Product Pricing ComponentEssay Preview: Product Pricing ComponentReport this essayTechnology has had a big impact on our lives and continues to impact people every day. Technology is improved daily and new technology enters our world. In America, we have gone from messengers to walking to the post office to use a land line to having cell phones with us at all times. In between, we have had land lines in each home, created walkie talkies and invented CBs for vehicles. A person has many different cell phone providers to choose from today but I would like to focus on Verizon Wireless and the cell phone service provided by this company. I will discuss individual pricing components of cellphones, issues that affect the cost of production, the market structure Verizon Wireless is in and the economic factors that impact demand and cost.
Cell phones have become a need for people. The largest opportunity cost of not having a cell phone is time. A person can be handling business while sitting on the subway or sitting in the doctors office. Cell phones save a person time giving them the ability to multitask and not having to locate a land line to make a call. They are also time savers when a person has car trouble on a lone highway or freeway. Another service cell phones provide is free long distance. A person who has many family members and friends outside his town can benefit greatly from this service, and the monthly fee for the cell phone could be lower than his normal land line bill with long distance charges.
The utility of a cell phone is different for each person. One person might not have a cell phone nor does he see a use for one. Another person will say he does not know what he would do without one. While it is hard to put a number to the utility of cell phones, the marginal utility of a cell phone is quite low. People see a need for one cell phone, but multiple cell phones for most people would be more of a hassle. This would exclude a person buying multiple phones to give to each of his family members.
Cell phones have substitutes that can be used instead of a cell phone. A few of these substitutes are land lines, pay phones, walkie talkies, CBs, radios and messengers. The utility for each of these is not as high as the utility of a cell phone. Each of these products was used before cell phones were invented and are becoming more obsolete. Many of them are just as costly as a cell phone. A land line would have the most impact on the price of cell phones. Some consumers may purchase cell phones for the sole reason that a cell phone plan is cheaper for long distance calls then a landline. If the price of cell phones increased, the demand would decrease from the individuals that use it for the sole purpose of long distance calling.
Cell phones are relatively price elastic. If the price of a cell phone increases, people will continue to keep their old cell phones instead of purchasing newer improved phones. They might make sure to decrease the minutes they talk on the phone and switch to a lower plan. The price elasticity of the cell phone service Verizon Wireless provides is also elastic. New laws passed that allow a person to keep his current number when switching from wireless carriers makes him more conscious of the prices he pays and more willing to switch because it is not a big hassle anymore.
There are many issues that affect consumer demand and price. New plans are introduced with added bonuses for the consumer such as voicemail, text messaging and web surfing. These features make cell phones more attractive to consumers. The price of cell phones and cell phone services has decreased in price relative to the number of minutes one receives each month. Another issue is where a provider has towers and if the companys service works in the cities and rural areas needed by a consumer. Technology has increased what a person gets for his money and has made it even easier to be connected to the world when not in the office. New sellers have entered the market increasing supply and driving down prices because of competition. Finally, changes in consumer preference have had a large affect on consumer demand.
The most important strategy Verizon Wireless needs to focus on to enhance revenue is marketing. They need to come up with new and more innovative marketing ideas to reach more consumers. Another strategy is to target children by marketing cell phones that are only able to dial 911 and two other numbers that are programmed into the phone. These would be relatively inexpensive. Verizon needs to keep rates comparable to competitors as to not lose market share. Another strategy is to keep producing more versatile phones with more capabilities. They can look into the health market and research ideas like armbands for phones so people do not have to clip them to their pants or hold them while walking, bicycling or other activities.
Fixed and variable costs are the largest issues that affect the cost of cell phones and cell phone service. These are explicit costs. The fixed costs that affect total costs are items such as rent or mortgage on buildings used by Verizon Wireless, insurance premiums and depreciation on buildings and equipment. These are costs they will incur whether they produce or not. Variable costs are also incurred which have an affect on total costs. The two major variable costs are materials used in the production of cell phones and labor. These costs are dependent upon how many units are produced. If no units are produced, these variable costs would be zero. The cell phones that Verizon sells to its customers are mass produced which will lower the average total costs for cell phones. Labor specialization will also affect average total cost by producing more efficiently. The last issue that affects the cost of both cell phones and cell phone service is advertising costs. Verizon relies heavily on advertising. To counter the money spent on advertising, Verizon will have to add that into the cost of their monthly plans. The more customers they obtain, the less the advertising costs will affect the cost of the monthly plans.
In the cell phone industry, technology has a huge impact on productivity and average total costs. The research and innovation that goes into the invention, innovation and diffusion increases average total costs. As mentioned before, the large sales volume that Verizon does allows the cost of research and development to be spread out over a large number of units. Some of the research and development can be financed by economic profits that are retained by Verizon and the entry barriers into the cell phone industry gives Verizon assurance it will be able to maintain the economic profits it gains from innovation. New technology and more efficient machinery leads to more efficient production which will reduce average total costs. This process innovation due to technology allows
[quote=Ferguson]Ferguson, I was wondering about the number of patents that Verizon has awarded to companies with a history of patent-like behavior. You’re right that they are being awarded almost all. Most of those patents that have been awarded are over 10,000 dollars each. However, I believe that the US patent system is so tight that the average price of the system is higher than that of most other major technology companies in the US. I know by looking at the patents issued that Verizon have applied for in my paper, they appear to have granted a patent the size of 50-50, but I think that these patents are not being awarded to companies with only a few thousand dollar profits; they seem to have only a few thousand of those. In effect, they are being given to the patent system which also has one of the more favorable intellectual property regimes in the world today. When I was a US Attorney in the FBI back when, there was no government-owned telecommunications firm, there was not even any government-owned media. This didn’t happen in the early 1970s. That doesn’t help matters either. (I will be addressing this in an update. For my view on American legal systems, I will turn towards Apple where I saw it as part of what I believe are the greatest trends in our legal system and there should be a lot more investment in the US legal system.)
[quote=Lunitzki]I think Verizon (NYSE:VZR) is in a tough spot with respect to the way it approaches the new patenting of phones. It will be a different story as it has faced up to having done so in the past and it may be one thing for them to take more of a stand against it. What I think is important in this case is that Verizon could say there are new technologies that it developed that were not developed long ago. I would argue that not only will they not push for more patents, but the problem is that Verizon has already taken a position that it does not want some of those patents to remain because there may be problems relating to other technology and that may put the company in a difficult position in the next few years. My answer to this is that you are going to have to do some looking into how the companies like Verizon have developed and then evaluate and then decide how you want to move forward on that. And of course we’re going to be looking to different vendors to see how they will handle the situation. You’ve seen with the Motorola case, there’s no way that Motorola and many others are going to settle for the kind of patents that [url=http://tinyurl.com/f_gte3qx8]there[/url] you saw with Sprint. Verizon could just walk away from that and go for a different settlement.
[quote=Wanglui]We can understand that most of the folks in this industry have been around for a long time. It still depends at least with regard to the new technologies that come out with technology but it is a process that Microsoft and Google both pioneered from the beginning, it was not