Formerly known as Apple Computer, Apple Inc. has effectively became a successful company in a competitive consumer electronics industry. The firm managed to outsell others by being innovative and differentiating its products through superior service standards and high quality products. To ensure standards are met, Apple outsourced its manufacturing to a reliable third party electronics manufacturing company, Foxconn Technology. In recent years, the smartphone industry is moving towards commoditization. This resulted in intense competition where constant innovation is required to withstand its business marketability.
Apple’s strategic capabilities such as having tailored hardware/software systems has enabled the corporation to position itself in term of value, rarity, inimitability and non-substitution. However, to continue gaining its market share as the best smartphone, the corporation might need to review its business suitability, so as to maintain its market leadership in the industry. This strategic analysis and evaluation report will hence review Apple’s performance and sustainability through using business level strategies before strategic recommendations are decided upon.
In order for Apple to continually retain its market position, the corporation might need to consider its business suitability such as its strategic direction. Through market development, the company can increase its presence in new market segments. There is a need to look into its R&D (Research & Development), so that new products with unique features can progressively developed. Table of Contents Introduction (300words) 372 Background Information Apple Inc.
is a technological company that had achieved great success in designing, producing and selling its wide range of products categories including Mac, IPad, IPod and IPhone, which brings innovations in computers, media tablet, Portable music players and mobile phones respectively. In addition, Apple also offers a variety of related software, applications, services, networking solutions, peripherals and third-party digital content which represent a revolutionary era for innovation and differentiation of Apple. (reuters). Although touch screens in mobile devices are not new, Apple managed to be the first to achieve mass market adoption for that
technology by creating and launching the first IPhone series in January 2007. The IPhone was so much ahead of its time that it virtually created a new category in the market leaving everyone else playing catch up (Elliot, 2012). The Apple’s target market includes teenagers, college and university students, business people, young children and kids and adults. As of September 29, 2012, it had 412 retail stores in 14 countries around the world. (Financial Report 2012) At the same time, Apple had an extensive 72,800 regular employees and an additional 3,300 temporary employees or contractors worldwide (Apple 3 year PnL).
Financial Performance According to the financial report, the company recorded total net revenue of $156,508 million during the fiscal year 2012, which shows an increase of 63% over fiscal year 2011. In which net profit accounted for $41,733 million, a 61% increase over fiscal year 2011 (Apple 3 year PnL). As observed from the report, Apple’s gross profit margin had rise from 40. 5% to 43. 9% in the past 2 years. This is mainly the result of effective implementation of cost-leadership and differentiation strategy over the years. (Find source). Culture
The firm’s pervious CEO, Steve Job (from 1997 – 2011) had created a culture in which vision are understood and is live by their employees. He believes that communicating the vision to the employee is almost as important as coming out with new products (Elliot. Jay, 2012). This culture was kept alive even when Tim Cook took over as CEO (from 2011 – current) which essentially kept all Apple’s employees on the same page and enact the vision with true passion (Elliot. Jay, 2012) which is key to strategic management (Find that book) Macro Environment Analysis (700words) 803
PESTEL Analysis PESTEL analysis will be used to understand Apple’s external environment and gain an insight of Apple’s future business potential, market situation and operations directions. There are six elements in the PESTEL analysis; Political, Economical, Social, Technological, Environmental and Legal (Find source). Considering developments, trends, indicative incidents at the global levels, we identify that Social, Technological and Legal element of the PESTEL analysis pose a much significant impact on Apple’s mobile phone SBU as compared to the rest. Social
Apple’s social environment is one of key contributor for its success today and will continue to lead it into greater height in future (wei kang, 2013). It’s ‘think different’ slogan is the unique combination of simplicity, creativity and luxury image into the product that reflects the user’s individual identity and the desire to be different (Schneiders, 2011). Apple’s pervious CEO Steve Job always had a sense of what consumer really wanted and adjusted the company’s products line to meet their wants. In other words he tells them what they should love (VERGANTI, 2010).
This is a phenomenon known as the cult marketing in which people do not know their wants until cult marketers present it to them (RAGAS & BUENO, 2005). In simple terms, Cult marketing is actually a tool used in strategy to strengthen customer loyalty (Schneiders, 2011). This element has significant positive impact as it allows Apple to have the strongest customer loyalty in the world and achieve the highest repurchase rate in the electronic field (MacNN, 2006). This effect can be seem worldwide whenever Apple launch their new product, Apple’s fans would camp for days in front of the store only to get one of its newest innovation.
This shows that Apple’s users really love Apple unlike most others (NUSSBAUM, 2005). In addition, due to the technology development, Apple’s Products such as the IPhone are no longer being viewed as luxuries but real necessities goods (source). To succeed in the long run, Apple should follow and abide to its guiding principle; ‘don’t follow your customers; Lead them’ which implies that consumer need to be shown a superior alternative which Apple distinguishes itself and provide these alternatives (MacVarish, 2009). Technological
The market for mobile phone and other electronic products that Apple offers puts them in a hyper competition environment driven by the fast pace of technological changes. Companies like Apple which manufacture such products will have to continually invest substantial amount of money on research and development (R&D) to produce better performance, new feature and better design products to counter the short life cycle and frequent introduction of new products in the market (source). According to MacVarish, one of Apple’s guiding principle for their innovation strategy was ‘Be your own toughest Critic’.
In which, Apple aims to offer new product lines that replaces older products making their them obsolete and thus preventing competitor from doing so. With this principle to beat itself, Apple managed to beat its competitors too (MacVarish, 2009). Ultimately this enable Apple to lead the market as it did in the launching of the different generation of IPhone especially IPhone 5 which become the world’s best-selling Smartphone worldwide during the 4th quarter of 2012 (Maisto, 2013). As a result, Apple’s R&D expense increases exponentially from $1. 782 billion in 2010 to $3.
381 billion in 2012 (Apple 3 year PnL). Due to their research intensive nature to keep innovation ahead of competitors, Apple becomes less cost-effective in saturated markets and is exposed to greater risk if it’s R&D does not come through (source). Legal The intellectual property war has long being used as tool in technology and management strategy by companies such as Apple to gain strategic advantage against their competitors. Apple alone has filled as many as 250,000 patents for the IPhone and other Smartphone covering the design and functionality of these products (Cusumano, 2008).
Apple had lawsuits all around the world with its competitors such as Samsung, Motorola and Nokia both suing and being sued over violation of each other’s patents (source). One such case is the lawsuit in the U. S between the Apple and one of its top smart phone competitor; Samsung in which the jury awarded Apple $1. 05 billion in damage and ordered some of Samsung’s Smartphone products off shelf in parts of the US (source). This verdict allows the IPhone to gain distinctive advantage in the US market and at the same time helped Apple in advertising and broadcast IPhone originality.
In addition the amount of damage awarded to Apple could be counted as revenue which eventually increases the profit margin significantly for of Apple that quarter. In conclusion, while most lawsuits Apple filed comes with little success, any court decisions that verdict in favor of Apple’s patents will likely allow IPhone to remain distinctive in the market (Cusumano, 2008). Industry (Competitive) Analysis 815 Michael Porter’s 5-forces model Apple’s competitive position and its attractiveness in the smart-phone market can be explained in analyzing the Porter’s 5-Forces framework (Porter, 1980).
Using the competitive forces, it would identify the competitiveness and its ability to position itself with diversification. It will show its sustainability and profitability of its iPhone series. Threat of Potential Entry/Barriers to entry – LOW The smart-phone industry is saturated and poses strong barriers to potential entrants who are keen to enter the market. Presently, there are a few well-established competitors that have a large market share and economies of scale which limits new entrants from entering.
Its strong brand presence and consumer loyalty is a hindrance to potential entrants (Bostic, 2013). New entrants require a large amount of capital investment, so as to compete against the market leaders. Due to large economies of scale, it is nearly impossible for this new entrants to enter and gain substantial market share. Sometimes, there is a need for new entrant to innovate such as creating distinctive features or software to compete. But this usually brought about by lack of resources as investing in ample resources does not come cheap.
Legal terms such as patents and trademarks serves as a barrier to new entrants. New entrants also face barriers such as legal terms. These are usually patents or trademarks that the dominants players have. This market leaders such as Apple Inc have patents on its designs of iPhones including software such as iTunes. This prevents any infringements from new entrants to copy similar ideas. After all, Apple is still a dominant player in the smart-phone market and competing against Apple really requires a new entrant high start-up costs. Reference:
Bostic, K, (2013), “Study finds 20% of Apple iPhone users switched away from Android in past year”, Apple Insider Porter, M, (1980), “Competitive Strategy: Techniques for analyzing industries and competitors”, Free Press, Simon & Schuster Adult Publishing Group Rivalry between competitors – HIGH The smart-phone market is very well-developed and there is a high degree of concentration. It is controlled by a few large competitors which are Apple’s strong rivalry. This are dominant smart-phone players such as Samsung, LG and HTC Mobile which has high capital investments.
Smart-phones have become a commodities item that any person will require. As such, dominant players have been placing an emphasis on competitive pricing. This will enable them to gain an edge over competitors. These competitors are generally of comparable size with Apple in its operations. Due to stiff rivalry, Apple will differentiate itself in terms of design features and functionalities. Its competitors have also aggressively seek a leadership position in the smart-phone market by constantly innovating and seeking new changes. The result of technology advancement has also caused an increased competition to seek change in the industry.
This in turn results in rivalry among smart-phone players to streamline its products and constantly refreshed its gadgets to meet the demand, so as to stay in competition. (Apple Inc Report, 2009). References: Apple Inc. SEC 2009 Form 10-K Filing Page 16 ?? Threat of substitutes – MODERATE It may seems that Apple has a variety of substitutes in the market, but the nature of Apple’s products sets itself apart from competitors. Although it may seem that Apple has an extensive array of substitutes in the market, but its proprietary nature of products sets itself apart from competitors.
Presently, its threat of substitutes of its smart-phones (e. g: iPhone5) are still moderate. But competitors are already riding on its successes by constantly innovating and substitutes it with a similar product in the market. In general, Apple sources its parts from various suppliers, thus keeping itself unique in the smart-phone market. As such, Apple still have to constantly stay innovative and price conscious so as to effectively positioned itself against other competitors with a strong branding and following. As such, its differentiation strategy can effectively diversified itself from others.
Bargaining Power (buyers) – LOW There are many smart-phone brands in the market that is a substitute to Apple’s iPhones, but the bargaining power by buyers remain low. The main fact is that Apple’s focuses on differentiating its products from its competitors. Its unique designs, features and cult marketing are testimony to its loyalty by buyers. Its niche market in the smart-phone industry also makes buyers less sensitive on product pricing. Customers or loyal fans of Apple are still willing to pay regardless of the price.
Although major retailers or businesses have some relative power to bargaining due to its bulk volume, individual buyers still have no control especially on their product pricing. Apple’s lack of third party options also means that buyers have less options for other product. Bargaining Power (Suppliers) – LOW Apple relies on a variety of suppliers in its manufacture for smartphones. Usually, it is not limited to just one single supplier for various components in the assembly of its smartphones. As such, this leaves Apple’s suppliers with less bargaining power over prices.
This enables Apple to successfully create a competitive advantage over its competitors in the market (Apple Annual Report, 2012). Due to its bulk quantities of components, Apple Inc can have a leverage over suppliers through negotiating better terms and pricing. This allows Apple to have a lower cost structure and ensures a higher profit margin as compared to its competitors. Apple’s Strategic Capabilities 684 Analysis Apple’s integrated system of hardware and software has enabled the firm to successfully market and develop to be their most valuable strategic resources (Dhaliwal, 2009).
It was their former CEO, Steve Jobs that pulled Apple’s back to the growth stage. Apple’s talented team of software engineers, programmers and designers are the firm’s key resources in innovating. This enables Apple to utilize their knowledge to successfully create a tailored hardware and software system which serve as its key capabilities. Its integration in its key capabilities has allowed Apple to create a competitive advantage and sustainability in the market (“Electronic Industry Citizenship Coalition,” 2009).