Apple Incorporation’s Managerial Economics

Introduction

Apple Inc is among the leading computer and software makers in the country and indeed worldwide. The company has also become the market leader in music retailing as well as in mobile music gadgets. This makes Apple a candidate for the investigation of how corporations apply managerial economies in their operations. In this regard, concurrent sections of the paper shall highlight how Apple has applied some of the concepts in the field. Effects of these concepts on company performance will be investigated, analyzed, and reported accordingly.

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Apple’s Principle Objectives

Apple Inc’s objectives include: maintaining a strong brand image, being a trendsetter in its industry, and revolutionizing the way interact with technology (Moritz, 2004, p. 32). With regard to maintaining brand image, the company aims at continuing to develop products completely distinctive from the ones produced by the competition. The Apple brands can easily be recognized by the target market due to their quality and positive reputation. Indeed, they have become so distinctive that fabricators have found it hard to copy Apple brands. This has helped the company’s products to occupy a higher recognition in the market.

The second objective involves remaining a trendsetter in certain areas of the industry. Apple has therefore concentrated efforts in developing products ahead of their competitors, which is especially enhanced by the company’s research and development teams. It has become a common sight for the company to develop new products only for competition to embark on efforts of designing products performing similar functions as Apple’s. For instance, iPod’s popularity led to the development of Zune by Microsoft.

The development of the iPhone has also resulted in players in the industry developing phones with similar capabilities. The company has succeeded in keeping research and development secret until the resulting products are ready to be taken to the market. Competition has therefore had a tough time trying to develop products to be brought to the market at the same time as Apple’s. This has provided Apple with a head-start in marketing. As a result, Apple has been able to sustain and in some cases increase its market share even when competitors establish themselves in the market. For instance, Apple’s iPod was developed at a time that few players in the industry were considering the mobile music market as important. Apple had a different viewpoint and therefore embarked on developing a product that potential consumers need. The resulting product’s entry into the market was well-received as masses started buying the product. Industrial players that had ignored the market started developing their own portable music players and consequently introduced them to the market. However, the increase in the competition did not have an impact on iPod’s market dominance. This is illustrated in the following chart illustrate the market share for Apple’s iPod music player compared to leading competitors in the submarket.

The third objective involves how people interact with technology, especially in the entertainment sector. This is done through the integration of several technologies in ways beneficial to consumers. For instance, Apple’s development of the iPod hardware and iTunes software resulted in the integration of two technologies. This enabled consumers to transfer music from computers to mobile devices. Apple had in this regard succeeded in redefining how people interacted with both technologies. The success of integrating technologies into one platform has indeed become Apple’s competitive advantage. This was further exemplified in the company’s newest product, the iPhone that has integrated entertainment and mobile telephony on one platform. The company has been so successful in designing ways of how people interact with technology to an extent that it keeps people guessing what is coming next. Apple has been able to operate within the three objectives, and there is no indication of going off the railings in achieving the set objectives. Indeed, the ability to achieve the three objectives has enabled the company to overcome the small player it had just a decade ago. Having three distinctive objectives has also helped the company to diversify the products offered to an extent of outshining bigger rivals such as Microsoft. The success in achieving the objectives has served as motivation for the management to keep innovating. As a result, the company has found itself expanding despite the increase in competition in all the markets that it participates in. Indeed, it is the ability of the company to set goals and achieve that that has seen Apple develop products that cultivate markets that had not existed before. This has resulted in Apple becoming the first company to develop various products through the integration of technologies. The continuation of this process will help in meeting long-term objects of dominating the market entirely. The following table shows the market share of PC makers in the US:

U.S. Market Share

Market Conditions

Apple operates in a competitive market environment considering the number of players in each of the industries that the company participates in. For instance, Apple computers compete with different other players such as Dell, HP, and Compaq. There is numerous another player in the international market, meaning that Apple has to deal with a wide range of competition in the attempt to achieve admirable market share. As expected in innovative companies operating in competitive markets, Apple has been able to create a great deal of differentiation of its products from those produced by the competition. In fact, the company has been among the few in the computer assembling industry that has succeeded in meeting creating a niche market through aggressive differentiation. This differentiation has also happened in other products by the company, similarly resulting in the creation of a niche market. For instance, the iPod is in its own class when it comes to mobile music devices. In addition to computers and the iPod, Apple’s iTunes has managed to out-compete other digital music management systems, as well as becoming an industry leader in music distribution; iTunes recently overtook Wal-Mart as a leader in the music retail ling industry (Hogan, 2007, p. 57). Consumers can easily differentiate between other products and the ones from Apple, which are seen as durable and reliable. Apple has done product differentiation so well that massive campaigns by competitors have not bared desirable results. Even Microsoft’s Zune music player that was taunted as the greatest competition on iPod has not succeeded in making a dent in the Apple product’s popularity.

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Apple Inc. also operates in the growth market that is destined to keep expanding. This means that more opportunities are available for pl; Ayers in the industry, which explains why Apple is constantly shelling out one product after another. The global potential of the industry provides Apple with opportunities to sell products to many more people around the world. This is exactly what Apple has been undertaking; it has been producing not just for the domestic American market but for the entire world. The management has to consider that many other producers around the world can easily enter into Apple’s product line and foster aggressive competition. The information technology industry that the company operates in provides that players be able to innovate in order to gain market share. Apple has been following this demand by integrating various technologies into one platform that has come to define its products and operations. This integration has resulted in the company gaining a cult-like following from customers. Indeed, seen consumers a single product from Apple is a rare occurrence; most of them have several of them. The ease of using all the products at the same time has been the driving factor. Competition has not been able to integrate various aspects of technology has resulted in Apple’s continued dominance in the industry. Competitors that have been trying to copy Apple have had a rough time reaching the company’s level of sophistication level. The ability of the company to undertake groundbreaking research in developing new produces has had the greatest input in the ability to have competitive products. This is further enhanced by continuous improvement of products that are already in the market—this makes them more competitive despite the introduction of competing products by players in the industry.

Evaluation of Product Demand

The demand for Apple products is evaluated through the popularity of its products in both national and international markets, both of which have been. Considering that many people own several company products, Apple management can evaluate the demand of products by getting the numbers. For instance, people with iPods help the company to understand possible demand for products being offered through iTunes. This is because iPod users will come into contact with the information provided through the system. Similarly, the good reputation that company products have in the existing market helps the management to understand the possibility of these groups of customers buying the new products. In another example, people who relied on Apple computers were earmarked as the first ones to purchase the iPods, given computers’ reputation. In addition, individuals who were using both the computer and iPod were most likely the first ones to purchase the iPhone. This trend of relying on the current consumer base to evaluate the demand for company products has served the company well. Other than just targeting customers who already own company products to purchase new items, the company also works on-premise that consumers generate enough craze that would attract new customers.

Apple’s product demand is also determined by consumer spending seasons, considering that Apple products have been some of the most preferred gifts. The company management has thus been embarking on the process of manufacturing products that would cater to customer needs during the high-demand seasons. In addition, the distributors of Apple products also embark on stocking the appropriate amount of products. Having experienced several high seasons especially around Christmas has enabled the management to the company’s estimates in order to prepare for the coming seasons. For instance, the few Christmas periods have seen iPod demand increase rapidly and has sometimes resulted in increased pressure on the company’s servers as gift recipients try to activate and register their gifts with the company. The challenges experienced in the last Christmas seasons have been lessons that the management has to take into consideration. As they prepare for future seasons.

Output Determinants and Forecasting Tools

As mentioned earlier, the company has been very secretive in the process of developing its products. Management has managed to keep the market guessing until the products are released into the market. Considering that most customers of new products happen to be people that already own Apple products, the company does its best to ensure pricing is not prohibitive. Pricing the product too high for current customers could lead to the most loyal and reliable base falling to patronize the company and therefore result in to decline in market share (Cringely, 2002, p. 150). It, therefore, becomes important for the company to perform market research on the price that current consumers would be willing to pay and consequently embark on developing the pricing. Though the current customer base is heavily considered in understanding demand for company products and in the subsequent pricing, they do not receive special prices, all customers receive similar treatment.

Other than considering prices that current customers would pay for the product, the company also considers prices being charged by the competition. This is considering by operating in a competitive market, Apple Inc. becomes a price taker in the market. This means that the company cannot come up with arbitrary pricing for its products because that would make competitors’ goods more attractive to potential customers. However, being a well-entrenched competitor in some of its niche markets provides the company with some powers to charge higher prices for products. In addition, having a strong following for its products leads to many customers purchasing the brand due to royalty. Higher pricing for its products especially happens when launching the new product, most of which tend to lack competitors whose prices can be compared. High prices on newly released products are eventually brought down when competition manages to develop alternative products that get lowly priced. On its part, Apple responds by cutting prices in order to fight competition often with decent success. The use of existing customer information to determine demand has resulted in the company understanding the customer base better. In addition, having virtually all Apple products connect to company databases enables management to understand customer behavior and thus design products that would meet those profiles. The information collected through these processes helps the company during forecasting processes. In addition, having information on consumer profiles on iTunes leads to the development of processes that lead to developing systems that will enable customers to find what they need with ease. This leads to greater customer satisfaction rates that have come to be associated with the company.

Risks

The major risk that the company faces is that of relying on a specific group of brand loyalists to influence the rest of potential customers as well as patronizing the company. This could spell doom for Apple in case the industry develops an alternative product that would lead to increased competition and loss of market share. On recognizing this risk, the company has of late embarked on aggressive marketing to the wider market in order to enroll many more customers. The increase in the number of products competing with Apple is also forcing management to develop long-term strategies. The situation has further been necessitated by the price competition against Apple products that are said to be a little expensive. Another threat has developed from low-cost production centers in Asia that have been used by competitors to decrease their cost of production and subsequent price of their products. The company has responded by also taking some of the production functions in those countries, so it can also benefit from the lower production costs.

Another risk that has been facing Apple is that of secrecy and seclusion from other players in the industry. The failure to integrate with other players in the same or other industries has been pitting it at the risk of falling to take advantage of opportunities arising for such cooperation. For instance, Apple developed their computer and consecutively developed their own operating system. The same happened with the iPod; Apple developed it together with iTunes rather than collaborating or using another players’ framework. In responding to this risk, the company has recently started to integrate with players in other industries. For instance, the company collaborated with AT&T to roll out the iPhone to the mass market. The change of tactic is new and could be used in other lines of business.

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Globalization

Apple Inc. is not immune to the pressures of globalization, which are forcing companies to start thinking global. In Apple’s case, the integration of global economies provides both challenges and opportunities. Challenges develop from the competitive pressure from international producers. The United States, which has been a traditional market for the company, is now accessible to products from all over the world. In this regard, the company has to be more competitive in terms of quality and pricing. As mentioned in the previous section, Apple has shifted some of its production facilities to low-cost countries. By taking such measures, Apple seems to be making opportunities out of the challenges faced by competition brought forth by competition.

Globalization also provides the company with the benefit of the expanded market for its products. Many more people in the world can access company products and should thus be exploited. The company should therefore embark on the process of increasing the availability of its product beyond the traditional North American and European markets. The fast-developing countries in the world, especially in Asia, also provide market opportunities for company products, which should not be ignored. The greater positive reputation that Apple products have in the American and international market already have the individuals in these areas demanding the products.

The greatest challenge posed by the company because of globalization is the counterfeiting of its products (Williams & Moore, 2005, p. 14). This is originating from the greater demand for company products in the global arena butt supply has been low. Fat that counterfeit products are sold to fast-developing countries that are a potential market for Apple products tends to affect future growth and expansion. In order to reduce exposure to the loss of potential market, the company should embark on supplying its products to these countries. This means starting to produce for the mass market rather than the secluded ones that are located in selected markets.

Constraints

Company operations face the constraint of intellectual property with regard to digital music. This is considering that digital music can have little to no restrictions on redistribution, meaning that people can decide to redistribute copyrighted music even after agreeing to user agreements with Apple. This has consistently put the company at crosshairs with the law as well as artists. However, Apple has been developing ways and means of ensuring that users do not misuse the system. Some of the processes include entering into agreements with artists and label owners. This and other internal measures have been successful in helping the company avoid problems with the law, as well as providing a mechanism to respect other individuals’ intellectual property.

The above analysis shows that Apple Inc. has been applying various aspects of managerial economies in its operations. Some results of this practice include increased market share for the company’s brand line. Managerial economics has been used to enable the company to sail through the competitive market it serves. The aspect of being a price taker in various competitive industries has resulted in the management coming up with products able to edge those competitors. By being a market leader in some products, Apple successfully used managerial economics to research and develop products ahead of the competition and thus place itself in a better position in terms of competition. Apple has successfully used some aspects of managerial economics to face challenges posed by globalization. Indeed, Apple has converted some negative effects of globalization into opportunities that have improved the company’s competitiveness in the global market.

References

Cringely, R. (2002). Accidental Empires: A Case for Apple Computers. Reading: Wesley.

Hogan, T. (2007). The Foundation of Apple’s Competitiveness. A-Plus Magazine.

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Moritz, M. (2004). The Little Apple Kingdom. New York: William Morrow & Co.

Williams, G. & Moore, R. (2005). “The Apple Story: Parts 1 & 2. Byte. 

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