ECON 365 WEEK 3 PAPER

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Current Market Conditions Competitive Analysis
Stacey Troup
Principles of Microeconomics/ECO-365
August 1, 2016
Ashok Padhi

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Current Market Conditions Competitive Analysis
This Week 3 paper will serve as an analysis of current market conditions facing Apple,
Inc. Throughout this paper I will identify the type of market the product will compete in along
with an analysis of the competitors and customers; I will analyze comparative advantages and
international trade opportunities while explaining factors that affect demand, supply and prices
of the product. An analysis will be done examining factors that affect total revenue including
price, factors that affect productivity, and various measures of cost including opportunity cost. A
review of the externalities and government policies and their effect on marginal revenue and
marginal cost will be done along with providing recommendations on how the organization can
maximize profit-making potential and increase presence in the market.
Apple, Inc.
Apple, Inc. is a worldwide leader in computer hardware with product offerings including
mobile phones, software, peripherals, and applications. While much speculation exists as to the
standing of Apple as a monopoly, the company does not consider it as such and industry insiders
decline to refer to it as such stating “it depends on how you define the market” (Elmer-DeWitt,
2011).
Competitors & Customer Analysis
While Apple maintains its position as #1 in Most Valuable Brands along with #1 in Profit
on the Forbes list (Apple on the Forbes Global 2000 List, 2016), it struggles to maintain its
industry position against rival competitor Samsung.
Holding brand loyalty among customers with its “Cult Marketing” tactics (Schneiders,
2011), it becomes increasingly difficult to hold its favorable business position over its
competitors due to its vast overhead consisting of 489 stores in 18 countries and additional staff
required to operate these locations which cut into its overall profitability. However, Apple’s

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customers are fiercely loyal to the brand sighting its superiority over Windows™ and the
Android™ platforms (Evans, 2014).
Apple is said to have the strongest competition against Samsung when new versions of
the phone are released (Evans, 2014). Customers can be seen worldwide standing in line at their
local Apple store for the newest releases of the IPhone while Samsung prefers to do its marketing
via television ads featuring celebrities doing incredible things (as is the case with the Galaxy S7
Virtual Reality Headset) with the new versions of their phones.
Comparative Advantages & International Trade Opportunities
With Apple’s 489 stores globally, they position themselves for not only their loyal
customers but for customers who may be undecided on their cell phone purchase when entering
the store. In addition to those retail locations, they partner with major electronics stores in order
to saturate the market with a bevy of offerings from the company.
Alternatively, Samsung keeps its overhead low by simply partnering with these same
retailers to push its brand. Counting on the outlets of mobile phone retail stores and big box
retailers of electronics, they are able to staff more people for the production side of the business
rather than the retail operations. One may view this as a negative rather than a positive but it is a
market strategy that has worked for Samsung.
Apple’s sales totaled $233.27B in 2015 with a staff of 110,000 while their profits were
$53.73B worldwide (Jurevicius, Apple SWOT Analysis, 2016). By way of comparison,
Samsung employed 236,000 employees across all divisions including mobile phones and
televisions in addition to their vast product offering of over 100 individual consumer electronics.
Samsung’s profits in 2015 were up 28% to a staggering $28B (Chew, 2015).
Both companies have a stronghold internationally on their respective brands and very
little can be done to further these marketing efforts beyond their current offerings. Apple did try

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to expand its offerings by introducing the Apple Watch. Analysists speculate (as the company
refuses to say exactly how many were sold) that sales of the Apple Watch were around 5M in
2015. However, sales in 2016 fell short of its opening week sales of 200,00 units and declines
continue yet the price remains around $300.00 for the device (Zofagharifard, Ellie, N.D.)
Factors Affecting Supply, Demand, and Prices of the Products
The Law of Demand dictates that the higher the price of an item, the lower the demand
for the item and vice versa.
When we discuss prices of products, it is important to consider the fixed costs such as
rent, utilities, wages, and taxes, which are part of the production process. In addition, tangible
costs such as the cost of materials to produce an item are also part of the final price factoring of
an item. Apple has reduced its production costs historically but has failed to turn these savings
over to the consumer (U.S. iPhone Pricing History, N.D.).
In addition to the savings Apple has found in terms of its materials cost, in 2014 the
Chinese government lifted tariffs for imported parts used for manufacturing of these mobile
devices (Lovejoy, 2014). The hope with this government policy is that apple will further reduce
the pricing of its products to the consumer as they did with the Mac Book Air in 2014 following
this incentive. However, as of 2016, Apple has done little to improve anything but the camera
feature on their phone, yet has continued to increase its pricing. The die hard, loyal fans of
Apple continue to shell out over $600.00 for a new device yearly which drives the demand up for
Apple, keeping the prices high rather than reaching equilibrium (U.S. iPhone Pricing History,
N.D.).
In 2015, Samsung sought to entice loyal iPhone buyers by offering a free Virtual
Reality® headset with the pre-order of a Galaxy S7™ phone through authorized retailers. This
was done to help not only incentivize buyers into leaving their iPhones but to also gain a greater

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market perspective on the supply curve for the suppliers. The promotion (or incentive) to buyers
was a device valued at $200.00, free with purchase and was included as a massive marketing
campaign featuring rapper Lil Wayne and Wesley Snipes on television advertising including
placement of ads during the Superbowl™. The promotion was resurrected again in 2016 to
coincide with purchases for Father’s Day and included a free year of Netflix™ and a games
package for the VR headset valued at $50.00.
These never before seen features drove people to purchase the Galaxy S7 who may not
have considered it before. This incentivized sales tactic greatly helped Samsung with its
equilibrium allowing for the right amount of devices to be made and ready by the due date.
Apple, Inc., however, has done little to change its phones outside the camera upgrade to
the iPhone 6 variations yet the consumers continue to buy them hoping for some magical
upgrade that will make the new device the “must have” item of the season. For Apple, brand
loyalty is key to its success.
Factors Affecting Total Revenue
There are several factors which have an overall effect on total revenue; the first of these
factors is total revenue. Total revenue can be calculated by multiplying the quantity sold by the
sale price. Next is average revenue which can be calculated by dividing total revenue by
quantity sold and is a factor having an effect on revenue. Finally, the marginal revenue is to be
included in this factor. Marginal revenue is the change in total revenue from an additional unit
sold (Economics Online, N.D.).
The Price elasticity of demand is a tool for providing a visual representation of price and
quantity demanded while providing precise calculations relating to price changes in quantity
demanded (Economics Online, N.D.).

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We can see from a review of Apple’s 2015 SEC 10-K Annual Report (Apple, Inc., 2015)
that the company lists several factors that affect overall total revenue and profitability as well as
price elasticity of demand and measures of cost. Among the listed concerns are negative
externalities such as global and regional economic conditions, tax liabilities both domestically
and internationally and litigation (such as the antitrust suit filed 2012) by the Department of
Justice. Additionally, Apple recognizes that it needs stronger supplier and partnership
agreements in order to keep costs low and continue to profit for its shareholders. Samsung and
Apple site currency exchange variations as a final factor affecting their profitability (Samsung,
2015) (Apple, Inc., 2015).
Productivity is affected by wages paid and the output of work provided by each worker.
It is said that the lower the rate an employee is paid, the less productive they are and the higher
the wage, the more productive the worker (Mankiw, 2015).
Opportunity costs for apple include the manufacture of larger screens and increased
memory for their devices. The trade off of an opportunity cost is reduced battery life and a less
happy customer as well as increased material costs to the production (Hufton, 2013).
Externalities & Government Policies
Several externalities and government (public) policies exist that have a negative effect on
the overall profitability of Apple. As previously mentioned, Apple was at the forefront of an
antitrust lawsuit brought forward by the Department of Justice which it had to defend itself
against at the expense of its shareholders. Additionally, until 2014 cell phone manufacturers
who imported parts into china for manufacturing as well as exporting the final product out of the
country, came at a high tariff charge to the company until China released these tariffs and
allowed for more free trade in and out of the country (Lovejoy, 2014). Other issues facing the
profitability at Apple are the accusations of poor work conditions for overseas workers and the

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pending sanctions by those countries to counter the negative conditions and defense of its patents
globally (Thierer, 2012).
Apple is no stranger to public policy debate and litigation and continues to be very public
about its defense of personal data retainment and release to the governments (both Federally and
internationally) sighting privacy rights (Thierer, 2012).
Profit Recommendations
As Apple continues its quest to remain a superpower in the realm of mobile devices and
in an effort to maximize its overall profits worldwide, they need to embrace cost-saving methods
including supplier contracts, cost reduction of its operating expenses and a review of its retail
operations.
Taking from the financial statements of Apple, Inc. we learn that the profits are greatly
impacted by litigation and retail operations. The operational cost of running the 480(ish) stores
that Apple currently owns cut into their profits at a negative rate (Apple, Inc., 2015).
Additionally, we learn that Apple takes advantage of tax loopholes in its yearly returns that help
it maintain profits (NASDAQ, 2013).
Opening their minds to partnerships similar to those held by Samsung™ would further
their brand loyalty, increase their sales and, inevitably, improve their bottom line. Consider how
Samsung™ phones were selling in the market prior to the partnership with Google.
Additionally, improving functionality would drive more customers to their brand.
Conclusion
What we glean from this review of the business operations at both Apple and Samsung is
that they are both strong in the mobile device business, however, Samsung is a world leader in a
vast array of consumer electronics. Apple, while they have tried (unsuccessfully) to launch

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alternative products, have failed to recognize the needs of their consumers for added features and
lower prices.
Managing supplier relationships and keeping operational, fixed and opportunity costs will
result in a greater bottom line, improved customer loyalty, and better overall profitability to its
shareholders.
It is imperative to form partnerships with technology companies in order to further your
already solid product offering as the mobile device market is always looking for the latest and
greatest features, something Apple has failed to do thus far.
Considering their overzealous retail store offering, by closing some of these stores in
favor of these partnerships with big box electronics retailers as well as mobile phone suppliers,
they could boost profitability as well.
While Apple is strong, it is evident that their unit cost has only gone up over the years
with no real cause for it other than the supply and demand curve coupled with brand loyalty. If
Apple were a car company, they wouldn’t have the same success as features always need to
change with the times to show a value for the product beyond just the brand name.
If Apple considered a partnership with Samsung™; consider the possibilities. Apple
operating system applications for your mobile phone that control your air conditioners,
refrigerators, washing machines, etc. This partnership would truly bring not only Apple, but the
consumer, into the future.
References
Apple on the Forbes Global 2000 List. (2016, 05). Retrieved from Forbes:
http://www.forbes.com/companies/apple/

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Apple, Inc. (2015). Investor Relations - Apple, Inc. Retrieved from Apple:
http://files.shareholder.com/downloads/AAPL/2543327150x0x861262/2601797E-6590-
4CAA-86C9-962348440FFC/2015_Form_10-K_As-filed_.pdf
Chew, J. (2015, 10 07). Here's Why Samsung's Profits Are Up Nearly 80%. Retrieved from
Fortune: http://fortune.com/2015/10/07/samsung-profits-third-quarter-2015-chips-galaxy/
Economics Online. (N.D.). Price Elasticity of Demand. Retrieved from Economics Online:
http://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_demand.ht
ml
Elmer-DeWitt, P. (2011, 02 16). Does Apple Have a Monopoly? Retrieved from Forbes:
http://fortune.com/2011/02/16/does-apple-have-a-monopoly/
Evans, J. (2014, 03 31). Apple is Beating Up Samsung in Brand Loyalty. Retrieved from
Computerworld: http://www.computerworld.com/article/2476076/apple-ios/chart--apple-
is-beating-up-samsung-in-brand-loyalty.html
Hufton, N. (2013). Apple, Inc. Retrieved from Prezi: https://prezi.com/syaqriscvs7g/apple-inc/
Jurevicius, O. (2016). Apple SWOT Analysis. Retrieved from Strategic Management Insight:
https://www.strategicmanagementinsight.com/swot-analyses/apple-swot-analysis.html
Jurevicius, O. (2016). Samsung SWOT Analysis 2016. Retrieved from Strategic Management
Insight: https://www.strategicmanagementinsight.com/swot-analyses/samsung-swot-
analysis.html
Lovejoy, B. (2014, November 12). US-China trade deal set to reduce manufacturing costs for
Apple, aims to cut prices for consumers. Retrieved from 9 to 5 Mac:
http://9to5mac.com/2014/11/12/us-china-trade-deal-set-to-reduce-manufacturing-costs-
for-apple-aims-to-cut-prices-for-consumers/

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Mankiw, N. (2015). Principles of Microeconomics. Retrieved from
https://phoenix.vitalsource.com/#/books/9781305892811/cfi/6/10!/4/2/2@0:0.
NASDAQ. (2013). Apple vs. Samsung - A Financial Comparison. Retrieved from NASDAQ:
http://www.nasdaq.com/article/samsung-vs-apple-a-financial-comparison-cm270771
(2006). Other Electronics Industries. In M. Pecht, China's Electronics Industry (pp. 194-196).
Norwich, NY: William Andrew Publishing. Retrieved from
https://books.google.com/books?
id=HlWKB72XiAwC&printsec=frontcover#v=onepage&q&f=true
Samsung. (2015). Quarterly Report 2015. Retrieved from Morningstar:
http://quote.morningstar.com/stock-filing/Quarterly-Report/2016/3/31/t.aspx?
t=:SSNLF&ft=&d=90e91e535cd38a90cc84e08c38001b12
Schneiders, S. (2011). Apple's Secret Of Success - Traditional Marketing Vs. Cult Marketing.
Diplomica Verlag. Retrieved from
http://site.ebrary.com.contentproxy.phoenix.edu/lib/apollolib/reader.action?
docID=10489141
Thierer, A. (2012, April 8). Regulatory, Anti-Trust and Disruptive Risks Threaten Apple's
Empire. Retrieved from Forbes: Regulatory, Anti-Trust and Disruptive Risks Threaten
Apple's Empire
U.S. iPhone Pricing History. (N.D.). Retrieved from Applinvestors:
http://aaplinvestors.net/stats/iphone/pricing/
Worstall, T. (2014, 09 03). The Effect Of Apple's New iPhone On China's Exports, Trade
Balance And GDP. Retrieved from Forbes:
http://www.forbes.com/sites/timworstall/2014/09/03/the-effect-of-apples-new-iphone-on-
chinas-exports-trade-balance-and-gdp/#190d85f12033

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Zofagharifard, Ellie. (N.D.). Apple Watch is a FLOP: Sales of the gadget have fallen by 90%
since April, report claims. Retrieved from Daily Mail:
http://www.dailymail.co.uk/sciencetech/article-3152514/Apple-Watch-FLOP-Sales-
gadget-fallen-90-April-report-claims.html