Apple Case - Competitive Advantage

Apple strategy is based on differentiation. In fact, Apple ambition is to be unique on computer and new technologies market. That is the reason why Apple differentiates its products but also its stores and its services. In order to be unique on it segment, Apple offers an other vision of computers and music players. Apple stores are build on the same basis: a futurist concept, with an uncluttered aspect. The Apple main differentiation is that it produces its owns softwares, that means it does not used Microsoft ones. Thus, its consumers have to use Apple services if they have any problems with their laptops or other Apple’s

products. Apple success begins in 1977 with Apple II. It is the first success of Apple in computers market. This laptop is used as an education tool. It is the first laptop with a screen and a keyboard. The following year, Apple III is commercialised, and it was the first laptop with disk drive blended in it. Apple was the first company to offer an operating system possessing a graphical user interface with icons and programs. In 1984, Apple decides to bring out the Macintosh in order to compete and unhinge IMB’s PC (personal computer) launched in 1981. Macintosh is a sort of Canadian apple.

The success of the Macintosh is based on its simplicity: Macintosh is intuitive. Moreover, its success is also based on the computer mouse. The success story continues with the IMac. The design of this computer breaks all conventional codes of computers industry. In fact, this IMac has a new aspect: it declines in different colours that consumers can choose. And the central processing is included directly on the screen. Apple was the first one on the computer industry to offer this type of laptops. The IMac is dedicated to Internet use. The IMac knew a huge success and was a way for Apple to win some market shares.

Apple created the Ibook and other products that found success. Steve Jobs wanted to link all new technologies: cameras, laptops, and mp3. That is the reason why IMovie was created in 1999. It is the birth of “Digital hub”. In 2001, the new IMac integrated IMovie but also ITunes a new platform used for music applications. In 2002, in addition to those programs, IMac integrated IDvd: a system to burn your own dvds, and IPhoto: a program to stock and organize your photos. Apple created IPod: the first differentiation of Apple products. IPod was revolutionary: it has a capacity of 1 000 songs, its usage is intuitive, it design is futurist.

IPod is a technological innovation. ITunes Music Store is another success for Apple: a website where you can legally download music. It was launched in 2003. Steve Jobs ambition with this website is to show that music will have a future even if hacking is a reality. One song cost 99 cents. This store, as all Apple products, is really intuitive and easy to use for consumers. IPod permits to increase Apple reputation, and to increase others Apple products sales. Thanks to ITunes Music Store and Apple collaboration with big names of music industry, Apple embraces 70% of music online market shares.

In 2004, the number of IPod sold is more important than IMac sold. In 2004, Apple brings out IPod Mini and IPod Photo, and IPod Nano in 2005. Thanks to all its products, Apple covers 75% of high quality music players market shares. Nevertheless, Apple is outdistanced by low quality music players, which are cheaper. That is the reason Apple decided to create IPod shuffle, an IPod low cost. In 2005, after music and video, Apple creates an IPod video. IPod Touch is the most evaluated version of IPods. It has a touch sensitive screen. Consumers can download applications on ITunes store.

In 2007, Apple brings its new innovation on the market: the IPhone. It was one of the first smartphones on the market, and knew a huge success. IPhone is more than a phone. It is also an IPod and allows videos; consumers can download applications on ITunes. It has a touch-sensitive screen. Apple makes improvements on IPhone, and every year a new version of IPhone is present on the market. In 2011, the new version of IPhone (IPhone 4S) is the most evaluated smartphones on the market. In 2010, Apple creates IPad. It is a touch sensitive tablet screen. Apple was the first company to offer a tablet.

Nowadays, IPad is not alone on the market but it is the most successful one. Such as for IPhone and IPod touch, consumers can download lots of applications on ITunes store such as books, music, movies. II. Analyze the personal computer industry First of all, we can say that the personal computer industry is really fast changing. The prove is the growth shows on the global PC market during the Q2 2011, illustrated by Epstein in “Global PC market shows growth in Q2; Lenovo wins globally, Apple wins in U. S” where he says that sales volume increased by 3%.

Furthermore, we can notice that number of PCs increase annually by15% according Yoffie, David B. and Slind Michael in “Apple Inc. , 2008”. Source: Epstein, Z. July 14th 2011. Global PC market shows growth in Q2; Lenovo wins globally, Apple wins in U. S. Then, according Virki T. (2008) there were more than 1 billion personal computers in use all around the world in 2008; previsions say that it should double by early 2014 because of the strong growth in emerging market. Indeed, while mature markets represent 58% of the first billion installed PC’s, it would only account for about 30% of the next billion.

Finally, as say Yoffie and Kim (2011), it exists three different segments on the computer industry: the desktop, the laptop and the netbook. The average desktop’s selling prices declined by 8% annually between 1999 and 2005 and the prices for key components declined by 30% annually. The consequence was the low profit margin of most PC manufacturers' with an average one below 5%. Again with laptops, its average selling prices was around $544 in 2009 whereas it was twice more important in 2007. We can easily think that the same scenario will happen again with the netbook.

Now, we will analyze the industry according the five Porter forces, which are the threat of new entrants, the bargaining power of buyers, the threat of substitute products or service, the bargaining power of suppliers and the rivalry among existing firms. The threat of new entrants As Masi (2009) says in his analysis, a new entrant has many options but also many obstacles to entrance on the personal computer market. First of all, there are on the market manufacturers which are well entrenched, enjoying a certain legitimacy with loyal consumers. These companies benefit from economies of scale, which cannot be easily achieve by a new entrant.

Some telephony companies such as Nokia or Samsung are well established on their own market and they are well known by the public. With the launching of their respective tablet, they move closer to the computer market and they could one day decide to launch their own computer. As a conclusion, we can say that the threat of new entrants on the market is moderate. The bargaining power of buyers As Masi (2009) says in his analysis, we can notice on the personal computer industry the presence of many buyers with widely different needs, which affect the market.

Indeed, the manufacturers want to seduce as many customers as possible. We can notice an high demand on products and a wide acceptance and use of PCs which benefits the manufacturers. Because consumers are price sensitive and brand loyal, we can say that the bargaining power of buyers is strong. The bargaining power of suppliers Masi (2009) explains in his analysis that suppliers rely on collaborative as well as private standards. We can notice a relative concentration of suppliers for some inputs, which puts pressure on competitors.

Intel dominates the semi-conductor market and it is difficult for a PC manufacturer to switch suppliers of central processing units, which gives to suppliers a lot of power. Therefore, as a conclusion, we can say that the bargaining power of suppliers is strong. The rivalry among existing firms Because of the globalization, the PC manufacturers are present all over the world (Masi, 2009). The middle range computers offers to price sensitive consumers a range of product almost similar because of the standardization of products. Therefore, they try to be as competitive as possible on their price which decrease their margins.

PC manufacturers are also under pressure because of the perpetual need of innovation and devlopement. Because of that, we can conclude that the rivalry among existing firms is strong. The threat of substitute products or service As Masi (2009) says in his analysis, it exists today two major substitutes to the computer. The first one is the “smartphone”, such as the BlackBerry or the i-Phone, which is rapidly growing. As a computer, a smartphones now make it possible to go on the Internet, send emails, and open Word or Excel documents for example.

The second substitute is the “tablet”, such as the iPad or the Samsung Galaxy Tab, which is bigger than a smartphone but smaller than a netbook and which makes possible to do the same things than on a computer. However, these substitutes that provide more or less the same functions as computers are not as comfortable to use. They should position themselves as complementary products to the computer without actually diminish the importance of computers in the coming years, this is why the threat of substitute products is moderate.

As a conclusion, we can say that the industry is overall moderately attractive. III. Apple’s competitive advantage in PCs? In this part we will analyse how Apple in order to continue driving sustainable profits made an important shift in its global strategy, choosing not only to concentrate on computers in the future. We will start with Apple’s competitive advantage in PCs, then we will present the different strategies taken by the company through the years to finally explain why competitive advantage in PCs has been so important for the brand in its overall strategy.

Apple’s competitive advantage in PCs Apple’s competitive advantage in PC has been gained through the years, every new products being one step, and has been mostly based on four factors which are the ease of use, the design, the versatility and the innovation. The ease of use has been Apple’s first competitive advantage. Indeed, from the Apple II in the year 1978, trough the Macintosh in the year 1984 area and till the introduction of iPod and iTunes in the 21st century, the firm has been developing its competitive advantage on the market with easy to use user interface.

Anyone can easily use an Apple PC, and it may be the usual these days, but it was considered to be revolutionary in the PC industry in 1978, and since then Apple has been considered as one of the industry pioneer (Ostrowick, 2010). When Apple’s Macintosh was released in 1984 the biggest difference and innovation towards regular PCs was its design, and it became the greatest historic competitive advantage for the company. Macintosh’s design was simple and coloured, which can also be viewed as fashion.

Even today, thanks to the company’s ability to design, Apple’s competitive advantage has always been retained and sustained in its designing ability (Ostrowick, 2010). Versatility can be found in the large variety and range of products provided by the company for consumers. It was actually one of the most crucial points to contest the competition from the IBM machines in the early 90’s. A product such as Multimedia software enables Apple to win market share in the face of tough rivalry from IBM-compatibles (Ostrowick, 2010).

Finally innovation has enabled the company to survive and compete in the PC industry, and has remained to be one of the crucial competitive advantages of the company. Since the iMac in 1998, every single product the company has launched, such as iPod in 2001, OS X in 2001, Mac Mini in 2005 or iPhone in 2007 or iPad in 2009 can be viewed as the company’s approach toward innovation. Apple has gained a read added value over its competitor thanks to its huge capacity of innovation which gives each product a competitive power.

Steve Jobs like to say that great passion and innovation leads to the creation of “breakthrough products” in the market (Ostrowick, 2010). Apple’s strategies in PCs But these four factors could not have been achieved without a brilliant corporate strategy which included since several directions such as integration policy, low cost production, alliances and joint ventures, friendly software, or . OS licensing. A pretty aggressive integration policy has been set up by the company in the beginning of the 90s, both vertical and horizontal. This is one of Apple’s most “top” strategies and was from

the start a great success because Apple customers were able to use their PCs right away after purchasing it. It gaves the company an advance over IBM as their customers was not able to use other software and peripherals to the IBM PCs (O’Grady, 2009). Then Apple decided to sell their products at low prices in order to regain its market share: the Mac Classic and Powerbook were born in response to prince competition from IBM-compatibles. In the year 1991 Apple and IBM formed a strategic alliance (Joint Venture) for the very first time under the name “Taligent”. The goal was to create a new operating system in the PC industry.

Few others alliance had been made with Intel and Novell in order to run Mac OS on Intel processors (O’Grady, 2009). In the early 90s the company also launched a product called PDA which stands for Personal Digital Assistants in order to enter consumer markets with an easy to use product running user-friendly software. In 1993 Mac OS licensing was planned to face a fall of market share and revenues of Apple, in 1997 Apple opened its first website to sell products directly to the consumers and International growth has been reach especially on the Chinese market in the year 2000 (O’Grady, 2009).

During the 21st century Apple strategy turns to be centred on product diversification through the iPod and iPhone, and more recently the iPad. Apple also switch from PowerPC chips toward Intel microprocessors to compete directly with Windows based PC as Mac was not able to run Windows operating system before, and consumers were scared of switching from operating systems (O’Grady, 2009). How sustainable is Apple’s competitive advantage in PCs? Innovation has always been the sustainable competitive advantage in the PC industry and Apple is known as a company thanks to the innovation.

In this industry, creating revolutionary and advanced products have always been the crucial point to win the market. But those innovative products need to be as cheap as possible for the consumer. By taking strategic steps Steve Jobs redefined the image of Apple in PC. One of the most important steps was to aggressively promote the brand as a cultural force, which can be view by the consumer to a “hip alternative to other computers” (negamiri. wordpress. com). Premium priced and brilliantly designed products for its customers were the second strategic point, in creative fields such as movies, publishing, music or design (Jones & Hill, 2010).

In the minds of people Apple means design and innovation. In order to keep this competitive advantage sustainable the company has to stay at the top in both of those areas. On a short term vision, Apple’s competitive advantage will be still sustainable, as show the actual dominance of the company, not in terms of sales but in terms of image over Dell and all the Microsoft based computers companies. On the long run, as the PC market is decreasing nowadays we cannot be sure how sustainable Apple’s competitive advantage in PC will evolve, as they need to be always more creative than their competitor in this particular field.

This is the only downside of the brand competitive advantage, but Apple has transformed itself during the last few years from a computer brand into a nomad products company, characterized by the iPod, iPhone and iPad (ibtimes. com). It means that the company is not dependent anymore to their computer department. Why buying a PC if you can do everything you need on both you iPhone and iPad? This is Apple strength for the future. Even if the PC market is decreasing in term of sale, people are most likely to buy Apple products to fulfil their needs.

And as every single products of the company complement and complete each other, Apple has reach kind of a control over the whole user experience or process, from hardware to software which led to have more and more loyal customer (insidecrm. com), even if their historical market is decreasing. Those new markets will represent their “cash cows” in a close future. Apple competitive advantage in PCs has been sustainable for a long period of time, and turns thanks to Apple’s strategy into a whole truly sustainable competitive advantage which is hard to replicate. You cannot leave Apple once you purchase one of the company’s products.

This is the equivalent of IBM for business (innovationexcellence. com). Both companies were originally only selling computers and succeeded in adapting its competitive advantage making it sustainable. IV. The introduction of the IPhone a blue ocean strategy ? The introduction of the iPhone was a blue ocean strategy. Indeed, the iPhone was the first smartphone onto the mobile phone’s market. We can define the blue ocean strategy as a new offer on a market while reducing the cost savings.

Existence of industry: When the iPhone came on that market, there were no competitors. Blackberry is a competitor but has a different target: the corporate consumer. There were no firms that were creating this kind of phones. The basic of a phone was to send message and to call. With the iPhone everything changed, indeed, we could touch the screen, write message with a special keyboard, we could take pictures. It was the revolution of the phone. What we can say is that the iPhone did not have competitor onto that market. It was unique and so all industries were not existed.

Unknown market space: This market was unknown so it was easier to Apple to create during these two years its phone. Creating the iPhone was creating a new demand. This demand was the person who wanted to take pictures at anytime without taking their camera, but also writing message with a true keyboard. This phone had to return the easy life for the consumer. This target was created because people couldn’t imagine this kind of phone. If they wanted to take photos, they had to bring their camera everywhere. Moreover the capacity of a phone was to text and phone. To create and develop the iPhone, Apple had to ask to the AT&T if it was possible to be exclusive. For instance Apple needed a distributor with a specific subscription. For Apple, it was a long process to create the demand from the start to the end.

The competitive rules had to be discovered. There were no competitors on the market so Apple had to see how the game work does. For instance, the distributor of Apple had to be exclusive. Indirectly, this completion between the distributors has an impact on Apple : keep the same distributor and not to go on the other to be more competitive with the future smart phones. The industry life cycle, source : power point coporate strategy ESG MS The competitive rules start from the development.

From the moment an industry launch a new product for a new demand, the others firms will be attracted and the competition can begin. The rules began to start when Iphone was at the step : growth. The sales get up and the competitors start to copy the model. So Apple had to know how does function the competition on that market. One of its competitors : Palm. But Apple had to check also the music store business. Indeed, Itunes would not be the only music store on the internet where people can buy some new music for their phones. Apple had to pay attention to the hardware because the technology moves at any moment.

That is why Apple needs to innovate a new OS every time like that the competition can be less intensive for a time. But the rules mean also to be keep our advantages on the top : a new generation phone with a specific music store online. * Prospects for growth and profits If we compare the industry life cycle and the apple’s life cycle we can see that there is a point where the profits are increasing. It is the shake-out step. At this moment, the industry is developing and can have some profits to invest in others products or to ameliorate their original product.

For example, Apple ameliorated the iPhone to the iPhone 3… Those prospects attract a lot of competitors and we could see for instance HT, Palm, and Blackberry changing their strategy. The goal is to attract the new demand to get a lot of profits. If a firm keeps going to have basics phones such as phone and text, so the firm will lose some market shares. That is why, it is important to follow the leader on the market and to copy them. V. Apple’s competitive position in Smartphones ? With about 4 millions units sold, the market of Smartphone knows a real development.

It’s a revolution on the market of new technology. Smartphone, it’s the new generation of mobile phone to make everything you want, an assistant, a secretary who can wear in your hand. The iPhone one concentrated by technology Apple launches their Smartphone in 2007 called the Iphone. The company took a lot of risk by throwing their telephone, because the market was already dominated by pioneers as Nokia, Motorola or Samsung with roughly 60% of the market share. The apparition of the Iphone on the market changes the rules in the industry.

Sophisticated product, without Keyboard in favor of the digital, the interface is different rich and more interactive with applications with a real Memory 8GB or 16GB. The price is more raised than the competitors, 499 dollars the first year, but it’s not a brake in the purchase because six millions units are sold. Then take out the Iphone 3G, inside a real key 3G. Everybody can be connected everywhere at any time. An innovation in the sector. The iphone becomes a real product jewel, with a price bordering 600 dollars in 2008 as a luxury product. Two different approaches

Some mobile as blackberry, Nokia (the leader) or palm adopted the same approach as the Iphone by controlling hardware and software. Working tool evaluated, Apple and Rim blackberry accounted for roughly 5% of the total unites been worth of the cell phone industry and 60% of total profits in 2009. In despite of palm who tries to face. Nokia leader of the market during years tries to be imperative launching their Smartphone with its own interface as apple store, a product really similar to the IPhone but which is not the IPhone what make it a source of inspiration for its competitors.

Indeed many competitors copy the design of IPhone as the galaxy of Samsung and the idea of application in order to win market shares with more attractive prices. HTC, Motorola, LG electronics and Samsung take a different approach. Indeed, they mostly licensed their operating systems from Microsoft or used Google’s free Android OS. By 2010, there were about fifty Android based Smartphone models on the market and Android had gained 4% market share. The Iphone in know how to be imperative on the market of Smartphone and become a leader in many countries thanks to its innovations, its trendy design, its

practicality and its important communication. However Samsung since September 2011, with their Smartphone galaxy, takes leader’s place of the market. Apple sells less but keeps an image of flagship product. Limitations of the IPhone The decision of apple to restrict the network to a single network was unpopular. Other criticisms as the AZERTY Keyboard or the battery, which runs out fast or the impossible add of Memory, are felt. Moreover the creation of a chip appropriate for the IPhone 4 makes that we can’t change our mobile when we want, a well-studied tactics.

Stylish Affordable Low quality and basics Innovant & High quality The Iphone is an evolved, quality product, expensively become an icon of our generation. Every evolution of the product is expected as a real phenomenon. It differs from its competitors by the price, its attractions, but also with its communication strategy and the brand Apple pledges of quality. Today Iphone is a unique product. An idea strengthened since the death of Steeve Jobs his creator.

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