Case One Apple Inc revised

CASE ONE: APPLE, INC.

Case One Apple Inc.

Apple’s Winning Marketing Strategy

Samantha Johnson

Florida Atlantic University

1


Abstract

Apple Inc. is one of the most successful companies in the world. Since it’s humble founding in

1976, Apple has evolved into a global, well-respected, premium brand. Innovation, corporate

culture, and customer brand loyalty are three keys factors that made the company grow and reach

global popularity. Apple has made such an impact in society that most people live and swear by

the brand. Mac computers, iPods, iPhones, iPads, and iTunes are all Apples products that are

extremely popular and in high demand. Apple’s product quality and features make it different

from most companies and its competitors. Although, Apple has achieved iconic status, the

company also faces a number of marketing challenges, the biggest one of which is competition

from other corporate giants like Samsung, Microsoft, and Google. In my analysis, I will identify

Apple’s main strategic issues, analyze and evaluate the problems, and find an alternative

recommendation regarding the fierce competition that the company faces.

I. Strategic Issues and Problems

A. Defining the problem

The main issue Apple, Inc. faces among all other marketing problems is competition. Jay Yarow

explains, “iPhone has less than 20% of the smartphone market, the Mac has less than 10% of the

PC market, the iPad is at 32% of the tablet market, and falling, the iPod is dominant, but largely

irrelevant today” (2013). This is due to fierce completion in the market against Apple. Apple’s

main competitors are Samsung, Google, and Microsoft (Arnold, 2013).

Although, the level of competition varies by product line (computers, smartphones, tablets, and

cloud storage services), Apple has many major rivals in each product line. Samsung is the

Apple’s biggest threat when it comes to the smartphone market due to the innovation of the

2


Galaxy S line that includes the android operating and control system. Dell and Hewlett-Packard

are fierce computer and laptop competitors. Amazon is a big rival when it comes to cloud storage

services, but also just launched its first smartphone called “The Amazon Fire Phone”. Very

similar to the IPhone, the Fire Phone has cool "3D" visuals and a fresh OS design, and “it hits the

sweet spot for one-handed operation” (Miller, 2014). Although Apple products have many

superior features and a throng of loyal followers, there are an increasingly high number of

competitive products being launched in an attempt to compete with Apple.

One of the biggest challenges that Apple faces in its attempt to compete is the need to launch

products faster, reduce the price of products, and not allow competitors to steal ideas. Although

Apple is well aware of these needs, there efforts to date are limited by a number of intrinsic

constraints.

B. Constraints-

1. Apple has great difficulty launching new products fasters then they already are. They have

been competing by only launching new products in the market yearly. This is part of Apple’s

closed system approach that makes users wait a year for a next version of the iPhone or iPad. .

Apple executives explain that to have the most innovative products on the market it takes time

and a lot of learning. But, their competitors tend to launch products much faster and more

frequently. For example, a new IPhone is released on the market once every year whether it is

modified a lot or a small amount. During this time customers are left in suspense until the

product release date is announced. It is potentially a good marketing strategy that builds

excitement and press coverage, but in the mean time Apple’s competitors are releasing new

products that are equivalent or superior to Apple’s smartphone. For instance, Samsung’s Galaxy

S smartphone has shown to be preferred by many over Apple’s iPhone. Samsung is the only

3


smartphone manufacturer to give Apple a run for its money and the Galaxy Note 4 is expected to

sway many potential iPhone 6 Plus owners (Unscrambled, 2014). The Galaxy Note was special

because it was the first smartphone after the iPhone to gain commercial success and popularity.

While a new IPhone 7 is being made, Samsung has already come up with a release date for the

Galaxy Note 5. Not only are the Galaxy S smartphones being released at a faster pace then the

iPhone, they are much cheaper and therefore affordable for consumers.

2. Apple believes that it must maintain a premium price in the market for all of their products,

which is a constraint that drives them to justify the price by offering the highest level of features

and ease of use compared to any other product on the market. They are the “Mercedes” of the

electronics world. Apple generates significant profit from the high margin on its devices and

refuses to lower the price. They insist on maintaining a high quality/high feature/high value

brand image. The corporation feeds on the point that making customers pay more for their

products creates value and loyalty. Apple’s high price point makes the brand appear to have a

higher status then other competitors. Customers tend to stay loyal to the Apple brand due to its

high product features and ease of use, in addition to a high level of customer service, premium

product reputation, convenient retail locations, and lasting product quality. It is a fact that most

laptop computers have a life span of about two years while the Macintosh laptop doubles that life

span with an average rate of 4 years. Product quality has a huge influence when it comes to

pricing: consumers don’t mind paying a higher price for quality. For those more price sensitive

consumers that cant afford to buy Apples products, they can’t justify why the Apple product

prices are so much higher then other brands. Apple is a “premium” gadget maker, not a hoi

polloi gadget maker, and it only wants to sell phone (and tablets) to people who can afford to

pony up for them (Blodget, 2013). Competitors are starting to realize how loyal Apple customers

4


really are. They are coming up with strategies to make their image attract customers that will

stand loyal to their brands.

Apple fears lowering the price of their hardware devices will cause them to lose their prestige

and be in the same image category as their competitors. The new CEO of Apple Tim Cook has

given a suggestion that Apple could buy more market share. But, buying more market share

means Apple would have to lower their prices and this could be a disadvantage because what

they would be buying could be less profitable then the market share that they already own. Apple

cannot afford lower profitability due to their significant overheads and investor expectations.

3. Apple’s premium image is built on the back of their unique features and functions, which their

competitors regular copy. An additional major constraint for Apple is that they can’t afford the

time, expense, and disruption to their product development cycle caused by an increasing

number of lawsuits. Their competitors have become so aggressive that they are copying Apple’s

technology and instead of waiting for Apple to sue them, they have gone to extent of filing

multiple lawsuits against Apple preemptively.

Any Apple employee can explain to you that company secrecy is the single highest priority for

people that are hired into the corporation. But, because Apple, Inc. has boomed with success,

most competitors are now out to steal the company’s intellectual property in any way they can.

If they can’t copy or reverse engineers the Apple technology, they have even resorted to stealing

it. Lawsuits have been filed by and against Apple for patent infringement for nearly every one of

the latest software and hardware developments. Apple has gone to court with almost every rival

year in and year out and can’t afford to do so any longer. The expense of these lawsuits is not

only massive but it also taints Apple’s reputation with their loyal customers when lawsuits are

5


announced in the media and biased against Apple. One example is a lawsuit that was filed by

Kodak against Apple. According to Florian Mueller of FOSS Patents, the claim accuses Apple of

violating four digital photography patents Kodak said it obtained after "concluding it would be

desirable for people to easily share pictures" from digital cameras without having to first upload

them to a central PC (Campbell, 2012). Unfortunately, Kodak lost the case against Apple after

being dragged out for about 30 months, but still said it would appeal. Another example of a

lawsuit that was filed against Apple was by Proview Electronics. Proview sued Apple because

they argued that Apple they infringed on an iPad trademark from Mainland China. After a two-

year battle Apple settled with Proview Electronics for $60 million. Not only have powerful

companies filed lawsuits against Apple, Apple has also filed many against competitors accusing

them of stealing their ideas. One well-known patent lawsuit Apple filed was against Samsung in

2012. Apple accused Samsung of mimicking their design ideas in tablets and smartphones.

Samsung’s Galaxy S line of smartphones and tablets are extremely similar to Apple’s iPhone

features. Apple asked for $2.2 billion from Samsung but was awarded slightly over $1 billion in

damages after Samsung was found guilty for copying Apples ‘s innovative ideas. After the two

largest smartphone companies filed over 40 lawsuits over the past three years, they finally signed

a pact to end all patent lawsuits against each other outside of the United States. Another lawsuit

Apple filed was against a Taiwanese manufacturer, HTC Corporation that makes phones for

Google Android products. According to Claburn, when Apple sued HTC two years ago, Steve

Jobs, CEO of Apple at the time said, "We can sit by and watch competitors steal our patented

inventions, or we can do something about it. We've decided to do something about it. We think

competition is healthy, but competitors should create their own original technology, not steal

ours” (2012). After Jobs passed away about a year later, Apple won the lawsuit against HTC and

6


therefor the Taiwanese smartphone manufacturer was banned from selling products that invaded

Apple’s patents in the United States. The problem continues to be for Apple that taking

competitors to court is too expensive. Some people suggest that the only reason Apple is taking

these companies to court is to gain power over these competitors and take them out of the

market. It is way beyond Apple’s ability and budget to take every company to court that

potentially infringes on their technology. However, Apple believes that if they do not protect

them selves other companies may use their ideas and gain a higher market share.

Apple must come up with alternatives to overcome the competitive challenges, in spite of the

organizational constraints that they have largely created for themselves. Below is a graph that

illustrates smartphone market share in the United States. Although Apple previously was the

leader in the smartphone market, currently they are well behind Samsung’s 47.3% market share

with only a 27.3% market share (Rustagi, 2012).

C. Options-

1. For Apple to launch new products quicker they must transfer new designs to their contract

manufacturers quicker so that they can launch and produce products faster.

Shorten Design Transfer Lead Times - A task force team could be in charge of

transferring new product designs sooner. For instance, lets say the full design of the

7


iPhone is not fully complete but the battery design is, the task force team can keep the

manufacturers updated and have them start working on the battery while waiting for other

parts to come together.

Shorten New Production Tool Up Lead Times - Apple could incentivize their contract

manufacturers to tool up for new product production quicker. By offering an incentive to

reduce lead times, the new products will make it to the market sooner thereby beating the

competitors to the product with new and improved features. For example if a

manufacturer gives Apple a lead time of five months for a product to be completed Apple

will pay the manufacturer a bonus to get the product in production in four months. Even

a one-month improvement in product launch times can have a significant positive impact

on Apple’s competitive position and profits.

Ramping up Production Output- there is often a shortage on the launch of a new Apple

product because the manufacture can’t keep up with the demand. When a new Apple

product is launched during the first week almost every retailer is out of the product or

customers have to be put on a waiting list weeks before the product is even out.

Manufacturers need to keep up with the pace at which the product is selling. Again, the

contract manufacture could be incentivized not only to start production sooner for a new

product but also to ramp up the production more quickly than they have done in the past.

2. For Apple to compete, they must offer less expensive products that still that have superior

features relative to competitors at the same lower price points.

Currently Apple utilizes a skimming strategy that focuses on maximizing profits by

charging a higher price for early adopters of a new product then slowly lowering the price

to attract economical consumers. In contrast, Android uses a penetration pricing strategy,

8


which occurs when a company launches a product at a low price with the goal of securing

market share. Many marketing analysis have commented that Apple should switch its

pricing strategy to penetration. This could be done if they develop a line of lower price

reduced feature products that represent a high value for customers.

Value engineering is defined as a reduction of expensive elements that customers don’t

value in a product. Apple could value engineer some of its most expensive products to

again allow them the opportunity to reduce pricing for further market penetration. For

example with every lap top and smartphone a charger comes included. Apple could

reduce the expense by eliminating the charger, and instead allow the customer to buy

their computer or smartphone chargers only if required. For loyal apple users, they often

have extra chargers from prior purchases.

Apple should develop alternative products that are similar to the high end products but

have reduced features and are less expensive to make. For instance, Apple came up with

the 5C; a smartphone that was similar to the 5S but it had a reduced cost housing, and a

reduced battery life. Apple could start doing this with all their products including iPads,

computers, and laptops.

3. Apple also could opt for finding better ways to stop competitors from stealing their

ideas and technology.

License technology to competitors- This means that if Apple is worried a

company like Google or Samsung is going to come up with a similar idea to one

they are about to launch they can license the product or idea to one of these

companies. When you license the idea to one of these companies it is beneficial

because when they incorporate the technology in to one of their products, Apple

9


would receive a percentage of the profit as a royalty fee. Apple is very keen on

having their products different and superior to everyone else but that does not stop

competitors from trying to come up with a similar idea. Licensing a product to

one of these companies would avoid several lawsuits and financial expense.

Apple should also continue to invest heavily in Research and Develop so that they

can bring innovative new products to the market faster. By doing so, they can

stay ahead of competitors and minimize the risk of them stealing any of Apple

ideas. Innovation is a huge aspect on why Apple is so successful. The money they

invest in increasing their rate of R&D would reduce the cost of litigation and

further separate them from their competitors on features.

II. Analysis and Evaluation

D. SWOT Analysis

Assessment of Industry

1. Strengths- The electronics industry is one of the industries that are easiest to develop and bring

to market new products on a rapid basis. There are very little regulatory approval constraints and

there is outstanding access to research, new technology, developers, and manufacturers, which

can be sourced in the US or globally.

2. Weaknesses- The electronics industry has fierce competition among giant multi-national

competitors that include both hardware, software, and Internet focused companies (ie. Google,

Amazon). The competitors regularly copy technology and have limited fear of litigation.

3. Opportunities- The continual development of cheaper and better technology and components

allows the electronic industry to continue to increase product features at the same or reduced

10


prices. With the volume of demand for the electronic products, the electronics industry can

achieve production scale economies to continue to drive down cost and increase profits.

4. Threats- There are no barriers to entries for new competitors to enter the market. Software

and internet-based services could reduce the need for many of the electronic devices that

companies like Apple offer. It is not hard to imagine in the future that home appliances will all

have internet capabilities, and together with advanced phones there will be limited need for

laptops, desk top computers, and Ipads.

Market

1. Strengths- Apple’s most important strength is their well-known brand name based on premium

quality and features. This strong brand image enables Apple to price their products at a premium,

achieve high profits, and still attract loyal customers (James, 2011). Innovation and product

development are two huge factors that Apple to achieve this high “Mercedes like” brand image.

Apple products set high standards for the market, designed for ease of use and functionality

(Coman & Ronen, 2009), while still being sleek and stylish.

2. Weaknesses- Continuous expectations by consumers for increased features and innovation, at

the same or reduced price levels. Also, consumers have high expectations with product quality. If

there is one mistake or glitch in a product that makes it hard for customers to use, customers will

transition to another brand.

3. Opportunities- the growth of electronic smartphones, laptops, and tablets in the United States

is booming at an all time elevated rate. Apple is the strongest brand when it comes to

applications (eg “Apps”). Applications are still growing and creating a buzz through mobile

advertising. Apple has an advantage over other competitors because the more applications made

the more people want to buy their products.

11


4. Threats- Competition within the technology industry is the biggest threat to Apple. Apple must

continue to produce innovative products at a higher speed then other competitors. Consumers

rely on Apple providing the most unique products. Apple must stay true to their brand and keep

customers more interested in their brand compared to others by providing a large amount of

retail locations, superior customer service, and brand awareness.

Buyer Behavior

1. Strengths- loyal customers value the high quality and overall features of each Apple product.

Apple values customer loyalty, therefore provides multiple customer service options. At every

Apple retail location the company offers assistance to customers that have purchased an Apple

product.

2. Weaknesses- some customers are price sensitive and find that Apple’s products are too

expensive to accommodate their wants. Customers that don’t have an upgrade or not eligible for

a new smartphone can believe that the original price is extremely expensive. Tablets and Laptops

also are twice as expensive compared to competitors.

3. Opportunities- Apple will keep developing innovative products. The upcoming iPhone 7 will

have incredible features and be ten times faster then previous iPhones. This will have customers

wanting the new product and get rid of their latest iPhone.

4. Threats- Competitors coming into the market with lower prices with similar products and

features that attract more loyal customers then Apple.

III. Alternative Courses of Action

1. Collaborate with Google and license the Android operating system to offer a lower cost Apple

with Android smart phone and other portable products. Since Android is Apple’s biggest

12


competitor, if Apple were to license with Google they could sell cheaper products that have

similar features to Android.

Pro: This would avoid any lawsuits between the two companies and both would be profiting

from the product.

Con: Potential conversion of loyal non-price sensitive customers to cheaper Android based

products. Loyal customers may start liking the Google Android product more then the standard

Apple operating system products and could switch over to solely buying Google based products.

2. Spend more money on product development and come up with innovative ideas faster than all

competitors.

Pro: Apple can continue to build their global brand of premium feature and priced products at

superior margins.

Con: If they cannot separate themselves from the competition on features, they may not be able

increase market share or earn a return on a large ramp up of R&D expenses.

3. Keep Apple Inc. the same and make no radical changes to their product development or

marketing strategy. Apple is a premier company, and even though competitors have eaten in to

their market share, they continue to have the highest profit and reputation in the industry. Just

like Mercedes Benz, who has been around for years with many competitors entering the luxury

car market, has remained to a premium brand with exceptional profitability.

Pro: Apple is already one of the best companies in the world at developing new technology high

quality products. Following this strategy would not require any additional financial risk since

they have already proven this formula works.

13


Con: If no there is no change in the companies overall marketing strategy it could lead to a

decline in profit due to competitors becoming more innovative and gaining higher product

knowledge.

IV. Recommendations

The set of alternatives I thought would be the most beneficial to Apple Inc. include, licensing

with Google to sell the Android product, spending more money on product development by

expanding the brand into other markets, and keep Apple the same by making no changes to the

company. The best recommendation I would have for Apple is to make no changes to the

company and keep innovating as much as possible to keep their reputation of being one of the

top most profitable companies in the world. If Apple keeps doing what they are doing the

company should have no worry about new competitors in the market. Every market is going to

have competitors whether they are a huge threat or not so much. In most cases when an

extremely successful company like Apple has new competitors it only pushes them to be better

and gain market share. With all of these competitors today, Apple still is the leading consumer

electronic brand and continues to show growth and innovation gradually.

14


References

"Apple, Samsung Smartphones Muscle out the Competition in US." TechRadar. N.p., n.d. Web. 26 Feb. 2015.

"Proview vs. Apple: The IPad Trademark Battle Explained." Digital Trends. N.p., 28 Feb. 2012. Web. 26 Feb. 2015.

"Tech.Pinions - Perspective. Insight. Opinions." Techpinions Perspective Insight Analysis. N.p., n.d. Web. 26 Feb. 2015.

Blodget, Henry. "Come On, Apple Fans, It's Time To Admit That The Company Is Blowing It." Business Insider. Business Insider, Inc, 15 Nov. 2013. Web. 26 Feb. 2015.

Kodak lawsuit accuses Apple of violating four patents (u). (n.d.). Retrieved February 27, 2015, from http://appleinsider.com/articles/12/01/10/kodak_lawsuit_accuses_apple_of_violating_four_patents

News, B. (2012, July 22). Kodak Loses Patent Suit Against Apple and RIM. Retrieved February 27, 2015, from http://www.nytimes.com/2012/07/23/business/kodak-loses-patent-lawsuit-against-apple-and-rim.html

Apple And Samsung Drop Patent Disputes Against Each Other Outside Of The U.S. (n.d.). Retrieved February 27, 2015, from http://www.forbes.com/sites/amitchowdhry/2014/08/06/apple-and-samsung-drop-patent-disputes-against-each-other-outside-of-the-u-s/

HTC Settles Apple Lawsuit - InformationWeek. (n.d.). Retrieved February 27, 2015, from http://www.informationweek.com/mobile/mobile-devices/htc-settles-apple-lawsuit/d/d-id/1107338?

15

http://www.forbes.com/sites/amitchowdhry/2014/08/06/apple-and-samsung-drop-patent-disputes-against-each-other-outside-of-the-u-s/

http://www.forbes.com/sites/amitchowdhry/2014/08/06/apple-and-samsung-drop-patent-disputes-against-each-other-outside-of-the-u-s/


Yarow, J. (2013, October 5). The Story Of The Creation Of The iPhone Explains Why Apple Can't Just 'Innovate' A New Product Every Other Year. Retrieved February 27, 2015, from http://www.businessinsider.com/why-apple-cant-just-innovate-a-new-product-every-other-year-2013-10

(n.d.). Retrieved February 27, 2015, from http://dl.uncw.edu/etd/2011-3/r1/jamese/elizabethjames.pdf

16

Documents

Case One Apple Inc revised