Analysis of Competitors
For a company dealing with research and development to produce high-tech products, Apple faces many strong competitors such as Google, Microsoft, HP, Amazon, and Samsung. The company does hold a high stake in the IT industry and thus the company is left to search for better means of beating the competitors. Apple Inc. has then discovered a secret for a means of survival and development in the market. This is keeping innovation at its best. The products by Apple are made to be unique and stand out in the market. With this perspective, Apple aims to be competitors through producing products that are impeccable, luxurious, technological and providing a sense of fashion thereby attracting customers to its goodies.
Apple has always worked to differentiate itself from other players in the smartphone industry. On the most common being the 3, 5-inch screen. The unique features of the Apple Inc. smartphone have left other competitors rushing to release the high-end phones to the market but have been unable to keep up the pace (Michalowski, 2007).
The iPhone 7 that was released in 2016 has had its share of competition from the Android-based competitors. The model comes with some improvements over the iPhone 6s with features such as improved cameras, water resistance, and higher computing capabilities. The iPhone 7 has a new feature regarding the dual-camera setup that compares to the one in Huawei P9 and LG G5. These cameras are similar though one comes with a wide-angle lens while the other has a lens with greater focal length.
The biggest rival that Apple faces in the smartphone competitive environment is from Samsung. In response to release of iPhone Samsung Electronics launched their Samsung Galaxy S7. iPhone 7 operates in the IOS 10 operating system while Galaxy S7 runs on the Android version of Marshmallow. In this connection p, the iPhone has some advantages in that the system is able to overcome some minor specification difference such as reduced amount of RAM (Donegan, 2016). The iPhone is found to operate on an A10 Fusion Processor compared to the Galaxy S7 that runs on Qualcomm Snapdragon. Samsung S& has a RAM of 3B as compared to that of 2GB in the iPhone. The Galaxy S7 beats the iPhone regarding display bearing the potential of nearly four times more pixels than the iPhone. However, the competitive edge that was associated with the Samsung’s S7 was short-lived as major flaw emerged in terms of the phone batteries exploding and busting in flames thereby making these phones to be recalled. This gave the iPhone an advantage of iPhone over Samsung (Donegan, 2016.
In comparison to the Android phones, the iPhone 7 has greater capabilities in its IP67 water-resistance. In terms of camera capabilities, the Huawei-built nexus 6P and LG G5 have placed higher o the stack. In comparison to most Android phones, the iPhone lags behind in the screen performance and battery capabilities. The new iPhones have no headphone jacks nor removable batteries as well as expandable storage (Donegan, 2016)
In an industry with more than 1000 companies producing smartphones, Apple only supplies less than 20% of the smartphones products but records 92% of the global smartphone profits in an environment where other producers struggle to break even. Samsung recorded disappointing profits, while HTC Corp. reported a loss in the quarterly statements and Microsoft had to value down the smartphone business it acquired from Nokia by 80%n (Ovide& Wakabayashi, 2015).
Apple’s Comparative Advantage and International Trade Opportunities
Apple Inc. exists in an industry that has many competitive and comparative environments for it to exploit. The company has relocated its production units to China where it takes advantage of low cost of production. This factor contributes to the location of the Apple’s assembly line in China and other selected Asian countries. Through this move, the company can attain efficiency at a low cost of production. Apple also maintains the capabilities of making unique designs coupled with great marketing capabilities. The company has long-term strengths that grant it a lasting edge over is rivals in terms of a protected ecosystem in which it operates and the unique brand appeal.
For the protected ecosystem, the Apple produces devices that operate on IOS as compared to other companies that have a common operating system based on Google’s Android operating system. This implies that the customers with a need to remain in the system need to upgrade with other IOS devices. This is a way of locking the consumers into the continued adoption of the Apple devices. This is, however, different from the competitors who can easily switch between one manufacturer to the other. As the Android OS in free and open source, any company can develop and makes sales on Android phones. The chipmakers have developed a trend of assisting companies to launch quickly by use of reference design. This has been to the disadvantage of big companies such as Samsung, HTC, and Sony through loss of share to low-priced rival such as Techno.
The brand appeal for Apple’s products continues to be viewed as a luxury brand. This helps the company to produce and sell premiums those other average prices. Despite having low end-specifications that it’s rival Samsung, the Apple products are sold for the same price of even higher. This offers a comparative advantage to Apple to sell its products at a higher profit margins and higher sales volume as compared to its android-operated rivals. Apple has an advantage of brand appeal in the high-end market that most competitors are unable to tear down with their strategy of selling devices composed of cheaper components (Sun, 2015
Factors Affecting Supply, Demand, and Pricing
With the sales of iPhone 7 being underway, Apple put in place mechanisms to boost the business. The company does not, however, give early sales figures. Some indicators still point out to the decent demand. These may be pointers that Apple is observing an uptick in the average selling price of the iPhone. Another crucial factor to consider in this connection is the weaker demand that was observed with iPhone 6S. This saw the company’s revenue and net income drop for the fiscal year.
Analysis by Wall Street indicated an expected unit sales growth for iPhone by 5% for the current financial year. With this in mind, the company increased the average selling price of the iPhone 7 by $20. Surveys at the Apple stores had indicated 8% availability of the iPhone plus models as compared to other that stood at 61%. This can be associated with the added features such as an n new color referred to as Jet black that was found only in higher memory configurations. The supply of the iPhone 7 was found to be limited which may have been associated to an uptick in the production activity for the iPhone (Callagher, 2016).
Following aggressive country launches where the company carried out launches across twenty-eight countries on day one, the supply was greatly affected as well as leading to optics of heightened demand. In this connection, it was noted that the company had few quantities of iPhone 7 Plus and iPhone & in Jet Black sold out. The products would not be able availed to the walk-in customers. The first weekend sales were not released as these were found to be components of supply rather than demand. It could also be observed that presence of strong pre-orders gave rise to a bullish expectation for the iPhone & unit volumes.
Several factors such as aggressive US carrier promotions, favorable premium class competition due to Samsung battery issue and more than the anticipated initial consumer demand can be attributed to increased demand and supply for the iPhone 7. The greater demand for the iPhone 7 can be viewed as a cumulative effect and performance of iPhone 6 and iPhone 6s. This assisted the company increase its market share and have a wider base on the premium segment of the smartphone market. In this connection, the pricing shifted from $140 to $120.
Apple’s pricing power would be affected by the iPhone 7’s relatively dated design. This may be as a result of the fact that most of the smartphones customers are used to a design innovation from the arch rivals of Apple. These companies have been releasing products that are modular, bezel-free designs and with curved displays. This may be related to the mid-life cycle promotions for the 6S which was viewed to resemble iPhone 6. This problem may be present with the iPhone thereby affecting its pricing capabilities.
Factors Affecting the Total Revenue
The total revenue and gross margin for Apple could face some contraction associated with the release of iPhone 7. This may be associated with a decline in the ASP as well as increases in the costs. The production amounts for the dual lens camera system that is a key component of the iPhone 7plus may raise Apple’s bill of material costs. Incremental costs are likely to be associated with the extra costs needed to develop higher storage capacity. Another factor is likely that is likely to affect the level of revenues is the discounts that Apple has been offering to its consumers. In the same regard, the revenue is supplemented by the discounts offered by the component suppliers. The revenue is affected by the return inwards on warranty conditions. Through upgrading the industrial design, the cost for mechanical components and assembly are kept I check. The end product quality means the fewer products are returned and associated with being faulty.
The elasticity of demand for iPhone has been calculated using limited positive number found to be inelastic. This implies that Apple has the capability of determining the price of iPhone 7 will some relative ease. This cannot, however, occur in isolation as it must be mindful of the competition. An increase in the price of the iPhone prices may prompt the competitors to decrease their prices thereby creating a big rift at the prices as a way or luring the customers to change their taste.
The price of an iPhone is larger causing an increase in the supply curve. The increased supply of this product created a shift in the marginal costs and revenues for the company.by having a higher price, the marginal revenue for the whole company decreases as the marginal cost remains unchanged. From the consumer’s end, their marginal benefit acquired from the purchases of iPhones reduces and their marginal cost of purchasing an iPhone increases.
The pricing of the iPhone 7 is also under the premium pricing. This means that the company has the potential of increasing prices as this will create a perception of a high-quality product.
Measures of Cost
The cost of producing iPhone 7 is much higher than the previous versions of iPhone. The total costs for components of making a 32GB iPhone 7 totaled to $219.80. The component that takes the largest stake on the cost breakdown is the display which comes to an estimated cost of $ 43. The iPhones several chips acquired from Intel, Broadcom, and other companies comes at the cost of $33.90. Other components worth noting are the Apple A10 processor at $26.90 and the camera system that is acquired at the cost of an estimated cost of $19.90 (Heisler, 2016).
The operation of Apple is influenced by the components of the external environment most which the company has little or no control. The political factors that influence the operations of Apple Inc. include foreign contracts in Asia with political pressure being piled on due to the supplier’s worker relations. In the economic perspective, the stringing dollar creates an issue of Apple and its product pricing, transportation cost and the profit margins. The global financial system influences international trade of which Apple is reliant upon. The technological market is fast growing and demanding more and better innovations. The consumer, electronic s business, follows an aggressive philosophy on innovation. This put pressure on the company on the need to providing unique and advanced technology to enable it retains customers and reach out to new customers. To achieve this, the company needs to invest in research and development to beat the competition and survive on the short product life cycle characteristic of the industry. The company is well known for its unique designs but the trend in moving to concentrating in the screen sizes. The company has also accumulated a reputation for its one-floor software application that provides an opportunity for the third party software. This introduces a risk for continuation of the contractual engagement with Apple (Khan, et al. 2015).
Donegan, T. (2016). How the iPhine 7 Stacks up Against the Competition. Retrieved from http://www.usatoday.com/story/tech/2016/09/08/how-iphone-7-stacks-up-against-competition/90089834/
Heisler, Y. (2016). iPhone 7 Cost more to Build than any other iPhone in History. Retrieved from http://bgr.com/2016/09/21/iphone-7-costs-bill-of-materials-components/
Khan, U., Alam, M., & Alam, S. (2015, June). A Critical Analysis of Internal and External Environment of Apple Inc. International Journal of Economics, Commerce, and Management .
Mickalowski, K., Mickelson, M., & Keltgen, J. (2007). Apple’s iPhone Launch: A Case Study in Effective Marketing. Augastana College.
Ovide, S., & Wakabayashi, D. (2015). Apple’s Share of Smartphone Industry’s Profits Soars to 92%. The Wall Street Journal.
Sun, L. (2015). Apple Inc’s Sustainable Competitive Advantages. Retrieved from http://www.fool.com/investing/general/2015/05/18/apple-incs-sustainable-competitive-advantages.aspx
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