CURRENT MARKET CONDITIONS COMPETITIVE ANALYSIS 10
CurrentMarket Conditions Competitive Analysis: Microsoft Corporation
MicrosoftCorporation has mainly been associated with the Microsoft windowsoperating system and the Office suite. The company produces the Xboxgames, Lumia Smartphone and Surface tablets/ devices. The softwaremarket is still the biggest source of revenue, even as Microsoft isnow producing laptops. Microsoft also delivers its company’ssoftware pre-installed in computers though partnerships with PCmakers. Microsoft segments the market depending on the users athome, work, and school and for creating products. The maincompetitors of the Microsoft Surface new tablet are the Apple iPad/MacBook Air and the Samsung Galaxy Note Tablet. The tech industrygoes through various technology waves, and to improve productivity atMicrosoft it is necessary to invest in better technology. Diversifying operations across various operations will enable thefirm to improve business operations, so long as there is no abruptdisruption of business activities.
TheSurface tablets face competition from Apple and Samsung tablets, andother computer and hardware manufacturers that may also be partners. Apple, Inc products have high brand loyalty, high quality, but alsoslow release. On the other hand, Samsung aligns its marketingstrategies with the customer desires, but the branding has beeninconsistent. Since Apple only allows its software to be used in thecompany’s hardware, Microsoft can follow a similar strategy.However, this will extend to allowing other hardware to use thesoftware unlike Apple that limits Google and Microsoft’s ability todistribute the mobile operating system. A comprehensive marketingplan will be valuable to gaining a bigger marketing share and competewith Samsung.
Withthe launch of surface, Microsoft is now well placed to compete withApple which has various retail outlets and web store to sell itsproducts. However, unlike its main competitor in the tablets, marketMicrosoft faced challenges to offer its own Windows 8 product withoutMicrosoft store (Frenzel, 2012). Apple has relied on a verticalintegration approach in producing tablets, while other PCmanufactures are reluctant to sell tablets when they have tried andfailed to compete with Apple products (Frenzel, 2012). Raising theadvertising costs will not necessarily improve competitiveness ifthere is consistent message about the products unique features as theiPad, Fire and the Note tablet are still popular among loyalcustomers.
Comparativeadvantages and international trade opportunities
Microsofthas comparative advantages compared to the rivals because of itsemphasis on client retention. The company has been renowned forimproving services with the aim of attracting new customers whileretaining the existing ones. Additionally, improving the quality ofproducts means that Microsoft has captured a huge clientele. Thereare various Microsoft products, and since not are premium, they arecommon than the Samsun and Apple products. Through updating theproducts, the Microsoft Surface has been in the market for 2-3 years,and since products already having standardized Windows software. Thepopularity of the software makes this a viable option making theMicrosoft products stand out.
Thesupply chain of Microsoft spans across the world,throughinternalizing various components. However the new strategy is to alsocreate its own stores to attract more customers to view, enquire andbuy the products. The more the people are educated about the productsthe more they are likely to purchase the Surface product. In anycase, this provides an opportunity to deliver the products directly.The vertical marketing strategy will be valuable to achieve this andimprove sales growth over time.
Tradingin and outside the U.S will improve the company’s ability toimprove profitability. The research and envelopment department ofMicrosoft is valuable to integrating innovative technology to producecomputer and technology at low prices. Microsoft has been slow tochange compared to its competitors, and this has affected itscompetitiveness in PC, Smartphone and tablet market (King, 2012).Since the company is not heavily reliant on outside partners forproduction, there is more control over the Microsoft’s operations.This will likely reduce the domestic opportunity cost compared toother tech firms to improve marginal revenue as the total costsdecrease. As the opportunity costs fall, the company will be in abetter position to trade internationally and increase its marketsshare.
Factorsthat will affect demand, supply, and prices
Thedemand and supply of the new proposed new line of Microsoft tabletsinfluences the price. The demand for the products depends on theability to attract more customers, and since the product will bemarked as a versatile product sales are likely to increase (Frenzel,2012). The supply chain influences the ability of the company to sellthe tablet. When the demand outstrips the supply the price changewill increase, and it is necessary to conduct prior market researchto determine the consumers’ tastes and preferences in the market.The consumer preference changes increasingly favor tablets thannotebooks, and the new product is versatile. The company’s actionplan focuses on the premium pricing strategy at a whole sale price of$450 to ensure competitiveness and higher margin.
Salesforecasting also helps in determining the most profitable level ofproduction, as the company forecasts sales levels over time. Hence,relying on the partner reseller channel will improve sales of the newline of tablets, where customers can request and order the productsafter speaking with the company’s sales representatives. Higheroutput is considered when there are higher sales, while fallingdemand will result in increase supply, lower output, lower prices andat times discontinued operations. The customer shopping habitsinfluence demand for the product, and market penetration pricing isthe best when entering a new market niche. This is later follower bya premium pricing strategy, but one that is lower than thecompetitors o offer more product features at a cheaper price.
Priceelasticity of demand
Theprice elasticity of demand is the responsiveness to changes in demandfollowing price changes. There are close substitutes for the product,and a high price will be affecting the demand of the product sincethe product is price elastic outside the U.S. This implies thatincreasing the price by 1% will result in a higher fall in theproduct’s demand. Conversely, slightly reducing the price isassociated with higher demand for the produce and higher revenue inconsidering price elasticity it is necessary to consider the moves ofthe competitors, since as more of the company’s product is demanded(Mankiw, 2012). However, the U.S market is different as the pricerange would be considered affordable and even slight higher pricesassociated with upgrades would be viewed favorably.
Factorsthat influenceproductivityand costs
Whenthen demand for the product outstrips the supply this indicate thatthere is either low supply or higher demand that anticipated (Mankiw,2012). Productivity affects the total revenue since higherproductivity resulted in higher profits the case for improving theinventory levels and recuing the direct costs is that this affectsMicrosoft’s profitability. Inability to sell the products indicatesthat there is low productivity, as some of the inventory is thenwritten off. Additionally, Microsoft does not extensive partnershipswith low cost manufacturers in Asia similar to Apple, Inc. this meansthat the company may be losing out because of higher labor costsincurred, causing higher prices and lower profitability margins.
Microsofthas integrated the supply chain for both the hardware and softwareproducts, and supply costs and delays in release of the new productswill affect the company’s reputation negatively. Failure to addressthe costs of incurring the new materials and transporting them to themanufacturing and assembly sites would increase the costs and causedelays. Additionally, it is necessary to identify defects as soon asthey occur as this makes it easier to address them and ensure thatthe production and distribution continue smoothly distributioncapability affect a tech’s firm ability to deliver its products andlikely influencing adoption of products (Wonglimpiyarat,2012).Sourcing the components from sole suppliers is risky as any delaysincrease the opportunity costs since there is lost time beforeMicrosoft can contact other suppliers and this takes time to replacethe supplies.
Thecost of labor and raw materials are variable costs that affect themanufacturing cost and final price of the product. Given that thecompany’s previous launch of the tablets did not generate theexpected sales, improving demand for the product will be a toppriority. There is increased demand for versatile tablet similar tothe proposed product and this will offset the initial high cost ofproduction. The first products launched will incur higher costsincluding the raw materials and labor costs, but as productionincreases, the cost per unit will reduce. The loss associated withthe variable cost of manufacturing costs will fall over time and theprofits and revenue will grow. The growth in demand of the productthen reduces the variable costs while improving productivity.
Thefixed costs are incurred regardless of the scale of operations, andsince Microsoft has experience with production of tablets, therefixed costs are not expected to increase. The rent and deprecation ofthe production equipment are the indirect fixed costs affect thefinal cost implications. Improving the sales spreads out the fixedand total costs per unit. This implies that the lower fixed cost perunit improves efficiency, profitability and revenue. The number ofunitssold,market conditions and economy is external factors that affect salesrevenue and the market players in the computer and electronicsindustry.
Theentry of Microsoft in the tablet market sector will increasecompetition with Apple and Samsung the main competitors, with Asianrivals with less expensive products, but limited by marketing anddistribution beyond their areas of operations. IncreasingMicrosoft’s market share in table products will reduce the fixedcosts and increase profits (Frenzel, 2012). The case for newtechnology and upgrades of the launched product is that this attractsmore customers where the cost of production is lower and the customerbase is bigger. The primary target markets for the product isenterprises, students and professionals, with marketing strategiesand efforts seeking to increase the number of customers in thesemarker segments.
Externalitiesand government public policy
Theproduct offerings and company’s software must adhere to thegovernment regulation domestically and internationally. Inmanufacturing and distributing the product, Microsoft will considerhow data protection and user privacy are enhanced and likely to becompromised. It is important to consider how the laws ontelecommunications in different jurisdictions affect sales, andapplying laws and regulations while running the business may resultin conflict when such laws/ regulations are stringent and likely toaffect the sales. Hence, it is the company’s desire to loosen theregulations as they increase the cost of operations, while reducingprofitability and revenue. This is especially the laws/ regulationsdirectly affect product development schedules causing delays, since developing new products and software takes time, including testingand improving the existing products. Any delays occasioned bygovernment policy to ensure compliance are likely to affectMicrosoft’s ability to release new line of tablets.
Environmentalregulations affect operations as it is necessary to comply even whenthis may disrupt operations. While environmental sustainability andcompliance are done voluntarily, may affect the supply of criticalcomponents. Hence, addressing compliance will still be a top priorityand working with stakeholders ensures that there is development ofsafer products. Microsoft will not compromise on environmentalstewardship regardless of areas of operations, where trackingemerging environmental requirements will ensure there will be nocompromise on complying with these regulations.
Microsoftought to realign the various business segments to coordinateactivities and improve operations. This will ensure that the companywill increase revenues and productivity while sharing the sameinfrastructure. Even when there is high brand loyalty, poorcoordination hampers the company’s ability to integrate theconsumer services with the enterprise services. Additionally,focusing more on the devices and the services market segment willprovide growth since the company is still vibrant in the softwaremarket. This calls for differentiating the company’s businessoperations, where there are areas of growth and opportunity in the PCand tablets market.
Utilizingall the available means of promotion including sales promotion,public relations advertising and direct marketing will allowsMicrosoft on concentrate on creating awareness. Attacking thecompetitors is counterproductive as it also draws attention tonegative tactics and may not necessarily promote the product.Coordinating the various communication channels not only helps toimprove marketing activities, but is also cost effective sinceMicrosoft will then push a consistent message when marketing theproduct with online media crucial to crating a buzz. The mediapromotion will highlight the added advantages of an upgraded andfaster tablet, where consumers can choose to use with or without akeyboard. Connecting the product with innovation will show thatMicrosoft’s competitiveness, rather than be associated withMicrosoft Windows yet there are other business segments.
Marketanalysis highlighted the strengths of Microsoft as they launch a newline of tablets to compete with Apple and Samsung. Considering theprice elasticity of demand and competitiveness of the marketparticipants highlights the factors affecting the total revenue.Merely copying the tactics of other competitors is not effectivesince the consumers need reassurance that the company is focused oninnovations. The research and development arm of the company iscrucial to integrating innovative change to give the companycompetitive beyond software services. Marketing promotions willhighlight the company’s efforts to improve innovation, wherecoordinate marketing promotions emphasize the features thatdifferentiate the company’s products from competitors.
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Mankiw,N. G. (2012). Essentialsof economics.Mason, OH: South-Western Cengage Learning.
Wonglimpiyarat,J. (2012). Technology strategies and standard competition—Comparativeinnovation cases of Apple and Microsoft. TheJournal of High Technology Management Research,23(2),90-102.