Managerial Economics

1. WEBSTER UNIVERSITY,SUMMER 2012
Samsung Analysis
Managerial Economics
Egzon Burri, Orkhan Maharramov and Srdjan Jankovic
7/13/2012

2. 1
TABLE OF CONTENTS
Company Overview........................................................................................................................................................4
Samsung Core Business .............................................................................................................................................5
SAMSUNG Products...................................................................................................................................................7
Competition/Market..................................................................................................................................................8
Suppliers ..................................................................................................................................................................10
Customers................................................................................................................................................................10
Porter’s five forces.......................................................................................................................................................11
Threat of New Entrants ...........................................................................................................................................11
Bargaining Power of Buyers.....................................................................................................................................12
Bargaining Power of Suppliers.................................................................................................................................13
Threat of Substitutes ...............................................................................................................................................13
Industry Rivalry........................................................................................................................................................14
Utility ...........................................................................................................................................................................14
Utility of Form..........................................................................................................................................................14
Utility of time...........................................................................................................................................................15
Utility of Place..........................................................................................................................................................16
Diminishing Marginal Utility ........................................................................................................................................16
Law of Marginal Utility ................................................................................................................................................17
Practical use of Law of Diminishing Marginal Utility ...................................................................................................18
Assumptions of Law of Diminishing Marginal Utility...............................................................................................19
Limitations of Law of Diminishing Marginal Utility..................................................................................................19
Diminishing Marginal Utility applied to Samsung....................................................................................................20
Demand .......................................................................................................................................................................21
Determinants of Demand ............................................................................................................................................24
Price of the good .....................................................................................................................................................24

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Complementary and Substitute Goods ...................................................................................................................26
Income.....................................................................................................................................................................29
Wealth .....................................................................................................................................................................31
Fashion, Trends and Preferences.............................................................................................................................32
Future expectations.................................................................................................................................................33
Advertising...............................................................................................................................................................35
Size of the market....................................................................................................................................................36
Price Elasticity of Demand...........................................................................................................................................37
Determinants of Price Elasticity of Demand................................................................................................................38
Substitutes...............................................................................................................................................................38
Time.........................................................................................................................................................................40
Functionality of the Good........................................................................................................................................40
Necessities and Luxuries..........................................................................................................................................42
Comparative Size of Expenditure.............................................................................................................................43
Relative Permanence of Satisfaction .......................................................................................................................44
Supply ..........................................................................................................................................................................45
Determinants of Supply...............................................................................................................................................47
Price of good or service ...........................................................................................................................................47
Price of related goods or services............................................................................................................................48
Price and availability of inputs.................................................................................................................................49
The Level of Technology ..........................................................................................................................................52
Expectations of suppliers.........................................................................................................................................53
Joint supply..............................................................................................................................................................55
The number of firms that supply the market ..........................................................................................................56
Price Elasticity of Supply..............................................................................................................................................57
Determinants of Price Elasticity of Supply...................................................................................................................58
The rate at which cost per unit rises as output increases .......................................................................................58

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Time for suppliers to react to price changes ...........................................................................................................59
Current capacity usage ............................................................................................................................................61
Flexibility of production systems.............................................................................................................................62
Selling in different markets......................................................................................................................................64
Law of Diminishing Marginal Returns..........................................................................................................................66
Law of Diminishing Marginal Returns applied to SAMSUNG...................................................................................67
Competition.............................................................................................................................................................69
Economies of Scale ......................................................................................................................................................69
Conclusions and Recommendations............................................................................................................................71
Work Cited...................................................................................................................................................................73

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COMPANY OVERVIEW
Founded in 1939, Samsung is one of the leading companies in the electronics market
with 206 offices and facilities in 68 countries globally. The company was founded by Lee Byung-
chull in a small city of Korea named Taegu operating as an export company (About Samsung-
History, par.1). Samsung has grown to become one of the most successful electronic companies
with a main focus on digital media and appliances, memory, semiconductors, and system
integration. Its profile is one that many companies would like to possess. Throughout the years,
the company expanded its product lines and grew its market share and profits. The company is
headquartered in Seoul and operates in over 100 countries across the world (About Samsung-
History, par.3). Samsung’s profile for 2011 shows that the company closed a very successful
year achieving 220 billion euro revenue, and employing 344 thousand people all over the world.
Fig.1 Samsung Profie– About Samsung
The strength and success of the company lies in its innovative and reliable products, talented
staff and employees, and responsible approach to business and global citizenship which are
shaping the world in completely new directions. The corporate philosophy is about making a
better world and enriching people’s lives in several manners. Their values are also important
factors which shape their performances and play a critical role to their business
(Values&Philosophy, p.1).

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Their working philosophies accompanied by strong values create their business principles which
are represented below.
Fig.2 AboutSamsung-Values&Philosophy
Samsung has its roots also in other types of businesses rather than electronics. This corporation
is comprised of many companies that are setting new life standards from electronics up to
petrochemicals.
SAMSUNG Core Business
Samsung’s business is separated into Set Business and Component Business. These two
portfolios create the Samsung products which had already taken our lives beyond the ordinary
(Business Area, par.1).
The Set Business is mainly comprised of Mobile Phones, Personal Computers, MP3 Players, and
the key driver in this portfolio TV Business. The Mobile Phones section of this portfolio is one of
the most successful ones especially over the last years. In this section, the company had lead
the standardization of mobile-phones technologies such as Mobile-WiMAX and High Speed
Downlink Packet Access (HSDPA) (Business Area, par.4). The TV Business is another key driver in
this portfolio. LED TV’s and LCD TV’s have maintained top positions in the market leaving now

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the road to further innovations such as 3D (Business Area, par.4). Other sections which seem to
contribute positively in the Set Business Portfolio are Printer and Camera which are being
developed even further with the most innovative technologies. Some of the products of this
portfolio are the ones listed below:
(LED TV-Samsung) (NOTE Pc-Samsung) (SGH-A867 Eternity-Samsung)
(TL 320-Samsung)
The second portfolio is Component Business which is a leader in memory and LCD
markets in product and technology development. This portfolio is divided into semiconductors
and LCD. The Semiconductor Business is divided even further into Samsung Memory Division,
System LSI Division, and Storage Systems Division (Business Area, par8-9). The System LSI
Division manufactures logic and analog integrated circuit devices. The Storage Systems Division
is a leader in producing high-capacity and high-performance hard disks for notebook and
desktop PCs, digital camcorders, MP4 players and other similar products (Business Area, par.9).

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SAMSUNG Products
The company is focused exclusively on the consumer electronics segment and given its
competitive edgeit has managed to garner the maximum market share for itself.As mentioned
above, Samsung Corporation manufactures a wide range of products which include different
industries such as electronics, machinery&heavy industries, chemical industries, financial
services and the like (2011 Sustainability Report, p.7). All these share a commitment to creating
high quality products which will create better life conditions for people and businesses.
Samsung still remains at the forefront of the digital revolution in which they contributed by
continually developing new products that not only meet the customers demand, but also
anticipate it.
Fig .3

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Because of the wide range of products that Samsung manufactures, our main focus will be in
these products, specifically on Mobile Phones and TV’s as they represent the main source for
the firm profits (2011 Sustainability Report, p.12). The chart below summarizes that the two
most profitable sections of Samsung Corporate are Digital Media and Telecommunications.
Fig.4
COMPETITION/MARKET
Samsung provides a product range that is marked by a high quality and high
responsiveness to consumer needs and preferences. This advantage puts the company at
forefront when compared to its competitors. With the initiation of innovative and unique
products, Samsung took the market by storm and managed to gather the maximum market
share. The table below summarizes the global market share of Samsung in comparison with its
competitors representing the success of the firm.
Products
Samsung's Global
Market Share
Competitors
Market
Share
Year
DRAM 34.3% Hynix 21.6% Q1 2009

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NAND Flash 40.4% Toshiba 28.1% 2008
Large-size LCD Panel 26.2% LG Display 25.8% 2009 February
PDP panel 30.5% LG Display 34.8% Q1 2008
Active-Matrix OLED 90.0% LG Display - Q2 2008
Lithium-ion battery 19% Sanyo 20% Q2, 2009
LCD Monitor 16.1% Dell 14.6% 2008
Hard disk drive 9.5% Seagate Technology 34.9% 2007
Multifunction printers 16.4% HP 19.2% Q1 2009
Television sets (LCD, PDP, CRT) 23% LG Electronics 13.7 %
Q3'09 Revenue
Share
French door refrigerator (U.S. market
only)
18.79% Whirlpool 23.83% 2009 January
Mobile phone 21% Nokia 37.8% Q3 2009

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Digital camera 9.1% Canon 19.2% 2007
Drillship 80%
Daewoo Shipbuilding &
Marine Engineering
20% 2000~2007
(Samsung Ranks #1 for Preliminary Worldwide LCD Monitor Market Share for Q1'08, p.1)
SUPPLIERS
For Samsung partner companies are an important asset that help the company generate
profits and operate successfully. The company carries several activities with which they help
and collaborate with their partner companies in order to create a stronger and more
competitive operating market. A strong supplier network is one of the factors that rank
Samsung as one of the top 6 worldwide most successful electronic companies (2011
Sustainability Report). Because of the crucial role that suppliers hold, Samsung has developed a
program known as “Seven Key Program for Mutual Growth” which is intended to strengthen
the ties between suppliers and the company, foster strong partnerships and enhance mutual
competitiveness (2011 Sustainability Report, p.2). Samsung has a lot of resellers around the
world. Some of the most companies that have this position are: A.J Madison, B&S Enterprises,
Atlantic Appliance,Inc., Bradley M Griffin, Best Buy, Casa Linda, Audio Enteriors, Dan’s
TV&Electronics, Dynamic Entertainment, Flowers Radio, Elite Media Solutions, DK Digital
Design, Gerhards, Systems and Excel Media Systems, DWR Inc., House of High Fidelity and much
more (Samsung Authorized Resellers, p.1).
CUSTOMERS
Customers are what make a company function and therefore are very much valued by
all the companies. Samsung pays a special attention to its relationship with customers. Its aims
are to be respected and admired by customers. In order to strengthen the ties with their
customers, Samsung has developed several presumes activities and social network services

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(2011 Sustainability Report, p.2-3). Through these activities tailored for customers, the
company won numerous awards for customer satisfaction. Keeping the customer satisfied is
very crucial to consistent success and profits that Samsung holds. The company aims to provide
products that will fulfill the customer needs. In order to create a better communication chain,
they have created different packages which are composed of different groups of people in TV
products or Mobile Phones products (2011 Sustainability Report, p.74).
PORTER’S FIVE FORCES
Threat of New Entrants
The success of Samsung, its loyalty towards its customers and mostly its distinctive and
innovative products are what make this company be listed in forefront. Because of these facts
mentioned, Samsung has found it very easy to enter in almost every market around the world.
The impact of market entry towards the company is very high because of the ease that
Samsung had when entering new markets. Samsung managed successfully to enter two major
markets such as China and India which had served positively to company’s profile by providing
the much needed volumes for its expansion. Additionally, Samsung has an economies of scale
advantage being one of the major producers of technological products that are not limited to
DRAM’s or semiconductors. As mentioned before, the company stands very loyal to its
customers and their preferences by producing products that satisfy their needs. This makes the
company be even more preferred and trusted by their clients. Several sources rank Samsung as
nr.21 worldwide and this trend is another factor which increases the difficulty of entering in the
market. Hence, a very good brand identity reduces the threat for strong companies such as
Samsung from new firms.
The electronics business requires a lot of effort and especially a lot of money to firstly be
developed and then succeed. To Samsung and any other similar successful company engaged in
such business, it required billions of dollars and a lot of time to achieve the minimum of just
reserving the place in the market, by not mentioning other costs such as operational costs and

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the like. The strong position that Samsung holds today and the high costs for the new entrants
is another factor which makes it difficult to enter such market. To add, a similar factor to capital
costs is the learning curve which seems also to reduce the risk from infant competitors.
Samsung had to learn how to develop such products for a long period of time and spend a lot of
effort to maintain the quality. A plus for this company was that it started in Korea where people
pay a lot of attention to school and education producing very talented engineers known
worldwide. Being composed of such a staff, shortened even more the learning curve for
Samsung and strengthened its roots in this market. Such a strong company in the market
lowers the possibility of any threat that might appear when new companies emerge.
Bargaining Power of Buyers
Based on the composition of this industry, buyers have good leverage when it comes to
bargaining. With so many companies competing in electronics and mobile phones, buyers have
several choices on which they can bargain. Hence, the impact of this power to company is a
little bit high. Since there are so many players in the fray, this market is essentially a buyer’s
market. This can also be reflected in the endless price wars that Samsung is engaged in with
other similar companies. Buyers will easily switch between these prices, choices of products or
features.
One advantage over this for Samsung is that buyers do not switch brands immediately
as first it takes time to adapt and adjust and only in times of complete dissatisfaction is when
switching brands takes place. Switching costs or products can be very high in some cases.
Different packages offered by different companies might affect customer’s choices and
preferences. For example contracts made between a company and a client to purchase a phone
for 2-3 years might affect the other phones on the market which are sold to its real price and
therefore the difference might be higher. But the risk for this choice is higher. For example, if
the customer wants to terminate the agreement before the contract is up, the fees for the
clients might be very large.

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Bargaining Power of Suppliers
The bargaining power of Suppliers for Samsung is relatively limited because of the form
how the company is composed. The fact itself that the company does not produce only mobile
phones or TV’s but many other products mentioned above, makes this element somewhat
limited. For example, there are over a thousand suppliers around the world for different kinds
of parts that the company needs for making the electronic appliances. Given the fact that these
parts are very essential for producing the right product, gives them a unique advantage which
cannot be ignored. Like in any other industry, Samsung depends on its suppliers for timely
delivery of its products and therefore their role is very crucial in company’s success.
However, this element is a little bit different when considering the mobile phone
industry of Samsung. In this case, the bargaining power of suppliers is low since Samsung
supplies its own components most of the time and most of the time supplies its own raw
materials.
Threat of Substitutes
The threat of substitutes is really high for a company like Samsung given the fact in
which industry operates. The propensity to switch to alternative products in response to price
differences is very high. The company needs to be very strong and keep up with its innovations
since the market is characterized by intense competition on a regular basis, introducing similar
products to those of Samsung. Also, the introduction of almost the same products, or better say
“clones” from other competitors, increases the threats for Samsung where the company must
continually produce innovative ideas in order to secure the forefront.
Nevertheless, one advantage over these facts for Samsung is that the customers who
are quality conscious do stay loyal to the company and reduce the threat which comes from
those that are price conscious.

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Industry Rivalry
This is another element that has a huge impact on Samsung because of the presence of
strong competitors like BenQ, LG, Nokia, Apple, Motorola and other. An industry with such
composition goes through an intense competition especially in the emerging markets like India.
From its boom, the mobile phone industry, especially that of smart phones has slowed down
and the competition turned into taking customers from other rivals. The risk is high because
everything seems to be short-lived firstly due to the emergence and fast adaption of new
technologies and second because of the extreme level of competition.
UTILITY
A representation of preferences that consumers have over some set of goods and services in
economics is called utility in economics. Because preferences are transitive, complete and continuous
they have a long utility of representation. Every customer expects to be satisfied by the purchase, and
the products or services that result higher satisfaction received by a customer have higher utility. The
mentioned, factor makes managers be more aware of the competition since customers will thoroughly
asses the product and buy the one that gives more utility. Talking about utility, one should mention
three different types of utility which are form, time and place. To add, manufacturers should try to
deliver a product that will satisfy the mentioned types of utilities and constantly improve them as the
overall product quality will change respectively. ("Investopedia")
UTILITY OF FORM
Utility of form results from changing in the main parts of the product or service. These altering
must be of such shape and composition that they will allow the satisfaction of the required
need. There are some products or services are more in a functional form than other which can

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be produced of better quality. An example of form utility can be wood. Wood can be altered in
order to satisfy different consumer needs, such as furniture, building and construction, paper.
The utility of form has a great significance for Samsung. Using mobile phone phones consumers
can satisfy various human needs such as the ability to access internet and gather information,
to take high quality photos. Samsung enables its users to alter the product from a monitor to a
projector. So, customer using Samsung monitors can present different types of materials on big
screen monitors.
UTILITY OF TIME
This related with the change in the usefulness which happens with the passage of time.
This passage of time can be either seasonal, or more long term changes. The manager of
company should be aware of providing the good and service at the right time for consumer. A
Ramadan Holiday can provide only once in a year, another examples can be winter clothes in
hot countries.
Time utility is so essential for Samsung products. As consumers are able and willing to buy gifts
during the holidays Samsung needs to satisfy demand in order not to lose the market share. In
case Samsung won’t be able to invent new products during the holiday time, the competition
might arise.

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UTILITY OF PLACE
Utility of Place refers to the fact that a product should be useful and useable in its target
location, which most often refers to a specific geographical place and the conditions that are to
be found therein. Utility of Place is a result of producing the product at the right place .It is very
important for the company, and manager might to know the place that operating business at ,
since if you are in a wrong place your products and service will give no utility at all or so little
utility. An example of place utility can be pork meet at Islamic world or a company that
manufactures shipping materials in countries which not bordered by ocean or sea.
In our case place utility is very important factor for Samsung. For example, offering TV monitors
or mobile phones in third world countries which people can watch TV only in restaurants or in
other public places. Sales efforts in poor countries for luxury mobile phones will be very low
because of low wealth level.
DIMINISHING MARGINAL UTILITY
Diminishing marginal utility is one of the important concepts in Economics.The law of
economics means that when a person increases consumption of a product- while keeping
consumption of other products constant- there is a decline in the marginal utility that person
derives from consuming each additional unit of that product. ("Financial Dictionary")
Summarizing this theory, as one acquires additional units of a good the marginal utility brought
about by each additional unit will decrease, and perhaps even become negative. In simpler

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words we could say that if we have more of something, we will attach the less value to each
additional unit we get.
LAW OF MARGINAL UTILITY
The Law of Marginal Utility was coined by a German economist Mr. H. Gossen and it describes
an important tendency of human behavior. Alfred Marshal has restated the law in the following
words: “The additional benefit which a person derives from an increase of his stock of a thing
diminishes with every increase in the stock that already has”. ("Economics")
We can see influence of this on the total utility, or the total value we have, of all of the goods of
that kind we have. The total utility will increase as a result of acquiring more of the good,
however, at smaller increments, until eventually we will have so many of the goods that the
total utility will actually start falling. Both of these relationships shown in the following graphs:
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9 10 11 12
Utility
Quantity
Total Utility
Total Utility

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PRACTICAL USE OF LAW OF DIMINISHING MARGINAL UTILITY
There is a huge practical importance of the law of diminishing marginal utility in economics. The
law of demand and the law of diminishing marginal utility are closely and mutual related to
each other. If the price is fewer than the marginal utility of a commodity it is assumed that the
commodity would be purchased. In order the consumer to continue to buy more successive
units the prices have to fall. It means that the diminishing marginal utility and the law of
demand are inter-related laws. According to the theory, Consumers’ surplus is also based on
the law of diminishing marginal utility, since a consumer while purchasing the commodity
compares the utility perceived from the commodity with the price he would pay.
-4
-2
0
2
4
6
8
10
1 2 3 4 5 6 7 8 9 10 11 12
Utility
Quantity
Marginal Utility
Marginal Utility

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ASSUMPTIONS OF LAW OF DIMINISHING MARGINAL UTILITY
The following certain assumptions are realizing the Law of Diminishing Marginal Utility:
 Constant Marginal Utility of Money - According to the theory that MU of money
perceiving goods is constant, we assume that the marginal utility of money changes with
the increase or decrease in income will differ the marginal utility of the specific good.
 Suitable quantity – We assume that the commodity units are not so small. Instead of
decreasing, the marginal utility may increase to a few units if the units are so small.
 Rationality- An important assumption is that customer is being rational.
 No change in the price of commodity – If more units are being consumed then a price of
the commodity should change.
 Constant customs, taste and fashion – There will be a sudden change in taste, custom,
or fashion if the law wouldn’t hold true.
LIMITATIONS OF LAW OF DIMINISHING MARGINAL UTILITY
Rare collection - Diminishing Marginal Utility does not hold true in case of collectors, because
since more they collect, the more they want. For instance, if there are only two unique models
of Rolex watches and you already process one of them the purchase of the second unique
model of Rolex will push up the marginal utility.

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Case of addicts - In the case of addicts the more would person drink the more utility would be
perceived from the following unit.
Application to money – in this case when DMU does not hold is the degree of accessibility to
market. The more access to money the consumer has, the more eager consumer is to get
additional unit of it. Marginal utility of money declines with richness but we can say that never
goes to zero.
The Law of Diminishing Marginal Utility resembling many other laws in Economics, is a
statement of tendency. It holds true only if other factors remain constant.
DIMINISHING MARGINAL UTILITY APPLIED TO SAMSUNG
Let’s look at an example where a consumer purchases Samsung monitor or mobile phone. In
this case a buyer perceives a certain utility from the product they purchase. After the first
purchase if a consumer decides to buy an identical product the utility perceived will diminish
and be less than the utility perceived from the first purchase. It can be explained by the fact
that buying another product of the same type doesn’t fulfill any additional need. If a person
buys the third product the utility will be decreased to zero (0) or even below (0>…..). Let’s look
at another example where an insurance company needs 4 monitors. When the company fulfills
its need to have 4 monitors they won’t have a need to buy additional monitors. Thus, the
marginal utility of the consumer will close to zero, and the company won’t find a use for a new
monitor.

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The law of diminishing marginal utility and the law of demand are interrelated concepts in
microeconomics. So in order to keep the sales always high the manager should drop the prices
of the product so that the customers perceive utility from buying them. So, managers have to
be careful so that customers perceive some additional utility.
DEMAND
Demand is the quantity of a good or service that customers are willing and able (i.e.
money) to purchase during a specified period under a given set of economic conditions.
Conditions to be considered include the price of the good in question, prices and availability of
related goods, expectations of price changes, consumer incomes, consumer tastes and
preferences, advertising and expenditures (Hirschey, pg. 77). Moreover, it is important to
recognize that demand always implies a price. When we analyze price, we look at the price-
performance ratio which shows us how much value we assign to the money vs. the value we
assign to the product. If a person can influence factors of demand, it can also influence the
market and therefore create demand.
Moreover, demand is shaped by what is called the law of demand. The law of demand is
the correlation between buyer’s demand for a product and the producer’s price for the
commodity. In other words, people will tend to buy larger quantities of a given commodity at a
lower price and vice versa –lower quantities of a given good at higher prices. Furthermore, the
law of demand it developed from two essential forces: substitution effect and income effect. As

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the cost of the commodity increases, in relation to income, buyers are unable to come up with
the money for items they purchased before, thus the quantity demanded for the product
reduces. As a result, when the cost of the commodity raises buyers begin to look for
alternatives – substitutes – for the merchandise and thus demand declines. Though, the
demand for substitutes increases enormously (van der Veen, Gordon).
For managerial decision making, a prime focus is on market demand. For example, sales
rely on market demand as well as planning future marketing strategy. Market demand is the
aggregate of the quantities of a product demanded by all the individual buyers at a given price
over a given period of time. Insight into market demand is determined by the value associated
acquiring and using any good or service and the ability to acquire it. Both are necessary for
effective individual demand. Market demand may be influenced by distribution of wealth and
income in the community, general standard of living, growth of the population, age
structure/ratio of the population, future expectations, and level of taxation. On the other
hand, there is also individual demand which is a single consuming entity’s demand. Individual
demand has different determinants than market demand (Hirschey, pg. 78). There are several
factors that determine the intensity with which buyers wish to purchase and consume good or
service; and consume good or service; those include: price of the good itself, price of
complementary and substitute goods, income, wealth, fashion and taste, advertising, weather,
and size of market or number of buyers . The underlying conditions of demand are the
conditions of demand other than the price of the good itself. Therefore, the underlying

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conditions have to change to change your value of the product and/or your value for money
(van der Veen, Gordon).
To summarize, during a specified period, the quantity of a good or service that
customers are willing and able to purchase depends on given set of economic conditions such
as the price of the good in question, prices and availability of substitutes and complementary
goods, consumer incomes, consumer tastes and preferences, the advertisement effect, changes
in number of buyers. When it comes to changes in prices, it will only make the changes in
quantity demanded which will create movements along a single demand curve. However,
changes in other variables besides price influencing demand will show changes in demand,
creating shifts of the entire demand curve (Janak, Deep). The ability of goods and services to
satisfy consumer wants is the basis for consumer demand. Consumers always prefer more to
less of any good or service. In addition, different consumers demand different kinds of goods
and services for direct satisfaction of their needs, and therefore, demand for commodities is
direct and based on marginal utility (Hirschey, pg. 115).
Samsung’s phones and TVs are considered as consumer goods. Therefore in electronic
industry, the main purpose for purchasing electronic devices is to satisfy some sort of a need.
Samsung products are used by the business people in firms as well as by individuals for
individual purposes. People often use the TV for entertainment and informal purposes but they
are also used in business settings, while the Samsung phone customers use it for business or
individual purposes. Whether they are used for business or individual purposes, the goal is to
acquire some sort of information and therefore the ultimate need that drives the entire

25. 24
industry is the need and ability to communicate ideas and thoughts via TV or phone. These
items are also considered as durable products, they can be used for a long period if used
properly and cautiously. However the demand for goods such as these depends on the
features, design, fashion, trend, and preferences of the product, advertisement, income levels
and the price itself. In the end, there are several factors that determine the intensity with which
buyers wish to purchase goods, these factors that influence the demand for Samsung’s TVs and
mobile phones will be examined below.
DETERMINANTS OF DEMAND
PRICE OF THE GOOD
Price is a very important determinant of demand. Therefore, demand is highly
dependent on the price of the good. As a result, price becomes a major aspect when looking at
the market and the value of the product. Since the price is one of the major conditions which
affect demand, it thus affects the ability of a customer to purchase a product and there demand
will change with price. For that reason, higher prices would lead us to expect lower quantities
demanded because customers would not be able to afford the good. On the other hand, if the
price is low then the quantity demanded would be higher. Therefore, there is an inverse
relationship between the price of a product and the quantity of that product which consumers
are willing and able to buy. This shows the significance of price on the quantity demanded
(“Factors Affecting Demand”). Samsung’s TVs price range is between $150 and $5500
American dollars. Samsung sells UN19D4003 19” Series 4000 LED HDTV for $150 and Samsung
UN65D8000 65" 3D Ready LED HDTV for $5, 5500. Therefore, if a person wants to purchase a

26. 25
TV the least he/she would have to spend for the smallest TV would be approximately $150. In
209 Samsung held 90% of the global LED market, the company was also recognized as the
leader in the LCD TV Market. Samsung TVs are more and more preferred despite their higher
selling price, hence making them as premium products among competition (Harris, Janet).
Therefore, even though the price for Samsung TVs is high, there is still a high demand which
means that Samsung offers the value for the money people are willing to pay. As a result,
Samsung electronics had to raise the sales target in 2010 from 39 million units to 50 million
units in order to meet rising demand (Choi, Kyong-Ae)
Samsung also offer mobile phones and the price range is between $25 for Samsung
A117 Dual Band GSM and $1200 for Samsung i9300 Galaxy S III 64GB S3 (“Samsung Galaxy SIII
S3 I9300 Mobile Phone”). Although Galaxy model of Samsung’s brand is the most expensive
one, Samsung’s global sales of Galaxy S and Galaxy S II devices were more than 30 million. As a
result, the Galaxy S is the highest-selling mobile device in Samsung’s history up to date.
Therefore, even though the price of Galaxy model is high, Samsung has seen incredible sales
success and collected enthusiastic reviews from consumers and mobile industry watchers
across the globe. Although there is an inverse relationship between the price of good and the
quality demanded, based on the satisfaction from consumers and mobile industry watchers,
Samsung has offered maximum value for the money consumers were willing to pay (Albanesius,
Chloe)

27. 26
COMPLEMENTARY AND SUBSTITUTE GOODS
The price of complementary and substitute goods is another important determinant of
demand. Substitutes are goods and services that can be used to fulfill a similar need or desire
with a different product. For instance, going to a movie and renting a DVD are close substitutes.
Therefore, substitutes are products that serve the same purpose and thus the consumer sees
these products as alternatives (Hirschey, pg 120). Reduction can also be substitute as well as
the redesign of the process to eliminate the need, for example, housing insulation instead of
heating oil. Substitutes are significant because they can be good alternatives for the
wanted/needed product which buyers can smoothly adjust to if the differences in price are
minimal. If the substitute is available and the price difference comparing to the original product
is small then that allows consumers to make comparisons in terms of quality, performance, and
price. Typically, there is a relationship between the price of the substitutes and their demanded
quantities. As a result, when the price of a primary product increases it ultimately leads to an
increase in the quantity demanded of its substitutes. However it doesn’t necessarily always
have to be the price, it may also depend on other factors such as what the consumer values, for
example, the quality of the substitute and its ability to satisfy the actual need (van der Veen,
Gordon).
The fact that substitute products exist has a negative impact on the demand for
Samsung’s TVs and phones. For a TV, a computer monitor, projector, and an Ipad are
reasonable substitutes. Nonetheless, this depends on customers’ needs. Samsung customers
may use the TV for entertainment to watch news, music, sports, and/or movies at home.

28. 27
Therefore, these specific customers will be influenced by price and availability of computer
monitors, Ipads, TVs, and projectors as they may be used at home for personal purposes as well
as for watching entertainment. Even though computer monitors and TVs occupy larger space
and have smaller screens compared to projectors, ordinary people still choose TVs rather than
projectors for home entertainment. However, there is a variety of different computer monitors
and Ipads designed by different companies on the market, and as a result of competition, their
prices tend to be either in the same range as TVs or lower than TVs prices. Customers would
not have a hard time getting accustomed from TVs to computer monitors or Ipads if the size is
not important. Therefore, for individual purposes and/or home entertainment, customers
would not have a hard time adjusting and switching/substituting from their TV to a computer
monitor or an Ipad if the size is not important. However, in a business environment people tend
to have different needs and desires. In this case, Ipads, computer monitors and even TVs would
not be able to satisfy the need. In a business setting, projectors are most commonly used to
show a presentation on a large screen. Therefore, in really large meetings rooms lectures and
presentations cannot be shown on a small TV or monitor. As a result, projectors would have a
negative impact on the demand for TVs in larger meeting rooms and auditoriums because the
image produced from the TV is much smaller than from the projector. The demand for TVs
would also be negatively affected in small meeting rooms because a TV could be substituted
with a computer monitor or even with an Ipad.
There are not many good substitutes for a mobile phone; however, there are a few such
as land lines, Skype, and 2 way radios. For example, 2 way radios or walkie-talkies are good

29. 28
substitutes because they are useful on jobsites and places where a person has to speak to quite
a few people at the same time. Moreover, almost all the new radio models have telephone
interconnect, selective calling and caller ID technological innovation, just like mobile phones. In
general, 2 way radios will work when mobile phone is disrupted by disaster. Furthermore, 2
way radios typically have long warranty policies, 1-2 years compared to 90 days for mobile
phones. In addition, they are much more durable goods than mobile phones (“2 Way Radios A
Cell Phone Substitute”).
On the other hand, goods and services that become more desirable when consumed
together are called complements (Hirschey, 120).Therefore a complementary good is a product
that is used in relation to the main good or service. The demand will increase for a
complementary good when the demand of the main good increases and as the demand for a
substitute increases the demand for the main product will decrease. The complementary good
and the main product have a direct relationship. If the complementary good stands for a
considerable size of the entire package and impacts the price entirely then the demand for the
primary product will be affected due to a change in price of the complementary product. Thus,
it certainly depends on how much of a complement one product is to another (e.g. cars and
gasoline vs. steak and salt). When the price of fuel rises dramatically, demand for cars
decreases certainly. However, when the price of salt increases demand for steak does not
decrease because salt is a small proportion from the total cost of the package (van der Veen,
Gordon).

30. 29
Some of the complementary goods to that of a Samsung mobile phone are such as
Bluetooth headsets, wired headsets, cases and holsters, batteries and covers, vehicle docks,
memory cards, data cables and desktop docks (“Cell Phones Accessories”). Nonetheless, a
phone charger is probably the most important complementary good because without a charger
a mobile phone would not be able to work for a long time. However, a rise in chargers price
would not influence the demand for a mobile phone, since this represents such a small
proportion from the total cost of the package. On the other hand, DVD players and remote
controllers are examples of complementary goods for TVs. Although a remote controller is an
important device when watching TV, an increase in remote controller’s price would not
influence the demand for TVs because the cost of a remote controller is small compared to the
total cost of the package. Another complement for a TV would be a TV stand/table where the
primary product would be placed, but the furniture would not affect demand for TVs
("Brainmates Product Management People »Blog Archive» Complementary Products.")
INCOME
Level of income (current and expected) of the customer is an important determinant of
demand. The ability of the buyer to purchase the product is based on their income. If the
person is employed and does not earn enough money to purchase the product then he/she will
most likely not buy the good. The customer makes the decision whether to buy the product or
not by looking at the current income. The purchaser may also look into its expected income in
order to make a decision whether or not to purchase a product. When focusing on income and
demand we distinguish between two main types of goods: normal and inferior. Normal goods

31. 30
are the products where the correlation to income is direct. If quantity demanded increases in
response to an increase in income, then the good concerned is a normal good. Therefore, as the
income increases the demand for the normal goods increases too. For example, phones and TVs
are considered normal goods and therefore people would purchase more of them as their
income rises. When it comes to inferior good, the relationship with income is not as direct as in
the example of normal good. Thus, if the quantity demanded decreases in response to an
increase in income, then the good concerned is an inferior good. Therefore, for inferior good as
income increases the demand will decrease. On the demand curve, a chance in income
represents a shift in the graph and therefore income can have a real effect on the demand for a
certain product (van der Veen, Gordon).
People buy goods and services based on the level of their income and earnings. Per
capita income in Luxembourg is $108,921, in Norway $84, 840, in Switzerland $66, 934, in
Denmark $55, 988, in Sweden $48,832, in the U.S. $47,184, in Canada $48,148, and in Austria $
44,863. These countries are considered as top per capita income countries in the world. In
general, people working in these countries would be able to afford Samsung products much
easier than the people in the countries where income per capita is as follows: Mozambique
$410, Eritrea $403, Niger $358, Liberia $247, Congo, $199, and Burundi $192. Per capita income
illustrates the standard or quality of life of country’s inhabitants. Therefore, the people in
countries with the lowest per capita income in the world would have a harder time purchasing
and obtaining the latest models of Samsung TVs and mobile phones. On the other hand, people
in countries with higher per capita income would be more willing to spend a part of their

32. 31
income for a mobile phone or a TV simply because the percentage that he/she would lose from
his/her income would be much smaller than in poorer areas of the world. If a person is from
these poorer areas and decides to purchase a TV or a mobile phone for approximately $100
then that would take up almost an entire amount of income from many of those people
("Ranking of Countries with Highest Per Capita Income (2010)")
WEALTH
The wealth is also a factor that will shift the demand curve according to the demand. On
an individual customer level it means that as the wealth of a customer increases his/her
demand for a particular good will increase too. Moreover, wealth refers to accumulation of past
earnings, savings, and stock. In a way it is similar to income, it is the ability of a consumer to
purchase a particular good he/she needs/wants. However, the wealth is different from the
income in the sense that the consumer has the ability and willingness (in this case, extra
money) to afford the product. As a result, the wealthier the consumer the more expensive
goods it can manage to pay for and therefore the demand for that particular product will rise
(van der Veen, Gordon).
When it comes to purchasing Samsung products, there are 11 million “high net worth
individuals (NHWIs)” that are classified as having more than $1 million in free cash (not
considering pensions and property) which can at any moment purchase any of the Samsung
products. The wealth of HNWIs all together reached $42.7 trillion in 2010. The biggest number
of HNWIs lives in the U.S., Japan and Germany. Therefore, these three countries account for
53% of the world’s wealthy elite (Marsden, Chris). As a result, wealthy people from these

33. 32
countries but also people from other parts of the world that are wealthy are capable of
purchasing any kind of a TV or a mobile phone. As the world develops more and as more people
become wealthy, the more expensive products will be purchased and as a result the demand
for those goods will increase ultimately.
FASHION, TRENDS AND PREFERENCES
Human beings have different tastes and preferences which leads us to assign different
values to goods and services that are around us. Fashion and tastes may affect perceived value
of the product; it depends on the industry (fashion clothing vs. radiators). People have different
tastes and preferences and therefore each market is formed by individual and group tastes and
preferences. What might be trendy to one person doesn’t necessarily mean it will be to another
person and vice versa. Nonetheless, if a large group of people share identical preferences then
that ultimately adds value for the good and as a result maximizes consumer surplus (van der
Veen, Gordon). An individual may also have a large impact on others. For example, Jennifer
Lopez may influence many other women to follow her fashion trend. Although there are many
influential people when it comes to fashion and preferences that can influence what the
consumer will purchase, it is still buyer’s preferences that initiate the accomplishment and
length of the fashion trend through their demand and purchasing of certain products.
Samsung has become one of the most fashionable companies in the electronics
industry. Public opinion shows that Samsung has for the first time edged past Iphone in
consumer perception. This was measured by using a metric known as “Buzz score”, which is

34. 33
determined by asking respondents if they have heard anything about the company and the
brand in the last two weeks, through advertising, news or word of mouth, was it positive or
negative? Samsung’s rise in popularity and perception is commonly associated to the successful
launch of the Galaxy S II as well as the Focus S. Since November last year, iPhone’s buzz score
has dropped from 3 to 25, while Samsung went front 19 to 26 (“Popularity Contest: Samsung’s
Brand Perception Surpasses Apple as IPhone Scores Drop")
Moreover, Samsung’ s upward rise from 42 in 2001 to 34 in 2002 to its present position
at 25, this illustrates that the brand has gathered momentum against its competitors. Samsung
was seen as a low-quality brand in a consumer electronic industry, but it has managed to
reinvent itself as a brand of quality despite decades of consumer perception that it
manufactured low-end, cheap knockoffs. Therefore, today, consumers appear to take Samsung
seriously as a quality brand of TV’s, and even consider it a superior brand when it comes to
mobiles phones. As a result, the brand is perceived positively. Samsung used to produce middle
of the range mobile phones, now in many markets around the world they focus on the
premium high-end phones. Samsung tries to fit and adjust to customer’s needs. It creates
electronic devices that will be suitable and appealing for different purposes and this can shape
consumer’s taste because consumers like choices and options when purchasing a product
(Rusch, Robin)
FUTURE EXPECTATIONS
A future expectation is a significant determinant for demand when focusing on
technology. Individuals and groups base their actions on their perceptions and predictions of

35. 34
future developments or crisis. Thus, each individual has future expectations which are
distinctive to their particular life circumstances. People have both positive and negative future
expectations and typically are concerned about the future price of the product and their
employment status as well as the ability to pay for the product –income – related to the price.
In any case, when we look at the future expectations and its effect on the demand we must be
able to show what effect it has on the society in general.
Despite ongoing development in the technology industry, Samsung is insecure about its
financial stability and even existence because most of their flagship products will be outdated
within 10 years. The uncertainty arises as Samsung has to compete with rising low-cost Chinese
firms which are quickly catching up with South Korean companies ("Lee Kun-hee Returns to
Samsung"). Nonetheless, Samsung has launched the newest innovation which is the AMOLED
(active-matrix organic light-emitting diode) technology. AMOLED technology is used in Samsung
TVS and mobile phones. Therefore, future expectations of Samsung are significant factors for
the demand of their electronic products. It is expected that the AMOLED technology will be
soon implemented in all Samsung TVs and mobile phones because it provides better picture
quality and requires less power to run these devices compared to the LCD technology. Thus, the
introduction of AMOLED technology to provide better screen quality will attract customers to
purchase TVs and phones with the latest technology. Although AMOLED TVs and mobile phones
tend to be much more expensive compared to LCDs, people will demand more of it in the
future and the prices should drop eventually. Even now, it is common that companies use
AMOLED technology in smart-phones to offer better screen quality; however, the prices of

36. 35
these gadgets are very high even though they have smaller screens. It is expected that AMOLED
technology will ensure an increase in sales to reach approximately 20 billion by 2018, due to a
higher demand (Whittaker, Zack).
ADVERTISING
Advertising and marketing are designed to inform consumers of company’s presence in
the market and its uniqueness. Advertising may increase brand loyalty and demand for the
products sold by that particular firm. Therefore, companies develop advertising to inform the
consumers about their products and services and thus how these merchandises may satisfy
consumer’s needs. Additionally, advertising can increase demand for products by persuading,
encouraging and motivating consumers to recognize that they actually should posses that
product. As a result, as the supplier is capable of changing the customer’s perception of the
product, it is also capable of creating a unique value to merchandises and eventually locking the
consumer into purchasing it.
Creating a more appealing quality product is definitely one way to change consumer’s
perception, but Samsung has achieved this with a reliable and highly visible marketing and PR
effort across many channels of communication. Samsung has developed a “holistic brand
campaign” strategy to reposition the Samsung’s brand in consumers’ minds. Samsung is
committed to a single global advertising agency, which allows it to control consistency and
continuity in its communications across all markets. The brand owners have also made good
use of Internet advertising on websites used frequently, sponsorship and product placement in

37. 36
movies such as The Matrix: Reloaded, and sponsorship of popular sporting events such as the
Olympics. Samsung was one of the largest sponsorships of the Olympics in Athens 2004; it still
continues the global association with popular events. The attention to entertainment marketing
is a way to enhance brand familiarity. Therefore, by increasing its brand awareness, Samsung
attracts potential customers. As a result, Samsung has marketed itself much more efficiently in
the recent years than when it started, all those things help to push the brand forward (Rusch,
Robin).
SIZE OF THE MARKET
Size of the market or number of buyers is an important determinant of demand.
Therefore, the number of customers willing and able to buy products tremendously affects the
demand as a whole. The demand for goods is higher in the market with larger number of
customers. If the population in the world expands and the opportunity of reaching larger
number of customers increases, then that would shift the demand curve – the demand would
increase eventually. As a result, the link between number of customers and demand is positive.
As stated in the company overview, Samsung operates in over 100 countries across the
world. That being said, the company does business globally and has 206 offices and facilities in
68 countries around the world. As the population of the world increases, the number of
Samsung customers will increase, and thus demand will increase as well. Hence, it implies that
the number of buyers is an important factor of demand. Therefore, as the market grows,
Samsung will have to expand its production and employ more workers to take care of
customers who are willing and able to buy products.

38. 37
PRICE ELASTICITY OF DEMAND
The price elasticity of demand measures the sensitivity of consumers to price changes.
The higher the price elasticity, the more sensitive buyers are to price changes. If buyers have
strong reactions to price changes, for example, they significantly increase or decrease the
quantity they purchase, then we speak of demand being elastic. Price elasticity of demand is
calculated by using the following formula: the percentage change in quantity demanded divided
by the percentage change in price.
Moreover, the greater the reaction of a change in price is in regards of change in the
quantity demanded is the greater the elasticity of demand. Therefore, a high price elasticity
implies that when the price of a product increases, buyers will purchase less of that good or
service and when the price of that product decreases, buyers will purchase more of it. If price
increases, percent decrease in quantity is greater than the percentage in price. As a result,
there will be a reduction in total revenue if price increase; a decrease in unit price will obviously
then cause an increase in total revenue. For example, shoes have a price elastic demand.
Despite the fact that people have to wear shoes, the choices of different kinds of shoes are
enormously high and thus switching costs are small. Therefore at times when people are unable
to afford expensive shoes from popular brands they will either buy cheaper brands or have a
smaller collection of shoes.
There is also low price elasticity which basically means the opposite of high price
elasticity. Thus, the changes in price do not have a large impact on the quantity demanded.
Inelastic demand is a situation where the result of the numeral calculation is between 0 and 1.

39. 38
For instance, fuel has a price inelastic demand. People always criticize gas stations for
increasing the price of fuel; however, those same people still purchase the gas because they
really need it. Here, the owner of the gas station may technically benefit if price can be
increased without losing sales. Therefore, when prices increase, percent decrease in quantity
demanded is less than the percent increase in price; as a result, total revenue will increase.
Lastly, there is also another category of price elasticity which is called unit elasticity. In
unit elasticity there is a direct relationship between quantity demanded and price and a
percentage change in one of these will be precisely coordinated by a percentage change in the
other. In the case of unit elasticity, the changes in price will not have an impact on total
revenue of the firm (Riley, Geoff).
DETERMINANTS OF PRICE ELASTICITY OF DEMAND
SUBSTITUTES
When we look at the substitutes we are concerned about the availability and the quality
of substitutes. The greater the number of available substitute products on market, the greater
choice for choice for consumers to switch and thus greater the elasticity of demand. However,
when there is a small number (or no substitutes available), the response effect will be small and
the demand inelastic. Also, if the price of one good or service changes relative to others in the
market, buyers may switch to another product especially if there are perfect substitutes that
can satisfy the same need, then we would expect a much greater elasticity. However, less
quality substitutes which are inferior in their ability to satisfy the same need, or even better,
will result in a more inelastic demand. As a result, an essential aspect of having substitute goods

40. 39
and services available is the price and cost of changing to these substitutes. Therefore, demand
is quite inelastic when high transaction costs are entailed in switching between different goods
or services. It is in the company’s interest to keep prices less elastic because they want to lock-
in customers by developing high entry barriers for competitors or simply charging high fees for
changing/switching products. A great example is the case of TV providers in the U.S. such as
Comcast or Qwest. These companies tend to charge high fees if the contract is terminated,
upgraded or downgraded. Once the customer signs the contract then it is much harder to
cancel it without being charged money.
As mentioned in the Complementary and Substitute Goods section, there are many
substitutes available for a Samsung TV such as computer monitors, projectors, and Ipads. With
all these substitutes available, the consumer has flexibility in choosing which product to
purchase to satisfy the same need and therefore the greater the elasticity of demand. However,
there are not many good alternative products for a mobile phone. There are some such as
landlines and 2 way radios (walkie-talkies), but to most part consumers would see these
alternatives as inferior in their ability to satisfy the same need and hence they would result in a
more inelastic demand. Nonetheless, the price and cost of changing to these substitutes would
be relatively low. Walkie-talkies tend to be cheaper than mobile phones and do not require any
contract from a provider, while landlines may be more expensive because of monthly fees and
if used for international calling but overall still cheaper than mobile phone contracts.

41. 40
TIME
In a short time span, the demand may be more inelastic because the satisfaction of the
need takes precedence over the price. It also takes time for buyers to notice the price
differences and then they can actually respond to price fluctuations. For example, if the price
of electricity increases, consumers cannot give up using it all of a sudden and also it is hard to
reduce its consumption is a short time. Though, in the long run if the increase in price
continues, people will look for alternatives to reduce consumption of the product. Thus,
demand is generally more price elastic as more time is given for consumers to respond to a
price change because consumers will look for substitutes as well as try to make right purchasing
decisions. For example, if the price change of fuel will remain for number of years, the
consumer will most likely plan substitution such as public transportation, hybrid card, and
motorcycle. Therefore, the elasticity of demand for fuel or electricity will be greater if the
customer is able to work towards eliminating the need, seeking for possible substitutes and
alternatives, or simply creating substitutes that will satisfy the same need as the primary
product (Riley, Geoff).
FUNCTIONALITY OF THE GOOD
Functionality of the good refers to the ability of the product which has multiple uses and
functions to satisfy a wide range of needs and desires. If a good is multifunctional, for example,
it can be put to many different and even unrelated uses. Thus, this means it will usually be
competing with several other products or substitutes in a larger number of markets. For
example, paper competes with computers/electronic documents, envelopes/boxes (packaging),

42. 41
paint (wallpaper), and hygienic products like toilet paper. Nonetheless, paper is an example of
functional good and it can be used for writing, packing, decorating walls, and etc. If the price of
a primary product increases, the demand for various substitutes would be greater. People will
switch to an alternative product as long as the there are substitutes to satisfy the same need.
As a result, the more functional is the product the more it may have substitutes and therefore it
leads to more elastic demand. For example, phones are multifunctional. They can be used as
mobile phones, music players, cameras, calculators, portable TVs, and etc. On the other hand,
a less functional product that can be used in few applications is more price inelastic, due to a
smaller number of substitutes and the fact that it cannot be replaced by some other product to
satisfy the same need. A less functional product is the one that doesn’t have this ability of
multiple uses, for example, a heater or radiator has a single function – to warm up a place.
When it comes to Samsung, people purchase their mobile phones and TVs to satisfy
their needs. People use these devices for informational purposes and for entertainment. The
purpose of using these devices is to acquire some kind of information and communicate ideas
to somebody else. For example, TVs in airplanes used for entertainment may be substituted
with magazines and radios. Surveillance TVs in casinos or banks may be replaced by more
security personnel. Nonetheless, TVs used in hospitals is more difficult to substitute because
they are essential in providing details regarding patient’s health status and thus in these
circumstances the medical staff will not be price sensitive. For these reasons, it is illustrated
that TVs serve different purposes in different environments and therefore are exposed to other
substitutes. Depending on a situation, a TV can be replaced by an employee or by other items

43. 42
such as magazines in the case of airplanes. As a result, these substitutes increase the price
elasticity of demand. On the other hand, Samsung mobile phones (latest versions) are
multifunctional with variety of different applications available to choose from. A Samsung
mobile phone can be used for calling, taking pictures, calculating, listening to music, watching
videos, and etc. As a result, Samsung phone has many functions and thus there are many
substitutes such as calculators and music players which satisfy the same need and therefore
create more elastic demand.
NECESSITIES AND LUXURIES
Products that are considered to be necessities have an inelastic demand compared to
luxuries which have a more elastic demand. The reason luxuries have a more elastic demand is
because buyers can refuse to purchase luxuries when their budget is low (Riley, Geoff). On the
other hand, a necessity means that the product is necessary and therefore it increases the
urgency of it. Nonetheless, in one market some products may be highly considered as
necessities whereas in another market those products may not be seen as necessary.
Therefore, we have to be able to understand the purpose and function of the product and who
the customers are as well as how important is the product to them. For example, a Boeing
engineer may need the most expensive computer on the market to operate and solve difficult
tasks required by the company and therefore this device would be considered a necessity for
him/her; however, this same computer would be a luxury for a person who simply wants to use
it for entertainment –to play games, listen to music, and surf the web.

44. 43
Carrying a mobile phone 30 years ago was definitely a luxury. It is the similar case with
TVs; 60 years ago these products were considered a luxury. At the present time however, it is
normal for an individual to carry some kind of a mobile device as well as to possess a TV at
home. The reason for being able to afford these devices nowadays is due to lower production
costs as well as because of the development of technology used in these devices. Therefore,
with technological innovations, TVs and mobile phones today are practically necessities for
people. People rely on their mobile phones and TVs for information that satisfies their need and
therefore without these devices people would have a harder time functioning on daily bases.
However, only the people that do not see any reason in having a TV or a mobile phone would
see these devices as luxury. But, for example, a worker that is on a foreign assignment may
need to carry a mobile phone at all times and therefore this product would be a necessity for
this person. In a business environment, mobile phones are considered as necessities and thus
have an inelastic demand. However, TVs used by ordinary people at home are luxuries and
thus have a more elastic demand. TVs could be replaced by newspapers, magazines, and small
radios to satisfy the same need at a much lower price.
COMPARATIVE SIZE OF EXPENDITURE
Comparative size of expenditures means that purchases that are considered as small
value compared to the entire income tend to be more inelastic. For example, if a person earns
over 5000 Euros a month, a price increase of TVs or mobile phones from 200 to 300 Euros will
take up relatively a small part of this person’s pay check. Thus, the ratio of the price to income
will reduce the effect of the price and that’s why the consumers demand will be price inelastic.

45. 44
However, if a person earns 100 Euros a month then a TV or a mobile phone (at 300 Euros)
would consume a significant percentage of their monthly income. Buyers in this group would
probably compare quality of Samsung products with other electronic brands but also prices
before purchasing it. 300 Euros for a Samsung phone or TV would be an extremely high price
for this group of customers. If Samsung electronics decided to increase the price of their
devices even more then these consumers would no longer be able to afford their products and
therefore would settle for cheaper ones with perhaps lower quality. As a result, this group of
consumers would be a lot more sensitive to price changes of electronic devices and therefore
the demand for TVs or mobile phones would be more price elastic (Riley, Geoff).
RELATIVE PERMANENCE OF SATISFACTION
Relative permanence of satisfaction means how long the customer will have its need
satisfied from the product purchased. Thus, the durability of products and the speed with which
the utility is being used up play an important role in the elasticity of their demand. Therefore, if
the product has a higher durability and whose useful life is relatively long the demand for that
product is inelastic, while the demand for less durable product is elastic. For example,
consumer durables are furniture and refrigerators. When people purchase these commodities
they want to use them for a long time before changing them. Consumers do not want to buy or
replace these commodities every other day or even once a year. Commodities such as furniture
and refrigerators have higher durability and therefore tend to be more inelastic to changes in
prices, while commodities such as Samsung phones have less durability and therefore tend to
be more elastic to price changes. Since mobile phones have lower durability than refrigerators,

46. 45
people replace them with another phone faster than refrigerators. Furthermore, there are two
types of buyers: first-time buyers and replacement buyers.
Samsung’s products can be categorized as durable products. Products such as TVs and
mobile phones need to be carefully examined prior to purchasing mainly because consumers do
not purchase them often. A business that requires its employees to carry a mobile phone at all
times would not feel the need to offer them another phone for a long time unless they
damaged or lost the phone. A firm would only upgrade the mobile phones if it receives some
sort of a promotion from a supplier or when the operating system is outdated. Moreover, if the
employees would not be able to operate day to day tasks via phone due to its obsolete
functions, then the employer would consider upgrading to a newer version of a mobile phone.
When it comes to individuals, people also wouldn’t change their phones frequently if not
necessary. However, in order to stay trendy people change their network providers and mobiles
phones often, but also because their phones do not satisfy their need or perhaps there’s
something wrong with the phone. Same rationale goes for Samsung TVs; once the person has
satisfied their need it will not feel the same need for a very long time. This principal makes
demand for phones and TVs (especially) inelastic.
SUPPLY
The supply in economics means the amount of some product that producers are willing
and able to sell at a given price all other factors being held constant. Usually, supply is
described through a supply curve that shows the relationship of price to the amount of product
businesses are willing to sell. Another concept called a supply refers to a table that shows the

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amount of production that firms are willing to supply at particular prices. The supply schedule
shows the quantity of goods that a supplier would be willing and able to sell at specific prices
under the existing circumstances. Some of the more important factors affecting supply are the
goods own price, the price of related goods, production costs, technology and expectations of
sellers. ("Что такое предложение?")
There are two ways how to interpret supply:
 At each possible price supply shows the maximum quantity that would be supplied of
good X (given time period, ceteris paribus)
 At each possible quantity supply shows the minimum price (reservation price) sellers
could be paid for the good and still be willing to sell that quantity (given time period,
ceteris paribus)
A change in the quantity supplied is a change in the specific quantity of a good that sellers
are willing and able to sell. Change in quantity happens if there is a change in price, we move
along the curve to demonstrate what the response of suppliers is (change in quantity supplied).
If there is a change in some “other things” that affect the behavior of sellers, we have to shift
the entire supply curve (change in supply).
Increase in supply - at any given price more of the good is offered by sellers. Or, for any
given quantity, sellers are willing to accept a lower “reservation” price. Decrease in supply – at
any given price less of the good is offered by sellers. Or, for any given quantity, sellers require
higher “reservation” price.

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Determinants of Supply
PRICE OF GOOD OR SERVICE
What is more, when the consumer electronics and technologies are first brought up in
the market their prices will be high. However, their supply should be at its peak. In addition, the
value of consumer electronics decline faster than other products, since technology is advancing
so rapidly and every day something new comes out. This requires quick reaction of companies
to the fluctuating prices.
Overall, an increase in the price of such a product, in the maturity phase, would be
rather unrealistic. Let’s assume that, the price of the TVs increases then Samsung would want
to supply more of that product. In this case, the company will depend on Samsung Group to
increase the quantity assembled from that product. As a matter of fact, this process takes time,
as the manufacturing equipment are in Malaysia, Indonesia, China, and South Korea. It takes
three to four months to produce and ship finished products to Europe By that time, the
determined price for the TV monitors or mobile phones can fluctuate drastically. Recently,

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Samsung Group opened new storehouse/warehouse in Russia (Kaluj - closed to Eastern Europe)
which was in 2009. Thus, opening a new storehouse could be effective for Samsung Group.
What the manager of the company should remember is the fact that prices of electronic
goods change rapidly and they usually fall. The only exception would be the introduction of
some new technology related with the high-end products, which are the most expensive or
developed in the company’s range of products. When the output expands, it could lead to
higher costs of production. That is the reason why Samsung Brand uses some ways to shun it.
First of all, the company concentrates on strengthening its Research and Development and
particularly marketing research. Researching marketing helps Samsung Brand to keep up with
the pace of the new technology and enables it to supply what the consumers demand.
PRICE OF RELATED GOODS OR SERVICES
Under this condition we must first and foremost take into consideration that the usage
of the word “related” does not refer to complementary goods, but rather to groups of goods
that are manufactured by the same producer that utilize the same resources or factors of
production such as labor or machinery. If a manufacturer has ability to produce two or more
different products using the same raw material and similar plants and equipment, then he can
alternate supply of these goods depending on market prices. For example, the company
produces leather goods, and price for leather shoes increases. The manufacturer will diminish
production of other leather goods and increase supply of leather shoes to take an advantage of
the higher prices. This also applies to juice and soft drinks. If the prices for gas free soft drinks

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increases, the producer will increase the supply for juice mixed with plain water and diminish
the producing soft drinks with gas or sparkling water.
Samsung Electronics Brand depends on its supplier – Samsung Group. Independent of
the change in price Samsung Electronics Brand will not be able to supply more or various
products if it cannot obtain them from Samsung Group. Samsung Electronics packages and
assembles different goods – TVs, computer monitors, mobile phones, projectors, photo
cameras ,etc. As mentioned above, Samsung Electronics is a part of Samsung Group and it can
easily switch its production to another one. In such a case, time plays a very important role in
switching production. Depending on the price of the other products produced by Samsung
Electronics, the company can focus its supply in that direction.
PRICE AND AVAILABILITY OF INPUTS
As is known, the main factors of manufacturing are.labor, land, raw material and
entrepreneurship Price and availability of inputs theory states that the availability and price of
factors of production of the goods or service, such as raw material or labor have a major impact
on supply. As the cost of the input goes up, the cost of production will increase too and
consequently supply will decline. Likewise, a decrease in the price of inputs leads to an increase
in supply. For example, a dairy company, if the soil is infertile and because of the weather
conditions the grass resources diminish, the cattle will not be fed properly and hence they will
not provide much milk. As a result of this, there will be an increase in price of raw milk due to
its lack and low level of availability, thus, there will be a high level of demand. The producers

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will have to raise their prices to be able to produce the same amount and would be reluctant
and able to sell their goods at the existing prices.
Looking at our company, Samsung Electronics we can see that it is precisely sells and
markets TVs and mobile phones. Thus, its supply would be affected if there is a change in the
production costs of Samsung Group as well. Should the price of raw materials, determined for
consumer electronics, change, Samsung Group will be the first to feel the difference. Samsung
Group would have to buy more costly parts for assembling its products and it will have to
provide the same amount for a higher price. For example, columbite – tantalite is a dull black
metallic or which is mining in Democratic Republic of Congo, is very important for
manufacturing electronic products. ("Coltan")
Columbite – tantalite are using in almost every kind of electronic goods. If the price of this
metal will increase it will impact for Samsung Electronics products, consequently this will affect
the supply of the Samsung Electronics.
Samsung Electronics utilizes numerous raw materials for producing TVs and mobile
phones. The housing of the TV set is made of injection-molded plastic, although wood cabinets
are still in use for some models. The audio system is comprised of metals and plastics as well.
The picture tube requires precision-made glass, fluorescent chemical coatings, and electronic
attachments around and at the rear of the tube. The tube is supported inside the housing by
brackets and braces molded into the housing. The antennae and most of the input-output
connections are made of metal, and some are coated with special metals or plastic to improve

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the quality of the connection or insulate the device. The chips, of course, are made of metal,
solder, and silicon. ("Television")
Phosphor and quartz are also using for TV monitors lighting in housing set, because it can
maintain its structure at high heat better than glass. The price of all these raw material would
affect the supply of Samsung Electronics products. For example, if the price of Silicon increases,
this would inevitably lead to higher production costs for Samsung Electronics.
Another determinant of the production cost could also be taxes and thus a determinant
of the supply. The higher the taxes the higher the production costs. Labor is a sufficient part of
Samsung Electronics costs. People in more 100 countries around the world are employed by
The company. Packaging materials for consumer electronic products has to meet a lot of
requirements, such as light weight, easy operability and resistance. For example, if the price of
paper soars, this would impact Samsung Electronics costs, as all the monitors and mobile
phones are packaged by the company with its logo. This will undoubtedly affect Samsung
Electronics costs. Packages are also designed in a way to not only help minimize the costs and
weight of the package, but also the design is important to help minimize storing space and
minimize transportation costs by sending more products.

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THE LEVEL OF TECHNOLOGY
The technology that is utilized by the company in its production operations makes a very
significant impact on the productivity of the company that is to say on the proportion of inputs
and outputs and the efficiency with which the inputs are utilized. This will be crucial in deciding
what the production capacity of the company will be as well as how the costs of production will
develop. Or else, productivity represents the value of output produced per unit of input (
productive resources) used. An increase in productivity means increase producing goods or
service without modifying the amount of resources, or producing the same goods or services
with fewer resources. As s result the productivity affects production cost per unit and capacity
level. A lower production cost per unit or increase in the capacity level would encourage the
manufacturer to boost supply on the market. In contrast, a high production cost per unit or a
low capacity level would reduce the supply. Samsung Electronics is not only selling and
marketing TV monitors and mobile phones, but it also is producing them. It denotes that the
level of technology would influence Samsung Electronics quality and quantity of TV monitors
and mobile phones provided.
AMOLED is a display technology for use in mobile devices and televisions. OLED
describes a specific type of thin-film display technology in which organic
compounds form the electroluminescent material, and active matrix refers to the
technology behind the addressing of pixels. ("How OLEDs Work ")
From the beginning of 2012 AMOLED is used for mobile phones and digital cameras.
Manufacturers have researched and developed in-cell touch panels, compounding the

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production of capacitive sensor arrays in the AMOLED module fabrication process. In case of in-
cell sensor AMOLED fabricators are AU Optronics and Samsung. Samsung has produced their
version of this technology as Super AMOLED. All of these technological advances in Samsung
Electronics reflect on the products that Samsung Electronics sells. If Samsung Group is able to
respond faster to any change in price or demand Samsung Electronics would be able to supply
their products faster in the market.
Moreover, Samsung group is a mix of different companies each of which focuses in
different areas then uses all these experiences and R and D researches to manufacture different
products. On top of that, Samsung Electronics uses a very modern information system
resembling the just on time system. Samsung Electronics, first of all, decides on how many TV
monitors and mobile phones the company should supply in the market. Samsung Electronics
sends this information to the Samsung Group which in return decides on what parts it needs
and orders them from its suppliers. These parts could include the parts required to produce the
panels or the electronic circuits or any major components needed in making the final product.
This system helps to decide on the timing these items should be sent since the location of the
factory is very close to many other competitor factories and suppliers. In the case of shortage,
some of its production could always be outsourced.
EXPECTATIONS OF SUPPLIERS
This clarifies expectations of suppliers about future, in demand, in price and etc. The
manager must choose right decision for selling products in right time. The decision to sell good
or service today or in the future depends on expectations of future prices. If the manufacturers

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feel that the value of their product or service will be increase in the future, they have option of
holding on to their products. They are inclined to sell more. If they expect the price to rise in
the future, they are inclined to sell less now. Consequently, the supply level will decline in the
short-run following the speculative increase in prices in the future.
On the other hand, should prices be expected to decrease, producers are interested in
selling more and thus pushing up supply in order to maximize their profits. For instance, if
leather shoes producers expect that prices for leather will grow in the near future, they will opt
to supply less at the moment and save materials (leather) for the future and sell when the
prices increase. Moreover, supply can be also influenced by the expectation of suppliers
regarding other factors such as fluctuations in demand, availability of inputs, etc. For instance,
if you are an mobile phone seller and you have information that after one month HTC will sell a
new touchscreen and it will be revolutionary in mobile phone market, then you would want to
sell as many as possible before the new product comes to market. Hence, when people decide
to boost production today, they are increasing the current supply for mp3 players because of
what they expect to happen in the future.
In our case regarding electronics future expectations are tightly related to technology
developments. Because the company cannot expect the prices of monitors to go up if some
new feature is not introduced. Nevertheless, if such behavior is expected the company will hold
on the current supply and wait until the price rises and then put its product on the market.
Prices of electronic products would depend on the new technologies available on the market. It
is expected decreasing in the prices of LCD monitors, because the new Super AMOLED displays

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are introduced soon. In this case Electronic Brands might try to increase the supply until the
price of LCDs is still high.
The market for mobile phones is expected to continue to grow in the next few years due
to the development of technologies that realize more applications and lower prices. However,
the product has short lifecycle and market price distribution caused by growing number of
competitors. Meaning, that Samsung Electronics can easily predict what would happen to the
prices of projectors in the near future.
JOINT SUPPLY
Joint supply – under this condition supply refers to any product which could be used for
dual usage. For example, a cow “produces” not only milk, also beef and leather. If join supply
exists, increase in the output of one product will cause to an increase in the supply of the other
product. If farmers because of an increase in the price and demand for milk, will start raising
more cows in the future, after long run supply for meat and leather will increase.
In our case joint supply means using one electronic product for two or more reasons.
Samsung Electronics are producing TV monitors with inputs: antenna analog input, HTDMI, AVI.
It means that TV monitors which Samsung Electronics are offering to the customers can be used
for TV, or to connect media players, DVD an CD players, and etc. If the prices of LCD TVs go up,
then the company could market these LCD monitors as a direct competitor to PCs.

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THE NUMBER OF FIRMS THAT SUPPLY THE MARKET
In general, as more companies enter o exit a market, the market supply curve will shift
inwards or outwards, driving down or lifting up supply, respectively. If there is a big competition
in the market it will result decrease in price and hence reduction in supply.
We would expect that if a market has a large number of producers this will mean that
the total quantity supplied within the market will be very high and consequently that there will
be a strong downward pressure on prices. If competition is less, it gives the producer an
opportunity to keep or even increase prices, producing its products in a bigger market share
with a larger supply. For example, in the leather producing company, if there would be only one
distributor per region, the supply of shoes for the market (all regions) would be higher due to
their ability to charge higher price.
The electronics market is highly competitive and has many famous and big brand names
competing for market share. To add, the arts suppliers heavily compete in order to supply these
companies. As a result, the profit margins are small and many companies enter and exit the
market. The history provides us with examples such as Mitsubishi Group. The mentioned
company entered the market in the 1980 and introduced the first CRT TV. Soon in 1997 the
invented the first LCD TV, but recently the took a decision to exit the market.
The company didn’t have lots of exiting costs, because Mitsubishi Group outsourced all
of its production to Original equipment manufacturer manufactures. However, this is an
indication that this market has high competition and that even big companies are exiting the
market. In 1983 Motorola produced first mobile phone in all over the world. At the end of

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1990’s Motorola was the leader in mobile phones market. But in 2010 the percentage of the
sold Motorola mobile phones was only 4.7 . On the other hand, some Original Equipment
Manufacturers are moving from makers to sellers. Most of those companies are entering the
market by selling very cheap mobile phones and LCDs under unknown brand names.
PRICE ELASTICITY OF SUPPLY
Price elasticity of supply is the extent to which the quantity supplied of any product
responds to changes in price of that product – an increase or decrease in product’s price. The
higher the price elasticity, the more sensitive producers and sellers are to price changes
(Moffatt, Mike). We measure elasticity of supply as follows: percentage change in quantity
supplied over a percentage change in unit price. A commodity has high price elasticity when
sellers supply much less than earlier as the price of a product increases. While if the price of
that product decreases, sellers will tend to supply more. Now, a low price elasticity suggests the
opposite, meaning that the supplier is not capable to react quickly enough and adjust the
quantity supplied as the price changes. Therefore, changes in price have little influence on
supply ("Price Elasticity of Supply").
Let’s assume, for example, that the price of TVs or smart-phones increases by 10
percent from 200 Euros to 220 Euros. As the price increases then probably the quantity
supplied will increase as well. If the quantity supplied increases by more than 10 percent from
100 TVs or smart-phones to 150 smart-phones, then supply is elastic. An elastic supply means
that the quantity supplied is relatively responsive to changes in price. However, if the quantity
supplied increases by less than 10 percent from 100 Euros to 101 Euros, then supply is inelastic.

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An inelastic supply means that the quantity supplied is not very responsive to changes in price
("PRICE ELASTICITY OF SUPPLY”).
DETERMINANTS OF PRICE ELASTICITY OF SUPPLY
THE RATE AT WHICH COST PER UNIT RISES AS OUTPUT INCREASES
Price will be inelastic if the marginal cost increases rapidly and the rise in output is high
enough to cover production unit costs. However, if the unit costs of production increase only
slightly as output increases, small percentage rises in price will result in large percentage
increases in quantity supplied. As a result, supply for that product will be price elastic.
Therefore, small increases in price will allow sellers and producers to possibly make additional
gains. Thus, when the price of a product increases companies tend to produce more of that
particular product. Nonetheless, it typically takes start up businesses much longer to start
producing a product. Because of that, supply tends to be more elastic over time as possible
profits attract a larger number of sellers ("Price Elasticity of Supply"). Moreover, returns
increase until a company reaches an overcapacity and gain less out of each additional input. We
have to remember that returns increase because there’s a better balance between inputs (with
two employees there’s a better balance between amount of machines and ability to use them –
factors of production) making team more productive, but after a point, decline begins in
additional output. That happens because there are too many employees occupying a small
place and therefore the waiting time for using the machine becomes longer. If the costs rise,
marginal costs are greater than marginal revenues and therefore there is a low elasticity when
costs rise very quickly (van der Veen, Gordon).