Samsung, one of the world’s most important electronics
companies, was actually originated from a food exporter business in Korea. Founder
of Samsung, Byung-Chull Lee started Samsung in 1938. In 1987, his son, Lee
Kun-hee took over and saw the potential growth in electronic in future and that
it will be an inelastic demand. He gave a three days speech portraying the
vision of Samsung future, which has changed Samsung ascent from second tier
manufacturer to the biggest TV and smartphone maker in the world. This makes
Apple not the monopoly in the market anymore.
Back in those days, mobile phone is a luxury goods but it has
now become a necessity to the upper class, and middle-class society. Our life
now depended on electronic and without it certain task could not be done. Generation Y is those who is born and live in
the world of technology. When this group of generation increases, the demand
will hence increase. Society now uses these devices to communicate with each other,
as it is faster, cheaper and convenient for them to reach each other. The
latest technology for mobile phone in Samsung is the smart phone. When smart
phone become more and more affordable, it produces a rapid growth for Samsung.
People are willing to spend on smart phone as it consist premium features or
functions that is useful in their life. The benefit or satisfaction from
consuming the good can be shown by the amount of utility gained.
Samsung is defined as an oligopoly market structure. In an
oligopolistic market, few firms making smart phones share a large proportion of
the profits in the industry. It is not easy to enter into this field of
industry as it has high barriers. Samsung is one of the few companies that
markets theirs smartphones well. Samsung dominated the most sold smartphone
sales having 72 million devices in the second quarter of 2013. (NBC News, 2013)
It is a great success for Samsung as it overtake it main competitor, which is
Apple.
The theory that existed in oligopolists is the kinked demand
theory. The demand curve is kinked at the current price making demand more
elastic above the current price than below. If Samsung cuts it price, its
competitors will follow to cut their price as well in the market. This is so
that they would not lose their customers to Samsung. These impact a price
stability of the smart phone in the market. Firms wouldn’t want to reduce their
prices too much as it involves working out new revenue prediction and it is to
avoid their customer from feeling unfair and upset. Substitution effect happen
if the price of the good is higher than what they can afford. Hence, it decreases
the quantity demanded of the good.
When the Samsung drops it price on a smart phone, it faces a
down sloping demand curve. Some will be
able to afford to buy the smart phone now. When a price is cheaper than before,
the quantity demanded for the goods will increase, shifting the demand curve to the right. The responsiveness of demand
to a chance in price is called the price elasticity of demand. Price elasticity
of demand for a product can help predict the effect on price and quantity of a
shift in the supply curve for that product. Samsung will reduce its production
in the old product, which eventually reduces the supply for it. In order to
obtain the cheaper goods, people would have to fight to get the cheaper goods. Demand
increases as this is shown in the law of demand. The lower the price of a good,
the larger is the quantity demanded and the lower is the quantity supplied as shown in figure 1
Samsung advocates it products in between a normal good and a
superior good. The income elasticity of demand for Samsung smartphones is
slightly more elastic. When the income of a person is high, they will tend to
buy the latest and better smart phone that is available in Samsung. Samsung
provides more variety of smartphone choices. If a person income is low, they
will go for a more affordable one. However, if the price is still over their
budget line reach, people will move to the black market. Price is not control
and tax does not incur. Goods are traded illegally and there exist a privated
version of Samsung mobile. This pushes down the sales of Samsung phone in the
market.
A newly launched product by Samsung is normally considered as
luxury goods as its price will be higher than its previous product. Consumption
possibilities occur as they are constrained by their income and process of the
goods. As to this, a rational consumer behavior would get the best value from
purchase as they with their limited income. This is so that their satisfaction
is maximize at the highest output level.
However, Samsung is also affected when its biggest competitor,
Apple, caused it to lose sales in the United States. To cover up for this cost,
Samsung expanded its product to other country. Samsung placed a higher price and
supply less at the area that has the highest demand of it. Due to this,
scarcity would occur making demand to be high. Consumer surplus will happen and
result a shortage in the Samsung supply market as it exceeds the supply
quantity. When there is a shortage, people are desperate to buy the product and
they will be willing to pay for a higher price to get the goods. This boosted
up and helped cover up the lost that Samsung faced.
Oligopolistic firms may place their price to be lower in the
short run to ward off the entry of new firms. A firm’s goal is to maximize
profit. The core purpose of Samsung producing a new product in a short-run is
to satisfy their customer needs. Other than that, Samsung need to improve their
product so that they do not lose out to their competitor. Samsung uses a strategically
way to advertise their new product to attract mostly the young generation who
belongs mostly to the generation Y. The advertisement is made in a way to make
the targeted audience to compare their old product with the new one. When the
customer sees the marginal benefit that they will gain from the product, they
will eventually switch to buy the new product.
In the long-run production, Samsung plan to stabilize its
business structure by putting more attention on the main business. Samsung
smart phone produces the most profit compare to the rest of its products. It is
normal whereby a firm always existed to make profit. Besides that, is to
determine new business opportunities that are out there. This can be seen when
Samsung who is origin from a food exporter transformed to electronic producer.
Samsung strategy is also to secure solid growth momentum. Making sure its
position in the market continue to grow and expand.
Samsung faced government intervention that hinders opportunities
and plan for long-term growth. One of the examples is the intervention from the
US state. When there is a government intervention, consumer surplus and
producer surplus will shrink. This causes the occurrence of under production or
over production. Due to this, there is a deadweight loss, which made Samsung a
market failure. Samsung had to withdraw their sales at US state involuntary as
the US government is discriminating them to protect Apple sales.
Other than Apple, Samsung has other competitors like HTC and
Nokia. Samsung tend to act based on the way its competitor act in the sense of
pricing, advertising and launching of new phone. In order not to lose out,
Samsung keep track of it competitor’s update and constantly. Samsung
experiences a close mutual interdependency with Apple. Their success pushes its
sales to go up more than Apple. Whenever a new product is launched, Samsung
would also come up with something new and follow to launch their new product as
well. According to CNET News (2012) CEOs of Samsung and Apple had a meeting but
result without coming to an agreement. This creates the existence of
non-collusion between them.
Samsung constantly faced the issue of diminishing marginal
utility. It is the decreasing rate of additional satisfaction whereby when one more
unit is taken or consumed, the satisfaction that the consumer gained will be
lesser compare to the first or previous consumption. An individual will not
want to buy more and more of a product unless something unique or new is added
to it that would increases its value. Samsung provides a variety of types of
smart phones. Year by year, they upgrade their smart phones by adding new
features to gain back its sales profit in the market.
In conclusion, Samsung is potential to continue to dominate in
the mobile industry. Samsung would have to practice a strategic way to avoid
facing the law of diminishing returns. It is whereby a point, which profit is
gained lesser than the input. If Samsung is able to achieve its goal it can creating
a high desire and demand in the society.
(1513 words)
Lim Shi Teen 0317288
Reference List
Garside J. (2013) Samsung overtakes Apple as
world's most profitable mobile phone maker. Available from : http://www.theguardian.com/technology/2013/jul/26/samsung-apple-profitable-mobile-phone
[Accessed 21 October 2013]
Victor H. (2013) Marketing was the 'main
reason' for Samsung success last year: here is the mind-boggling amount it
spent. Available from :
http://www.phonearena.com/news/Marketing-was-the-main-reason-for-Samsung-success-last-year-here-is-the-mind-boggling-amount-it-spent_id40543 [Accessed 21 October 2013]
http://www.phonearena.com/news/Marketing-was-the-main-reason-for-Samsung-success-last-year-here-is-the-mind-boggling-amount-it-spent_id40543 [Accessed 21 October 2013]
GFK- Press Release (2013) Demand for
mobile phones at record high. Available from:
http://www.gfk.com/news-and-events/press-room/press-releases/pages/demand-for-mobile-phones-at-record-high.aspx [Accessed 22 October 2013]
http://www.gfk.com/news-and-events/press-room/press-releases/pages/demand-for-mobile-phones-at-record-high.aspx [Accessed 22 October 2013]
IDC-Press Release (2013) Growth
Accelerates in the Worldwide Mobile Phone and Smartphone Markets in the Second
Quarter, According to IDC. Available from : http://www.idc.com/getdoc.jsp?containerId=prUS24239313
[Accessed 23 October 2013]
Bamburic M. (2013) Samsung dominates
smartphone market, squashes Apple and other makers. Available from :
http://betanews.com/2013/07/26/samsung-dominates-smartphone-market-squashes-apple-and-other-makers/ [Accessed 23 October 2013]
http://betanews.com/2013/07/26/samsung-dominates-smartphone-market-squashes-apple-and-other-makers/ [Accessed 23 October 2013]
Reisinger D. (2012) Samsung, Apple CEOs
meet without coming to agreement? Available from :
http://news.cnet.com/8301-13579_3-57440065-37/samsung-apple-ceos-meet-without-coming-to-agreement/ [Accessed 23 October 2013]
http://news.cnet.com/8301-13579_3-57440065-37/samsung-apple-ceos-meet-without-coming-to-agreement/ [Accessed 23 October 2013]
Live Mint (2013) Obama was right to
intervene in Apple-Samsung dispute. Available from :
http://www.livemint.com/Opinion/dCowb7NPsT80WOiJtlwjpM/Obama-was-right-to-intervene-in-AppleSamsung-dispute.html [Accessed 24 October 2013]
http://www.livemint.com/Opinion/dCowb7NPsT80WOiJtlwjpM/Obama-was-right-to-intervene-in-AppleSamsung-dispute.html [Accessed 24 October 2013]
Olson P. (2013) Samsung Reaches Biggest
Smartphone Lead Over Apple Since First iPhone Launched In 2007. Available from
:
http://www.forbes.com/sites/parmyolson/2013/07/26/samsung-reaches-biggest-smartphone-lead-over-apple-since-first-iphone-launched-in-2007/
[Accessed 24 October 2013]
http://www.forbes.com/sites/parmyolson/2013/07/26/samsung-reaches-biggest-smartphone-lead-over-apple-since-first-iphone-launched-in-2007/
[Accessed 24 October 2013]
