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Managerial Economics

Analyzing Business Growth with changing market

Introduction To Managerial Economics

In the present era the micro and macro economic factors plays a very crucial role in determining the prices of products and services. Now it has become very essential for management of companies to understand the factors and their affects on pricing of a particular product and services. Factors such as competition prices, government, current market situation, demand and supply trends are key aspect that every organization needs to considered while pricing. The calculation of pricing should be done in a very effective manner so that companies can ensure profitability in long- run. Determination of appropriate prices helps companies to attract more customers and increase sales volume. On the other hand it is also essential for companies to evaluate the factors that can affect the demand. This report is based on Apple I-Pad which is a successfully product of Apple due to status and features that are associated with it. Further this report explains the important factors that affects the demand of I-Pad.

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In order to have a situation of profitability Apple is required to ensure that the prices are competitive and sustainable. The pricing of products and services is a very tough task for mangers and should be done in a very effective manner (Huang and Liang, 2005). By setting appropriate prices companies eliminates the products and services which cannot cover the cost and generate profitability in the long run. With the help of different pricing strategy and policies, managers can create a situation of greater profits along with competitive advantage . Setting prices completely rely on the finance and marketing department as price plays a very significant role in the success of a product. Appropriate Pricing helps organization so attract more customers, give a tough competition to its competitors and increase the current market share of companies.

Analysis

Pricing policy can be explained as a process in which companies determine the prices of their products and services on the basis of factors such as existing demand in the market, cost of product, value and prices of competitor’s products and services (Vasigh, Tacker and Fleming, 2008). On the other hand pricing strategy is determined as a process that explains how the company uses the prices of its products and services to satisfy its strategic goals. This can be done either through increasing prices of products in order to clear the previous collection or by decreasing prices in order to attract more customers and increase the sale of products.

Pricing of product also depends on the pricing goals, competition and cash flow of the company. Pricing goals may vary from company to company such as some companies will set prices to increase short term profits, whereas some companies can set prices in order to achieve profitability in the long run. Every organization needs to ensure that the prices they have determined are according to market (Ikerd, 2005). Sometimes feedbacks from customers are also taken into consideration while setting up the prices.
Factors affecting the prices of I-Pad

Relationship between price and quality of products

Prices are sometimes considered as the indicator of quality. Usually products with high prices are considered as very high quality. Price of the product is considered as a key aspect in determining the quality of products when the products cannot be measured in term of objective quality such as perfumes and drinks. Apple is considered as among the top brands of the world in terms of quality (Gulati, R., 2007). The only reason why the prices of apple I-Pad are generally high is that in terms of quality I-pad is amongst the best in the world.

Product line pricing

Rather than decreasing prices of existing products companies now look forward to increase their product line by introducing new products. It is specially done in situations when a competitor launches a product with high quality and low price. Apple has specially taken care of this factor and has a wide product line with different prices to attract each segment of customers.

Competition

It is a very crucial aspect that needs to be taken into consideration while determining the price of products. Every company needs to analyse the pricing movers, strategies and policies adopted and implemented by their competitors. Sometimes competitors reduce the price to attract more customers and increase their present market share (Esper and. et.,2010). So it is very essential for a company to become aware about the prices of competing while determining their own prices. Apple faces a tough competition from Samsung. The company has to take care while defining competition. There are generally three levels at which Apple faces competition, which are mentioned below as

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Technology used in I-Pad

  1. Dissimilar products serving the same need in a similar way
  2. From products serving the problem in a dissimilar way.
  3. Retailers and distributors.

Products like I-pad are sold with the help of a mediator like distributors and retailers. These retailers have some sort of margin in the price of products that they offer to customers. Sometimes prices of product are high as the retailers wants to have high margin on the products.
Prices of iPad have continued to fall even in the face of increasing demand

Price cannot be considered as the only factor that affects demand of products and services in market. There are other factors also which influence demand in market.I-pad provided by Apple is a technological product and thus along with prices there are factors like style and status that are associated with the products and affects the demand of products in market.

Demand can be termed as a desire of individual to owe a particular thing. It can be also stated as how much quantity the buyers of a particular product and services desires to buy in the market. Apple I-pad is usually associated with status of people and due to its high brand image and unique features it is preferred by people (Leininger and McFarland, 2006). Since it was launched its demand was high as it was satisfying all needs and requirement of people that they were seeking in a tablet. The technology, features and experience provided by I-Pad is satisfactory in the eyes of customer. It is a product that can be termed as value for money.

People use I-Pad for different purpose such as reading books, playing games, entertainment, education etc.Usually I-pad is preferred by people who are addicted to technology and seeks for technological up-gradation at regular intervals (Oke and Gopalakrishnan, 2009). Even with the increasing demand company is enhancing price of the product due to following aspects-

Competition

In the past few years Samsung has emerged as the biggest competitor of Apple. The design and technology provided has become the major path for Samsung in order to attract customers. Apple is considered as brand of status and was the only reason behind people selecting Apple. In the last few years the smartphone invented by Samsung gave very tough competition to Apple. The only reason why Samsung has captured a big market share in such a short span of time is its pricing policies (Ikerd, 2005). Usually the prices of Apple products are very high and only people associated with high class were able to buy products of Apple. Samsung target the middle class group and manufactured smartphone that can be afforded by everyone. This forced Apple to cut down its prices in order to hold the current market share and stay competitive. The prices that were offered by Samsung were comparatively very low (Johnson and Mena, 2008). This was the main reason behind the decrease in prices of I-pad even in case when demand was increasing. Apple was more interested in capturing the market share so they concentrated on selling more volumes instead of generating profits.

Changing taste and preferences

Along With the change in time taste and preference of customers also changes and competition in industry becomes more intense with the emergence of some new players in the market (Vasigh, Tacker and Fleming, 2008). For companies like Apple it is very essential to meet the changing needs and preferences of customers in order to stay competitive in the market and hold its current market share. People often gets bore by using same design and technology in smartphones. Thus it becomes very crucial to make changes in design and technology of existing products. There were some changes that were done by Apple in I-Pad but the same features were provided by other companies at a much cheaper rate which forced customers to change their preferences (Huang and Liang, 2005). It became very difficult for Apple to retain its customers so they applied strategy of deceasing prices and even when the sale of I-Pad started to increase, prices were decreasing at regular intervals.

Technology

Up-gradation in technology is very essential for companies as they cannot survive by offering same kind of technology in every product to their customer. The change of upgraded technology with new one help companies to cut down their cost and sale products and services at low prices.

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The type of market in which Apple operates is Oligopoly. Such kind of market have limited no. of seller , who sells similar and different products. Aggressive advertising and strong marketing strategies are the approaches that are preferred by companies operating in oligopoly market. The entry of new firms is restricted and it is very tough task of new firms to enter in such kind of market (Gulati, R., 2007). The tablet market in which Apple sells I-Pad is consist of few major players like Apple and Samsung. Apple I-Pad and Samsung Galaxy tab are the two biggest competitor in tablet market. Both tablets are well know and preferred by customers. Huge amount of financial resources are invested in the marketing and advertisement of these products and often low prices strategies are also used in order to increase the sale of Tablet.

The above digram explains that there is a direct relation between the price of products and its demand in the market. In the above diagram the earlier price was P1 and the quantity demanded was Q1. When the price of the product increased from P1 to P2 then the demand also increased from Q1 to Q2. Which is totally different from the general concept which states that the if price of products gets increased then its demands automatically lower downs.

It can be clearly explained with the help of second diagram that Apple is currently not increasing the price of I-pad because a increase in prices will affect the demand and will low down the demand of products. So even when demand is rapidly increasing the company is not increasing its prices. The second digram explains when prices of I-pad was 399$ then its demand was around 15. with the increase in prices the demand decreased. New prices of I-pad was 499$ and quantity demanded was 10. further when the price increased to 599$ the quantity demanded also decreased to 5.

Conclusion

As per the above stated report it can be concluded that it is very essential for firms to consider the economic factors that affects the business activity. In order to stay competitive in long -run policies and strategies related to pricing are very essential. Every firm needs to evaluate prices that are existing in market and quality that they are offering to people against the price. The change in technology and why it is essential for firm to have an upgraded technology has been explained in this report. Further it can be concluded by this report that what are the factors that can have impact on the pricing of goods and services. The reason why Apple is selling I-pad on lower prices even when its demand is high has been highlighted in this report. Overall the report completely explains about the economic factors such as demand and supply.

References

  • Esper, T. L. and. et., 2010. Demand and supply integration: a conceptual framework of value creation through knowledge management. Journal of the Academy of marketing Science.
  • Gulati, R., 2007. Managing network resources: alliances, affiliations and other relational assets. Oxford: Oxford University Press.
  • Huang, G. Q., Zhang, X. Y. and Liang, L., 2005. Towards integrated optimal configuration of platform products, manufacturing processes, and supply chains. Journal of Operations Management.
  • Ikerd, J. E., 2005. Sustainable capitalism: A matter of common sense (p. 4). Columbia, SC, USA: Kumarian Press.
  • Johnson, M. and Mena, C., 2008. Supply chain management for servitised products: a multi-industry case study. International Journal of Production Economics.
  • Leininger, M. M. and McFarland, M. R., 2006. Culture care diversity and universality: A worldwide nursing theory. Jones and Bartlett Learning.
  • Oke, A. and Gopalakrishnan, M., 2009. Managing disruptions in supply chains: a case study of a retail supply chain. International Journal of Production Economics.
  • Vasigh, B., Tacker, T., and Fleming, K., 2008. Introduction to air transport economics: from theory to applications. Ashgate Publishing, Ltd
 

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