This case study will include an overview of Apple’s past, present, and future market position in computer hardware, software, smartphones, and digital content. The case study focuses on Apple’s strong market presence in high-end electronics and their leadership role in the computer and communication industry.
Analysts wondered what would happen to Apple with Steve Jobs gone. Despite their success, some observers worried that Apple had become overly dependent on iPhone sales and pondered how long Apple would sustain its growth without the introduction of truly innovative new product. CEO Tim Cook claims that Apple watch, Apple Pay, Apple TV, and corporate customers were big growth areas for the company. Cook confidently exclaimed that Apple’s product “pipeline” was the strongest he had ever seen. With a high rate of innovation and emphasis on excellence in product design, Apple succeeds with its relatively high selling prices. This position indicates Apple’s effectiveness in using its generic strategy and intensive growth strategy.
However, Apple’s current market position has investors concerned because of Apple’s no growth in revenue and declining sales. With the smartphone market maturing and Apple still looking for its next big thing, Apple needed a new product segment to boost company profits. Apple’s new CEO Tim Cook took the company into the wearable technology market. Cook aimed high for new product success but entering a market that was already in competition was not to Apple’s strength to gain success. It’s clear they are losing innovation in the electronic and becoming dependent on past products. Consumers and investors were disappointed in overall unit sales after the introduction of Apple’s new product the Apple Watch.
Depending on the industry segment, Apple’s competitors include Samsung, Amazon, Microsoft and Google. Throughout most of 2013 and as of 2014, Apple’s main competitor in the smartphone market is Samsung’s line of Android-powered phones. Another competitor is Google who developed the Android software and is a major competitor of Apple in the smartphone operating system market.
- In the final quarter of 2014 Apple posted record profits of $18 Billion, the largest quarterly profits in corporate history. Spurred by the release of the iPhone 6 and sales were strong in China.
- Apple’s iPhone accounted for 69% of its revenue.
- Apple generated $10.2 billion in revenues from the sale of music, book, videos, and applications. Over time Apple also paid out more than $25 billion to developers for the 75 billion apps downloaded to iPhones, iPods, and iPads.
- Apple generated more than 60% of the cell-phone industry’s total profits in 2013. With only 8.3% unit market share.
- In 2008 iPod sales start to decline.
- iTunes store experienced a decline as much as 13% in the first half of 2014. And in response launched iTunes radio an ad supported streaming service.
- Ipod sales have been falling for 7 straight years and iPad had suffered a significant decline in sales, down 22% from Q4 in 2013.
- Personal Computer’s sales have been slowly declining as market saturation increases. However, Apple has a large market share in the over $1000 Pricing segments for consumers and it has been a strong factor to their success. Also, after industry innovations in featured based approaches a PC’s life expectancy has been increasing and therefore creating longer gaps of purchases for consumers.
Social Culture Positives
- Apple is a well trusted computer technology brand in the market. After 2001 when the Mac iOS X was introduced it was perceived as an industrial-strength OS favored by computer professionals.
- Apple doesn’t have to buy users it already has over 750 million, and those users have all paid to use Apple’s product; $650 per person to get a new iPhone.
- Apple’s digital hub strategy debut was with the iPod in 2001, follow by the iPhone in 2007, then iPad in 2010. Integrating Apple’s iTunes desktop software and music store completed their vision for an online entertainment hub. 2003 Windows PC compatible.
- July 2008 the App store was an addition to Apple’s digital hub. The app store was the first outlet that made it easy to distribute, access, and download applications directly into the iPhone. By the end of 2014, over 1.4 million applications were available.
- Online music stores Amazon.com, Napster, and Walmart.com and challenges from a variety of online music of online music streaming services, such as Pandora, Spotify radio, Rhapsody. In some markets, music labels made more money from spotify than iTunes.
- Apple not only wanted consumers to directly look at the eye-catching Macintosh designs, but also wanted people to use and experience Apple’s software inside their retail stores and it account for 12% of their sales.
- By 2014 Apple won two large judgements against Samsung in U.S Courts.
- By April 2012 , Amazon’s market share in e-books had fallen to 60% because of Apple’s push into the e-book market content.
- Intense competition in the smartphone industries led to numerous lawsuits on design and intellectual property which creates a patent wars.
- The court ruled that Apple’s pricing strategy for digital books had in fact colluded with five publisher to raise prices, and in late 2014, agreed to pay %400 million in damages.
Rivalry among Existing Competitors
- Apple’s direct competition in the smartphone software market comes from Android, an open and free platform developed by Google and Windows from Microsoft Corp. As more manufacturers entered the market, innovation on the Android platform exploded.
- In 2014 Android-based phones controlled 81% of market share compared to Apple’s 15%. The share for Apple’s iOS fell gradually with the growth of Android, from its peak of nearly 19%.
- After Google announced “AndroidWear” in 2014, extending the Android platform to watches, LG, Motorola, and Samsung subsequently introduced watches based on the software platform.
Threat of New Entrants
- Among headset manufacturers, Samsung Corp. was Apple’s most direct competitor. Samsung is a huge company that make chips, PC’s, TVs, and appliances as well as phones. Samsung became a volume leader in 2011 with the introduction of its Android-based Galaxy handset and remained the market leader in 2014 with 24.5% share.
- Lenovo had emerged as the third largest player in the smartphone industry holding 7.4% of the handset industry
- A new player from China called Xiaomi, which brought it first smartphone to the market in 2011 and entering into 2015, it had cracked the top five in smartphone sales.
Threat of Substitute Products
- In a broad sense, all firms in an industry compete with industry producing substitute product. For Apple they cover a broad range of computer electronic products leaving them subject to a wide range of product substitutes. But for the smartphone industry its substitute would be the personal computer and iPads.
Bargaining Power of Suppliers
- The supplier that captured most of the value in smartphones was Qualcomm, which largely controlled the two most important protocols for wireless service.
- Three companies dominated the ARM CPU business in smartphones in 2014. Qualcomm had about 54%, Apple roughly 15%, and MediaTek from Taiwan had just under 14%. Jobs bought two ARM microprocessor design companies for $400 million between 2008 and 2010.
Bargaining Power of Buyers
- Apple has a lot of buyers in the market ranging from Corporate suppliers to retail consumers.
- Apple has a high end pricing model but it focuses on key features that differentiate the company and its products from competitors. They do not use pricing but instead these key features including seamless connectivity, and cutting edge aesthetics in design.
Identifying and describing the root cause
The Case study focuses on Apple’s stagnations of their revenue streams in the software, smartphone, personal computers, and digital content markets. Apples has always been a leader in innovation when it comes to computer technology but industry competitors are copying Apple’s industry standards.
- A clear problem for Apple is Android delivering fast and fresh ideas at a regular clip, putting Apple’s iOS on the defensive and causing its critics to complain that Apple’s platform was looking dated and old. Several products in Apple are starting to loose their revenue stream because of competition from companies like Samsung, Amazon, and Google are developing similar products at lower costs in the market.
- In 2014, the Apple Watch, Apple’s entry into the wearable technology. Apple was not the first in the category, but it was expected to be the largest. The Apple Watch had to be charged every day, it only worked with iPhones, and it was expensive. Prices started at $349 for the basic model. Moreover there was already significant competition in the market offering a similar product at lower costs. Competitor Pebbles sold for $150.
- Apple’s vertical integration gives them a competitive advantage because it allows them to innovate in software, hardware, and services. It owns chip manufactures, controls manufacturing, follows extremely strict software standards, and operates in a nearly closed ecosystem of retail stores to control their costs.
- Apple’s development environment is superior to the competition because they can predict what customers want in the market. Productivity applications with their user interface was designed with simplicity in mind.
- With the loss of CEO and founder Steve Jobs stakeholders company has big expectations even with aftermarket adaptations by Google, It’s clear that Apple no longer has total control of their critical technology that would drive Apple’s differentiation in the market.
- There is a crowded field of cross-platform alternatives to Apple’s offerings: Microsoft’s Skype, Facebook WhatsApp, and a variety of other third party tools, resulting in a lot of apps with overlapping functionally.
- Apple announced a partnership with IBM to design enterprise app enlisting IBM’s sales force and business connections to sell apple mobile devices to enterprise customers. CEO Tim Cook pointed out, iPhones and iPads were present in 90% of Fortune 500, but rate of participation was low, providing Apple with an opportunity to advance mobility in the enterprise.
- Samsung has had recent trouble with their Note and Galaxy handset product lines. Their batteries have been overheating and in some cases exploding causing harm to users.
- Apple had at least three potential serious competitors for tablet: (1) manufacturers using Google’s version of Android software; (2) Amazon, which used a modified version of Android; and (3) Microsoft Windows-based tablets, and by the end of 2014 Android had capture 70% share.
- Currently, Google, Microsoft, and Amazon have entered the fray by setting up their own ecosystem, including devices, books, games, music, and storage services.
Analysis and Decision Making
Strategic decision making is an ongoing process that involves crafting strategies to achieve goals and altering strategies based on reviewed outcomes. Apple’s goal is to increase their revenue stream in the smartphone industry.
- Leverage their current strength, Apple should focus on their premium smartphone brand, the iPhone.
- Continue to improve and innovate the Apple Watch.
- Increase their research and development spending.
- Focus on improving digital media content in China.
#1 – Leverage their current strength, Apple should focus on their premium smartphone brand, the iPhone.
- By focusing on customers willing to pay more and maintaining a premium price at the cost of unit volume, Apple sets up an artificial entry to barrier to competitors.
- Taking into account that premium smartphones are the minority in global smartphone sales by volume, they provide the bulk of profit. Each iPhone Apple makes costs somewhere around $200, and is sold for over $600. The profit margins are far better for premium smartphones than nearly any other segment of electronics. That is why it is significant for Apple to widen its gap against competitors like Samsung.
- Apple must perform two tasks. (1) Apple needs to continue to improve their iOS software for users. Creating new tools and interface features for every iPhone launch. (2) Apple’s must ensure proper vetting and marketing messages when introducing new iOS software into their products.
#2 Continue to improve and innovate the Apple Watch
- Becoming selective in what products to improve is very tough. I feel that Apple has established a presence in the wearable technology which a huge market to consider. The Apple Watch product is designed to become an intricate part in people’s daily lives. This is a new product category for Apple and I consider them to still be in the learning stages of the product life cycle. Apple should push the product into the realm of consumers to feel that they cannot live without this product because it’s doing so much for them and then it will continue to be adopted by consumers.
- Apple Watch will continue to be a flop until they can establish a 4G connection and make it a stand alone device.
#3 Increase research and development spending
- Compared with its resources Apple has remained relatively quiet It spent just 3.5 percent ($8.1 billion) of its $233 billion in revenue in fiscal 2015 on research and development, a lower percentage than every other large U.S. technology company, data compiled by Bloomberg.
- Under CEO Tim Cook, Apple leans heavily on advances made by suppliers, focusing on crucial technology such as semiconductors, according to Ram Mudambi, a business school professor at Temple University in Philadelphia.
- Apple can’t rely on its suppliers for everything. Expanded research outlays significantly over the next three years, to $8.1 billion in fiscal 2015, up from $6 billion in 2014 and $4.5 billion in 2013. This would display to investors its commitment to innovate and evolve new technology that enhances and expands its existing product range.
#4 Focus on improving digital media content access in China
- Apple must not abandon the Chinese market because of its lack of market share. The volume of sales alone justifies Apple’s presence in the smartphone market.
- The company must reestablish its iBooks and iTunes Movies services in the country. Earlier in 2014 after less than seven months of operation following pressure from regulators Apple was asked to shut down their online market presence, which is a problem.
Goal: Increase growth in revenue stream and look for opportunities in new product development.
|Action Step||Responsible Person||Deadline||Necessary Resources||Potential Challenges||Results|
|#1) Improving iOS software for iPhone.||Software Engineers and Marketing department||Within 6 -12 months||Advancements in suppliers and advancement in software tools. Intellectual property protection||Lack of consumers adopting the new software||Looking consumer adoption in the smartphone industry|
|#2) Invest more in Research and Development to extend product lines.||CEO, CFO, and chief engineers and design firms.||Within 3-6 months||Using capital funds to absorb competing firms. And reinfusing revenue into R&D||No breakthrough in new product category development||New product to market.|
Lifetime value of the customer – Revenue x Gross margin x Avg number of repeat purchases.
Cost of customer Acquisition – Total marketing investment x total number of customer acquired.
Sales Growth – Measuring your sales growth is, however, vital to the long-term health of your company. Not only does it serve as a good indicator when it comes to strategic planning, but it also allows for identification of growth trends and share this information with employees.
Cooks thoughts echoed those of his predecessor, Steve Jobs, whose strategy for Apple had four pillars. Offer a small number of products, focus on the high end, give priority to profits over market share, and create a halo effect that makes people starve for new Apple products.
Steve Jobs, Apple’s former CEO and Founder created a trusted company brand when it comes to personal computer technology. Jobs inspired Apple’s management to become a cultural force with the focus on what consumers in the electronics industry wanted. Apple’s marketing helped associate the band to be perceived as a product of personalization. Phrases like “Think Differently” inspired creativity within their users because their product could create documents, personalized music playlists, and Apple included several different colors and data storage sizes that worked around the user’s budget. A study by GfK in 2011 “showed that over 70% of consumers felt features and seamless access to content are major factors for continuing with their current mobile OS This allowed Apple’s iPhone product to become cultural industry standard with their consumers when it comes to communicate, create documents, playing games, and getting online.
We can learn so much from Apple’s marketing strategy because they staked their claim, amplified their messages, and impacted the world for the better. Apple’s marketing and branding strategy had the ability to invoke an internal response from their tech savvy consumers with their marketing messages. Steve Jobs knew that for a business’s product to be “remembered” there must be a clear message for them to remember and identify with. With Apple’s 2007 launch of the iPhone they “Reinvented the phone” by integrating software breakthrough with the design of the user user in mind. Apple was a pioneer in the personal computer and electronic industry they told their consumers that creativity was at their fingertips.