Business Proposal Paper

Samsung Galaxy S7 is a mobile phone that is yet to be released by Samsung Electronics probably in the first quarter of 2016. Currently, Samsung is still watching the market competition of the new Samsung Galaxy S7 as it is anticipated that the product may trigger aggressive competition from key competitors such as Apple. The new Samsung S7 will operate in the telecommunication industry which is characterized by an imperfectly competitive market structure, in particular, oligopolistic market structure. In an oligopolistic market structure, there is a high barrier to entry or exit of firms. In addition, products sold by companies are highly differentiated. In an oligopolistic market, there are few firms in the industry and these firms have a medium ability to affect prices (Keat, Young and Erfle, 2010). The market in which the new Samsung Galaxy S7 will be sold is also characterized by non-price competition where the few firms make use personal efforts to change the demand of their products other than price. In the telecommunication industry, companies that manufacture mobile phones are few and they include Apple, Dell, and a few others. In addition, these few firms engage in non-price strategies such as advertising to change the demand of manufactured phones other than price.

Elasticity of demand refers to the changes in the quantity demanded of a product due to changes in a number of factors. For instance, price elasticity of demand refers to changes in the quantity demanded of a product following changes in prices of that product. According to Keat, Young and Erfle (2010), an elastic price elasticity of demand means that the quantity demanded of a product will readily change following even a slight change in its price. Conversely, an inelastic price elasticity of demand means that the quantity demanded of a product will not change even if its price changes. The new Samsung Galaxy S7 will have an elastic price elasticity of demand because it will not be a necessity. This means that any changes in its price will result into a reduction in the quantity demanded and purchased.

Considering other factors other than price, the quantity of Samsung Galaxy S7 demanded and purchased may increase following an increased application of such factors. For example, any improvement in the quality of the new phone will increase the quantity demanded and purchased. However, a drop in consumers’ level of income will result into a drop the quantity of the new Samsung Galaxy S7 demanded. Generally, elasticity of Samsung Galaxy S7 will depend on the factor in question (Keat, Young and Erfle, 2010).

As earlier mentioned, pricing is one of those factors that will affect elasticity of Samsung Galaxy S7. Pricing will affect the quantity of the new Samsung Galaxy S7 in the sense that, a small change in the product price will change the quantity demanded. That is, when the new product’s price go higher than the original price, the quantity demanded will reduce mainly because a mobile phone is not a basic need. Therefore, many people will prefer purchasing other items to buying the new Samsung Galaxy S7 in case of an increase in its price. Suppose the price of Samsung Galaxy S7 falls, its demand will increase as more and more customers will be willing to buy the product (Riley, 2012).

When the price of Samsung Galaxy S7 increases, the quantity demanded will decrease, which will result into a subsequent decline in the quantity of the product that is supplied to the market. The changes in the quantity supplied as a result of changes in pricing decisions will affect marginal cost and marginal revenue as shown in the figure below;

 

 

Figure 1: At price P*, the quantity of the new Samsung Galaxy S7 supplied to the market is at Q*. Samsung Electronics is able to make profits at the point where the marginal cost curve crosses the marginal revenue curve. In case of the price of the new Samsung Galaxy S7 increases, there will be a rise in marginal cost and a decrease in marginal revenue. This is because Samsung will have to incur extra costs in order to be able to produce additional products, thereby raising the marginal revenue. On the contrary, Samsung will realize a decrease in sales of the product, thereby leading to small extra revenue earned from any new product. Conversely, if the price of the new Samsung Galaxy S7 falls, the quantity supplied to the market will rise due to increased demand. This will cause a reduction in the marginal cost and a rise in the marginal revenue. This is because Samsung will incur lower costs in producing any additional product. At the same time, the amount of revenue earned from any additional product will increase due to a rise in purchases (Landsburg, 2002).

Apart from pricing strategies, non-pricing strategies can be used to increase barriers to entry for the new Samsung Galaxy S7. The best non-pricing strategy that should be used is that of income levels. Samsung should produce Galaxy S7 in different sizes in order to target customers of varied income levels. The income levels should also be used to target customers located in different countries internationally. For example the amount charged in the same product in the United States should differ from that charged in the United Kingdom due to variations in income levels for customers from these two nations (Keat, Young and Erfle, 2010).

Other non-pricing strategies that can be used to increase barrier to entry in the telecommunication industry include high product quality and diversified features. The form of quality and diversified features should be unique and difficult to imitate. For instance, the new Samsung Galaxy S7 will have a 5G Network Connection, a feature that will remain unique to this new product. Additionally, rigorous advertising can be used as one of the non-pricing strategies to increase barriers to entry. Rigorous advertising will help to increase customer awareness of this new product both locally and internationally. Another non-pricing strategy that can be used to increase barriers to entry is prolonged sale-time which will help in targeting customers who may not be able to make purchases during normal working hours (Keat, Young and Erfle, 2010).

A business with mixed costs normally has both fixed and variable elements. The business involving the sales of the new Samsung Galaxy S7 is an example of a mixed cost business. The variable costs in the telecommunication industry will change depending on the availability or absence of clients. Fixed costs will however remain the same whether clients are present or absent. In the case of the new Samsung Galaxy S7, customers can get fixed monthly rates for internet access. The manufacturer will therefore incur fixed costs in proving such fixed rates to customers. However, extra costs will have to be incurred if a client makes international calls overseas (Keat, Young and Erfle, 2010).

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