ME Assignment 2

ME Assignment 2
1. What is Apple's monopoly power in the global smartphones market, and how has it changed
between 2014 and 2016?
While it was the market leader in the segment of smartphone sales since its inception in 2007, its unique
combination of features from a touch screen, which did not require a stylus, web application, and
entertainment media all in one, was revolutionary. Even with subsequent android updates and windows
mobile, apple had a significant edge in software integration and diverse app store. Its launch of iPhone 6
and 6's become a major success both globally and in the Indian smartphone market, but Apple had the
worst sale of up to 18% year on year dip in 2016
Three things changed between 2014 to 2016, both in the global Market and in India.
For Global Market
1) Chinese companies started to dominate the smartphone market. These companies targeted every
segment of the user and provided more services in comparison to apple. The Chinese Market also
plateaued due to stagnation in its GDP in 2015 and decreased 5% till the 1st quarter of 2016. It
also faced many Intellectual Property disputes in Chinese courts
2) Samsung caught up to Apple in terms of smartphones sales, and its S series phone had identical
performance, if not more than iPhone.
3) As iPhone prices increased Gradually from 499$ to 699$, a certain userbase skipped buying the
latest model until they felt it had significant upgrades.
For Indian Market
1) Startup India and Make In India Started in 2014 started Boosting Local Manufacturing Capacity
Making Many Branded Phones in India Cheaper, and New brand phones were becoming more
appealing.
2) As India is Still a price-sensitive Market due to an Increase in Price, many people started looking
towards alternatives.
3) Internet penetration was still low during 2014-2016 in many parts of India. Thus becoming a
barrier for increased adoption.
2. What are the likely constraints on Apple's monopoly power in the Indian smartphones
market?
Challenging and Growing Competition

· Highly competitive Market with more than 100 brands.
· Apple had only a 1.9% market share in Q2 2016.
· Chinese manufacturers are gaining significance through aggressive marketing and retail
strategies.
· Cheaper and comparable quality products from the competitors.
Language and Smartphone Adoption

· Only 1 in 10 Indians consider English as their first, second, or third language.
· Other brands are using operating systems with multiple Indian languages.
Low Per Capita Income and High Price Sensitivity of Indians
· Avg. annual per capita income in India is less when compared with other countries where Apple
has a larger market share.
· Indians have a high price elasticity of demand.
· They tend to change phones frequently, so investing in expensive phones is of less interest.
· The competitors are offering better functionality at lower prices.
Low Internet Penetration and Limited Availability of LTE and 4G

Low exposure to the Internet was a significant constraint in the Indian Market. Because of the low
penetration of high-speed Internet and the high price of Internet plans, the majority of the Indian
population is in no touch with real-time most connectivity. This is the reason why customers were
reluctant to buy a premium phone with no internet.
Preference for Android Phones
The Android operating system primarily governs the Indian smartphone market due to its easy
accessibility even in low-end smartphones, many hardware partners, extensive distribution channels, and
a wide range of low or no-cost apps.
Smartphone Brand Awareness and Satisfaction
Many smartphone buyers were unfamiliar with the Apple brand back in 2015. Out of 12 smartphone
companies, Apple ranked 10th in brand awareness, because of which the general public has low brand
satisfaction of the product and its services. For low-income individuals, camera, screen size, design, and
resolution are the critical factors for buying smartphones. The competitors provide the same with a wide
range of differentiated products at a minimal price compared to Apple.
Policies Affecting Smartphones

The 'Make in India' campaign launched by the Government of India to transform India into a global
design and manufacturing hub led the Union Budget to impose a 12.5% countervailing duty on mobile
phone imports with additional excise duty and other taxes.
This led to an increase in mobile manufacturing facilities in India, thus increasing the market share of
locally manufactured mobile phones.
3. Does more fantastic pricing for iPhones guarantee higher profits?
Apple faces few problems in the Indian Market -

1. Pricing of devices - It is a problem that Apple faces in India. Due to high import duty, Apple has
to price their devices at higher prices. This leads to low demand for the device as Indian
consumers prefer a soft price phone high on features.
2. Competitive Market - another problem apple faces is the competition in India. Even though Apple
markets itself as a premium product, intense competitors like OnePlus and Samsung compete
with Apple and affect its sale.s
Due to these two factors, a more fantastic price for iPhones doesn't guarantee higher profits. Apple faces
massive competition from OnePlus and Samsung, which eats into Apple's market share, reducing its
demand in the Market. Also, Apple is targeted towards upper-class people, making its demand relatively
less in India's huge Market.
4. What explains Apple's high profitability in the global Market?
Last fiscal year, Apple had net sales of $ 215.64 billion, a considerable amount. With this income, it
generated a gross income of $ 84.26 billion. Operating expenses, divided between research and
development (R&D) and sales, general and administrative (SG&A), were $ 24,240 million.
As a simple calculation shows, Apple generated $ 60 billion in operating income and, net of taxes and
including "other income," net income was $ 45.69 billion.
From these numbers, the key to Apple's profitability emerges in exceptionally high sales, a substantial
percentage of gross profit margin, and relatively low operating costs as a percentage of sales (not least
possible because its sales base is so extensive).
Particularly impressive is that the company has more than $ 200 billion worth of products with an SG&A
budget of nearly $ 14.2 billion.
In contrast, Apple's rival Samsung (NASDAQOTH: SSNLF) generated total sales of about 179 billion in
the last year to reach this level of sales.
One thing is obvious: Apple is a phenomenal company that generates much of its operating costs. Its
ability to build desirable products and market them effectively in such an efficient manner is awe-
inspiring. If Apple continues in this way, it could generate additional value for shareholders in the future.
In other words, Apple's sales and marketing organization are effective. Its brand is so powerful that
Apple can spend a fraction of what its fiercest competitor does and still generate more revenue.
5. What should be the pricing strategy of Apple's smartphone in India?
Apple should follow some of the pricing strategies given below -

1. Local manufacturing - Apple should start manufacturing its products in India. For now, they have
begun assembling the phones in India by importing the parts from China. Still, they should look
to develop the features in India to save the custom duty on parts required for manufacturing the
device.
2. Student discounts - Apple provides student discounts on its Tablet and Laptop product lines, and
it should start doing that on its smartphone lineup. This would attract more buyers and would
build brand loyalty.
3. Bank offers - Apple should look to tie up with various banks to give cashback on the products as
it would also increase sales and encourage more consumers to buy the devices.

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ME Assignment 2

Challenging and Growing Competition

Language and Smartphone Adoption

Low Internet Penetration and Limited Availability of LTE and 4G

Policies Affecting Smartphones

3. Does more fantastic pricing for iPhones guarantee higher profits?

Apple faces few problems in the Indian Market -

4. What explains Apple's high profitability in the global Market?

5. What should be the pricing strategy of Apple's smartphone in India?

Apple should follow some of the pricing strategies given below -

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