Individual report
Introduction
The task of the following individual report is to discuss critically two questions using economic models and objectives. The first question is “The recent price wars in the supermarket and mobile phone industries have been beneficial to both consumers and their respective industries. The discussion of that topic is about the recent price wars between the UK supermarkets – the monopolists Tesco, Morrison, Sainsbury and Asda and the German supermarkets Aldi and Lidl. German supermarket gain the half of the British market by low prices for their goods and it lay the beginning of the price war. The discussion of that problem will answer – who wins and who losses from that war.
Another question to discuss on that paper is the following: “The cost of mobile phones have fallen to such a level which, if this trend continues, would make mobile telephony more affordable to much larger segments of the emerging markets population”. The task of that assignment is to answer – why the price for mobile phone had fallen and what benefits and losses the producers bear in the current economic tendencies.
Let’s discuss the first question :
“The recent price wars in the supermarket and mobile phone industries have been beneficial to both consumers and their respective industries.”
The UK economy, as many other countries are trying to get rid of the consequences of economic crisis. The UK economic growth has been 1 % a year since the crisis of 2008. (The Telegraph, 2014) It is predicted that the UK is the only economy of all G7 countries that cope with the crisis better than any other developed countries. The UK economy showed the shift in decreasing the number of unemployment and inflation rates. The real wages of the British had fallen long before the crisis of 2008 and it is shown in the diagram (The Guardian, 2014)
Diagram 1 – The British real wages dynamics
The recent price wars made a shift in consumption ability of the British. The four trade British giants Tesco, Asda, Sainsbury and Morrison gained more than a half of the whole British market. They destroyed small businesses and became the monopolists. The used the price discrimination policy. It was possible due to their monopolist position and government regulations that were not against such circumstances (The Guardian, 2014). Until recently the British prefer only national supermarkets. But the unpredictable price raises made people change their preferences. The situation has changed with the German entrants at the British markets. They are the Aldi and Lidl. In a very short time the number of the British that shop at German supermarkets became higher than at national equivalents. The success of German supermarkets is due to its policy of discounts and sales that meet the expectations and spending ability of the British. A lot of goods at reasonable prices became available for all classes of the population. In their turn the great 4 had to reply the German entrants. It all can be explained by the demand and supply diagram. The shift in the equilibrium market price can be illustrated in the demand-supply graph. The four supermarkets continuously raised the prices when the demand was stable that leaded to lowering the consumption ability of the British.
Graph 1 – situation at the UK market before the German supermarkets have entered the market
Aldi and Lidl supermarkets offers low price for similar products. The situation at the UK market can be illustrated by the graph 2:
Graph 2 – Market equilibrium after the German supermarkets entered the market
After that the 4 giants began their price wars with the German supermarkets. The price wars also affected other industries. Mostly was affected food industry. British milkmen suffered from lowering the prices for dairy goods at the supermarkets. For years, milk farmers have been bearing losses, but now the situation is especially critical. The NFU (National Farmers Union) stated that during the past month the prices for milk dropped by 50 %.
Also, the latest embargo of the European products into Russia made the situation critical as never for the dairy industry in the UK.
There is another price war in the UK –the banana war. The prices for bananas had fallen to such rate, that it makes unprofitable product as the revenue from its sales doesn’t cover the expenses for their imports. The banana importers in the UK are worried about the current situations at the supermarkets. The call the government for regulations on that issue.
The whole food industry is no satisfied with the current price wars. They stated that there is no profit base for future discounting. The next area of price wars was the price for petrol. Trying to return their customers the G4 supermarkets are now decreasing their petrol prices. Recently the petrol price had fallen by 5 % per liter.( Daily mail, 2014)).
Another price war that takes place nowadays are mobile phone price wars. But this situation is vivid. The amount of mobile phone producers is growing. The whole world is trying to recover from economic crisis. The consumption ability in the majority of countries is very low. In order to maintain the stable sales level, there is the variety of Chinese or Korean analogues of famous brands offered by low prices. Even Apple inc. is now losing its positions in front of Google Android. Smart phones based on Android os are more commonly sold than iPhones due to differences in prices. Android os shares at the world market is 84, 7% and the market share of iOs is 18,3%. (8).
As the report has shown, the price wars at British supermarkets are beneficial for customers only, food industry suffers from such rapid changes, and mostly dairy industry is affected by those changes. As for the mobile phone market, the price wars are very beneficial for both sides, as it makes the innovations work faster in order to get ahead the competitors.
“The cost of mobile phones have fallen to such a level which, if this trend continues ,would make mobile telephony more affordable to much larger segments of the emerging markets population”
The economic crisis led to specific changes in the economy of any country. It all resulted in negative economic growth, the increasing rate of unemployment and inflation, the rise of prices. The decreasing of consumption ability. In order to maintain the sales of its products, the companies have to adapt to the current economic position. Talking about mobile phone producers, such changes in the economy are both beneficial to customers and producers.
There were rumors that the global mobile phone market will bear losses from the economic crisis. But the sales of smart phones see their record positions. According to the research company IDC about the half of all sold mobile phones cost less than 100 dollars. In comparison of the situation about 5 years ago – this is a great shift towards the emerging markets. The mobile phones are available even in poor segments of consumers. The cheapest smart phone was produced in India by Karbon Mobiles and costs £26 (AOL money and finance, 2014. The new smart phone has only launched to the market.
In past years there was a boom for Chinese mobile phones. During that period China produced analogues of famous brands. Those models cost about £150-200 .
Nowadays the sales of mobile phones show the decline in the developed markets, and the rapid and stable growth in emerging markets. The cheapest models of mobile phones are presented by Xiaomi , Lenovo and LG Electronics.
The innovations move further and the cost of mobile phone components is falling .it is estimated that even the materials for iPhone cost just £122. (7)
The market shares (IDC, 2014) of and shipment volumes of different producers are shown below:
As the table shows, the growth of the cheapest mobile phones Xiaomi (among the present in the table models) is the greatest. It has grown by 211 % in 2014.
The costs of mobile phones are decreasing. The reason for that is the economic crisis that led to low consumption ability in many countries and in order to maintain the stable sales growth, it is essential to present low-cost models of mobile phones. The developed countries’ markets are full of such products, that’s why it was necessary to enter emerging markets. It was estimated, that the half of the whole smart phones in the world cost less than 100 dollars. One of the cheapest Korean smart phone Xiaomi is the leader of sales in the developing countries due to its cost. Xiaomi’s another low cost competitor in Indian smart phone by Karbon Mobiles (The economist, 2014).
Conclusion
The current individual report has answered the main questions. The first is the price wars of the supermarket. As it was stated above, the British stated to shop at the German supermarkets Aldi and Lidl. The reasons for that were low prices that they offered. Those led to losing customers by major British supermarkets and n order to compete with the rivals, they supported the idea of discounting products. From those actions, British food industry had suffered a lot. Mostly was affect dairy sector. For year it didn’t gain its profit and now the situation became even worse. The milkmen called the government for regulations. Recent embargo laid by Russia for the European products also affected British industry. Banana importers also called for regulation from the government. In the whole, food industry producers stated, that there is no more margin for discounting products. In order to maintain the customers, the British supermarkets also decreased the petrol prices. The result of price wars is following: the customers are satisfied and the bargaining ability has raised, the German supermarkets are making high levels of profit, the British food industry is destabilized and bears losses.
Another question discussed at the current report was the low prices for mobile phones. The tendencies of decreasing prices for mobile phones was expectable: the market saturated with the product and it was essential to search for the emerging markets, the innovations are also moving ahead, that’s why the product life cycle of many models was fading, moreover components of mobile phones became cheaper due to analogues from Asian producers. In 2014 it was estimated that the leader among smart phones were those based on Android operating system rather than iOs. The sales of Korean smart phone Xiaomi increased by 211 %. Its main markets are developing countries. Also, it was stated, that the half of all mobile phones cost less than 100%. The cheapest smartphone was introduced by Indian company and cost only £26. To cut the report, the benefits for mobile phone producers are following: the decreasing prices for their products opened new markets – developing countries, those producers, that initially put small profit margin for their phone didn’t loss the positions (Asian companies, excluding Samsung, Android os itself), low prices made mobile phones be available at developing counties for reasonable prices.
References
1.IDC, 2014. Worldwide Smartphone Shipments Increase 25.2% in the Third Quarter with Heightened Competition and Growth Beyond Samsung and Apple, Says IDC Available at http://www.idc.com/getdoc.jsp?containerId=prUS25224914.
2. The economist, 2014, The rise of the cheap smartphone, Available at http://www.economist.com/news/business/21600134-smartphones-reach-masses-host-vendors-are-eager-serve-them-rise-cheap
3. The guardian, 2014, Aldi vows to fight on in supermarket price war as UK profits leap 65%, Available at http://www.theguardian.com/business/2014/sep/29/aldi-vows-to-fight-on-in-supermarket-price-war-as-uk-profits-leap-65.
4. The guardian, 2014, Supermarket price war puts petrol at four-year low, Available at http://www.theguardian.com/business/2014/sep/30/supermarket-price-war-cuts-petrol-price .
5. Daily mail, 2014, Fuel prices tumble further: Three of UK's major supermarkets step up price war by cutting diesel by 2p a liter and petrol by 1p ,Available at http://www.dailymail.co.uk/news/article-2791709/fuel-prices-tumble-three-uk-s-major-supermarkets-step-price-war-cutting-diesel-2p-litre-petrol-1p.html.
6. AOL money and finance, 2014, Could £26 smartphone signal start of price war?, Available at http://money.aol.co.uk/2014/07/28/could-26-smartphone-signal-start-of-price-war/.
7. IDC, 2014, Smartphone Vendor Market Share, Q2 2014, Available at http://www.idc.com/prodserv/smartphone-market-share.jsp.
8. The telegraph, 2014, Our economy is starting to shine - but public borrowing and interest rates keep it in the shade, Available at http://www.telegraph.co.uk/finance/economics/11125007/Our-economy-is-starting-to-shine-but-public-borrowing-and-interest-rates-keep-it-in-the-shade.html.
9. The guardian, 2014, Bleak figures show a relentless slide towards a low-pay Britain, Available at http://www.theguardian.com/business/2014/oct/18/economy-bleak-british-workers-technology.
10. Computer world, 2014, Smartphone prices are dropping, and will continue to dip through '18, Available at http://www.computerworld.com/article/2489944/smartphones/smartphone-prices-are-dropping--and-will-continue-to-dip-through--18.html
