24.

5/40
APPLE WATCH (A) THE LAUNCH

1. Describe the smartwatch market. (2 points)

a) Who are the buyers? Identify three needs/wants of the consumers that a smartwatch fulfills.

Ans: Buyers of smartwatch are tech lovers and they prefer smart watches due to its elegant look and
its features like email, sms and health related features.

b) Who are the sellers? Identify three sellers and highlight their differentiating features.

Ans: Sellers of smartswatch as mentioned in case are: Pebble, Samsung, Motrola, LG and Apple

1) Pebble: 1.26-inch e paper LCD screen, seven day battery timing and compatible with both apple
and android.

2) Samsung Gear S: high resolution, easy access to many apps and easy connectivity to android

3) Apple: Lot of customization, Screen automatically gets off and reliable operating system.

Complete feature are mentioned below

Pebble Steel Samsung Gear S Apple Watch

Display Size 1.26 2 1.33
Display 168*144 480*360 272*340
Resolution
Thickness 10.5mm 12.5mm Unknown
Processor 120 MHz single 1 GHz duel core Unknown New s 1
core chip
Storage 128 KB (8 apps) 4G Unknown
Battery Life 6 days 2 days 1 day
OS Pebble Tizen iOS
Phone Android/ iphone Samsung glaxy iPhone
Compat.
Touch No Yes Yes
Screen
Always-on Yes Yes No
Display
Standone N0 Yes Yes
Wireless
Price $220 $380 $349
(Basics)

2. Choose the right option in the below statements about the smartwatch industry and explain
your choice very briefly. (2 points)

a) Apple watch is a consumer/capital good.

Ans: Apple watch is a consumer good. -0.5 why?

b) Study of the smartwatch industry is a microeconomic/macroeconomic topic.

Ans: Study of a single industry is a topic of micro economics

3. The Smartwatch Group predicted 250% annual growth in sales of the smartwatch industry for
several years. The industry sales were low till middle of 2014 (about 700,000 smartwatches
shipped worldwide).
1/3
15000000 you should have shown demand/supply
for each market and then shift demands
10000000 according to the information
Normal W
5000000
Smart W

0
2012 2014 2016 2018 2020 2022

But the sales were expected to surpass traditional watch sales in 2018 and become a six-billion-
dollar market by 2020.

Sketch a diagram for (a) smartwatch market and (b) traditional watch market to reflect the
above scenario i.e. reflect the growth from 2014 to 2020. State your assumptions. (3 points)

From year 2014 smart watch industry started grooming

Note: No need to mention specific number of units/dollars.

4. Explain, using a demand-supply diagram, the “complementarity between smartwatches and

phones”.
If P decrease D Increase
If P increase D decrease
1/3

How are the “attributes and pricing of accessories such as smartwatches a key weapon in the
mobile phone competitive battle”? (3 points)

5. Consider Figure 1 on Page 5 of the case study which shows the Apple Watch pricing strategy
and answer the following questions. (7 points)

a) What is/are the dependent variable/s in the model?

Quantity demand of Apple watch is a dependant variable

b) What is/are the independent variable/s in the model?

All the variables other than demand are independent variables

c) Explain the “sign” of the coefficients of the following variables i.e. explain why the coefficient
of the variable is negative or why it is positive? Use the right terminologies. 3/5 should have mentioned
substitute in ii, iii
i) PAW (Inverse relationship) because if price of apple watch increase demand will decrease

ii) PGearS (Positive Relationship) If price of PGearS increase demand of apple watch increase

iii) PPebble (Positive Relationship) If price of PPebble increase demand of apple watch increase

iv) PiPhone6 (Inverse relationship to smartwatch) If price of iphone increase quantity demand will
decrease because iphone and smartswatch both are complementary goods

v) A (Positive Relationship) If Advertise increase demand of product will increase

6. USE MICROSOFT EXCEL FOR THIS QUESTION

Consider the scenario that the Apple team had contemplated with the following variable values,
prior to the launch.

PAW = 349, PGearS = $380, PPebble = $220, PiPhone6 = $299, A=$15,500

a) Calculate the QAW, using the above values and the demand function in Figure 1. (1 point)

Ans: QAW= -150000 – 2400*349+ 1520*380+1200*220 – 1200*299+ 44*15500

QAW= 177200

b) Calculate QAW only changing PAW to values given in the table. This means keep PGearS ,
Pebble , PiPhone6 and A fixed. (2 points)

PAW 300 310 320 349 350 360 380 390 400

QAW
PAW 300 310 320 349 350 360 380 390 400
QAW 294800 270800 246800 177200 174800 150800 102800 78800 54800

c) Using the table above draw a demand curve (use MS Excel line chart option). Take QAW on Y-
axis and PAW on X-Axis. Like a typical demand curve, your curve should be downward sloping.
(3 points)

Price QAW
300 294800
310 270800
320 246800
349 177200
350 174800
360 150800
380 102800
390 78800
400 54800
 -1 axis not labelled

d) For each of the situations below, explain the effect on the demand curve i.e. is it a movement
along the curve, a rightward shift, or a leftward shift? (10 points)

Calculate the change in QAW and label the variable as New_QAW. Use the same range for PAW
i.e $300-$400 to draw an updated demand schedule. Graph a new demand curve (if there is a
shift). Keep all other variables, except the one mentioned, as fixed. For example, in (b) only
PGearS changes to $400, rest of the values remain as given above i.e. PAW = 349, PPebble =
$220, PiPhone6 = $299, A=$15,500

i) Increase in price of AW from $349 to $400

If prices of the apple watch, increases then demand of the apple watch decrease.
5/10 values missing
P

400

349

ii) Increase in price of Gear S from $380 to $400

iii) Decrease in price of Pebble from $220 to $150

Q
 iv) Decrease in price of iPhone6 from $299 to $250
P

v) Increase in Advertising budget from $15,500 to $ 17,000

6. What is the marginal cost of producing one more Apple Watch? In other words, what is the
opportunity Cost to the company of producing one more Apple Watch? (1 points)

Ans: Formula of Marginal cost=change in price/change in quantity

-1
So the marginal cost of the apple watch is 0.00204

7. How will Apple’s entry in the smartwatch industry impact the following? (3 points)

a) The other suppliers. Sketch a diagram to show the affect.

-1
Not according to case study. Cost of
production is likely to fall and
availability of components will
increase so supply curve will shift
outward.
D of Other watches

b) Healthcare Industry

Ans: It is very easy for doctors to access patient health through heart beat and pulse measurement
c) Society in general.

Ans: Smartwatch revived the culture of using watch. People started using it for step counting and
gym activities

8. Do you own a smartwatch? If not, find a friend or family member who does. Ask
yourself/them following questions. (3 points)

a) Which smartwatch brand do you/they have?

Ans: Huawei band 4

b) What price did you/they buy it for?

Ans: Rs 4400

c) What was your/their budget constraint when buying the watch?

Ans: 4000 to 45000

d) What was yours/their opportunity cost in buying the watch? Explain in terms of what
you/they gave up to buy it.

Ans: Normally I do invest my small savings in stocks

e) Why did you/they choose the brand you/they did? What were the “substitutes” or
“complements” involved in the purchase decision?

Ans: It has the highest value within the offering as compared to other brands

f) Would you/they want to buy an upgrade when it is released?

Ans: No, Requirements are fulfilled sufficiently

g) If yes, what is your/their reservation price for it? If no, why?

Ans: No, because it is available in Pakistan in 7000 and I have purchased via Ali express on discount
4500

h) The watch can most likely be resold. How much can you/they resell it for? (If you/they don’t
know exactly, come up with a reasonable estimate, for example 60% of the original value)

Ans: 3000 minimum

i) If you/they don’t sell it, what is the opportunity cost of keeping it?

Ans: It will be very nominal and negligible since already purchased on almost 50% discounted value.

-1;
OC is the resale value forgone if watch is kept. Rs 3000 in your case