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Three Strategies to Drive Apple’s Inc. Profits from Iphones Selling

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Three Strategies to Drive Apple’s Inc. Profits From iPhones Selling

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Microeconomics Concepts Applied towards Apple Inc. Competitive Strategies

Apple Inc. is a multinational company operating in the consumer electronics market. The company had been in operation since 1976 when its founders and Steve Wozniak founded it as a personal computers firm. However, in 2007, the company rebranded to Apple Inc. with an aim of incorporating its focus towards consumer electronics. Worldwide, the company is the second-largest technology firm by revenue after Samsung Electronics. Since 2007, Apple Inc. has been the leading innovator in the mobile market. All other technology companies strive to reach the business’s quality phones. While customers are looking for options, iPhone, Apple’s flagship model, acts as the benchmark for what the other devices should be like. Moreover, the firm seems to be setting the price for the high-end smartphone market. Accordingly, this paper applies microeconomic principles to Apple’s competitive strategies in the Smartphone market.

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Market Structure

Apple operates in an oligopoly type of market structure. In an oligopoly market, there are a small number of firms that control the biggest chunk of market share (Ortega, 2010). Apple Inc. specializes in the high-end market of smartphones. Apple and Samsung control the lion share of the high-end smartphone market. According to Wall Street, iPhone has over fifty percent dominance in selling high-end smartphones in the world (Ortega, 2010). However, Samsung is coming up with innovative devices and designs that are slowly eating into Apple’s market share. Other small players in the high-end smartphone market include Sonny, Huawei, Windows Phone, and LG Electronics. As such, with Samsung and Apple controlling the biggest share of high-end smartphones market, Apple’s market structure qualifies as oligopoly (Ortega, 2010).

Apple’s oligopoly market differentiates from the monopolistic market as there is no single seller who bears any considerable control over prices and supply of smartphones. Each of the players has a great influence in determining the amount and also the cost of high-value smartphones. Consequently, none of the firms would be considered monopolistic. Secondly, Apple’s oligopoly market differs from perfect completion as there are no many buyers and sellers to ensure no one controls the price of the commodity (Ortega, 2010). Wall Street Journal notes that Apple brand dominance and brand recognition helps the firm to set the prices of high-end smartphones. Apple has a brand value of $118.9 billion according to its year 2014 evaluation. As a result, most of its customers as well as other potential customers are ready to pay the amount needed to acquire an iPhone. Accordingly, Apple Inc. has a considerable though not total control over the price of the smartphones. For example, Samsung, Apple’s chief rival, always sets their price relatively lower than that of iPhone. As such, one would conclude that Apple controls the price of smartphones to a certain extent. Lastly, Apple’s oligopolistic market differs from monopsony market structure as there is no single buyer with control over demand and prices. The smartphone market has a diverse clientele with little or no control on prices.

Levels of Competition

While operating in different market structures, Apple is likely to face various levels of completion. Michael (1997) states that, in business, there are dissimilar levels of competition as stipulated in the five C’s model. The five C’s stands for collusion, co-opetition, co-existence, competition, and conflict (Paul, 2011). Apple Inc. would face these different levels competition of in diverse market structures as the paper discusses.

Oligopoly

Apple currently operates in an oligopolistic smartphone market. In the smartphone market, Apple and Samsung are the main competitors. According to the five C’s competition model, Apple Inc. is experiencing the fourth C in the Five C’s model, which is competition. As Paul (2011) points out, competition is the average level of business completion for most companies. In this level of competition, industries compete head to head with other players. Apple currently faces stiff competition from Samsung in terms of making smartphones with very advanced technologies. Though Apple had been ahead of other smartphone makers for a long time, Samsung seems to be catching up by investing heavily in research and development. The completion is so stiff such that the two companies occasionally fight court battles over patent infringement.

Perfect Competition

Borrowing from the Five C’s Model, Apple Inc. would face co-existence level of completion while operating in a perfect competition market structure. According to the model, this is the third level of business competition where competitors recognize each other presence with no formal agreement. Ortega (2010) notes that this level of completion is perfect for a perfect completion market where there many buyers and sellers. As such, there is no single party who have the power to control the prices. Consequently, business people choose to recognize each other’s market position and choose to establish their market niche as the number of buyers are numerous. For instance, Apple might decide to open new stores in a town only if there are more than twenty thousand people and there is no other competitor.

Monopoly

While operating as a monopoly, Apple Inc. would experience level one of business completion, which is collusion. Fred (1997) and Paul (2011) points out that a collusion is a standard form of competition that monopolistic firms experience due to lack of competitors. According to the duo, this level of competition envisions of two companies colluding to fix prices. Such collusion is mainly in forms of cartels. However, most monopolistic firms lack rivals. As such, they operate in their collusion where they fix prices to cover for their inefficiencies.

Monopolistic Competition

While working in this monopolistic market structure, Apple Inc. would be competing with firms that are selling products that are branded differently hence not perfect substitutes. As such, the company would likely to experience co-opetition level of business competition. Co-opetition is the level two of completion in the Five C’s Model in the levels of competition. According to Paul (2011), this is the standard of competition where Apple would be compelled to enter into joint Alliance and ventures with other companies but not in a manner that distorts the prices. In such arrangements, the firm would share the cost of research with other businesses and benefiting from economies of scale as it happens in the automobile industry.

Competitive Strategies

Michael (1997) notes that every successful company tailors their approach to fit the particular situation. Such approaches constitute a company’s competitive strategy. Apple could use three main competitive strategies in its quest of retaining market dominance in high-end smartphone market. First, differentiation should remain the company’s primary competitive strategy. Currently, Apple Inc. has patent rights to most of the features in their smartphones including displays, processing Chips, and operating system. As such, the iPhone is no like any other smartphone thereby helping Apple to remain unique. Such an approach would be very useful in overcoming the dynamics of changes in supply and demand as Apple would be like an imaginary monopoly.

Secondly, Apple should consider operational excellence as a competitive strategy while making their smartphones. Michael (1997) and Fred (1997) identifies operational excellence as a strategy where a company steers itself to offer excellent products. Smartphones should perform exceptionally well. As such, Apple should design the iPhone to provide exceptional features and smooth operation of their devices such that the competitors will remain behind. Consequently, every person will have every reason to own an iPhone thereby increasing the firm’s brand value. The approach would be useful in avoiding collision with government regulations and price elasticity of demand. If the customers appreciate the operation excellence of the product, they will be willing to pay the price needed to obtain the commodity. Therefore, the firm will not require entering into cartels to manipulate prices.

Lastly, Apple Inc. should consider employing customer intimacy as a competitive advantage. Michael and Fred (1997) assert that intimate relations with clients increases their loyalty to a company’s products. Such intimacy is achievable through enticing after sales services, offering warranties and adhering to its terms without twisting and having excellent customer care to handle customers’ problems timely. Such an approach would be highly practical in an oligopolistic market that Apple currently operates in preventing the firm from losing customers to Samsung.

Recommendations

As a marketing expert, one would highly recommend the above three strategies to drive Apple’s Inc. profits from the sale if the iPhone. However, they should consider ethical implications of differentiation where the company could offer unique products with low quality. Consequently, customers would pay a higher price for a product that does not deliver value to them. Secondly, the firm should ensure that services meant to boost customer intimacy are not deceitful to avoid getting into conflict with the law and maintaining the company’s image. Such strategies align with Apple core values such as innovation to drive operational efficiency, positive social contribution to facilitating customer intimacy and quality to sustain the differentiation strategy. Such values also aligns with my personal values of delivering the best and people will pay dearly to obtain the perceived value.

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