Factors Influencing Demand and Price Elasticity of Samsung Mobile Phones

This assessment covers the several topics such as description of products and services of the selected company identify the factors which influence the demand as well as price elasticity of demand.

MANAGEMENT ECONOMICS: Assessment 1

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Business products & services..................................................................................................1
2. Identify Demand and Market Equilibrium and factors which affect the demand of goods &
services........................................................................................................................................3
3. Identify the factors which influence the price elasticity of demand........................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Managerial economics mainly applies the economic philosophy to the management issue.
Management theory can be seen as theory that can be applicable to solving problems at the
business level (Archer-Brown and Kietzmann, 2018). This helps the company leader to conclude
and evaluate matters. It is being used to evaluate the consequences of market decisions and as a
means of defining and quantifying the complexities in a situation. Managers take advantage of
some sort of economic concepts to make everyday decisions. This report selects the Samsung
mobile phone company which is one of the leading Smartphone Company of the world. This
assessment covers the several topics such as description of products and services of the selected
company identify the factors which influence the demand as well as price elasticity of demand. It
will help the managers or senior management to formulate effective strategies in respect of the
organization to maximise the production as well as profitability.
MAIN BODY
1. Business products & services
Overview: Samsung is a global South Korean corporation with its headquarters in Samsung
City, Seoul. This includes several related firms, most of which are grouped under the Samsung
name, and it is South Korea’s biggest chaebol. Samsung was established in 1938 as a trading
company by Lee Byung-chul. Officially started the electronics business in the late 1960s but
their targets or big market share in the mobile sector are doing quite well or willing to achieve.
The firm is one of the world's largest names on the mobile market (Deming, 2018). It recently
created Smartphone running Tizen OS, as an option to its phones built on Android.
Products and services of Samsung Company:
Samsung Company offer several range of mobile phones with different features which
make them unique from others and as per the customers requirement. Range of Samsung Galaxy
Note, Samsung S series, J series, Samsung Galaxy J5, Samsung Z4, Samsung Galaxy Core Mini
etc. are the range of mobile phones which Samsung Company offer. Customers can select any
mobile phone as per their requirement or budget which helps them to satisfy their need of
Smartphone. Samsung company is selected in this report because it is one of the leading mobile
phone company and it has huge market shares which clearly mentioned in the below graph and
statistics.
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Figure 1 Market Shares, 2020.
Market Share of to Smartphone Companies:
Brands 2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
Samsung 22% 19% 19% 18% 21% 21% 21% 18% 20%
Huawei 11% 15% 14% 15% 17% 16% 18% 14% 17%
Apple 14% 11% 12% 17% 12% 10% 12% 18% 14%
Xiaomi 8% 9% 9% 6% 8% 9% 8% 8% 10%
Oppo 7% 8% 9% 8% 8% 9% 9% 8% 8%
vivo 5% 7% 8% 7% 7% 8% 8% 8% 7%
Realme 0% 0% 0% 0% 1% 1% 3% 2% 2%
Others 33% 31% 29% 29% 26% 26% 21% 24% 22%
Above mention graph and statistics shows that Samsung is one of the leading companies
in Smartphone sector which has 22% market share in first quarter of 2018 (Market Shares of Top
Smartphone Companies, 2020). In 2020, market shares of Samsung is 20% in first quarter but
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further it will reduces because COVID-19 pandemic situation which cause the lockdown on
entire world. Because of this, entire world face the major financial crises and it will be very
difficult to recover.
The consumer demand for Smartphone has fall the highest ever, down by 13 per cent in
Q1 2020. It would be the first period the mobile industry has dropped below 300mn units in a
segment since Q1 2014. The COVID-19 pandemic has destroyed the indications of any progress
the sector has begun to give in Q4 2019. During the quarter, Samsung headed the Smartphone
market trying to capture one-fifth of worldwide Smartphone consignments. Over the year, the
OEM declined YoY by 18 per cent and is projected seeing a stiffer fall in Q2 2020. Including
during the COVID-19, Apple remained strong as iPhone deliveries decreased during quarter to
just 5 percent YoY. The iPhone sales for the same time were down 7 percent YoY. The effect
has been marginal for several European and Asian nations.
2. Identify Demand and Market Equilibrium and factors which affect the demand of goods &
services
In a business environment, demand and supply of the products help in market equilibrium
where demand or supply of the products equal and satisfy the needs of consumers (Gunasekaran,
Subramanian and Ngai, 2019). Change in the demand as well as supply affect the organization in
positive as well as negative way, so management need to understand its patter and the factors
which influence the demand. Such as consumers needs preferences, desires, substitute products,
price, household incomes, population etc. There are several factors which influence the demand
of Smartphone, so managers of Samsung Company needs identify such factors and formulate
strategies which help in improving customers demand. Some of the factors are as follow:
Price of Substitute: Substitutions are products where someone can be used instead of the
other. The costs of substitute goods often change the slope of demand. If the price of
Smartphone which supplements a good declines, then the quantity demanded of one rises and the
demand for the other rises. For example: When price of Samsung Mobile phone increases then
demand of its substitute such as Apple or Xiaomi increases. Or when Samsung’s price decreases
then demand of its substitute products also decreases. It will boost the competition in the
Smartphone market which encourages organization to think critically and introduce something
new to make their product better from its substitute.
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Price of complements: If the price of a commodity that complements a product decreases,
then it raises the demanded quantity of one and the demand the other (Knoke, 2018). If a
replacement good’s price declines, the amount demanded for that product rises, thus reduces the
demand for the good this is being replaced for. Basically, when price of complement product of
Samsung decreases then that demand of particular product also increases and vice versa. Increase
the rate of Samsung does not affect its demand because people not expected to purchase iPhone
because they do not need it.
Customer income: This factor is all about the income of consumers which directly
influence the demand of products & services. If household income increases then demand of
mobile phones also increases and when customer income reduces, demand of mobile phone or
spending also reduces. This factor affect the demand of Samsung Company, so managers need to
build their price strategy accordingly to maximise their demand, which further helps in
improving profit margin as well.
Consumer taste and desires: Consumer preferences are characterized as the personal tastes
of the different goods as determined by utility (Kolk and Rivera-Santos, 2018). Please note the
interests are wealth- and priceless. The ability to buy goods doesn't really evaluate the will or
dislike of a consumer. If Samsung Company introduce mobile phones which are able to satisfy or
match the consumer taste and preferences will help in maximising Samsung’s overall demand
and vice versa. It is very essential for the Samsung Company to identify consumer desires, needs
and preferences regarding Smartphone and then further introduce products accordingly which in
increasing demand.
Price preferences of consumers: In today's period, increasing consumers have their own
tastes in terms of competition for any company working in the Smartphone. Therefore, in order
to maximize the productivity and customer base, it is required that each company should perform
a comprehensive proper market demand analysis and then set the best commodity sale price.
However, the high price of Samsung has an effect on revenue, when customers expect prices to
decrease by some margin. Higher production prices as well as emerging innovations are the
primary reasons for Samsung's high price, because of which customer expectations are not met,
and that they are moving to other alternatives.
Demographics: Samsung Company covers the entire planet, providing a broad variety of
consumer base with different products (Maunder, 2019). Every organization has its own unique,
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and each business has its own preference and needs. It should be remembered that
Samsung primarily plans its new product on various dates depending on particular events or
periods in a given area. Consequently, demographic confusion will lead to a reduction in total
Samsung prices which will decrease the profit margin. Therefore, the management of the
applicable business is waiting for the opportunity and going to release various products on
particular numbers that will contribute to increased production and consumption and increase the
total gross profit considerably.
3. Identify the factors which influence the price elasticity of demand
Luxury vs Necessity:
Economists generally see the price elasticity as requiring the impact of market volatility on
consumer products (Muda And et.al., 2018). It might directly impact the Samsung-manufactured
mobile phones. Whenever the company constantly changes pricing and decreases which result in
the decrease in sales as the customer will prefer to purchase goods beyond their profit range.
This indicates an improved competitive iPhone demand where supply changes contribute to
lower costs. There are several replacements of this sequence on the market that encourage
buyers' eyes and impact Samsung’s revenues. Substitute products are iPhone series, Sony Xperia
XZ3, ASUS ROG Phone, Samsung S10 pro, Mate 20 Pro, and Google Pixal 3. There are various
reasons why users become more hooked to these electronic apps, such as increased battery
performance, better quality of audio & image, and the main advance in technology. Other than
that, there are some specific factors that can influence the elasticity of the market price to be
discussed below:
Necessity goods such as products like fruit, medicine, vegetables and important objects
don't bear elastic components. The reason that came forward is the individuals' longevity, since a
human cannot survive without these things. Mobile phone falls under the wrath of luxury items
that have elastic demand. Consumer requirements are now essentially constant, but retail costs
will quickly change (Myers, 2019). At the other hand, if it is addressed to any of final goods
directly linked to comfy existence such as refrigerator, washing machines and more, prices
remain elastic when prospective customers may delay the entire buying process as it falls outside
the comfort level. Luxury products and services including such luxury vehicles, highly
specialised salon, telephones, Smartphone and electronic gadgets and so on mainly bear higher
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elasticity than convenience-related items, as they're being neglected by an individual for a longer
period.
There are several factors that influence the price elasticity of demand and which already
discussed in the above questions where these factors affect the demand of Samsung Company.
Some of them are as follow:
Availability of substitutes: In a certain degree, affects the elasticity of demand. The key
explanation for increasing market elasticity with variance in the price of certain products is the
existence of their competitive alternatives. The higher the amount of near alternatives presents on
the market for a good, the higher the elasticity of the good. Tea and coffee is the most suitable
example of substitution goods. Substitution product of Samsung Smartphone is iPhone, Xiaomi,
Vivo, Oppo etc. If consumers finding its substitute more effective and reasonable to but then
they will purchase that.
Distribution of Income: Acts as a determining factor that influences demand price
elasticity (Nuthall, 2018). If a customer has high salaries, so the market for goods that consumes
will be inelastic. A rise in the cost of every commodity, for example, does not affect a
millionaire's appetite for goods consumed. Increase in consumer income leads to increase the
demand of Samsung’s products and similarly, decrease in the disposable income also reduces the
consumption of people which minimise the demand.
Level of price: It is the fact that, demand of products which has high-priced has elastic
demand, such as costly items, Smartphone, gold, jewelleries and luxury vehicles. The price
change of such goods yields a very minor change in overall demand. The demand for the product
which has low prices such as inexpensive potatoes and game boxes is likewise inelastic.
Samsung Company offer Smartphone range which comes under Luxury items and increase their
prices reduces their demand and vice versa.
Pricing strategy:
There is several pricing strategy which are adopted by the various organizations on the
basis of their operational strategies. Some of them are as follow:
Competitive pricing strategy: This pricing strategy tends to focus mostly on current market
rate of the item or service of a company which they offer. It does not take into consideration the
cost of its good or service or consumer spending. Organizations can set their product price lower
than their competitors and also increase the price to maximise the profit margin.
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Cost plus pricing strategy: This approach depends primarily on the expense of importing a
goods or service or COGS. It is also recognized as premium pricing because firms who employ
this technique "price up" their goods depending on how much they would like to gain. Usually,
cost-plus pricing is being used by distributors who sell physical goods. This approach is not the
right match for service-based or SaaS businesses as their goods usually provide much higher
value than that of the expense of producing them.
High low pricing strategy: This approach is where a business offers product in the market
at higher price in the first place but reduces the price as the product demand decreases in
popularity or importance (Piccarozzi, Aquilani and Gatti, 2018). Examples of this pricing
strategy is in practice are coupons, clearance pages, and year-end deals that is why this approach
should also be considered a discounting approach. It is widely used for retail businesses who
market seasonal or continuously evolving items such as clothes, mobile dealers, furniture, and
decor. Consumers love expecting promotions and discounts, so Black Friday and other common
days of discounts are so common here.
From the above mentioned pricing strategy, Samsung Company implement competitive
price strategy where they can easily increase or decreases their mobile phones prices as per its
demand in the market. By using this strategy, management able to set competitive price for their
products which helps in maximising overall demand which further support to increase profit
margin of the company.
CONCLUSION
This has been concluded that from the above discussion that management economics is a
suitable technique of addressing economic conditions and challenges with the usage of specific
approaches, hypotheses, and concepts. To increase commodity demand, it is critical that
managers analyze the multiple variables that can positively and negatively influence demand.
The most successful solution to pricing is targeted at increasing pricing competitiveness and
raising market share in the mobile industry.
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REFERENCES
Books & Journals
Archer-Brown, C. and Kietzmann, J., 2018. Strategic knowledge management and enterprise
social media. Journal of Knowledge Management.
Deming, W. E., 2018. The new economics for industry, government, education. MIT press.
Gunasekaran, A., Subramanian, N. and Ngai, W. T. E., 2019. Quality management in the 21st
century enterprises: Research pathway towards Industry 4.0.
Knoke, D., 2018. Changing organizations: Business networks in the new political economy.
Routledge.
Kolk, A. and Rivera-Santos, M., 2018. The state of research on Africa in business and
management: Insights from a systematic review of key international journals. Business &
Society, 57(3), pp.415-436.
Maunder, W. J., 2019. The human impact of climate uncertainty: weather information, economic
planning, and business management. Routledge.
Muda, I. And et.al., 2018. The Analysis of Effects of Good Corporate Governance on Earnings
Management in Indonesia with Panel Data Approach. Iranian Economic Review, 22(2),
pp.599-625.
Myers, M. D., 2019. Qualitative research in business and management. Sage Publications
Limited.
Nuthall, P. L., 2018. Farm business management: the human factor. CABI.
Piccarozzi, M., Aquilani, B. and Gatti, C., 2018. Industry 4.0 in management studies: A
systematic literature review. Sustainability, 10(10), p.3821.
Online
Market Shares of Top Smartphone Companies, 2020. [Online]. Available Through:
< https://www.counterpointresearch.com/global-smartphone-share/ >
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