Running Head: APPLE IPHONE BUSINESS PROPOSAL

Apple iPhone Business Proposal Lisa Smith ECO 561 August 26, 2013 Laurie Klosk-Gazzale

Running Head: APPLE IPHONE BUSINESS PROPOSAL Apple iPhone Business Proposal Apple launched its first phone known as the iPhone in 2008; the phone is designed to target people who wanted and needed to communicate and store information. The phone is design to provide a wireless Internet connection, music, and talk into one. The features of this phone include a 3.5 touch screen without the aid of a keyboard, using more than one finger to control the phone, and shifting the screen to view in different modes. The market for the phone

was small in 2008; but today the phone has taken over. In this paper, Lisa will present a business proposal for the iPhone addressing the market structure and the elasticity of demand for the phone. Market Structure The Apple smartphone is part of an Oligopoly market; an independent market and has its own behaviors strategies. According to McConnell, Brue, and Flynn (2009), Oligopoly, in contrast, blends a large amount of monopoly power, a small amount of competition through entry, and considerable rivalry among industry firms (p. 222). Because Apples smartphone industry and competition was small, it needs to take control of the market by differentiating the iPhone from others phone in its category. Apple needs to develop a plan that will help them to target the upper class professionals first, next taking over the college students, and finally making the phone a global product. Once Apple establishes this plan, it is on its way to acquiring success in the industry. Apple directed its attention to the iPhone by making it capable of accessing the Internet, downloading music, videos, and taking pictures. To do this, Apple created a phone with a unique operating system that calls for the phone to be connected to a computer for synchronizing, the phone is used with application from the Apple store, and the hardware is different in that the battery has a long life. According to Kang (2013), The iPhones screen size

Running Head: APPLE IPHONE BUSINESS PROPOSAL

is smaller than most other smartphones, but it has an extremely high pixel density, giving it one of the sharpest resolutions available (para. 5). Another feature of the iPhone that makes it different from other smartphones is that it does not have a memory slot like the others do. Because Lisa understands Apples market and the type of customers it wants to attract, she can generate ideas that will help the business to succeed. Elasticity of demand for the iPhone Smartphones are high in elasticity in regard to price and income, especially the iPhone. People buy Apples product for many reasons; however, the most important reason is that they have a following that will stand in line for hours to get the latest product, and those who do not mind paying the higher price for the phone. However, if Apple wants to reach a certain amount of sales, it should know the elasticity of the iPhone. The questions that need answers would include the price elasticity of demand and what features other than Apples own price would affect the demand of the iPhone. To help answer these questions, Lisa will define the price elasticity of demand. According to McConnell, Brue, and Flynn (2009), The responsiveness (or sensitivity) of consumers to a price change is measured by a products price elasticity of demand (p. 114). What this definition means is that when the price changes, the demand for the product changes too. However, if the demand change is small, the products price elasticity of demand can still be calculated by a percentage change. When Apple first released its phone in 2008, the price was set at $599; however, the phone was reduced to $434 by September 2009 and sold a total of 1,389,000. When calculating the price of elasticity of demand, Apples iPhone had an elasticity of 4.7; this tells Lisa that Apple stands to forfeit the same amount of its sales that correlate with the one percent price increase. Another difference to highlight is the brand product versus the industry products elasticity, and with Apples brand it is winning over the industry.

Running Head: APPLE IPHONE BUSINESS PROPOSAL

The elasticity for brand product increases, when more competition arrives. To estimate fixed and variable cost, Lisa will use the breakthrough-even analysis to create hypothetical data. Lisa will use for the revenue at wholesale of each iPhone as $399 with a variable cost of $149 and a fixed cost of $44 million. So to obtain the value at the break through point, Lisa will divide the fixed cost by the revenue subtracted by the variable cost, which gives her 176,000 iPhone sold. Marketing Strategy Another reason for Apples success is that they have changed the style of its phone to make it compatible with other smartphones. The iPhone can hold a large amount of storage, it is thinner, and the battery is lightweight and has a longer life. Although this was a major change, Lisa discovers that only one of the iPhone carries allows the customer to talk and surf at the same time. Because Apple has taken these steps to make their phone more marketable and compatible, Lisa proposes that Apple go to the different carriers to see how they can offer this same feature. Lisa also proposes that Apple lower its older model phones to make it more affordable for low income and elderly families. She believes that by targeting this area, Apple will increase its sales and revenue. According to Kang (2013), Although part of the iPhones cost is subsidized when a service contract is signed, the iPhone is more expensive than other smartphones on the market (para. 6). Lisa believes that lowering the prices will increase the demand for the product and more people will use the iPhone because they will like the idea of possessing an Apple product even if it is not the latest one. Apples profits will be regulated by the marginal analysis; because the progress of the iPhone will be seen and communicated through advertisement. This ultimately will increase revenue for Apple. Lisas non-pricing strategy for Apple would be for it to offer a better warranty on its phone, keep installing new software, making it easier to use, and to expand

Running Head: APPLE IPHONE BUSINESS PROPOSAL to new territory. The iPhone is such a sensitive and high-tech device that it needs the extra protection outside a defective warranty. Barriers to Entry Barriers to entry are elements that do not allow companies to enter certain markets (McConnell, Brue, & Flynn 2009). However, some companies, such as Apple can penetrate the market, eventually taking over. Because Apple has created a product that seems to be untouchable from other companies, it must come up with strategies to increase barriers to entry. Apple will use these non-pricing strategies to increase the barriers; ownership and control of the

iPhone, superb knowledge of the iPhone, and a strong product. Because Apple owns the iPhone; but others want it creates a barrier. Because Apple owns and have the information concerning the iPhone, its knowledge of the market, the customers, and the costs give it the advantage over any competition and entry to the market. Finally, loyalty of the iPhone secures customers and discourages others from entering the market. Conclusion Based on the breakthrough even analysis and the strategies that Lisa suggests that these changes would not alter variable and fixed cost for Apple; because it has ownership and control of the product, and it has already updated its product to be compatible with other smartphones. Looking at the figures from the hypothetical data and sales from 2008 to 2009, Apple will generate enough revenue to cover any advertising that needs to be done to target new sales and other regions. Also with the demand of the iPhone, Apple has the capacity to increase sales that will lower the fixed cost and increase production; ultimately, increasing its earnings. Furthermore, Apple will maximize its profits by getting to know the market structure, staying ahead of the competition, and keeping its customers happy about the product.

Running Head: APPLE IPHONE BUSINESS PROPOSAL References Kang, S. (2013). What Is the Difference Between an iPhone and a Smartphone? Retrieved from http://science.opposingviews.com/difference-between-iphone-smartphone-12972.html

McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, Problems, and Policies (18th ed.). Boston, MA: McGraw-Hill Irwin.