University of Chicago
Type of paper: Thesis/Dissertation Chapter
Systems analysis and modeling: A macro to micro approach with multidisciplinary applications
The recent price wars between mobile phone industries and supermarkets have been beneficial to the consumers as well as their respective industries. It can be argued that price wars enable customers to save their money, increase consumer utility and lead to great competition. However customers will only enjoy the benefits of price wars in the short-run, but the situation change in the long run. Price wars lead to decrease of prices, but it is essential to evaluate the effect of price decrease on consumer spending. The rationale of this paper is to examine the effect of price wars between mobile phone industries and the supermarkets.
Findings and Analysis
Price wars eliminate marginal players and alter the structure of the market. In case of price wars, few competitors will be willing to enter an unattractive market that greatly rely on low prices for success, and minor competitors leave the market because they are unable to make profits. In some cases, some firms might dominate in the market due to price wars; for example, acquisition of Macro foods by Woolworths in 2009. Price wars have a long-term effect on consumer preference, since consumers are left in a market with fewer players with greater authority. This case mostly applies to supermarkets. Price reduction by retailers weakens the brand investment made by producers (Wallner, 2001).
Price wars between mobile phone industries and supermarkets have short-term benefits to the consumer, but they result to decrease in price which has a long-run impact to the consumer. Price cuts emanating from price wars alter consumer expectations for discounting and affect future pricing. Price reduction also affects the capacity of product distribution to small outlets such as bottle shops, local stores and convenience outlets. The price war between Britain’s dominant supermarkets has shifted into mobile market with major supermarkets reducing their prices by half. On the other hand, the rival mobile phone companies maintained that they offered the best price in the market. The mobile phone companies have announced price increase over the last few weeks; however supermarkets slashed down the price for mobile phone service. The supermarkets are able to take the opportunity cost of cutting the prices because they will gain back by selling high margin goods (Eweje & Perry, 2011). There is price discrimination in calling rates because different mobile phone industries have different tarrifs. The pressure exerted in the markets makes the mobile phones to adjust their prices to attain market equilibrium.
In order to understand the current micro and macro-business operations existing in the mobile phone industries and the supermarkets, it is imperative to analyze the social, political and economic structures. The reduction of interest rates by the government has greatly reduced the level of unemployment. In addition the purchasing capability of clients will increase because of the improved financial situation. However, the possibility of huge financial uncertainty will affect consumer spending especially while purchasing bonus products (Boyd, 2001)
Analysis on current European demographics shows that there is an increasing trend of ageing population. There is low possibility of old generation to go shopping in the supermarkets as compared to the young generation. The internet literacy is at 65 years, although growing population considers online shopping as efficient. Macro environment is external to the business sector and they are uncontrollable factors that are beyond control by any organization (Forstater, 2007).
Appropriate macro environment will enable supermarkets and mobile phone industries to make effective policies and strategies to make changes as well as coping up with changes in the current market. Micro environment on the other hand are the internal factors that mobile phone industries and supermarkets can control.
Micro environment have direct impact to an organization because it directly affect its zsuccess and operations. Micro environment will affect an organization’s capacity to serve its clients. Therefore, before supermarkets and mobile phones industries decide on any corporate strategy, they need to appraise their micro environment. Micro environment include all departments existing in an organization and each of these department has a great effect on an organization marketing decisions. The other aspects that are included in micro environment are the publics and the customer market. Thus, mobile phones industries and supermarkets should understand their micro and macro environments so that they can make appropriate strategies that will affect both their success and operations (Wan, 2006).The law of demand and supply will help supermarkets and mobile phone industries to settle on a market equilibrium calling price. In an attempt to run from high calling cost from other mobile service providers, customers ends up in the supermarkets which charges low prices to its mobile customers. However, supermarkets place price premiums on basic items so that they can substitute the low prices which had attracted the customers. It can be argued that, price wars benefit customers in the sort-run, but in the long run they greatly affect the customer (Krugman & Wells, 2009).
The cost of mobile phones have fallen to such a level that if the trend carries on, mobile service will be more affordable to much larger parts of the emerging markets population. The price wars ensure that both the supermarkets and mobile phone industries keep checking on their prices so that they can maintain their profits as well as making profits. The supermarkets continue to increase their promotions while other rival companies such as Tesco hold that they will continue being aggressive. There are various factors that have led to the reduction in price of mobile phones. The cost of mobile phones is brought down by heavy subsidies from the government, high levels of competition as well as efforts from local manufacturers who set on selling entry-level phones. The price of mobile phones has been brought down by the anticipated growth of markets (Wessels, 2006). Mobile manufactures are focusing to sell their phones in the emerging markets such as Philippines, Nigeria and India. Mobile phone manufactures have a great opportunity for the cheap phones to substitute feature phones in the emerging markets.
Mobile phones manufactures face the problem of lack of operator subsidies in the emerging markets so that they can support the entry of these cheap mobile phones. As the cost of mobile phones continues to reduce, it is anticipated that emerging markets will receive an increasing number of cheap phones in future. However, there are different approaches of entry of cheap phones to the emerging markets. For example, it was anticipated that there will be a growth of 95% of smartphones in India in 2013, while it was 46% in Brazil. In Brazil the import duties was expected to hamper the cheaper supply effect. By examining the current situation, mobile phones manufacturers who will be able to cope up with the stiff competition in the modern market, will secure a strong stance in the future mobile phone market (Eweje & Perry, 2011).
Technology advancement has enabled manufactures to device life-fitting mobile phones that are cheap and affordable. Mobile phones are a very crucial aspect in human daily lives because it enabled people to communicate, socialize and to spur development. Smartphones technology continues to be more prevalent in developed countries; however, the drop in price of phones has drastically changed the situation since smartphones are now more accessible in the emerging markets. Cheap mobile phones are very helpful to the emerging markets, since they will help to revolutionalize the lives of health-care professionals, farmers and educators in the developing nations. Lower price will definitely make smartphones more accessible in emerging products, but there is low internet connectivity in developing countries. Low internet penetration is a major hindrance of entry of cheap smartphones in emerging markets (Forstater, 2007).
The high outlay of data plans hinders various people from accessing internet through their phone. There is also high rate of inflation and unemployment in emerging markets which is another hindrance of entry of cheap phones in these markets. Though mobile phones are essential in modern day lives, most people in emerging markets struggle to make their ends meet. In the efforts of developing cheap mobile phones in emerging markets, the issue of insufficient network infrastructure should also be addressed. Mobile network operators should focus on sustainability, where they should develop business structures that permit them to earn returns by bringing data networks to emerging markets (Worthington & Britton, 2006).
The network connectivity can be provided by companies like Google; however, the cost imposed to the local economy would be huge. The attempt of brining solutions to the issue of network models in emerging markets, would have adverse effects to the local ecosystem as well as devastating impact to the mobile network operators who provide employment, and to the government who get remunerated for network licenses and use the funds for economic development. Apart from benefiting from cheap mobile phones, emerging will benefit from the internet connections plans that are just to be implemented. The emerging markets will get internet through microwave signals and fiber optics. The local governments will benefit from revenue collected from internet licenses.
Price wars between mobile phone industries and supermarket will benefit both the consumers as well as their respective industries. The price wars will lead to an increasing trend of the cost of mobile phones. The reduction of cost of mobile phones will enable more access of phones in emerging markets. Smartphones are more prevalent in developed countries where they have advanced the lives of farmers, health-care professionals among other people thus encouraging economic development. Emerging markets such as India, Nigeria and Philippines will receive more phones because manufacturers believe that there is a large market in developing nations. Mobile manufacturers have contributed a lot to development in the emerging markets for devising cheap phones that are affordable; however, they should also develop the internet model in the emerging markets. Lastly, cheap mobile will be of great benefit to the emerging markets since they will improve communication among other benefits.
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