Apple Inc. is an American multinational corporation that designs and markets consumer electronics, computer software, and personal computers. The company’s best-known hardware products include the Macintosh line of computers, the iPod, the iPhone and the iPad.
Apple software includes the Mac OS X operating system; the iTunes media browser; the iLife suite of multimedia and creativity software; the iWork suite of productivity software; Aperture, a professional photography package; Final Cut Studio, a suite of professional audio and film-industry software products; Logic Studio, a suite of music production tools; the Safari web browser; and iOS, a mobile operating system. As of October 2010, the company operates 317 retail stores in ten countries, and an online store where hardware and software products are sold.
As of September 2011, Apple is the largest publicly traded company in the world by market capitalization and the largest technology company in the world by revenue and profit. Since 1976, when the first Apple I came to the market, Apple has been widely successful at building brand loyalty in Apple products. Apple’s products are meant to compliment each other, which encourages consumers to purchase another product in the brand. Apple has also been smart in selling their products through the educational network.
This helps not only to hook students on to Apple products early on, but also to build a “cool” and “hip” image. Apple is consistently coming out with new innovations to keep their products interesting, while also keeping up with the demands of modern technology. The bottom line: Apple delivers outstanding products consistently that receive high consumer ratings, causing consumers to keep coming back for more. Apple’s innovative products, incredible brand image and success story make it truly admirable.
Hence, we have chosen Apple for this project. EXTERNAL ENVIRONMENT Customers Apple Inc. as a name is known to have attained a cult status, especially among the tech savvy 21st century youth. Apple sells in almost all the developed and developing countries of the world, with rapid emergence in the third world as well. All of these countries and cultures have different demand patterns and sensitivities. To this end, buying behavior and buying capacities also vary across nations.
To this diverse customer base, Apple provides a whole range of hi-tech personal devices, which are sold on the philosophy of “Buy Different, Think Different”. Thus as it permeates different cultures of the world, Apple as a brand has established a culture of its own. Some other important features, which shape Apple’s strategies, are: * Customers are empowered due to availability of low priced products giving similar features. * The Internet and new media avenues allowing easier information exchange have enhanced information availability.
Hence the companies need to be more careful regarding their value proposition * Rapid inter-temporal variation in consumer tastes has influenced companies to race to meet these demands. Also, companies like Apple with sheer innovation have influenced consumer tastes. Now they need to maintain their lead on the S-curve of consumer demand with constant innovation There is in fact noticed an unusually high amount of brand loyalty for Apple products which has resulted in an emotional bond between its customers and the brand. The reason more and more often cited for this is the company’s constant innovativeness.
Dynamism: Low; because of favorable brand image, high brand loyalty and repeat purchases across different customer classes Richness: Medium; increasing purchasing power and number of potential consumers in the young segment of population Complexity: High; consumer behavior contingent on psychological, socio-cultural and economic variables and hence Apple needs to constantly monitor these. Suppliers APPLE doesn’t make the any of its products itself. It neither manufactures the components nor assembles them into a finished product.
The components come from a variety of suppliers and the assembly is done by Foxconn, a Taiwanese firm, at its plant in Shenzhen, China. The “teardown” graphic below, based on data from iSuppli, a market-research firm, shows who makes what inside the iPhone, and how much the various bits cost. Samsung turns out to be a particularly important supplier. It provides some of the phone’s most important components: the flash memory that holds the phone’s apps, music and operating software; the working memory, or DRAM; and the applications processor that makes the whole thing work.
Together these account for 26% of the component cost of an iPhone. This puts Samsung in the somewhat unusual position of supplying a significant proportion of one of its main rival’s products, since Samsung also makes smartphones and tablet computers of its own. Apple is one of Samsung’s largest customers, and Samsung is one of Apple’s biggest suppliers. This is actually part of Samsung’s business model: acting as a supplier of components for others gives it the scale to produce its own products more cheaply.
For its part, Apple is happy to let other firms handle component production and assembly, because that leaves it free to concentrate on its strengths: designing elegant, easy-to-use combinations of hardware, software and services. Another aspect of Apple supplier strategy is its control over the worldwide market for key components has reduced Apple’s cost structure and has created significant barriers to entry for competitors. This yields significantly higher margins and market share for Apple, among other benefits. It turns out that Apple has secured about 60% of global touch panel capacity, with a focus on 10-inch displays.
Some have speculated that this has forced some competitors to initially focus on devices with 7-inch screens, such as Samsung with its Galaxy Tab. Because Apple is buying these components in such large quantities it can exercise significant leverage over suppliers. This leverage enables Apple to negotiate favorable terms and pricing. For instance, South Korean Fair Trade officials alleged that Apple struck a special deal with Samsung to obtain flash chips at below market rates. This favorable pricing means that Apple has a lower cost structure for its products relative to competing products.
And all else equal, this lower cost structure results in higher margins for Apple versus competitors. Second, when Apple commands such a large portion of the global market for a key component it creates enormous barriers to entry for potential competitors. Competitors can obtain the component in limited quantities but at a higher price, therefore placing them at a cost disadvantage. Next, competitors can launch different products — e. g. , a hard drive based portable media device or a 7-inch touch screen tablet – that may not match the preferences of consumers.
Alternatively, competitors can just sit and wait until more supply of the component is made available, which in some cases takes years. Complexity: Complex High number of suppliers, where some of them might be industry rivals makes managing supplier relationship critical Dynamism: Stable In a High Tech environment where new technologies are surfacing on a continuous basis, Apple has to make sure that technologies are fast evaluated and production secured for strategic security. Richness: Poor The dependence on contract manufacturers and external suppliers for all manufacturing needs puts Apple in a precarious position.
Competitors Apple mainly competes in the personal computer, mobile and music industries. Personal Computers & Software: The personal computer market is fairly well developed with a very high concentration of mature players such as Dell, HP, Lenovo, Acer, Sony, Gateway, Samsung, Asus, Fujitsu, and Toshiba etc. As a result, this market has become extremely commoditized with most of these players producing practically identical products running Microsoft’s Windows operating system. This makes Microsoft Apple’s biggest competitor in the Operating System and Software market.
Apple continues to differentiate its Macbooks through their unique design and operating system. Switching costs for the customer have been the main deterrent in Apple’s quest to attain a more sizeable market share, due to their higher prices and perceived incompatibility with other software. Music: Apple is also a big player in the music industry. Apple’s iPod is the market leader in the music player market and competitors (like Sony, Creative, Philips and others) are struggling to offer up a product that can match iPod’s technology and innovation. Apple’s iTunes is also the leader in the online music and entertainment industry.
With iPod and iTunes, Apple is in no danger of losing market share in the short term and has continued to pour money into its R&D to support its long-term strategy. Smartphones and Tablets: Apple revolutionized the smartphone and tablet industries by introducing the iPhone in 2008 and iPad in 2010 respectively. In this industry, Apple’s iOS faces intense competition from other mobile operating systems like Microsoft’s Windows Mobile and Google’s Android that have formed strategic alliances with hardware manufacturers like Motorola, HTC, Samsung and Nokia.
RIM is also a competitor in this industry with its Blackberry Smartphones and Playbook tablet. Both Apple and Google have significant market share in the smartphone industry, while Apple’s iPad continues to be the leader in the tablet industry. Complexity: Complex Apple’s competitive environment is very complex. Their diverse and intricate products put them directly in competition with almost every technology company – be it hardware manufacturers, software firms or online portals and retailers – in many complicated ways. Dynamism: Unstable
Due to the presence of so many players and the pace of technological advancement, Apple faces a very dynamic environment that requires them to be innovative and nimble. Richness: Rich The size, dynamism and concentration of all the markets Apple is in also make its environment very rich in resources. The large number of possible suppliers of different products can give Apple great market power, but their need for specialized components restricts their resourcefulness to a large extent. Regulatory Environment Apple vs. Competitors
Research and Development is the most fundamental reason for Apple’s continuous competitive advantage. However, while researching upon and introducing new technologies, there is either a persistent threat of legal action by competitors or a necessity by Apple to do the same against them. This is because release of insider information about Apple’s new products could give its competitors a heads-up to introduce rival products. For instance – * Apple sued Microsoft in 1988 for perceived similarities between Microsoft Windows and Macintosh audio-visual-works.
* Apple is currently taking legal action against many popular technical web sites for releasing proprietary product research from confidential documents protected by employee non-disclosure agreements. Apple vs. Government Apple has been fortunate so far to have not been involved in any major issues where Government regulations are concerned. On the contrary, the Government has charged its prime competitor Microsoft on many antitrust regulations, which has worked to Apple’s advantage, allowing it have a better foothold in the industry. Complexity: Medium
With increasing competition between Apple and other market players, the regulatory environment is quite fragile. There are a large range of laws and regulations that Apple needs to be aware of, in order to rightly penalize those who deserve it, and at the same time, defend itself from any charges. This makes the regulatory environment somewhat complex to be in. Dynamism: Stable With new regulations being introduced and limits being set on a company’s carbon footprint, Apple needs to be extremely careful and keep improvising to not be entangled in any legal issues with the Government.
This makes the environment quite unstable and prone to misfortunes unless proper care is taken. New Entrants In personal computer market there are a few well-established companies like Dell, HP, Sony and Compaq. The threat from new entrant is limited as there are large economies of scale in the PC market. Due to large economies of scales, new companies would require huge capital to compete with Apple and other well-established companies. In Operating system, Microsoft and Apple’s iOS are the main leaders. New
entrants have to make OS, which is one step ahead of them. Google with its Google OS and Android is currently a big threat to Apple consuming its market share. Another barrier that new entrants would have to face is legal barrier; mainly in the form of patents. The main market leaders have numerous patents on computer designs as well as technology, which make it extremely difficult for new entrants to enter the market. In portable music market, there are a fairly large amount of competitors the entry barrier is quite low.
As the market is relatively new, there is more of a threat of new entrants in the MP3/Portable Music market than there is in the personal computer market. The portable music websites like Amazon and Napster have relatively small startup costs and are stealing away portion of iTunes market share Apple is enjoying the first mover advantage in the hardware side of the market with their iPod. It has huge following and brand image which creates an obstacle for new entrants. Due to the potentially high growth rate of this market, it is still profitable for companies to invest the capital involved in breaking into the market.
Even though the main market leaders already have many patents protecting their technologies, new entrants have developed pioneering technologies due to the relatively young nature of the market. Complexity – Complex Portable music market being relatively new poses a bigger threat of new entrants, which makes this environment highly complex. Dynamism – Unstable As new technology is coming up everyday especially in countries like Japan, many new entrants (although small) join the industry, and many leave as well. Thus, the environment is changing very quickly with time. Substitutes
With increase in technological innovations, first mover advantages are short-lived and substitutes emerge to compete in any new product category within no time. Apple sports a wide product line, at the same time faces continuous threat from three distinct types of substitutes: Direct Substitutes: * Music [iTunes: Napster, Rhapsody, Satellite Radio, p2p], [iPod: Walkman, CDs, audio streaming] * Video [iPad, iPod: Broadband connections, Satellite / Cable TV, video streaming, Netflix] * Computing [iMac, MacBook: PCs] * Communication Devices [iPhone: smartphones, touchscreen devices] * E-books [iPad: Amazon Kindle, Samsung Papyrus, Sony Reader]
Service based Indirect Substitutes: Increasingly the popularity of Apple has opened up other channels where apple products are sold, new and used. An example is E-bay that can buy Apple products and put it up on sale with special promotions. Special offers by Mobile service providers where Apple products are sold in bundles are another example. Due to availability of a variety of substitutes, there is constant need of product differentiation, which creates economic value for the customers. It can reduce environmental threats as the cost of product differentiation acts as a barrier to entry.
CONCLUSION Still growing at 52% y-o-y and expanding income annually by almost 70%, Apple Inc. has carved out a base of followers-cum-customers who are very much driven by its innovativeness and brand name in their purchasing behavior. It leads a high technology race against very powerful players in many of the several product markets that it covers. It deals with suppliers spread the world over to streamline its production. It controls for competition from substitutes as distant as new service offering by an Internet based firm and as close as an imitator.
This leadership has come about by efforts of the management and the innovators I the company. At the same time, a very important mediation is carried out by the uncertainties posed by concerns of stability / dynamism, richness of resources and complexities in the external environment. In this context, there are certain variables that become more important given the higher degree of uncertainty involved and so on. As Apple Inc. tries to navigate through these rough waters, an enduring success will depend upon how it accounts for these uncertainties and pre-emptively acts to retain its position as a production innovator.