Economics of Innovation. The Case of iPhone


Innovations have a profound impact on the competitive advantage of a company because they lead to new products and services appealing to consumers. Innovations allow the company to attract competitors’ target audiences and propose lower prices and higher quality of products and services. The exact nature of the innovation process may vary in these different settings, as will the problems faced and the solutions required, but economically innovative acts that create value for individuals and society can still take place. It is the act and its outcome, not the environment nor the setting that is the essence of innovations (Afua 2003). The case of the iPhone shows that strategic objectors lead to competitive advantage. I-Phone developers succeed with many of their products because of solutions proposed to the target market. First of all, from a marketing and entrepreneurship perspective, an innovation must be defined as having sustainable profit potential, beyond pure windfall profits, and “one-shot” deals (Birley and Muzyka 1997).

Discussion section

“Pioneers” in the industry always have a competitive advantage over market “followers”. Second, innovations must be defined as a market position, that is, a field of activity in which a company is competitive beyond the short run, and able to reap a profit. The example of Apple’s iPhone shows that a market position can be viewed both from its value context and from the perspective of competition. A market position is supported by a combination of resources, and obviously, a market position is only sustainable if the underlying resource combination is competitive. From the perspective of strategic marketing, competitive advantage is normally seen as the domain of business strategy, that is, at the product/market (industry) level, because direct competition takes place at this level (Storey 1994). I-Phone is based on innovative solutions in engineering and communication which take into account environmental changes and an important role in the creation of opportunities, and profound knowledge in the industry. By strategic thinking managers mean the intuitive ability to understand the dynamics of market structures, competition, customer needs, timing, synergies, and the like. It is an ability to proceed with tentative, incomplete information, always leaving one’s options as open as possible, waiting for the right moment. Formal strategic planning (with its emphasis on the analysis) was only used in two of the case companies and only in the later stages in the life cycle as a matter of setting priorities and securing coordination (Brown1998; Apple iPhone Home Page 2009).

Innovations matter in communication services because innovative solutions and improved quality of services influence customer’s loyalty and satisfaction. An environmental change demands that public services cut costs and improve their service. It is combined with the presence of profound knowledge, innovative behavior, and strategic thinking, that opportunities become identified. If the new venture idea is based on a “new-to-the-world” product or service, then by definition it is unlikely that the entrepreneur will be experienced with the marketplace or how to market the product/service involved (Afua 2003). After the innovation has measured the target market, evaluated the competition, and developed a marketing plan, he or she should attempt to integrate these three components in such a way as to arrive at a realistic sales or market-share forecast for iPhone (Morris et al 2007). The concept is to start with the size of the entire target market, and to realistically reduce that market size to reflect the number and effectiveness of competitors. The “more realistic market potential” arrived at should further be modified to reflect the effectiveness of the marketing plan (Bridge et al 2003).

I-Phone should be considered as an art and a science. I-Phone cannot exist without scientific explanations and economic theories (related to price, market structure, and wages, etc). thus it requires unique and pioneering application of traditional concepts and theories. As the markets change, or the services mature, the role set also shifts. To continue successfully, the entrepreneur must adjust to the emerging managerial role by learning new behaviors. Unfortunately, Innovations that once were adaptive may now interfere with the changed expectations (Chell 2001). The resulting conflict may contribute to the downfall of the business venture. On the other hand, successful adaptation to the new role expectations can offer new benefits. One benefit is access to multiple segments of society. These different segments may offer distinct network assets that include resources, monetary (prestige) rewards, and contributions to personal growth and development. In this regard, networks become value-added contacts. Each party to the interaction seeks to maximize outcomes, whether these be social or economic. But no participant has complete control over the reward system, so each must accommodate the other’s expectations. The result, if the interaction is to continue, must be a correspondence of outcomes (Storey 1994 Apple iPhone Home Page 2009).

Unique product features and design is another driver of success, Individual differences have a great impact on the decision process for iPhone. Primarily, the needs of customers differ greatly because of their lifestyle and expectations. Marketing has driven this behavior creating a special proposition for every group of consumers. Most customers value status and quality in the brands they buy, and are large and they place more emphasis on material and professional goals than the other groups. Status and fashion also influence the decision-making process. iPhone personality theory plays a crucial role based on an interest in new and unusual goods like iPod; a demand for convenience goods, which is generated by busy lifestyles; and a greater awareness of health issues and ethical concerns proposed by the new product (Bridge et al 2003).

Pricing decisions of iPhone are based on product features and manufacturing expenditures. I-Phone decided to use parity pricing or going rate strategy. This strategy helps the company to attract new buyers and create a core of loyal brand support. Nevertheless, penetrating pricing strategy can also be used at the initial stage of a marketing campaign. It allows demonstrating product benefits for potential customers. Customers want products that satisfy their needs or improve their productivity. I-Phone looks for ways to deliver these benefits at a lower cost, smaller size, and higher speed. (Bridge et al 2003). Operating within an industry with this kind of rapid change presents several challenges for the company, namely production costs, intellectual property owners, and monopolies. Creativity plays a crucial role in iPhone success because it helps to anticipate change and works best in a dynamic, tolerant atmosphere (Chell 2001). New ideas are created, developed, and translated into a new product. Creativity implies the formation of a new idea, innovation implies bringing this new idea into effective use. Creativity can be stimulated by: brainstorming which attempts to prevent criticism from stopping the free flow of ideas so that many ideas are encouraged. They also provide research challenges from a creative and innovative management perspective. The impact of nonconformists on general purchase behavior seems relatively small. New products are expected to function within the current social setting and must appeal to the average, well-adjusted personality. Some innovations, however in a modified version, have been accepted on a general level. Newness is not adopted or rejected by all consumers at the same time. The process by which customers accept new items is a complex one comprising several stages. The consumption process is a learning experience that affects and is affected by perception. Perception influences the selection and interpretation of marketing information, symbols, and products. Because it affects the expectations of potential results from various customer choices, it is a significant factor in individual and group reactions. In essence, perception determines how marketing reality is interpreted and thereby influences the consumer (Brown, 1998; Apple iPhone Home Page 2009).


In sum, innovations have a great impact on competitive advantage and market position of the company. I-Phone helps Apple Inc to position itself as a premium brand specialized in innovative products and solutions. For Apple, consumers provide the economic rationale for business activity. They direct business systems. Thus consumer lifestyle and life-space factors, which are significant purchase determinants, are also critical business forces. Consumer and customer want and needs must be studied and understood to arrive at an effective marketing mix. Company demand, which depends on customer willingness and ability to buy, can be affected and shaped by marketing strategies. Both company offerings and customer reactions may be altered. Generalizations relevant to buyer rejection, buyer autonomy, buyer dynamics, buyer demand, and buyer motives are stated. Buyer behavior is shaped by psychological and sociological as well as by economic factors. The former should not be classified as nonrational. Purchases made on an emotional basis can indeed meet important consumer needs. Several useful behavioral models and concepts that help explain purchase response, as well as a chart of consumption as problem-solving, are given.

List of References

Afua, A. 2003. Innovation Management; Oxford.

Apple I-Phone Home Page. 2009. Web.

Birley, S., Muzyka, D.F., 1997. Mastering Enterprise, Financial Times, London.

Bridge,S.,O’Neill,K.,Cromie,S. 2003. Understanding Enterprise, Entrepreneurship and small Business, 2nd edition, Palgrave MacMillan.

Brown, A. 1998. Organizational Culture; FT-Pitman.

Chell, E. 2001. Entrepreneurship: Globalization, Innovation and Development; Thompson.

Morris, M., Kuratko, D. F., Covin, J. G. 2007. Corporate Entrepreneurship & Innovation. South-Western College Pub; 2 edition.

Storey, D.J. 1994. Understanding the Small Business Sector, Thomson Business Press, London.

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