Factors Influencing Demand and Price Elasticity of iPhones

This report discusses the factors that influence the demand for iPhones and the price elasticity of demand. It provides an overview of Apple Inc. and its main product. The report includes information on different factors such as price of substitutes, price of complements, consumer income, consumer taste and preferences, consumer expectations of price, and demographics. It also discusses the nature of the commodity and its impact on demand elasticity.

Management Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
Business and its main product.....................................................................................................1
2. Different factors that influence demand..................................................................................3
Factors that influence the Price Elasticity of Demand:...............................................................5
CONCLUSION ...............................................................................................................................7
REFERENCES ...............................................................................................................................9

INTRODUCTION
Management economics is defined as the the process of amalgamation of various theories
of economics within business activity and operation in order to make better and useful decision
as well as making effective planning by managers of company (Keller, 2015). In general term,
management theory is associated with applying economic principles and objective analysis to the
challenges of constructing sound managerial decisions. The main function is to allow the most
productive use of limited resources like labour, money and land. In modern era, it has gain
popularity among companies as it support in managing entire financial data so that actual
business objective can be attained, better polices are framed and suitable price are fixed.
In this report, critical evaluation of Apple Inc. is discussed and different elements of
economics like demand and supply factors, cost evaluation, price and market policies. In
addition, factors that can impact the elasticity of demand and supply in the context of chosen
company have been elaborated.
TASK
Business and its main product.
Overview: Initially, the organization was established in 1976 by Steve Jobs, Steve
Wozniak and Ronald Wayne. Apple Inc. is known for its innovative models and sales of
smartphones, electronic devices and digital services and products online. The firm launched
Apple 1st in July 1976, that was a standard chipset computer and especially post-assembled in
comparison to other machines of that period. Respective company have number of products such
as iPhone, iPad tablets, Air Pods, wireless earphone, smart T.Vs and watches that makes its
highest selling company in world. Apple's goods are innovated by understanding the needs and
preferences of consumers based on human behaviour and technical development and this will
lead to customer satisfaction dependent on the perceived output of the product that meets the
customer's standards.
Product Range selected:
In order to complete the report particular smart-phone manufactured by Apple Inc. has
been selected that is being most commonly used product in the current time all over the world
(Kinnaman, 2017). In current time company have developed and launched new smart-phone
series i.e. iPhone 11 and iPhone 11 Pro/ 11 Pro max. Smartphone users are constantly
1

increasing, leading to an increase in the smartphone industry's market cap. In this industry,
technological changes are very rapid such as within 2 weeks, various mobile companies are
introducing a new smartphone range. It have been determined that Apple is on the top among the
different mobile companies in entire world as have gain major popularity in UK, US, Asian
market and European. The preceding chart shows the share of the market of smartphones in
various companies and the amount of smartphones offered for sale:
Global Smartphone Market Share (%):
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
Samsung 22% 20% 19% 18% 21%
Apple 14% 11% 12% 17% 12%
Xiaomi 8% 9% 9% 6% 8%
Oppo 7% 8% 9% 8% 8%
Motorola 2% 2% 3% 2% 3%
2

Huawei 11% 15% 14% 15% 17%
vivo 5% 7% 8% 7% 7%
Others 31% 31% 28% 27% 24%
Global Smartphone Shipments (Millions of Units)
Global
Smartphone
Shipments
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
Samsung 78.2 71.5 72.3 69.8 72.0
Apple 52.2 41.3 46.9 65.9 42.0
Xiaomi 28.1 32.0 33.3 25.6 27.8
Oppo 24.2 29.6 33.9 31.3 25.7
Motorola 7.6 8.3 10.6 9.5 8.9
vivo 18.9 26.5 30.5 26.5 23.9
Huawei 39.3 54.2 52.0 59.7 59.1
Others 113.1 100.9 100.4 106.4 81.6
Tables and graphs showing the scale and value of smartphones in the world economy
were provided. Latest figures indicate that during the smartphone business, Apple is really the
leading brand. Although Samsung seems to have the closest figures in Apple Inc's revenue,
profitability and business transactions.
2. Different factors that influence demand
In modern business economics, it have been determined that various factors influence the
demand of goods and services in both positive and negative manner (McNeil, Frey and
Embrechts, 2015). Thus manager of company is required to focus on these factors while
evaluating the demand of respective product in future time period. In companies, management
use to assess the external elements like preference, taste and need of users, substitute as well as
3

complement products, income level which help in setting the most suitable price of their
manufacture products. This also leads to make effective policies for future that support to deal
with unfavourable elements of business and succeed in better way to possible challenges.
Price of substitutes: The goods that can be used as replacements rather than another are
known. There have been different kinds of things of this kind that can influence the existing
iPhone sequence revenues. These would be Huawei Mate 20 Pro, Sony Xperia XZ3, Samsung
Galaxy Note 9, ASUS ROG Phone, Google Pixal 3, Samsung S10 plus and many more. Another
biggest competitors is Samsung S10 plus as well as its market growth size which develop the
market pressure on Apple and leads to price drop of iPhones. This smartphone's price has
dropping due to high level of competitiveness. This affects iPhone usage and other factors such
as good battery backup, low price compared to Apple also decreases the demand.
Price of complements: There have been multiple casualty-clear case supplements for
iPhones, High speed rechargeable battery pack is among the significant complements and some
other are portable battery bank, Anker 3A. This price is rising because of a increase in the market
conditions for the apple watch series. Increasing its value would not influence the sale or demand
of mobiles as most of them aren't required to purchase with an iPhone. If they do not have a high
need, it does not impact their demand.
Consumer income: This is regarded as the main reason which must be focused by
companies when planning for sales of their product to large number of customer base. It is
obvious that higher income level customer prefer advance and expensive mobile for usage (Stead
and Stead, 2017). In present time, the use of iPhone have been increasing because of
development all over the world, but in case if there is any shift in the income level it might have
negative impact on the sales of iPhone. Therefore, increase in consumer income help to raise the
overall demand of Apple phones as there is direct relation between income and consumption.
Consumer taste and preferences: When producing products, it is also very essential for
businesses to understand customer preferences and tastes because it can aid to match their
expectations and preferences, that can lead to increased profits. Things regularly change due to
high levels of developments in the telecommunications industry like expandable storage, solar
chargers, large displays, etc. Each of these kinds of changes can leave negative impact on iPhone
demand if case if manufacture goods are not able to fulfil customer expectations. Rapid shifts in
4

tastes do not impact iPhone demand and quality, as the business is extremely focused on the new
technology developments.
Consumer expectations of price: In today's era, each customer have there own
expectation in context of price for every company dealing in mobile industry. Therefore, each
company is required to have a proper analyse of customer expectation and then fix the best
selling price of goods in order to increase profit margin and customer base. Although, in context
of Apple high price of iPhone are affecting the sales as customer expect prices to be reduced by a
certain margin. The main reason for high prices of iPhone is higher cost of production as well as
advance technology due to which customer expectation are not fulfilled and they move to other
options.
Demographics: Apple Inc. covers the entire world and sell different product to large
number of customer base (Vanek, 2017). It is noticed that every nation have its own culture and
each customer have their own preference and needs. It is observed that Apple Inc. mainly set
their new product on various date according to specific event or occasion in particular country.
Thus ignorance of demographic factors can lead to decrease the overall demand of iPhones that
reduce the profitability. So management of respective company wait for the correct time and
launch different product on particular dates that help to increase the demand and supply which
directly increase the overall profit margin.
From the above mention factors, it is stated that Apple Inc. is required to focus on each
external components which would lower the chances of reduction in demand. They tries to set
the most suitable selling prices of goods for example in India iPhone 11: Starts at Rs 64,900,
iPhone 11 Pro: Starts at Rs 99,900 and iPhone 11 Pro Max: Starts at Rs 1,09,900 which is
favourable for customers.
Factors that influence the Price Elasticity of Demand:
Economists primarily consider the elasticity of demand to assess the effect of price
movements on the products purchased by consumers. With this various iPhones, manufactured
by Apple Inc. might be impacted (Wu, 2016). Such as company alter the prices and increase on
constant basis which leads to decrease in demand as customer would prefer to buy goods under
their income range.
This indicates more elastic demand for iPhones as price changes will lead to lower sales.
On the market, there are numerous replacements of this sequence that catch customers' attention
5

and impact Apple Inc. sales. Mobiles like, Samsung Galaxy note 9, ASUS ROG Phone, Samsung
S10 plus, Sony Xperia XZ3, Mate 20 Pro and Google Pixal 3. there are different reason which
due to which customer are more attached towards these mobiles such as long battery life, better
sound quality and main important the advance in build software. Rather than this there are some
specific factors which might impact the price elasticity of demand that are discussed below:
Basically, if it is talked about some of the products like vegetables, medicines, and more
then these are said to be some of the crucial goods, which do not carries elastic elements. The
reason that came in front is survival of the individuals where, a human being cannot survive
without these products. Therefore, demand majorly do not gets changes but the prices of these
goods may change in a rapid manner. On the other hand, if it is talked about some of the final
goods that are directly linked with the comfort such as refrigerator, Air Conditioners and more,
then their demand stays elastic because potential consumers could delay the whole purchasing
process as it is coming within the comfort level.
Including this, luxurious goods and services like luxury cars, special massage, iPhone and
so on, mainly carries higher elastic than the comfort related products, because an individual
could avoid these for a longer period of time.
 Availability of substitutes: In present context, where it can easily be said that if the
availability of number of substitutes will be high then the elastic demand will also stay
much higher and the reason that came in front i.e. number of substitutes are high in
nature. This could effectively be understood with a good example of Apple company,
where if it enhances price of it's phone than the sales of Samsung's product would be
increase (Brouwer and van der Heide, 2012).
 Level of price: This is specifically being considered as a deciding variable in regard of
elasticity of price related demand. Basically, it is said that expensive items like highly
configured PC, 4K TV, and more, shows high elasticity in demand. On the other side,
while considering some of the other elements like reasonable items like matching box,
catches, needle and so on are inelastic.
 Delay of Consumption: These are said to be the product, which can be anything from
soft drinks, cookies, and so ons do not basically comes within the necessary or urgent
products (Mills and Broughton, 2016). Therefore, it can easily be said that these products
6

mainly carries high elasticity within the demand. By consumers, these may mainly be
avoided if there is increase among prices of these products.
Considering the above information, it can easily be said that Apple mainly provides
customers with high priced phones and other gizmos product. Here, it can be said that non priced
related sensitive consumers would show less interest towards these products. Therefore,
elasticity of demand will be much more lesser.
 Nature of commodity: The nature of product also influence and determine the elasticity
of demand. Different users have differ preference from product nature, such as a
respective good for customer might be comfort, luxury or necessity. In case if goods are
not a appropriate in nature the overall demand might get reduced and it impact the sales
figure is respective time (Brouwer and van der Heide, 2012). For goods like iPhone the
demand is more elastic as customer buy them to live a luxury life according to their
status.
It is noticed that to maintain a better market place and brand position in competitive
environment Apple plc is required to use the most suitable pricing strategy. The more prefect
pricing policy can lead to overcome the other competitive firm dealing within same industry.
Some of the pricing policies are discussed underneath:
 Penetration Pricing: This help firms to fix the lowest price of goods at primary stage
and in case if demand raises they can make changes in price (Callan and Thomas, 2013).
Mainly company implement this strategy to make customer aware about goods launched
in market.
 Economic Pricing: Companies mostly implement this strategy to increase the sell of
various product and attract more and more customer. This also help to lower the
promotional and marketing cost by making goods available in large quantity at a specific
point of sale.
 Competitive Pricing: In this strategy, manager analyse the market condition and
competition which support to fix the best prices of goods. This help to gain the better
competitive advantage and make customer more attracted towards towards respective
goods.
 Skimming Pricing: This allows companies to fix the high rate for goods in case if there
is no competition available in market (Mills and Broughton, 2016). Due to
7

implementation of this strategy companies are able to earn better and higher profit as well
as make monopoly in market place.
From the above defined pricing strategy, Apple Inc. must adopt and implement the
competitive pricing which make them more attentive towards other rivals pricing policies and
market strategies.
CONCLUSION
In the end of report, it has been founded that management economics is a simple process
of dealing with economics condition and situation by using various tools, concepts and theories.
In context to increasing the demand of manufacture products manager are required to analyse the
various elements which can influence demand in negative and positive manner. Most suitable
pricing strategy help to increase the overall demand and raise the market share in existing
competitive world.
8

REFERENCES
Books and Journals:
Keller, G., 2015. Statistics for Management and Economics, Abbreviated. Cengage Learning.
Kinnaman, T. C., 2017. The economics of residential solid waste management. Routledge.
McNeil, A. J., Frey, R. and Embrechts, P., 2015. Quantitative risk management:
Concepts. Economics Books.
Stead, J. G. and Stead, W. E., 2017. Management for a small planet. Routledge.
Vanek, J., 2017. The economics of workers' management: a Yugoslav case study. Routledge.
Wu, C. L., 2016. Airline operations and delay management: insights from airline economics,
networks and strategic schedule planning. Routledge.
Brouwer, F. and van der Heide, C. M. eds., 2012. Multifunctional rural land management:
economics and policies. Routledge.
Callan, S. J. and Thomas, J. M., 2013. Environmental economics and management: Theory,
policy, and applications. Cengage Learning.
Mills, J. and Broughton, V., 2016. Bliss Bibliographic Classification: Class T: Economics
Management of Economic Enterprises. Elsevier.
9