Birks, 2007). In this case, it has been found out that lower customer traffic or average value transactions are the principal challenges. They negatively affect earnings per share, comparable store sales, operating income, and revenues. . These risks are as a result of impacts of competitors’ initiatives, lack of acceptance by customers to pay more; and unfair competition. Lack of adequate sites for real estate lasing alongside untimely opening of stores (because of unavoidable circumstances) present the company with substantial challenges hence inability to realize its targets for the year (Meade & Islam, 1995). As a consequence, the operating income, net revenues, and earnings per share end up facing a huge blow. Other risks include delayed shipment of material or products and low supply in some of the company’s outlets. While doing sales forecasting for the four quarters of a year, it becomes sounder to use the qualitative method because of its great deal of emphasis on expert research real time analysis. This has the implication that the sales forecast for Apple has used the qualitative method and includes forecast for the four quarters of the year 2015. Figure 2: Sales forecasts for Apple for the FY 2015 (Moga, 2014) Explanation of the Data Sales forecast for the iPhone indicates that the company will sell approximately 60 million units in the next quarter. This can, however, be considered to be a low estimate considering the strong demand recorded by the emergent larger models. According to the estimate, it is expected that the company will sell approximately 22 million units of iPad. This product exhibits the lowest fit implying that there is a high probability of the actual number deviating from the forecast. In the next, the company could sell approximately 5.2 million Mac units. A look at the seasonal factor for the three products can reveal an interesting trend. iPhone and iPad exhibits similar sales distribution between quarters but with significant difference from the Mac. This could have the implication that the product consumers considers iPad and iPhone to be similar with the impact of the holidays being more significant on the iPad. Mac reveals an even distribution of sales through out the year to imply that they are purchased on need but not on grounds of holiday promotions. Seemingly, the estimation could be subject to considerable changes as a result of the presence of additional cycles in the data of sales. Ideally, the Mac is characteristic of a 5-quarter cycle, where else, the iPad is characteristic of a 3-quarter cycle (Dixon & Adamson, 2013). There is improvement of the fit between historical sales and forecast; however, there is no functional explanation on the cause of the cycles. Consequently, business analysts of the company ought to be cautious in their treatment of the results. There is a possibility that these are random artifacts; therefore it is necessary to make observation of forecasts from several years in order to achieve a more reliable evaluation. Discussion of the Results Despite some fluctuations, the forecast indicates a strong performance by Apple which can be attributed to a number of factors. Firstly, the company is known to be highly innovative. Indeed, the company has a culture of staying ahead of the technology curve, despite its fast movement. This draws substantial illustration from the launch of the iPhone and the iPad in 2007 and 2010 respectively. The recent release of the iPhone 6 Plus placed Apple in a better place to compete with Samsung with respect to smart phones considering that the latest version from Apple offers various display sizes. Other innovative products of the company are iPad Air 3, iPad Pro, and iPad Mini 3 (Sousa C. & Bradley, 2009). The strong performance of Apple (as indicated in the forecast) could also be a reflection of rock-solid finances. Apple, Inc. has been enjoying substantial finances since the launch of the first iPhone. For instance, the company boasts of approximately $38 billion of cash assets alongside $127 billion worth of long-term marketable securities. These finances have been key to support such strategic acquisitions as the Beats Electronics worth $3 billion (Zylla-Woellner, 2013). The strong performance by Apple can also be attributed to the company’s market-share growth. Ideally, the company boasts of enough room of market share expansion in the traditional computing space. Indeed, the company is characteristic of approximately a fifth of the global PC/tablet pie with high prospects of growth of this number. This growth is expected to draw substantial influence from emerging markets in China and Asia/Pacific. There are also prospects that increased penetration of iPhone in the essential BRIC geographies as the company reveals new deals with local wireless carriers who are associated with an immense deal of influence (Reiner, G. ,Natter M. & Drechsler, 2009). However, it can be noted from the forecast that there some prospected falls in the company’s sales as a result of a number of reasons. One of such reasons is competition which provides several tech outfits with the principal threat. This is because of the persistent product cycles, fickle nature of contemporary product consumers, and rapid move towards commoditization in the technology sector. Apple, Inc. exhibits high susceptibility to price especially because of cheap rivals from China alongside other parts of the globe. Sales of iPads could also be hurt by cannibalization as the company continues with the expansion of its mobile internet devices’ platform. Decline in sales could also be attributed to Gross Margin Pressures. Ideally, these could be a consequence of increased competition, increased prices of components, and shortages of products. There is also a general shift from the iPhone which has been the dominant product over the years; this could significantly squeeze profits from the company as well. References Angelus, A. & Porteus, E.L. 2002. Simultaneous capacity and production management of short life cycle, product to stock goods under stochastic demand. Management Science, 48(3), pp. 399 413. Apple, Inc., 2015. About Apple, Inc. [online]. Available at: < https://www.apple.com/> [Accessed 7 May 2015] Armstrong, J. S. 2006. How to make better forecasts and decisions: Avoid face-to-face meetings. Foresight - The International Journal of Applied Forecasting, 5, pp. 3-8. Bass, F.M. 1969. A New Product Growth Model for Consumer Durables. Management Science, 15, pp. 215-227. Bose, R. 2002. Customer relationship management: key components for IT success. Industrial Management and Data Systems, 102 (2), P89-97. Campbell, M., 2015. KGI: iPhone sales forecast at 73M for Q4 ahead of Apple Watch debut in March, 12" MacBook Air in Q1. [online] Available at: < http://appleinsider.com/articles/15/01/24/kgi-iphone-sales-forecast-at-73m-for-q4-ahead-of-apple-watch-debut-in-march-12-macbook-air-in-q1> [Accessed 7 May 2015] Decker, R., & Gnibba-Yakawa, K. 2010. Sales Forecasting in High-Technology Markets: A Utility-Based Approach. Journal of Product Innovation Management, 27, pp.115-29. Delsalvo, D., J. Kennon, & E. Koch., 2005. The Complete Idiots Guide to Investing 3rd Edition. New York, NY: Alpha Books Dixon, M. & Adamson, B., 2013. The Challenger Sale: Taking Control of the Customer Conversation. City of Westminster: Portfolio/Penguin. Fildes, R., & V. Kumar.2002. Telecommunications Demand Forecasting. AReview: International Journal of Forecasting, 18, pp. 489-522. Graefe A. & Armstrong S. J. 2011. Comparing Face-to-Face Meetings, Nominal Groups, Delphi and Prediction Markets on an Estimation Task. International Journal of Forecasting, 27(1). pp. 183-195. Ivanov A., 2009. Using Prediction Markets to Harness Collective Wisdom for Forecasting. Journal of Business Forecasting, Fall, pp. 9-14 Kahn, K. B. 2002. An Explanatory Investigation of New Product Forecasting Practices. Journal of Product Innovation Management, 19, pp. 133-143. Kahn, K. B. 2006. New Product Forecasting: An Applied Approach. Armonk, NY: ME: Sharpe. Malhorta, N. K. & Birks, D.F. 2007. Marketing Research: An Applied Approach, 3rd ed. London, England: Prentice Hall. Meade, N. and Islam, T. (1995). Growth curve forecasting: An empirical comparison. International Journal of Forecasting, 11(2), pp. 199-215. Moga, G., 2014. Predicting Apple sales for the next year. [online] Available at: < http://exde601e.blogspot.com/2014/12/predicting-apple-sales-for-next-year.html> [Accessed 8 May 2015] Parnell, J., 2006. Strategic Management. 2nd ed. Cincinnati: Atomic Dog. . Reiner, G. ,Natter M. & Drechsler, W. 2009. Life cycle profit : reducing supply risks by integrated demand management. Technology Analysis & Strategic Management, 21(5), pp. 653-664. Sousa C. & Bradley, F. 2009. Price adaptation in export markets. European Journal of Marketing, 43(3/4), pp. 438-458. Zylla-Woellner, J., 2013. Business Analysis of Apple Inc. Munich: GRIN Verlag. Read More