iPod digital media players ride on a wave of popularity: in April 2007 manufacturer of iPods, Apple, reported “100 millionth iPod has been sold, making the iPod the fastest selling music player in history” . Technologically advanced and user-friendly gadgets gave rise to the new culture – iPod cult, which unites millions of its fans worldwide. Success story of this product draws attention of many researchers and business practitioners.
This paper is focused on the identification and analysis of iPod demand factors. Other specific points of interest include price elasticity factors and some supply related issues.
Key iPod demand factors are innovation, good set of core features, diversification and speculation (marketing strategy). Each of them is discussed below.
Innovation. Apple has always been offering something more than mere equipment (e.g. media player) by offering some technological innovations. Several years ago they launched iTunes service and offered to buy licensed sound tracks in several clicks. Today they offer player which can tell which song is being played at the moment. Tomorrow it will be something else, but buyers can be sure Apple will not stop in offering innovations. Many iPod fans are keen to buy new version of the player even before it is released.
Core set of features. Surely, iPods have all core features that any other quality player must have. These include fashionable design, user-friendliness, long battery life, reliability and the like. These features are common to all products competing with iPod. Although these are not key demand drivers, they are necessary for successful competition with Sony, Samsung, iRiver etc.
Diversification. Apple offers iPods to the taste of anyone. It “has also diversified the iPod to match every outfit and budget. It comes in all shapes and sizes, from the diminutive Shuffle to the multicolored Mini” .
Speculation. Apple applies aggressive marketing techniques by stimulating buyer fever in months before its new product is on sale. When the product finally is put on the market, demand is already exceeds supply. Apple sales manager comments marketing strategy used for launch of iPod players: “This rampant speculation created such a magical aura around the mystery device, people said they were going to buy it sight unseen”.
Microeconomic theory distinguishes the following key factors of price elasticity: necessity of the product, availability of close substitutes, time horizon and market definition . In respect to iPod media players we can conclude that this product is elastic. First of all, there is a huge number of substitutes and consumers may easily switch to iRiver or Samsung products. Second, media player is no a necessity product. It is rather an element of luxury and if price increases – consumers may refuse to buy media players. Third, if price for iPods increases for a long period – its sales will fall. Finally, price elasticity for iPods may vary in terms of market definition. If we need to find a full-value substitute for iPhone (touch series product) – it will be uneasy. However, if we narrow our definition to MP3 player with graphical interface – we could find dozens of substitutes with similar set of features.
Accordingly, we can conclude that because of elastic demand for iPod Apple’s revenue drops when price increases and vice versa. Therefore, Apple should carefully consider each price change.
Supply of iPod is affected by price (the higher the price – the higher the supply), price of components (e.g. processors, LCD displays) and expectations of Apple (in terms of price and demand). Additionally, supply of iPod depends on speculative component as well. We have already highlighted the nature of marketing strategy of Apple – i.e. to stimulate buyer fever. Respectively, company adjusts supply to promote agiotage and keep supply as low as possible.
Finally, to summarize key points we should state that demand for iPod is elastic and is affected by availability of substitutes, market definition and necessity of the product. In other words, sales volume of iPod significantly depends on its price. Supply of the product is affected by price and marketing strategy (to keep agiotage).
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