Fix My Phone Business Plan/ECO/561

Running head: FIX MY PHONE BUSINESS PROPOSAL 1
Fix My Phone Business Proposal
Terry Dashner
ECO/561
June 6, 2014
Dr. Edward Price

FIX MY PHONE BUSINESS PROPOSAL 2
Fix My Phone Business Proposal
I think it is fair to say that camels will slide through the “eye of a needle,” before people give
up their cell phones and other wireless technologies. Cell phones are ubiquitous, but they are not
resistant to damage. Because cell phones break, there is a need for cellular phone repair centers.
According to U.S. Bureau of Labor Statistics (Occupational Employee Statistics, 2014), predicts
that job growth in wireless communication technology will slow down below the average job
growth over the next couple of years: four percent until 2022. This slowdown in the wireless
communication technology field holds little significance for the cell phone repair business. For
example, with the development and marketing of new technologies growing slower than the
average job growth rate there is still a need to rebuild and repair the older wireless technologies,
such as the cell phone. In layman terms this means that without new wireless products coming to
market, existing wireless products will recycle through the market, needing repairs to increase
their longevity. Cellular phone repair centers will rise to the occasion to meet the growing
demand for repairs.
Identifying Market Structure
The cell phone repair industry has exploded over the past six years due to several factors: For
one, less expensive and more advanced cellular internet has added to the explosion. Secondly,
the growing popularity of smartphones, which are more prone to breakage and therefore more
likely in need of repairs has contributed to the advancement of the industry. Also, Smartphones
are very expensive compared to earlier cell phone models, which have driven consumers to
repair shops rather than replacing them; however, as the industry reaches market saturation and
the expense of replacement becomes more feasible, demand for repair services is expected to

stall. According to leading experts, market saturation is very near in the United Kingdom (The
Guardian-The Observer, 2014), and Apple and Samsung are competing against Chinese products
that are becoming increasingly better in quality and less expensive than the market giants. Some
experts place the US Smartphone saturation point at 60% currently, growing about 10% a year.
Others are not as optimistic as the diagram below depicts.
Competition on the Rise
Apple's iPhone shipments increased by 23 percent over the same period last year, but the
company's share of the worldwide smartphone market still slipped as competition, particularly
from China, grew at a faster rate, according to a new industry report (Market Watch/Wall Street
Journal, 2014).

The cell phone repair industry is chiefly divided into the following major groups: screen repairs,
water damage repairs, battery replacements, and other repair services. Many cell phone repair
companies offer online repair videos, but few customers choose to do self-repairs and elect the
walk-in services at repair centers. The key success for a cell phone repair center is providing a
quick repair service while the customer waits. The cell phone repair industry has exploded over
the past five years. Much of this growth has been on the back of the growth of Smartphones and
their fragile construction, which makes them prone to repairs. Smartphones have fragile LCD
(liquid crystal display) screens or touchscreens, and inaccessible batteries (with the iPhone being
one of the worst offenders) that make them more likely to need repair. Smartphones are
responsible for 55% of all mobile phone sales, as of the last quarter of 2013. The cell phone
repair industry is highly fragmented and small operators dominate the industry. In 2012, the top
four players accounted for less than 5% of industry revenue, indicating a low industry
concentration. There were a large number of small shops in the industry specializing in cell
phone repair services that operate independently to serve a small geographic region. Industry
concentration has remained relatively stable in the past five years as cell phone repair services
are generally owned by small, independent operators. In the past five years, the number of
industry establishments has increased an annualized 6.8% to 2,455 in 2012. The high growth in
the number of establishments is due to an increased demand for cell phone repair service.
Market Equilibration Process/ Supply and Demand
Assume that a cell phone repair company senses there is a demand for a cellular phone
franchise market. The cell phone repair company would invest in market research to replicate the
exact cell phone repair center that their consumers demand. The company develops the

franchising concept and markets the franchise at $35,000 a unit. Franchisees who find the
franchise a good investment pay the full $35,000 and a number of the franchises are soon sold.
Because of the high price, however, sales gradually begin to drop off. Many potential franchisees
still want the franchise, but are unwilling or unable to pay $35,000 for one. Because the franchise
company, in this case “Fix My Phone Franchise Company,” loses money on unsold franchise
systems, it reduces the price to $25,000 in hopes of increasing sales. Consumers begin buying
again. The process continues until a price is reached that will both meet demand and maximize
the company’s profits. That price is known as the “market-clearing price.” When supply of Fix
My Phone Franchise Company units is balanced with demand, the market is said to have reached
equilibrium. At equilibrium, resources are used at their highest efficiency. Academic Economics
is largely the study on how market economies can best achieve equilibrium, which is why
economists spend a great deal of time analyzing the relationship between supply and demand.
The law of supply and demand explains why people behave in certain ways within a market
economy, and can even be used to predict behavior and, thereby, economic outcomes.
The mobile phone market, which is a compliment to the cell phone repair center concept is a
good example of the supply and demand concept. For example, it shows how improved
technology and increased supply can reduce price, even as demand rises. According to
Evalueserve, Nokia (Economics Help, 2012), one of the world’s largest mobile manufacturer,
recorded an approximately 39 per cent fall in its average selling price (ASP) between 2005 and
2009. The good news for users is that over the next five or ten years, the price of mobile phones
is forecast to fall. This is primarily due to the increased competition and increased supply from

major producers. As markets reach saturation point, demand will increase at a slower rate (5% a
year until 2015).
Fix My Phone Company is in the process of meeting with franchise Attorney, Freddrick
Sticker. The company is finalizing the Franchise Disclosure Document, Franchisee/Franchiser
Contract Agreement, and the Employee Handbook and Operations Manual. The price tag for one
franchise unit is set at $40, 000 as a test price. As the market equilibrium process is worked out,
a fair and profitable price will become finalized.
Law of diminishing marginal returns
Samsung, a manufacturer of Smartphones, produces a majority of its products; therefore, the
effect of law of diminishing returns is crucial. If Samsung decides to enhance its production

level, it must increase its inputs, which results in higher costs. Producing and supplying larger
amounts affects pricing, higher prices are needed. This brings up a market dilemma. Competition
in this market is cutthroat. It is not wise for the company to increase its costs. Furthermore, the
company has established a trustworthy client base and it is not good to take such a risk.
Technology development has substituted manpower with machines in many areas where many
functions are completed by pressing a button. Hereafter, if Samsung decides to employ
additional workers, the law of diminishing marginal returns will take place as inefficiencies and
the costs of each additional worker would result in the end price increase. Since additional
employees require extra money, such as unemployment costs, workers’ comp costs, and office
space—the law of diminishing marginal returns will occur even faster, decreasing returns
because the presence of similar levels of knowledge and talents do not add or improve the
output. Instead, it would be more preferable for the company to invest in machinery and
technology or even in new entrepreneurs who would help boost the production and returns. New
ideas to the company would result in new ways of producing, new ways of functioning, new
products and new customers.
Competition in the Industry: Oligopoly
Given the fact that the number of wireless communication technology companies or firms in
the market is few with a large number of customers makes the industry an oligopoly. The
barriers to enter the market are high, sometimes insurmountable, because strong, established, and
trustful companies are hard to overcome and also because the costs are prohibitive to starting a
new company. Moreover, the pricing strategy is controlled by all the companies operating in the
established market. The companies have a moderate influence over market price, but they are not

a pure influence because of the similarity of the products offered. Nevertheless, the cell phone
repair industry is not a pure wireless communication technology industry. In other words, it does
not build Smartphone, it repairs them when they break; therefore, the cell phone repair industry
is more likely a pure competition market. A market that is characterized by a number of large
number of independent sellers of standardized products with free entry and exit where the seller
is a “price taker” is pure competition. Pure competition in a free market is rare where there is a
free flow of information between companies; therefore, FIX My Phone corporate and franchise
stores would not reflect a true pure competition company.
Identifying Price elasticity of the Services
One condition of pure competition is a product where all brands are perceived as being
exactly the same, such as Smartphones. Companies spend a lot of time and thought in how to
keep their product from being seen as a "commodity." There is a real need in the industry to
differentiate a company’s product. QT convenience stores headquartered in Tulsa, Oklahoma
sought to differentiate their gasoline from other convenience stores’ gasoline. They did an
extensive marketing campaign in the 1990s to guarantee the quality of their gasoline by
promising to repair any motor vehicle engine damaged by using the gasoline. The campaign was
so successful that local people to this very day claim that QT has better gasoline than other
convenience stores. Perdue differentiated its poultry by successfully convincing the consumer
that their chickens were fresher. Some examples of products that seem like "commodities" but
have been differentiated by successful marketing are cigarettes, gasoline, toothbrushes, oranges,
potatoes, and aspirin. Fix My Phone want to differentiate its service and repairs above the other
repair centers in the market. In order to do this, marketing must successfully convince the

consumer that its services and repairs are of the highest standards. This is done through
guarantees, warranties, an adhering to the policy of “the customer is always right.” Fix My
Phone will differentiate its services. It will offer a six month warranty, provide a coupon for 20
percent off the next purchase, and promote its certified technicians through CIS certification.
Segmented (or Segmentation) Pricing:
Fix My Phone has two broad types of customers: one with inelastic demand and the other
with elastic demand. The customers with inelastic demand are the corporate customers. Just as
the business traveler is inelastic in pricing air fare, so the cell phone repair center’s corporate
customer is inelastic in his or her demand. They do not care if the price rises incrementally
because the business they work for foots the bill. They just need their phones to work to do their
jobs. An elastic customer in the cell phone repair center is personally responsible for the cost of
repairs and is very sensitive to any price hikes just like a non-business traveler is much more
elastic. If the price of a ticket to, say, Tulsa is too expensive, they change their travel plans and
go to Oklahoma City. What airlines do to address this elasticity of demand is charge different
prices depending on when a customer buys a ticket and whether or not his stay includes a Friday
or Saturday night. The same seat might cost one consumer twice as much as another consumer.
In fact, it is not unlikely that every customer on the plane has paid a different price for a seat.
The rule of segmentation pricing states: Charge the inelastic consumer more and the elastic
customer less.

Demand determinants for repair centers
Economic demand or how much of an item one is willing to purchase depends on a number of
different factors. For example, people mostly care about how much an item costs when deciding
how much to purchase. They might also consider how much money they make when making
purchasing decisions. Economists break down the determinants of an individual's demand into
five categories:
 Price
 Income
 Prices of Related Goods
 Tastes
 Expectations
 Demand is then a function of these five categories.
Price, in many cases, is likely to be the most fundamental determinant of demand. It is often the
first thing a consumer looks at before purchasing a product. (See diagram)

Economists categorize items as normal goods or inferior goods on exactly this basis. If the cell
phone repair service is a normal service (good), then the quantity demanded goes up when the
consumer’s income rises. The quantity demanded goes down when income decreases. If a repair
service is a discounted repair (as is, no warranty) then the quantity demanded goes down when
consumer income increases and goes up when income for a consumer decreases.
When deciding how much of a service they want to purchase (premium or basic), consumers take
into account the prices of both substitute repair services. Substitute services, or are services or
goods that are used in place of one another. For example, the premium and basic repair services
are substitutes because a consumer tends to go with the basic when low on cash and for the “bells
and whistles” when income is not a problem.
Variable and fixed costs
All company costs can be broken down into two main categories: fixed costs and variable
costs. Fixed costs stay the same no matter what the output. In other words, fixed costs remain
constant throughout the relevant range. They are usually considered sunk costs for the relevant
range. Fixed costs often include rent, buildings, and machinery. On the other hand, variable costs
are costs that vary with output. Variable costs increase at a constant rate as they relate to labor

and capital. Variable costs may include wages, and materials used in output. Below is an
example of a firm's cost schedule and a graph of the fixed and variable costs. Notice that the
fixed cost curve is flat and the variable cost curve has a constant upward slope.
Macroeconomics Impact on Cellular Phone Repair Centers
The current global economic conditions and their effect on local macroeconomic
indicators for cell phone repair centers.
Economic development is a part of the human evolution and dilemma. It is a single, narrow
measure of quality of life, but nevertheless an evaluation through measurement. The economy
may serve as a substitute for many other aspects of quality of life, which demonstrates a strong
correlation with other accepted measures of development such as literacy rate and life
expectancy. Cell phones in particular extend these benefits to the less fortunate in the world.
Wireless Intelligence reports that the first billion cell phones sold worldwide took 20 years, the
second billion sold in 4 years, and the third in just 2 years (Corbett, 2008). This growth has been
largely concentrated in the developing world. According to the International
Telecommunications Union, 68% of the world's mobile subscriptions in 2006 were in developing
nations.
Table – Variable Definitions
Variable Name Definition
APC15 Proportion of population aged 15 and above
that has completed at least primary school.

Capital8008 Average annual investment in fixed capital as
a percent of total GDP over 1980 – 2008.
GDPpc80 Level of real per capita GDP in 1980 (in
constant 2000 U.S. dollars)
Mpen8008 Number of mobile phone subscriptions per
100 inhabitants averaged over 1980 – 2008.
Fpen80 Number of “fixed” telephone land-lines in
1980; used as measure of initial level of
Telecomm’s infrastructure.
The variables defined in the table are the primary and control variables. The dependent variable,
which is used in this case to measure the growth of average individual income, is the annual
percentage change in per capita GDP, averaged over 1980 – 2008. The final two variables are
those of most interest. The first is the average level of cell phone penetration over the period.
Cell phone penetration is the most accurate statistic available to measure the extent of mobile
phone use in a country. This is not an exact reflection of usage, though, as it is very common to
share mobile phones in developing countries. There has been abundant research demonstrating
that information communication technologies (ICT) in sum have a significant positive effect on
economic growth. This information is imperative to understanding the predictive future of cell
phones worldwide and the repair centers that will follow. This indicator of local macroeconomics
is promising for the cellular phone repair industry. Again, with market saturation reaching its
peak in the UK and some other Eastern European nations, there will always be a need to
recirculate the used and refurbished phones. This calls for cellular phone repair centers
worldwide.

Current News worthy Nations: Serbia and Ukraine
Fixed telephone lines have 89% of households in Serbia, and with about 9.8 million users the
number of cellphones surpasses the number of total population of Serbia itself by 35%. Whereas
the number of Internet users in Ukraine was expected to nearly double by 2015. The mobile-cellular
telephone system's expansion has slowed, largely due to saturation of the market which
has reached 125 mobile phones per 100 people. Here again, market saturation of cell phones is
good news for cellular phone repair centers in development. Cell phones continue to circulate in
the market as refurbished and as an alternative to expensive and new iphones and other smart
phones.
-
Rank
Country or
region
Number of
mobile
phones
Population
Phones
per 100
citizens
Data evaluation
date
- World 6,800,000,000+ 7,012,000,000[1] 97 2013[2][3]
01 China 1,227,360,000[4] 1,349,585,838[5] 89.2 December 2013[4]
02 India 904,510,000 1,220,800,359[6] 74.09 31 March 2014[7]
03
United
States
327,577,529 317,874,628[8] 103.1 April 2014[9]
04 Brazil 273,583,000 201,032,714[10] 136.45 March 2014[11]

Rank
Country or
region
Number of
mobile
phones
Population
Phones
per 100
citizens
Data evaluation
date
05 Russia 256,116,000 142,905,200[10] 155.5 July 2013[12]
06 Indonesia 236,800,000 237,556,363 99.68 September 2013[10]
07 Nigeria 167,371,945 177,155,754 94.5 Feb 2014[13]
08 Pakistan 139,000,000[14] 180,854,781[15] 77[16][17] April 2014[18]
09 Japan 121,246,700 127,628,095 95.1 June 2013[19]
10 Bangladesh 114,808,000 165,039,000 69.5 January 2014[20]
11 Germany 107,000,000 81,882,342 130.1 2013[21]
12 Philippines 106,987,098 94,013,200 113.8 October 2013[22]
13 Iran 96,165,000 73,973,000 130 February 2013[23]
14 Mexico 92,900,000 112,322,757 82.7 Dec. 2011[24]
15 Italy 88,580,000 60,090,400 147.4 Dec. 2013[25]

Rank
Country or
region
Number of
mobile
phones
Population
Phones
per 100
citizens
Data evaluation
date
16
United
Kingdom
75,750,000 61,612,300 122.9 Dec. 2013[26]
17 Vietnam 72,300,000 90,549,390 79 October 2013[27]
18 France 72,180,000 63,573,842 114.2 Dec. 2013[28]
19 Egypt 92,640,000 82,120,000 112.81
Egypt Ministry of
Communications &
IT, August 2013[29]
20 Thailand 69,000,000 65,001,021 105 2013[30]
21 Turkey 68,000,000 75,627,384 89.9 2013[31]
22 Ukraine 57,505,555 45,579,904 126.0 Dec. 2013[32]
23 Spain 55,740,000 47,265,321 118.0 Feb. 2013[33]
25 South Korea 52,510,000 48,580,000 110[34] 2013[35]
25 Argentina 56,725,200 40,134,425 141.34 2013[36]

Rank
Country or
region
Number of
mobile
phones
Population
Phones
per 100
citizens
Data evaluation
date
26 Poland 47,153,200 38,186,860[37] 123.48 2013[38]
27 Colombia 49,066,359 47,000,000 104.4 2013[39]
28 South Africa 59,474,500 50,586,757 117.6
2013 GSM African
Mobile Observatory
report [40]
29 Algeria 33,000,000 35,000,000 94.2 2013[41]
30 Taiwan 28,610,000 23,197,947 123.33 September 2013[42]
31 Kenya 28,080,000 42,000,000 71.3 2013[43]
32 Venezuela 27,400,000 28,200,000 98.0 2013[citation needed]
33 Peru 33,000,000 30,000,000 110.0 Oct. 2013[44]
34 Romania 22,800,000 21,438,000 108.5 March 20[citation needed]
35 Canada 26,543,780 34,466,423 74.1 Q3 2013[45]

Rank
Country or
region
Number of
mobile
phones
Population
Phones
per 100
citizens
Data evaluation
date
36 Morocco 36,550,000 31,968,361 113.6 Q1 2013[46]
37 Netherlands 20,000,000 16,515,057 121.1 Nov. 2013[47]
38 Australia 30,200,000[48] 22,700,000[49] 133.0 December 2013
39 Saudi Arabia 46,000,000 27,137,000 169.5 Jun 2013[50]
40 Malaysia 30,379,000 28,250,000 106 2013[51]
41 Chile 21,000,000 17,094,270 122.9 Dec. 2013[52]
42 Nepal 18,240,670 26,620,020 86.82 Apr. 2014[53]
42 Ethiopia 18,000,000 85,000,020 21.8 Dec. 2013[54]
43 Guatemala 17,571,895 14,713,763 119.4 Jun. 2013[55]
44 Sri Lanka 17,359,312 21,000,000 80.95 Dec. 2013[56]
45 Ecuador 15,900,000 14,300,000 111.18 Jan. 2013[57]

Rank
Country or
region
Number of
mobile
phones
Population
Phones
per 100
citizens
Data evaluation
date
46 Portugal 13,400,000 10,562,178 126.87 November 2013
47 Hong Kong 17,098,440 7,219,700[58] 236.8 March 2014[59]
48 Belgium 11,822,000 10,414,000 113.6 2013[citation needed]
49 Hungary 11,561,890 9,908,798 116.7 Nov. 2013[60]
50
United Arab
Emirates
11,540,040 8,264,070 139.6 Nov 2013[61]
51 Sweden 11,194,000 9,103,788 122.9 (July 2012 est.)
52 Bulgaria 10,655,000 7,600,000 140.2 2008[62]
53 Israel 9,319,000 7,310,000 127.5 2008[62]
54 Singapore 8,063,000 5,312,400 151.8 August 2013[63]
55 Denmark 7,000,000 5,543,819 126.2 February 2008[64]
56 Azerbaijan 7,000,000 8,900,000 78.7 November 2009

Rank
Country or
region
Number of
mobile
phones
Population
Phones
per 100
citizens
Data evaluation
date
57 Jordan 6,010,000 5,950,000 101.0 March 2010[65]
58
New
Zealand
4,620,000 4,252,277 108.6 2008[66]
59 Estonia 1,982,000 1,340,602 147.8
April 2009[citation
needed]
60 Lebanon 2,720,000 4,224,000 64.4 Oct 2010[67]
61 Lithuania 4,940,000 2,955,986[68] 167.1
End of Q2 2013
(Tentative)[69]
62 Cuba 1,300,000 11,200,000 11.6 December 2011[70]
63 North Korea 2,000,000 24,451,285 8.3 April 2013[71]
64 Panama 6,900,000 3,405,813 202.5 July 2013[72]
- Malta 452,515 554,651 122.57 June 2013[73]

The local economy's stage in the business cycle.
Expansion
Economic expansion increases the demand for both capital (as defined in economics) and
consumer goods. Industry will invest in the expansion of its facilities and inventories,
anticipating taking the advantage of expansive sales and bottom line profits. Low risk of default
encourages banks to lend for expansion at low interest rates. A robust demand pushes the need
for more workers to work in these aspiring companies, which spurs an increase in employment
levels. With the current GDP rising, the outlook for the expansion of cellular phone repair centrs
is good. (See Below).
Recovery
This stage is characterized by the consumers' confidence in the market. The bank lending
rates are low, and companies can afford to defray the costs of capital projects. There is an
increase in productivity due to the increased aggregate demand in the economy. Increase in

production allows companies to start employing, which in turn, increases the income of
consumers who can now afford to purchase capital goods. Profit margins of companies starts
rising, and the gross domestic product also start to increase. By most accounts, the US economy
is showing real signs of recovery from the fiasco of the banking industry in 2008.
How do current credit market conditions affect the planning or operating decisions for
cellular phone repair centers?
At Fix-my-Phone Repair Centers and it expansion through franchises, the current credit
market conditions do not impact the planning or operating decisions significantly because it is
moving forward on reserve capital. The idea is to work within a tight budget constraint
purposely. The less debt we carry, the stronger we will impact the market. Currently the banks
are reluctant to lend money for capital expansion. This is because of forced government
regulations that were imposed as a result of the financial melt-down of 2008. Because we have
no debt we can withstand the impact. Nevertheless, our concerns are real and cautious regarding
expansion. With the Affordable Health Care Act imposed on companies with 50 or more
employees, we are scaling back although we are expanding. How is this? We are not building
any more corporate stores and housing employees. We now are selling franchises with a scaled
back workforce.
Conclusion
This assignment entails the economic analysis of a business proposal for a cell phone repair
center. It includes statements about the market structure and the elasticity of demand for the
services, based on text book principles. Some but not all data is hypothetical, and based on

similar real world products to estimate fixed and variable costs. It has identified the market
structure, the elasticity of the services, and a rationale for elasticity for pricing. All information
points to a viable and profitable cell phone repair center.

References
Economics Help. (2012, November). Falling Price of Mobile Phones. Retrieved from
http://www.economicshelp.org/blog/6279/economics/falling-price-of-mobile-phones/
Market Watch/Wall Street Journal. (2014, June). Apple loses smartphone market share to
cheaper phones. Retrieved from http://www.marketwatch.com/story/apple- loses-smartphone-
market-share-to-cheaper-phones-2014-02-12
Occupational Employee Statistics. (2014, June). Bureau of Labor Statistics. Retrieved from
http://www.bls.gov/oes/charts.htm
theguardian-TheObserver. (2014, April). How to keep on selling smartphones when we've nearly
all got one already. Retrieved from
http://www.theguardian.com/technology/2014/apr/27/smartphone-market-saturation-apple-
samsung
Corbett, S. (2008). Can the cell phone help end global poverty? New York Times, April 13,
2008.

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