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MBA 504 – Managerial Economics (W. Troost)
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Case study about the iPad Mini

by
Justin Sellers
Kimberly Gadsden
Krista Pauly
Marjorie Venus Baliog
Paulus Mirtschink
Rob Hicks

I have read the Student Academic Code of Conduct and this Assignment complies with the Code.

8th November 2012
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Table of Contents

Table of Contents2
List of Figures3
1INTRODUCTION4
2FIRM, BRAND, LIFESTYLE4
3IINDUSTRY5
4COST8
5CONCLUSION9
APPENDICES11
A.Price Comparison of Generic Android Tablets12
B.Price Comparison of Premium Brand Tablets2
BIBLIOGRAPHY3

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List of Figures
Figure 1: Monopolistical pricing10
Figure 2: Technology life cycle11
Figure 3: VMP and MC in the US compared with China12
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INTRODUCTION
Apple has clearly established itself as a market leader in the competitive market of consumer electronic products. Recently, the company released a smaller sized version of its highly successful tablet: the iPad. The launch has come under widespread criticism as many industry pundits believe the pricing strategy may be incorrect and there are fears that the new product will cannibalize sales of other merchandise. Even the late Steve Jobs was strong in his view that Apple would never offer a smaller tablet product to the market as he felt it would provide less benefit to consumers. To properly assess whether or not Apple did in fact make the correct decision, the rationale behind the decision must be analyzed. As part of the analysis: the market structure, cost factors, competitive position, nature of product demand, and strategic vision will be scrutinized. FIRM, BRAND, LIFESTYLE

Under the direction of one of the most visionary CEOs of the modern era, Steve Jobs, Apple was able to completely revolutionize the way that consumer electronics are perceived, purchased, and manufactured. It started with a completely different concept of consumer preferences and has ultimately ended with the most valuable company in the world. Apple has a long history within the computer industry with a focus on building units for sale to the consumer marketplace. After success during the early 1980s with the launch of the Macintosh line of computers, the company failed to gain significant market share until the launch of the iMac in 1998. From the late 1990s Apple began a prolific campaign of acquiring other companies with specific technological expertise, which it began combining in both software and hardware components included in its subsequent line of products. Apple released the first of many important revolutionary products, the iPod, in 2001. The iPod became the ‘quantum leap’ the company had long been striving for and allowed the branding of Apple as a company with the Apple logo to become an industry heavyweight. The advertising that Apple used helped to produce an emotional response that resonated with consumers. Being seen with the iconic “white headphones” became as much about fashion and image as it was about the actual enjoyment of listening to mp3s on a personal device. Due to the vertical integration between devices, software and design based on a platform of “ease of use,” the company began to create immense brand loyalty. “Once you go Mac, you never go back,” is a phrase used to describe that once someone made the decision to purchase an Apple product (phone, computer, etc.) the cost of switching becomes high. Apple intuitively created an opportunity cost for not purchasing newer Apple products because of the way their devices communicate with one another. Apple has gained such a significant brand following that demand for their products is much more inelastic than comparable firms.

Demand for competitor’s products Demand for Apple products

INDUSTRY
There are significant numbers of manufacturers of tablet devices, but it can be argued that there are only several key players. The tablet marketplace is very interesting because of the...
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