Apple Corporation’s Economic Analysis Project

Subject Company Information

Apple Corp is an American company that manufactures, sells, and distributes computer hardware, software, and electronics (“Apple” par. 4). It was founded by Steve Jobs along with Steve Wozniak and Ronald Wayne in 1976 (Grady 4). They incorporated the company in 1977 and located the headquarters in Cupertino. It is very popular in the USA since it produces high-quality products which include iPhones, computers, smartphones, iPods, tablets, and Mac computer hardware (Grady 6). The company’s mission is to produce high-quality technological products that are easy to use and cheap (Grady 43).

Its philosophy argues that technology should not be complicated in a manner that intimidates illiterate and non-computer experts. In light of fulfilling this mission, the company embraces corporate social responsibility by handling employees fairly, providing a safe working environment, and using environmentally conscious manufacturing processes. Apple’s mission statement drives towards improving the safety and health of workers as well as customers by producing products that are friendly to the environment (Lashinsky 240). On the other hand, the vision has the clamor to provide the best experience to users by making quality personal computers.

Demand and its Elasticity

Determinants of demand

Numerous factors are affecting the state of demand for the computers, iPhones, and iPods from Apple Corp. Some of these factors are mediated by marketing, popularity, competition, sellers’ and customers’ bargaining powers, as well as socioeconomic factors among others discussed below.

New entrants have been a major aspect that characterizes Apple’s external environment. The growing field of technology attracted people to produce and sell technological products. This growth has caused the emergence of new entrants, especially from Asian countries. Some of the new entrants, which have attracted a lot of attention, include Bing, Itel, and Dous among other companies.

The company also faces the threat of substitute goods due to the production of similar products by new entrants and competitors. Some competitors manufacture cheaper products than Apple enabling them to attract a lot of customers (Grady 124). For example, Tecno launched their first Android Smartphone on the 27th of April 2012. This phone has gained a lot of popularity in Africa and Asia posing a big challenge to Apple’s smartphones in these continents. Additionally, some Chinese companies have diluted Apple’s brand enabling them to produce a similar brand. This phone acts as a substitute for phones posing a threat to the Apple Company.

Buyer’s power is another essential part of Apple’s external environment. In this case, the buyers have much bargaining power due to the existence of competitors and substitutes. Competitors provide substitutes that customers can purchase if Apple’s products are very expensive. As a result, the customers can easily bargain for low prices in the business. However, the company has implemented a secret loyalty to reduce bargaining power. The program is known as Apple Retail where customers get training on how to use different applications and devices. Steve Jobs argues that the program focuses on building the life of customers rather than selling products. Therefore, the customer can purchase apple devices to get this essentially educative service.

Additionally, suppliers’ bargaining power affects the company’s external environment. Suppliers include the employees, providers of raw materials, and network providers (Campbell and Craig 86). The company has controlled the bargaining power of suppliers since most of the suppliers aspire to be related to Apple. Most suppliers who supply raw materials to the company enjoy a competitive advantage over competitors. Besides, employees who provide labor to the company have little bargaining since most experts compete to work for the company.

The last component that shapes the strategic situation of the company’s external environment is the intensity of competitive rivalry. Under the leadership of Steve Jobs and Cook, the company has made landmark innovations over the years. Apple has proved to be one of the most innovative companies that its competitors. The company also organizes technological forums where people discuss arising issues discoveries. While people talk about technology in broad terms, the company is advertising its products through forums. This advertisement has created fanaticism among Americans to create loyalty for Apple products including the Macbook, iPods, and iPhones.

The main political factors that affect the company include taxation policies, corporate social responsibilities, and environmental laws. In the USA, the average corporate tax is about 12 percent (Lashinsky 238). Apple Company complies with this policy by paying 12% of the total income while the shareholders are charged from dividends. The government also advocates Corporate Social Responsibility where Apple must treat its employees fairly by providing safe working conditions and offer satisfactory payments. The company is subject to environmental law asserting that corporate must use environmentally conscious manufacturing processes.

Regarding economic factors, the company is located in the most industrialized country where the current inflation rate is 1.2 percent. This aspect implies that the company’s business enjoys substantial business stability owing to low inflation rates (Samuelson and Marks 64). Additionally, the company incurs favorable exchange rates since the USA dollar is superior to most of the countries across the world (Campbell and Craig 214). Health and safety law states that the company must consider the health of employees. For example, it has stipulated the maximum level of noise that the employee should incur. While discrimination law states that all stakeholders of the company must be treated equally, the employment law coordinates employees, employers, government, and trade unions.

Generic strategies

One of the most critical threats to Apple products is the existence of strong competitors who include Nokia, Samsung, and Sony. In light of facing the threat, the company uses cost leadership. It produces its product in bulks to benefit from economies of scale which enable substantial cost reduction. Although Apple products are not necessarily cheaper than those of the competitors, massive production enables them to produce high-quality goods at reasonable prices. The combination of rational price and high quality enables the company to compete favorably with its rivals. Additionally, the company has used the differentiation strategy to differentiate their products. Apple is one of the companies that have used the differentiation strategy successfully. In this light, they have created unique technological products that aim at capturing customers who are sensitive to the quality rather than price. Many fanatics of this Apple stick to its products due to the satisfactory services of the company.

Demand elasticity for MacBooks, iPods, and iPhones

The demand for MacBooks, iPods, and iPhones increases when the prices decrease. When the prices of these products increase, the demand lowers where the customers prefer devices from other companies. For instance, the rise of Macbook prices from $2200 to $2550 in the year 2008 led to a subsequent rise in the overall quantity demanded from 2000 to 1700 units for one month. These features indicate that the product has an elastic demand. However, Apple Corp applies innovative ideas to retain the demand for their products as high as possible. The law of demand states that the quantities of a product demanded is higher when the prices reduce. Since these two products are luxury devices, their demand decreases as the price rises. In such cases, the substitute brands include Samsung that offers substitute products. Figure 1 illustration shows the relationship between the quantities of Macbook sold depending on their price. The introduction of Macbooks took place in a competitive market where other computers offered reliable devices. While compared to iPhones and iPods, the elasticity of Macbook’s demand is low.

Example of Macbook elasticity.
Figure 1: Example of Macbook elasticity.

When Steve Jobs noted that most competitors were producing smartphones, the company developed the Apple Retail program. This program aimed at building the life of customers rather than selling products. The program offered training on how to use various applications and devices. This training indicated that the company focused on making developing the skills of the customer besides selling the products. This program attracted many customers to buy Apple products since they could gain skills. New entrants and competitors were suppressed by this strategy since it enabled all customers to use the devices regardless of their expertise. This is a historical instance where the company used innovation to fight competition.

Besides, the company used this program as a solution to the complicated devices produced by the competitors. It transformed these complications into an opportunity by providing a solution to customers. Furthermore, the launch of each new product arose with new features, especially for the iPhones. For instance, Apple launched a $599 iPhone into the market in the year 2007. However, the management lowered the prices of the product to $399 while targeting to make higher sales. In this regard, the daily sales of units rose from 9000 to 27000 (Schiller par. 3). Essentially, the elasticity of Apple computers was no different from that of the iPods and iPhones. A decrement in the computer prices raised their demand whereas the increment lowered it. This trend implied that the sales of computers were also elastic. For instance, Apple had decreased the prices of Macbook by about fifty percent in 1991. The decrement of the prices led to a subsequent increment in the quantity of the machines demanded by 85%. For this case, the elasticity was -1.7 which was not between 0 and 1 after ignoring the sign.

Works Cited

Apple 2009. Web.

Campbell, David J., and Tom Craig. Organisations and the Business Environment. 2nd ed. Amsterdam: Elsevier Butterworth-Heinemann, 2005. Print.

Grady, Jason D. Apple Inc. Westport, Conn.: Greenwood, 2009. Print.

Lashinsky, Adam. “Inside Apple: How America’s Most Admired–and Secretive–company Really Works.” Choice Reviews Online 49.11 (2012): 231-247. Print.

Samuelson, William, and Stephen Marks. Managerial Economics. 7th ed. Hoboken, N.J.: Wiley, 2012. Print.

Schiller, Bradley. “Inkling.” Inkling. McGraw-Hill. 2009. Web.