Introduction
Elasticity of demand is a measure of responsiveness of the quantity demanded of a good or service to a price change of the said good or service. This responsiveness is usually influenced by several factors, including the availability and price of substitute goods, the price of complimentary goods and nature of the good, the percentage of consumer income used to purchase the goods or services, the necessity of the good and brand loyalty. Following the inverse relationship between price and demand as stipulated by the law of demand, the elasticity of demand is usually negative, and it is only in special cases such as the prices of Veblen goods does that change. The price elasticity of demand varies from one good or service to another depending location. The elasticity of demand is measured by dividing the change in quantity demanded of a good or service by the change in price that occasioned that demand.
This paper will seek to explore the concept of demand elasticity by making price change comparisons for home appliances. The products whose prices will be analysed are tablets. Technological advancements have led to the creation of tablets which more often than not have the same computing abilities similar to those of laptops, with an added advantage of being easier to carry around than laptops. The major brands of tablets available in the market are ipad and Samsung galaxy tab. This paper will investigate the qualities of these products, and will seek to explain the price differences among these products. An in depth evaluation of the quality characteristics of these products will be conducted. The laptops in question will be the notebooks that have 11.6 inch screens and tablets with 7 and 10 inch screens. Tablets from Apple, specifically the ipad retina and its variants will be used for the analysis. The substitutes used in the analysis are tablets produced by the South Korean electronics maker Samsung, specifically the galaxy tab 3 and the galaxy note. Wal-Mart, Porter Ranch store located in Northridge, California will be the source of the prices that will be used for the analysis. The other stores that will be used for the study are Global Electronics store and Northridge Electronics store, both located in Northridge, California.
The following table represent a comparison of the prices offered on the various products in stores located in the general area of Northridge, California. All these stores are at a reasonable distance from the Wal-Mart store in Porter Ranch in the same area.
The stores that the prices were obtained from are Wal-Mart, which is the largest retail store in the area and offers a higher variety than all other stores used in the analysis. The Apple Store in Northridge specializes only in Apple products, and for the purposes of this research, only the Ipad retina and the Ipad mini have been used from the variety offered by the store. Samsung is a competitor and Apple does not offer its products in its stores hence the blank spaces in the table. The other stores used for this research are Global Electronics store and Northridge Electronics Store. These two stores specialize only in electronic products, and do not offer the vast variety of consumer goods that Wal-Mart offers. They however offered the products that are used for this research and the prices in their stores are as indicated in the table.
Analysis
The ipad with retina display and 9.7’’ screen is a product of the Apple Company. There are variants to the ipad model and one of them is the one under this discussion. It has a memory of 16 gigabytes. In the Wal-Mart store, the ipad with retina display 16 GB has a price of $ 429. This is against a price of $ 399 in the apple store. In the Global electronics Store, the same item was priced at $ 419 while at the Northridge Electronics store $ 429. From this information, the Apple store offers the least price for the item while Wal-Mart and Northridge Electronics Store offer it at the highest price of $ 429. This is a difference of $ 50 between the highest and lowest price for this product. The difference can perhaps be explained by the fact that Apple is the manufacturer and retailer of its product. This means that they do not incur the same level of costs that the other retailers incur hence their lower price for the same product in the same general location. The higher prices in the other store locations can be explained by the shipping costs incurred by these retailers and the need to have a mark up on the selling price.
The ipad with retina display and 9.7” 32 GB is a variant of the 16 GB version, the only remarkable difference being in the size of the internal memory, which is double the original product under discussion. This is a substitute product to the ipad retina 16 GB. The difference in price between these two products is very high considering that the only difference is in the size of the memory. The price of this substitute in the Apple store is $ 499 against a price of $ 549 in Wal-Mart, $ 529 in Global Electronics Store and $ 519 in Northridge Electronics Store. The price difference between the highest price and the lowest price is $50. This is the same price difference that exists in the 16 GB retina display ipad. The differences in the price could still be explained by the fact that Apple sells its own manufactured products in the retail stores which the other retailers have to incur shipment costs to their stores and also have a profit mark up for their products.
The ipad mini is another substitute to the 16 GB ipad with retina. This has the same features like the ipad with retina 16 GB. It has a screen size of 7.9” and a memory similar to the 16 GB ipad. The price in the Apple store for this gadget is $ 299. This is against a price of $ 399 in the Wal-Mart store, $ 349 in both Global Electronics Store and Northridge Electronics Store. The price difference between the highest and the lowest price for this substitute is $ 50. The screen size of this product is smaller at 7.9’’ against 9.7” with the same the screen resolution. The difference in prices is due to the location of the stores, with Wal-Mart charging higher than the others due to its premier location. The Apple store offers the product at a cheaper price than the others stores probably because they are the manufacturers and therefore do not have to bear the associated costs that come with having products going through the supply chain to the retailers. The prices at other stores are higher because they do not possess the same advantage. The price elasticity of products in the Apple store would be inelastic since changes in price would not result in significant changes in the demand.
The differences in the prices of the Apple products among the different stores can be further explained by the stores locations. Wal-Mart attracts high end consumers who are able to pay for the premium prices that the store offers for its products. This means that its customers will be willing to pay a higher price for the products because they have higher disposable incomes than those that visit the other stores. On the other hand, the prices in the other stores are lower because they are frequented by people with lower disposable incomes. This type of clientele would be looking for a bargain for the same products and hence the lower prices. This means that the high income earners will have higher prices while low income earners will make effort to obtain the lowest prices in the market.
Samsung is Apple’s largest competitor, and its products are usually substitutes to Apples products. There are three close substitutes to the ipad with retina display which is the subject of this research are the Samsung Galaxy tab 3with 7’’, the Samsung Galaxy tab 3with 10’’ the Samsung Galaxy note with a 10.1” screen.
The price of the galaxy tab 3 with 7” screen is priced at $ 159 at the Wal-Mart with corresponding prices of $ 199 and $ 179 in Global electronics Store and Northridge Electronics store respectively. The price difference between the highest and the lowest price for this product is $ 40. The galaxy tab 3 with 10” goes for $ 299 in the Wal-Mart, $ 299 in Global electronics Store and $ 319 in Northridge Electronics. The galaxy note 10.1” has a price of $ 399 in Wal-Mart, $ 399 in Global electronics Store and $ 429 in Northridge Electronics.
These Samsung products operate on android platform, which is a free software developed by Google. They have almost the same features as those in the Apple products. The only other differences that are evident are in the size of the screen and in the resolutions of the screens. Samsung products have relatively lower resolution than those of Apple products. The overall quality of Samsung products is relatively lower than that of Apple products. This may explain why Apple products have higher prices than their Samsung products.
There is a considerable difference between the prices of Apple products and those of Samsung products. This is despite the fact that these are substitute goods. There are several explanations which can be fronted for this difference. Apple is a well established company, with a reputation for production of high quality products. This may explain why the prices of its products show a higher price than those of other manufacturers of substitute goods. The company knows that high prices will not affect the demand for its products due to the high customer loyalty that it has cultivated over the years. The premium on the price of its products therefore does not affect the demand for its products. The ipad with retina display will fall into this category. They can be described as being price inelastic since a change in price results in no change in the demand of the
Samsung, on the other hand is relatively new to the mobile technology and its products are not well established in the market. Most of its products in the company’s platform are in the market for the first time. This means that the policies that are in place for marketing Samsung’s products must take into account that these products are being introduced into the market. The most likely strategy in such a situation would include low pricing of products so that they are more attractive to consumers. This would explain the low price of Samsung products relative to those of the Apple Company. A change in the price of the products of Samsung would affect the demand than it would Apple. This means that for the company to remain competitive, it must maintain prices which are significantly lower than those of competitors.
The prices for these products are higher in the Wal-Mart store than in the other locations. Prices are lowest in the Apple Store. This implies that location has an impact on the pricing of a product. Wal-Mart enjoys a higher flow of traffic than the other stores used in this research. It has more variety of products since it does not specialize in electronics, but is only a department among the many that are in the store. This means that consumers may find it easier to conduct their shopping in a single place rather than make visits to different places to acquire different commodities. The Auto Sound store and Galaxy stores are located in areas which cannot be considered prime. This implies that for them to attract more customers they have to have lower prices than their larger competitors.
Conclusion
