The flip phone is a type of phone that folds twice into two parts supported by a hinge. The flip phone was first introduced into the market by the Motorola Phone Company under the name MicroTAC Motorola 9800X in 1989. The flip phone features include a mouth piece that folded over a keyboard at the base, a twelve button keypad with numbers and buttons for making and receiving calls and to send and receive messages and a built-in phone book. It also provided for user privacy through security code generation settings, allowed for dual sim card use, came with a calculator, hands-free operation, keypad tones, memory storage setting, phone number and name storage space, as well as cellular system operation settings. The flip phone was designed to conveniently fit into a pocket, unlike the other heavier and less portable wall phones. The first flip phone was over 9 inches in length when open and weighed 12.3 ounces with the slim battery. The phone cost between $2,495 and $3,495 in the US and other phone manufacturers followed suit and began manufacturing their versions of the flip phone. The modern day flip phone is lighter, has a touch screen, a camera, a bigger random access memory than the older type, a hearing aid, a memory card slot with some having water and shock resistant fittings. The introduction of Smartphones negatively affected the Smartphone market because it led to decreased market share, fall in demand for flip phones, and drop in sales revenue, reduction in profits and the fall in prices of flip phones.
The IBM Simon was the first Smartphone, and it was launched in 1994 designed by the International Business Machines Corp. (IBM) and assembled by Mitsubishi Electric Corp (Awan, 2014). BellSouth Cellular Corp. The phone sold more than fifty thousand pieces during its first year of production being the first phone to double as a phone and a personal device assistant with computing, faxing, and internet and networking settings while serving the traditional functions of the telephone (Collins, 2015). The Simon phone was the first device to incorporate applications into its settings. It improved on the flip phone features by adding applications like an address book, a calendar, an appointment scheduler, a calculator, a world time clock, an electronic note pad, handwritten annotations and standard and predictive stylus input screen keyboards (Awan, 2014). The Smartphone was operated using a stylus pen which the users used to press the desired applications and was also accessorized with a phone cover, two batteries, and a charger. The first Simon phone was sold at a price of $899 with a two-year warranty and for $1099 without a warranty but the price was further reduced to $599, and a two-year warranty as the product gained demand (Garcia, 2014). The Smartphone today accommodates more features and performs almost all tasks a personal computer can do.
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The features of a modern day Smartphone include mobile operating systems like Android, ios, RIM Blackberry and Windows mobile OS, internet accessibility, high definition cameras, and sensitive touch screens (Garcia, 2014). The Smartphones also have front cameras which enable live calls, have video and sound recording features, GPRS settings and they have large random access memory to save the various user applications. The Smartphones also have play stores like the Google play store, Amazon Appstore, Apkmirror and the Opera mobile store where the users can download applications from (Collins, 2015). The Smartphones have revolutionalized the world through facilitating technology driven services like mobile banking, dating and other social interactions, video calling, social networking, mobile payments, shopping and almost all areas of the human life. With the invention of the smart devices that can perform almost everything those computers previously did, the flip phones have become almost extinct (Hirschey & Bentzen, 2016). According to a 2017 Pew Research study, 77% of Americans use Smartphones, but the sale of flip phones and other so-called dumb phones increased by two million in 2016. The flip phone is mostly preferred by senior citizens and other people who are not tech savvy enough to operate a Smartphone (Awan, 2014). Despite the increment in sales last year, the flip phone market has exponentially dropped since the invention of the Smartphones in 1994.
The Smartphone invention drove big phone corporations like Nokia and Motorola out of business with the former becoming a Microsoft acquisition and the latter a Lenovo acquisition who dropped the Motorola name completely (Awan, 2014). The direct competition involves the production of similar products by two competing companies. Smartphones were direct competitors for the flip phone manufacturers, and they led to the shrinking of the flip phone market share (Hirschey & Bentzen, 2016). A big market share is important for profit maximization, maximization of economies of scale and increased market power. The larger the market share, the higher the profit margin and in the flip phone market case, the declining market share that was taken up by Smartphones led to a lower profit margin (Garcia, 2014). A large market share also increases the purchases-to-sales ratio since it creates room for the sale of the company’s products to ensure that the sales bring in more returns that the money used to produce the goods. As the Smartphones took up most of the flip phone’s market, their purchase-to-sales ratio continued to decline which made it impossible to produce more phones in the long run (Awan, 2014). Therefore, when the Smartphone companies entered the phone market, the demand for the flip phones decreased in large numbers. They provided the phone consumers with substitute goods which they switched to leading to lower purchases for the flip phones which led to the decline of big corporations like Nokia and Motorola who were once market leaders in the phone market with Nokia commanding a 41% market share in the 90s (Collins, 2015). The decline in market share also led to the weakening of flip phone’s market power which is their ability to profitably raise their market price to exceed the cost of producing an additional unit. The introduction of the Smartphones led to the opposite which was the reduction in prices due to the increased options for the consumers. The lowering of prices made the cost of production to exceed the profit margins which makes the sustainability of production impossible (Garcia, 2014). The Smartphones, therefore, claimed the market share of the flip phones, reduced their returns on investment and drove many companies out of business.
The main aim of every business is to maximize profits. Businesses use various methods in their profit maximization strategies (Awan, 2014). The Flip phone manufacturers used product differentiation as their market entry technique. The aimed at making the mobile phone more portable and more convenient to use as seen in their designing process. The ease of communication made the phones to have many customers which proved to be an effective way of increasing their sales volumes and maximizing profits (Hirschey & Bentzen, 2016). The method was effective until the Smartphones were launched and they offered the customer more convenience and with additional features like the touch screen, more memory and more convenience with the more applications. The flip phones could not catch up with the technological advances brought about by the Smartphones which led to the loss of customers which in turn led to lesser profits (Garcia, 2014). The flip phones also lost their point of relevant differentiation which was the portability and flexibility of the devices since the Smartphone capitalized and improved on that. For a company to maximize its profits, they need a competitive advantage and a strong point of relevant differentiation factors that the Smartphones undermined for the flip phones (Collins, 2015). The undermining made the manufacturers lose their market share since the customers found the Smartphone more appealing in design, portability, and flexibility which negatively affected the profitability of the flip phones in the market.
The invention of Smartphones led to the decrease in the demand and sales volume of flip phones (Hirschey & Bentzen, 2016). The demand for a product which influences the number of sales is determined by some factors. The consumer tastes and preferences, the prices of the product, the price of related goods, price of competitor's goods, fashion, consumers income and consumer expectations are factors that determine the demand for the product (Robbins & Coulter 2014). The flip phone price was too high compared to the Smartphone since it was going for over $3000 while the Smartphone went for $599 US dollars. The consumer tastes and preferences also changed to favor the new Smartphones which had more superior features and went for a lower price since it was seen as more tech savvy and more stylish which made it fashionable (Garcia, 2014). The flip phone manufacturers failed to forecast these shifts in the market demand and lost their customers to their competitors the Smartphone manufacturers. They produced more superior goods, at a cheaper cost and they were fast enough to adapt to change in customers tastes and preferences and new technologies at a cheaper cost (Robbins & Coulter 2014). The Smartphone, therefore, caused an irreparable shift in market demand and the flip phones did not adapt fast enough leading to a drastic effect on their demand.
The invention of the Smartphone led to a change in the pricing and marketing strategies of the flip phone manufacturers (Udell, 2012). In a bid to recapture their lost customer base and increase their sales, the flip phone companies lowered their prices. The effect was however not favorable since the profit margin continued to reduce and the quality of their products did not improve (Hirschey & Bentzen, 2016). The reduced prices, therefore, did not do much to attract and retain customers but continued to affect the flip phone market negatively. The price environment in the phone business was market controlled, and the flip phone companies had to bow to the lower prices that Smartphone companies introduced (Collins, 2015). The flip phones adopted target marketing to market their products whereby they chose to concentrate on the older market segment which comprised of the elderly and the tech illiterate people plus the people who want less advanced tech devices (Garcia, 2014). This saw to the improvement of their products to meet the specific needs of the target market through the addition of features like hearing aid in almost all flip phones in the market today. They also integrated some modern features like Bluetooth, Internet accessibility, and external memory support for those who are tech savvy but wish to own a phone that is not internet centered like the Smartphone (Hirschey & Bentzen, 2016). The introduction of the Smartphones, therefore, affected the flip phone marketing and pricing strategies as they tried to attract new customers and increase their sales.
The introduction of Smartphones led to the market exit of flip phone companies who could not afford to stay in the highly competitive world (Garcia, 2014). Back in the 90s, Nokia and Motorola companies were two of the biggest companies in the phone market, and they were the market leaders (Awan, 2014). When Smartphones penetrated the phone market, their sales and profits exponentially dropped which led to buying outs. The Motorola brand has ceased to exist since their acquisition by the Lenovo Company which announced in 2016 that it would be dropping the Motorola brand name. The Microsoft Company also acquired the Nokia Company although they later sold the shares in 2016 to a Taiwanese firm Foxconn Technology and HMD Global a move that revived the Nokia brand name. The effect of the Nokia acquisition was drastic on Microsoft and Nokia as well. It led to laying off of 7,800 Nokia employees since Microsoft only absorbed few employees from the Nokia workforce and they wrote off $7.6 billion in the acquisition process (Collins, 2015). The company is estimated to have made $8 billion dollars in losses in the acquisition process which would not have happened if the company was doing well (Udell, 2012). Therefore the indirect effect of the introduction of Smartphones in the phone market was the loss of jobs for flip phone company employees and massive losses for the companies and the companies they were associated with (Awan, 2014). The Smartphones therefore completely changed the dynamics in the flip phone market and caused long-lasting shifts in the phone industry at large.
The introduction of the Smartphones however also had positive effects on the phone market (Awan, 2014). Competition spurs innovation in any industry and encourages firms to increase their research and development budgets for product development and improvement. The competition levels between the flip phone manufacturers and the Smartphone manufacturers facilitated the innovation of better phones with more features as the firms competed for the market share (Collins, 2015). There are two types of competitors in any industry. The level or neck and neck sectors refer to competitors whose technological advancement is at the same level while the unleveled sectors refer to eventualities where one competitor is more technologically advanced compared to their competitors (Robbins & Coulter 2014). In the case of unleveled sectors, when the leading company innovates, the follower imitates the leader’s previous technological advancement thereby making the firm to always remain one step behind. In the case of Smartphones and flip phones, the two manufacturing sectors are unleveled (Awan, 2014). The flip phone market benefited from the competition through the introduction of new features in the flip phones similar to those in the Smartphone. Although the flip phone makers will never catch up with the technology of smartphones, it slowly incorporates the features and innovations of the Smartphones (Garcia, 2014). They include internet connectivity, Bluetooth, external memory, the address book, improved batteries with longer battery life, music playing applications and hands-free enablement (Robbins & Coulter 2014). A competitive market, therefore, motivates the firms to innovate and improve their products to conserve their market share and attract new customers.
The entry of Smartphones in the phone market also facilitated the improvement of the allocative efficiency in the market (Garcia, 2014). It allowed for the entry of manufacturers who would meet the consumer needs and tastes and preferences more effectively through producing more technologically advanced devices. Allocative efficiency is obtained when technological advancements lead to the creation of a new good or service that increases the consumer utility derived from using their limited income to make a purchase (Hirschey & Bentzen, 2016). Allocative efficiency facilitates competition which is crucial in the balancing of the demand and supply market forces (Awan, 2014). The Smartphones in this instance led to more allocative efficiency, broke the monopolization of the market by flip phones and also spurred productive efficiency. The result was the production of more technologically advanced devices and lowered costs for the consumers in the phone market (Collins, 2015). The introduction of the Smartphone in the market, therefore, facilitated the creation of more effective gadgets based on consumers' tastes and preferences giving them more value for their money.
The introduction of the Smartphones also led to the improvement of the quality of the flip phones and the reduction of prices which was advantageous for the customers (Garcia, 2014). To stay in the market, the flip phone manufacturers had to improve the quality of the features they already had in their products. Since they had not made a correct prediction on the market changes or the technological challenge Smartphones could present, they had to strengthen the technologically inferior product to suit the market expectations (Collins, 2015). The phone’s battery life up to date is stronger than the Smartphone batteries, and their prices have since fallen from the initial $3000 before Smartphones to as low as $60. These changes could have negatively affected the flip phone profitability, but the introduction of the Smartphones gave the phone market customers an advantage since they could buy high-quality products at a lower price (Hirschey & Bentzen, 2016). Although the usage of flip phone fell over the years, they still have a market for people who cannot operate the complex Smartphones and those that want to stay away from the internet world which Smartphones have made a lifestyle of most of their users (Awan, 2014). The Smartphone, therefore, favored the market conditions for the customers since it broke the monopoly of flip phones in the mobile phone market.
Smartphones facilitated the creation of a dynamic market in the phone manufacturing industry (Garcia, 2014). It encouraged the flip phones to explore production methods to increase their efficiency and productivity in the face of the competition. The entering of a new player in the market makes companies invent ways of cost reduction for profit maximization and cultivation of a competitive advantage (Robbins & Coulter 2014). The effects are more superior products, lower prices and increased invention and innovation growth which is crucial for market growth. With the pressure that comes with competition, the firms work hard to ensure that they retain their market share and don’t go out of business (Awan, 2014). Apart from improving the quality of goods and services, competition serves as an incentive for firms to restructure and it weeds out the weak firms leaving the strong opens that can produce effectively and optimally to stay in the market. Competition minimizes the government control on industries and enables the market forces of demand and supply to play out without bias or favor (Collins, 2015). This leads to the creation of a robust industry and economy where the manufacturers and customers reap maximum benefits. The same case happened to the flip phone market when Smartphones were introduced. It restructured the industry into the diverse and strong present state where customers have many producers to choose from, and only the best in production can stay afloat (Udell, 2012). The impact is a strong customer and producer base that facilitates the production of excellent goods at reasonable prices.
Despite all the effects both negative and positive of the Smartphones on the flip phone market, the flip phone market is making a comeback (Collins, 2015). The sales of flip phones and other "dumb" phones like candy bar phones rose in 2015 from the two million in 2014 to 24.2 million in 2015 (Collins, 2015). The trend has been attributed to the more improved features of the modern day flip phones, and the desire of some people to keep their lives private away from the social media centered Smartphones. The flip phones are cheaper compared to Smartphones with a flip phone costing $6.99 while Smartphones like the iPhone costs $1,680. The flip phone is also very easy to use whereby the users just have to open and close the flip to make and receive calls, unlike the Smartphones that require multiple swiping to do the same (Collins, 2015). The battery life of most Smartphones is a day due to the many co-currently running applications while the flip phone battery can last for up to three days. The flip phones are also not as easily hacked as Smartphones; they're smaller in size. Therefore, more portable and they have more call quality performance compared to Smartphones (Collins, 2015). These are some of the attributes that are making more people drawn to the flip phones which show that the flip phone did not completely die with the introduction of Smartphones.
In sum, the invention of Smartphones had both positive and negative effects on the flip phone market. It led to innovations, improved phone quality, change in the phone market dynamics, low sales, low profits, reduced market share and it led to closing down and acquisition of flip phone companies. It also led to innovation, production of high-quality goods and the dropping of phone prices. The effects were, therefore, two-fold both negative and positive.
References
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Collins, L. (2015). Mobile Devices: Tools and Technologies . Boca Ratón FL: Chapman & Hall.
Garcia, R. (2014). Creating and marketing new products and services . Boca Raton FL: CRC Press.
Hirschey, M., & Bentzen, E. (2016). Managerial economics . Andover, Hampshire, United Kingdom: Cengage Learning EMEA.
Robbins, S. P., & Coulter, M. K. (2014). Management . New York: Pearson Education
Udell, C. (2012). Learning everywhere: how mobile content strategies are transforming training . Alexandria, Va: ASTD Press.
