Apple Inc.

Rostyana Kochergen

Apple

Apple is one of the biggest technology companies out there. Apple is widely known for a variety of products including the iPhone, iPad, and Macintosh software and computers. Apple was founded in April of 1976 in Cupertino, California. The company’s founders are Steve Jobs, Ronald Wayne, and Steve Wozniak. Apple’s “secret” for success is their skill in creating exactly what consumers want and how they want it. Through their differentiated business strategy, Apple has penetrated and dominated every market it’s entered. Over the past few years Apple has begun to slip in the smartphone market, slowly losing more and more market share and eventually giving up the lead to their biggest competitor, Samsung. The purpose of this paper is to analyze the smartphone market and the supply and demand conditions, price elasticity, cost of production and the different actions Apple can take to maximize the profit of the iPhone.

History of the Company

Steve Wozniak, the company’s cofounder, initially built the Macintosh computers by hand. Wozniak wanted to sell his hand-built computers for a low cost, but Steve Jobs wanted a higher price. It further developed the Macintosh and later the apple computer over time. However, in 2007 apple brought out the first iPhone. (Ritchie 2016) It was definitely not the first of its kind in the smartphone market, but it had very advanced technology that Apple came out with. After the original iPhone was produced, apple began adapting the phone with better technology and further producing iPhone 3g and 3gs. (Ritchie 2016) With this production, price decreased. This is because when considering the elasticity of the iPhone and the market at the time the price of the phone decreased to make it more desirable. As Apple further developed the iPhone, the price and quality increased. iPhone is one of the top leaders, next to Samsung, in the phone community.

Supply and Demand Conditions

Apple has always been in high demand when it came to the iPhone. They consistently had issues with keeping up with supply and demand though. December 26, 2015, Apple posted its largest quarterly earnings. (The Data Team 2016) Their earnings were $18.4 billion which exceeded to what the company was anticipating and probably the largest quarterly earnings for any company ever. (The Data Team 2016) Additionally, in 2012 the iPhone 5 exceeded the company’s goals so much to where the people who preordered the phone were put a waiting list. However, these last couple of years is a different story. In fact, the company is expected to cut its production by 30% this year.

As you can see in the above graph, iPhone sales skyrocketed in late 2012 to early 2013 and continued to grow. However, the company had a really hard time with forecasting it’s supply and demand. Apple took steps to improve its supply and demand problems for the iPhone 6 but 2 months after it launched more than 42% of its product was still unavailable. (Federico-
O’Murchu, 2014)

The graphs above represents the supply and demand problems that Apple has faced over the years. To have a better understanding of the supply and demand issues at Apple and what steps can be taken to improve the process, we have to understand how they got there. Because the iPhone is in high demand, Apple’s inability to meet consumer demand has not

affected its revenue. We know this because, as stated above Apple hit an all-time high in deposit in December of 2015. So the question is, is apple’s inability to meet demands affecting the business at all? The answer is no. In fact, by limiting the availability of the product could indeed control the rate at which the product sales and could raise anticipation for it next iPhone generation. By supplying only, a set amount sales growth can be maintained continually.

Price Elasticity of Deman

When analyzing the price elasticity of demand for the iPhone it is important to determine if the iPhone is an elastic or inelastic product. Considering that there are not very many substitutes to the iPhone, the demand tends to be inelastic. It is also important to determine if the iPhone is a luxury or a necessity. It would seem like smartphones are a luxury rather than a necessity, but as society becomes more technologically advanced smartphones are becoming more of a necessity rather than a luxury. After analyzing the smartphone industry the Apple iPhone is inelastic product and consumers will not be overly price sensitive because of their need for a smartphone and the oligopolistic smartphone market that offers limited substitutes.

When assessing how the price elasticity of demand impacts Apple’s pricing decisions it seems that Apple stays focused on maximizing profit over the short-run.  Since the iPhone is in oligopolistic competition, Apple makes a short-run output and price decisions. Considering the iPhone is an inelastic product Apple can raise the price of new products without seeing a drop in demand. Apple can also prepare and make pricing decisions when other firms are getting ready to release a new product to the market. Apple can predict the effect of an increase in the price of the firm’s new product on the quantity of iPho