The Mobile Phone Industry

Samsung leading the Mobile Phone Industry?

      
         According to an article published by Reuters, 5^th October 2012 Samsung Expected to reach End of Record Run. Available at <http://www.nytimes.com/2012/10/06/technology/samsung-expected-to-reach-end-of-record-run.html?ref=business> .Samsung has enjoyed a quarterly profit of almost double the profit of last year, this is mainly due to the success of sales of the high-end televisions and its smartphones. The Galaxy modelled smartphones was the main money-maker for Samsung which the model Samsung Galaxy S3 alone sold over 20 million units in just over a month.

      The huge success in large volume sales of the Samsung smartphones is owed to the marketing department in Samsung which emphasizes a lot on advertising to capture the interest of consumers. Advertisements are one thing but choosing the venue and time to advertise the products is another thing. The marketing team of Samsung made a good choice in promoting their smartphones during the 2012 Olympics held in London.  Many people tune in and follow Olympic Games and the medal tally closely and during the commercial break this was when many people got to know about the Samsung smartphones and its features. It is said that Samsung spent over $2.7billion just on advertising during the 2012 Olympics.

      Since there was so much hype and talk about the all new Samsung Galaxy S3 it was not surprising that there were difficulties in the supply side to meet the demand for this new smartphone. The Samsung Galaxy is considered a normal good as it comes with a hefty price whereby not everyone who wanted a Samsung Galaxy S3 could just get it. However, during the first launch of the smartphone its demand was price inelastic as many people wanted to get their hand on it, therefore people prioritise the urge of having a Samsung Galaxy S3 ahead of their needs. But human wants are unlimited but the resources are limited, and in this case it is the labour that was the problem of why the supply could keep up with the demand of the smartphone. But at that point of time the market was in equilibrium as shown in Figure 1.

Figure 1

      However, after two months into the launch of the Samsung Galaxy S3 the demand for it became more elastic because of the other substitutes of newer smartphones such as the IPhone and Blackberry. When the demand is elastic, an increase in price will lead to a bigger than proportionate change in demand for the Samsung Galaxy S3. If the price of the Samsung Galaxy S3 was priced too high, then consumers would rather switch to other substitutes. When the demand of the Samsung Galaxy S3 decreases the demand its complements such as the casing or protective cover for it will also follow suit. The sales of the complementary goods would decline and the firms producing it will incur losses as they cannot clear the stock that they have had produced.

      In order for Samsung to reap economies of scale and continue increasing their profit they must be able to lower the long run average cost by producing a higher number of goods and also produce at the lowest point on the long run average cost curve. This can be done by investing in research and development to come out with new bigger machines to produce the smartphones at cheaper cost as they can produce higher quantities. When the quantity of smartphones being produce increases the average cost decreases because the fixed cost needed to produce the smartphones can be spread out over the high number of smartphones produced. Besides that, Samsung can also implement division of labour which can lead the specialization hence increasing the efficiency and ultimately decreasing the cost of production. Samsung will want to produce at the minimum efficient of scale as shown in Figure 2.

      On the other hand, if Samsung wish to increase their revenue they should continue selling their smartphones at lower prices in regions where the demand is elastic. Because even when the price is decreased the quantity demanded for the smartphone will increase by more than the priced decrease this will increase the total revenue at an increasing rate. Samsung should stop decreasing the price of the smartphone when the demand is unit elastic. This is the point whereby the change in price of the smartphone equals to the change in quantity demanded for the smartphone, the total revenue is maximized at this point. In contrary where else in regions where the demand for smart phones is demand inelastic, Samsung should increase the price of their smart phones. This is because when the price is increased the quantity demand for smartphones will decrease less than the price is increased. At this region Samsung will be still increasing total revenue but at a decreasing rate.

     The government can play a role in helping both Samsung maintain their profits and also help out the consumers. The government can start off by providing subsidies to Samsung which will be able to lower the cost of production. This will enable Samsung to produce more smartphones and increase the supply of smartphones. When the supply is increased, it will cause the supply curve to shift to the right which will lower the price of smartphones being sold. More consumers will be able to afford and enjoy the smartphone as the prices are now lowered and a new market equilibrium has been formed. However if the government gives too much subsidies to Samsung then they might turn Samsung into a monopoly power which will have the power over the whole market. So the government has to be wise in terms of decision making and to which producers the subsidies are actually given to and not just blindly giving out subsidies to every producer.

      In any event, Samsung has to be careful on what decisions they make if they want to keep their profits up. Because their arch rival, Apple which is also mainly in the smartphone business and other big companies such HTC and Sony are watching over Samsung’s every single move and will not hesitate to take advantage of the situation for their own gains and benefits. At this point of time in the fast paced moving world, it can be anybody’s game. One small mistake can lead to a huge blunder which will make you fall behind your competition.