Critical Thinking Assignment about IPhone
The price elasticity of iPhone is the responsiveness of the quantity of these phones demanded by the clients across the globe to the change in its prices. Apple Inc. is the company that is responsible for the manufacture of iPhones. Iphone 2g was the first type of this model that was introduced to the global market on June 29, 2007. The prices began from $599, and it has substantially changed since that time.
Sumra states that the prices of iPhones have significantly changed mainly because of the increased demand and the quality (1). This increase in customers compelled Apple to reduce the prices to up to $399. This is a strategy that was aimed at overcoming the competitors. Competition is one of the major factors that determine the price elasticity of demand for Apple. Some of the most frequent competitors in the market of smartphones include Samsung, Techno, Nokia, and others. As such, the company has to ensure that they have reasonable prices to maintain their clients.
Sumra verifies that the elasticity of supply is another type of elasticity measures that applies to the sale of iPhones (2). In most cases Apple Inc. as a perfectly elastic supply when the supply of iPhone at $399. When the price is increased, the supply becomes zero. This is a clear indication that the users and customers are comfortable with this price.
It is important to note that Apple has developed various models of iPhones. Some of the most common models include iPhone 6, iPhone 7, and iPhone 7 plus. All these models have different prices mainly to ensure that the customers have a broad range of prices to choose.
According to Edwards, Apple has grown and developed to be one of the most successful global companies due to its marginal product of labor (1). The company employs competent, qualified, and innovative employees to ensure that the work output is enhanced. As well, these employees are responsible for the design and production of quality products such iPhone. The major components of the iPhone cost structure include fixed costs and variable costs. For instance, the fixed cost of iPhone 7 plus entails the cost of direct labor and the manufacturing overhead. On the other hand, the variable costs include the employee’s salary, taxes, and transport costs. Several strategies can be used to convert fixed costs to variable costs. This is mainly because the proportion of FC and VC affects the company’s profitability and pricing. In the case of iPhones, Apple needs to sell more units to enhance their profitability. This is one of the most practical and efficient strategies of converting FC to VC.
According to Richter, the break even for iPhone is as follows: the wholesale price of each iPhone is considered as approximately $500 (1). The variable cost is estimated to be $250 while the fixed cost is at 50 million. This mean to determine the break even, it will be indicated by USD 50 million divided by US 500 million dollars and then less USD 250.
IPhones’ Break Even= (50,000,000/500)-250
Apple’s cost structure substantially affects the ability to react to changes in the overall economy. In essence, it affects the profitability of the company. This is mainly because the company has to sell several units with the primary objective of enhancing profitability through increased sales.
Edwards asserts that the difference in various models of iPhone reveal varied marginal costs (2). For instance, an individual who buys the iPhone 6 will have fewer prices by $84.50 as compared to the person who buys the iPhone 6 Plus model. The manufacturing cost is the primary source of this variation in prices leading to the marginal costs.
The marginal cost structure plays a crucial role in the pricing and promotion strategies of iPhone. In this case, the company increases the prices of iPhones with enhanced features such as increased memory, processor speeds, screen size, and camera resolution. In that connection, more resources are concentrated on marketing the models with advanced features.
Richter maintains that Apple Inc.’s market structure, especially in the iPhone market, can be considered as Oligopoly (2). In the case of Oligopoly, the market is controlled and governed by a small number of competitors. Apple Inc. has dominated the market of iPhones mainly because it is too expensive for rival companies such as Samsung and Microsoft to outshine them. This is a clear indication that this is the primary market entry barrier to the competitors. One of the key features that have contributed to the dominance of iPhone in the market is its operating system iOS. Apple keeps on updating this operating system to ensure that they are competitive.
The market structure substantially affects the business strategy and pricing. For instance, by dominating the market for iPhones, Apple has increased its sales and profitability. As well, they control the prices since the competitors have minimal influence on their business. It is imperative to note that Apple operates at a perfect competition. This is the type of market structure whereby there are many firms, and there are perfect information and knowledge. Apple’s productive and allocative efficiency has been the main reason for the increased profitability and the dominance of the market.
International trade has led to the increase of iPhone customers. As such, this has been vital for the company’s increased profitability and customer base across the globe. As well, globalization has effects on the business strategy and pricing. For instance, it has led to increased competition. Thus, the company has to regulate the prices of phones to ensure that customers are not lost to the competitors such as Microsoft and Samsung.
- Edwards, Jim. “You’re Delusional If You Think The Price Of The iPhone 6 Won’t Be Crucial To Its Success” Business Insider, July 7, 2014. Available online at http://www.businessinsider.com/iphone-6-prices-2014-7
- Richter, Felix. “The Price of an iPhone 6s Around the World” The Statistics Portal, 2016. Available online at https://www.statista.com/chart/4883/iphone-prices/
- Sumra, Husain. “Apple Boosts Prices on iPhones and Other Products in Europe” MacRumours September 7, 2016. Available online at http://www.macrumors.com/2016/09/07/iphone-7-7-plus-uk-price-increase/