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Smartphones - A Microeconomic Analysis
Smartphones - A Microeconomic Analysis
Introduction
Usage Trends
Overview of Demand
India is the second largest market for Smartphones in World after China with
220 Million Smartphones in use.
In 2016 for the first time since the entry of Smartphones, global market
growth stalled
More than a billion smartphones will be sold in India over the next five years
This will drive the number of smartphone users from quarter of a billion to
more than half a billion in the same time period.
Supply
The raw materials are getting cheaper day by day due to advent of new
technologies
The critical factors of production are controlled by very few players in the
market.
Barriers to Entry
As can be seen the
market share of the
platforms are
continuously expanding
obliterating everything
else.
Such kind of OS duopolization gives
entrenched players a
very huge benefit.
HHI :
01313-0.1473
CR4 :
0.572
HHI :
0.1018.2-0.1310
CR4 :
0.56.6
Supernormal Profits
Apple is not a specialist player globally but has around 20% market share,
hence it is a generic player who makes supernormal profits
Price Leadership
The price leader of the high end market is Apple. iPhone sets the price for
other high end phones
Samsung is the price leaders of the low end market, they set the price for low
end phones
Differentiated Oligopoly
Reasons are
Apple IPhone
Strategic Decisions
Price skimming
Gaining high profit in first few months of launch and recover its
investment
Samsung
Rs.28,000-32,000
Competitive pricing
item
MICROMAX:
By 2010, the company had grown to become one of the largest Indian
Introduced Low Cost Smartphones which would suit the rural pocket and
satisfy the price sensitive rural customers.
In the initial stages Micromax sourced its components from China, which gave
them more flexibility and less production costs.
Penetration Pricing:
Micromax employs the penetration pricing strategy to increase its market
share by producing low cost smartphones.
So they are able to get more demand from the price sensitive consumers.
They are able to produce the smartphones at a lower cost by outsourcing the
products to OEMs.
Micromax introduces around 40+ Models every year in the low cost segment.
New innovations are very less in the smartphone when compared to previous
decade. So will not be able sustain just by changing the design.
The company had sold over 10 million Mi2 devices in just 11 months
Xiaomis marketing position is very clear: providing relatively high quality and
mid-priced product.
system
This results in the creation of a hunger driven market - where the demand is
more than the supply
Apart from the competitive labor price, India is also a country with
advanced technology and intelligences superior to China.
Xiaomi pursues the narrow margin and sets the products price pretty
low
Xiaomi didnt follow the selling strategy of Samsung that the product
is only available over 6 months, instead the available time triples to
18 month
Leads to profit due to the fall in the costs of components that occurs
over time.
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