CASE 9Rogers` Chocolates ASSIGNMENT QUESTIONS 1. What is competition like in the premium chocolate industry? Which of the five competitive forces is strongest? Which is weakest? What competitive forces seem to have the greatest effect on industry attractiveness and the potential profitability of new entrants? 2. How is the premium chocolate industry changing? What are the underlying drivers of change and how might those driving forces individually or collectively change competition in the industry? 3. What key factors determine success for producers of premium chocolates? 4. What does a SWOT analysis of Rogers` Chocolates reveal about the prospects for company`s future success? What are its key resources strengths and competitive capabilities? its resource weaknesses and competitive liabilities? its external opportunities and threats? 5. How would you describe Rogers` Chocolates` competitive strategy? How is it positioned in the industry? What specific steps has management taken to implement this strategy? Do the company`s functional strategies and tactics appear to be consistent with its competitive strategy? 6. How well is Rogers` Chocolates` strategy working in terms of the fi nancial performance it is delivering? What is your assessment of its level of profi tability. its degree of liquidity. and the extent of its leverage? 7. Which of the strategic options available to Rogers` Chocolates should be given the highest priority? Which of the growth options is the most attractive? Why? 8. What specifi c actions should Steve Parkhill undertake to improve Rogers` competitiveness in the Canadian Premium Chocolate Industry? How will the culture of the organization impact Parkhill`s decision? As a relatively new CEO. how would you suggest that Parkhill reconcile the competing growth suggestions championed by various members of the Board of Directors? PAPER 1 LxecuLlve Summarv SuccessofanvbuslnessesoraanlzaLlonlsdeLermlnedbvfacLorssuchasflnanclalmanaaemenLoperaLlonal llnanclalfacLorsaddressuseofcaplLallnbuslnessandflowofcashLhrouahvarlousprocesseswlLhlnLhe oraanlzaLlonManaaemenLfacLorsarellnkedLooraanlzaLlonalsLrucLureofLheenLerprlseWhereasoperaLlonal facLors address how avallable resources are used Lo achleve ob[ecLlve of Lhe oraanlzaLlon AparL from Lhese Lhree facLorsenvlronmenLalfacLorsllkecompeLlLlonalsodeLermlnesuccessofanvbuslnessoraanlzaLlon1hlspaper exploresLransformaLlonLhaL8oaers'ChocolaLeCompanv hasunderaoneslncelLsesLabllshmenL1hepaperalso lnvesLlaaLes compeLlLlve sLraLeav of Lhe companv aaalnsL lLs close compeLlLors CuesLlon 1 WhaL ls compeLlLlon llke ln Lhe premlum chocolaLe lndusLrv? Whlch of Lhe flve compeLlLlve forces ls sLronaesL? Whlch ls weakesL? WhaL compeLlLlve forces seem Lo have Lhe areaLesL effecL on lndusLrv aLLracLlveness and Lhe poLenLlal proflLablllLv of new enLranLs? CompeLlLlonlnpremlumchocolaLelndusLrleslsbasedonrealonalbrands(ZleLsma2008LlllsMeLal2007) lorcesLhaLacceleraLecompeLlLlonamonapremlumchocolaLelndusLrleslncludevarlaLlonlnquallLvofproducLs andoLherservlcesofferedLocusLomersvarlouspremlumcompanleshavelndlvldualLechnlquesLhaLensure dellverv of hlah quallLv producL ln Lhe markeL ln addlLlon Lo producL quallLv prlce of Lhe producL ls anoLher area where compeLlLlon arlses uependlna on Lhe producLlon cosL dlfferenL premlum lndusLrles offer dlfferenL prlces ln LhemarkeLackaalnaandphvslcalpresenLaLlonofLheproducLslsanoLheravenueforcompeLlLlonlnpremlum chocolaLe lndusLrles (ParcourLCooze 2009) Companv LhaL offers aLLracLlve producLs especlallv LaraeLlna vounaer aeneraLlondomlnaLesLhemarkeLlurLhermoreadverLlsemenLmeLhodsandaeoaraphlcaldlsLrlbuLlonlsalsoa poLenLlalareaforcompeLlLlon(Sledel2002)Ahlahsalelsreallzedln companvwhoseproducLls mosLlvspread and common lrom Lhese forces aeoaraphlcal dlsLrlbuLlon emeraes Lo conLrlbuLe much ln hasLenlna compeLlLlon amona chocolaLe companles LvenLhouahallforcessLaLedabovehasLenscompeLlLlonamonaLhesechocolaLecompanlesproducLquallLv surface Lo have leasL lmpacL on exLenL of compeLlLlon (ZleLsma 2008) ALLracLlveness and proflLablllLv of chocolaLe producLslsdeLermlnedbvhowLheproducLlsmoldedcoloredandpacked(LlllsMeLal2007)ackaalna Lherefore plavs a role ln ensurlna manufacLured producL appears aLLracLlve ln Lhe markeL 1o a cusLomer naLure ofwrapplna maLerlalsLellsmoreabouLquallLvofLhelLem dellveredPlahproflL lsLhus reallzedlfLheproducL ls aLLracLlve Lo Lhe cusLomer AdverLlsemenL meLhods used ln promoLlna Lhe producL also deLermlne how aLLracLlve LheproducLwouldbelnLhemarkeL(uahland8lake2007)lnchocolaLecompanlesLaraeLedconsumersare vouLhsLhereforesexvadverLlsemenLslncorporaLedwlLhmodernLechnoloavluresmosLvounapeopleLo purchasemorechocolaLeCeoaraphlcaldlsLrlbuLlonofnewlvlaunchedproducLalsodeLermlnesproflLrecelved from LhaL parLlcular producL 1o ensure hlah aLLracLlveness and proflLablllLv a companv ensures wlde dlsLrlbuLlon of lLs new enLranLCuesLlon2PowlsLhepremlumchocolaLelndusLrvchanalna?WhaLareLheunderlvlnadrlversofchanaeand how mlahL Lhose drlvlna forces lndlvlduallv or collecLlvelv chanae compeLlLlon ln Lhe lndusLrv? 1hecompanvhasunderaonechanaelnownershlp(ZleLsma2008)Cwnershlpof8oaersCompanvhaschanaed slnceLhedeaLhoflLsfounderCharlesCandv8oaerslromfamllvownershlpLheflrmwassoldLooneofLhe cusLomersafLerCharles'deaLhAnoLherpromlnenLareaofchanaelslnproducLlonplannlnaCneaspecLof lmprovedproducLlonplannlnalslnpackaalnaofmanufacLuredchocolaLes8oaers'ChocolaLeCompanvlnlLlallv used manual wav of wrapplna chocolaLes AlLhouah Lhe chocolaLes were of hlah quallLv Lhe process was however verv slow 8elaLed Lo mechanlsm of producLlon was labor requlred ln Lhe whole producLlon process 1he companv relled on human labor ln carrvlna ouL lLs operaLlons Lven Lhouah hand wrapplna ls sLlll belna used Lhe companv hasacqulredmanvefflclenLmachlnesLhaLasslsLlncarrvlnaouLproducLlonprocessMoreskllledlaborforce Lhereforehasbeen recrulLedunllkelnlLlallv where mosLofemploveeswereunskllledConsequenLlvproducLlon process has lncreased a loL Lhus maklna Lhe companv Lo ad[usL accordlna Lo flucLuaLlna markeL demandsAparLfromproducLlonplannlnaLherehasbeenachanaelnsLrucLureandleadershlpsvsLemofLhecompanv (ZleLsma2008)SLevearkhlllLookleadershlprolefrom!lm8alphwhohadbeenLhepresldenLandmanaaerof 8odaers'flrmfrom1989Lo2007SlnceLhenarkhlllhaschanaedfocusfromwholesaleproducLlonLoreLall producLlonConsequenLlvLherehas beenachanaeln Lhe sourceofrevenueforLhecompanv 8eLallproducLlon currenLlv conLrlbuLes an averaae of 30 percenL of LoLal revenues reallzed bv Lhe companvWhlleunderaolnaLransformaLlonvarlousfacLorshaveandaresLlllacceleraLlnameLamorphlcprocessofLhe companv (vlcLorla 1lmes ColonlsL 2010) need for lmproved efflclencv ls one of Lhe facLors LhaL have acceleraLed chanaewlLhlnLheflrmCompanv'sefflclencvdeLermlneshowfasLproducLlonprocesslsLfflclenLcompanvnoL onlv lmproves quallLv of lLs producLs buL also ls lmporLanL ln quallLv of servlces dellverv LffecLlveness of labor ln a companv also consLlLuLes companv's efflclencv ln an efflclenL companv all proarams and producLlon processes run as per sLlpulaLed Llme1heflrmLhuswlllbeonforefronLlnldenLlfvlnapoLenLlalmarkeLpolnLsanduLlllzeLhemapproprlaLelvvarlous sLraLealesareeasllvaeneraLedlnanefflclenLcompanvLhusovercomlnaproblemofprlceflucLuaLlonbecomes easv for such a companvAnoLherforceLhaLhasconLrlbuLedlnLranslLlonof8oaers'companvlsLheneedLolncreaseaeoaraphlcal dlsLrlbuLlon of Lhelr producLs (ZleLsma 2008) 8ehavlor of anv producL ln Lhe markeL ls deLermlned bv how famlllar Lhe producL ls ln Lhe exlsLlna markeL lamlllarlLv ls furLher dependenL on aeoaraphlcal dlsLrlbuLlon of Lhe producL Cnlv well dlsLrlbuLed producLs feLches much sales CraanlzaLlons Lherefore who are experlenclna sLlff compeLlLlon fromoLhercompanlesshouldexpanddlsLrlbuLlonofLhelrproducLsandservlcesllnallvleadershlpwranalesas wellaspoorlnvenLorvmanaaemenLcallforchanaelnanvproducLlonflrmlnsLablllLvlnanvdeparLmenLlna companvforeshadowsfallureofLhecompanvlnaddlLlonproblemswlLhlnacompanvLamperwlLhLhe producLlonprocessofLhecompanvSuchllkecompanvLhushasllmlLedchancesofsurvlvallnacompeLlLlve markeL CuesLlon 3 WhaL kev facLors deLermlne success for producers of premlum chocolaLes? Successofpremlum chocolaLeproduclnacompanlesdependsonanumberoffacLors (La 8occo2010)Avallable caplLalwlLhlnproducLlonflrmandlnvenLorvlevel lsanlndependenLfacLorLhaLdeLermlnesarowLhofchocolaLe produclna companv (kennon 2010) Companv wlLh hlah lnvenLorv level has hlah chances of succeedlna especlallv durlnaLlmesofscarclLvofrawmaLerlalslromLhesLudv8oaers'CompanvhashlahneLannualrevenuesand consequenLlvemeraesabovelLscompeLlLorslnLhe markeLroducLlonflrmwlLhhlahlncomerunslLsprocesses smooLhlv and hence a slan of successrlceofchocolaLeproducLalsoaffecLssuccessofproduclnaflrmCompanv'srlceofLheproducL(s)deLermlnes consumpLlon raLe of Lhe producL WheLher prlce ls reaulaLed bv Lhe oraanlzaLlon lLself or sLaLebased declslon lL affecLsdemandofLheproducLuemandandprlceofanvproducLarelnverselvrelaLedLowmarkeLdemand lmplleslowneLsaleswhlchmakessuccessofLhecompanvLobeuncerLalnAnoLheraspecLofprlcefacLorlsln deLermlnaLlonofproducLloncosLLowerprlcesLhanoLherproducersofLhesameLvpeofcommodlLvmake producLlon cosL expenslve Cn Lhe oLher hand hlah prlce reduces markeL demand of anv producL ln a case where dlfferenL companles sell slmllar producL aL dlfferenL prlces companles uslna exLreme prlces are aL rlsk of falllna Companv'saeoaraphlcalareaofoperaLlonlsanoLherplvoLalpolnLlndeLermlnaLlonofsuccessofacompanv ulsLrlbuLlon and concenLraLlon of a companv and/or lLs branches deLermlnes how well consumers wlll famlllarlze Lhemselves wlLh a producL from Lhls companv ln addlLlon consumers purchase producLs whlch Lhev have enouah lnformaLlon on ln larae quanLlLles A companv ls llkelv Lo succeed lf lL has larae aeoaraphlcal coveraae compared Lo lLs close compeLlLors AnoLher facLor LhaL deLermlnes success of chocolaLe produclna companles ls producL quallLv andproducLdlverslflcaLlonPlahquallLvproducLsellsmorelnLhemarkeLcomparedLoLhaLoflowquallLv AlLhouahprlceandproducLquallLvarelnmosLcasesdlrecLlvrelaLedconsumerswhovaluequallLvwlllaofor expenslve chocolaLesroducLdlverslflcaLlonlsapplledlncaseswheresLlffcompeLlLlonexlsLslnLhemarkeLlnsLeadofmalnLalnlna producLlon of onlv one Lvpe of chocolaLe producL modlflcaLlon ln shape color and dlfferenL composlLlon ensures furLher success of a companvln con[uncLlon wlLh producL dlverslflcaLlon adverLlsemenL meLhods chosen ln promoLlna anv chocolaLe producL ls anoLhersuccessdeLermlnlnafacLorAsLheLaraeLedarouplsvouLhssexvandprovoklnaadverLlsemenLsare preferred Lo borlna and old LradlLlonal adverLlsemenLs Companv Lherefore LhaL uses sexv modern adverLlsemenL meLhods llke Lhrouah lnLerneL ls more llkelv Lo succeed CuesLlon4WhaLdoesaSWC1analvslsof8oaers'ChocolaLesrevealabouLLheprospecLsforLhecompanv's fuLuresuccess?WhaLarelLskevresourcessLrenaLhsandcompeLlLlvecapablllLles?lLsresourceweaknessesand compeLlLlve llablllLles? 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forces bv Mlchael orLer 1 CompeLlLlve 8lvalrv 1helnLenslLvofrlvalrvamonacompeLlLors lnanlndusLrvcancreaLeprlcewarsadverLlslnabaLLlesnewproducL llnesandhlaherquallLvofcusLomerservlce1herearemanvclrcumsLancesLhaLlnLenslfvrlvalrvwhlchsomeof LhemareasfollowsmanvbalancedcompeLlLorsaslowarowlnalndusLrvdemandsfallshlahflxedorsLoraae cosLsllLLleswlLchlnacosLsaaaresslvecompeLlLorsandmanvoLherclrcumsLances(1hompsonSLrlcklandand Camble 2010) remlum ChocolaLe compeLlLlon ln Canada lnvolves sLrona realonal brands and few alobal plavers such as Codlva LlndLCallebauLand urdv's LvenLhouah1heCanadlanmarkeLslzeofchocolaLeslndusLrvasawhole hadbeen falllna(2arowpro[ecLed)PoweverLhepremlumchocolaLemarkeLwasarowlnaaL20percenLannuallv (ZleLsma2007)1haLslLuaLlonconslderslesslnLenserlvalrvamonacompeLlLorsmoreoverevervareahasLhelr own local klna llke 8oaers ln vlcLorla neverLhelessln2008ClobaleconomvwasseverelvhlLbvLhecrlslsLhaLorlalnaLedfromLheunlLedSLaLesand qulcklv spread Lo Lhe whole world lncludlna Canada remlum chocolaLe ma[orlLv consumers ln Canada come from LourlsLsespeclallvAmerlcansasborderlnanelahbourWhenLheLourlsL'snumberdropsandLhedemandfor premlum chocolaLe also falls Lhe flerce rlvalrv wlll lncrease 2 1hreaL of new enLranLs lrequenLlv exlsLlna lndusLrv members are ofLen sLrona candldaLes Lo enLer markeL seamenLs or aeoaraphlc areas where Lhev currenLlv do noL have a markeL presence (1hompson SLrlckland Camble 2010) ApparenLlv Pershev's and Cadburvs have been movlna lnLo Lhe premlum chocolaLe markeL Lhrouah acqulslLlons or up markeL launches slnce Lhls seamenL sLlll posses hlah percenLaae of arowLh (ZleLsma 2007) 1hemarkeLlsonlvconLrolbvfewlaraeandoldplaverswhlchoccupvslanlflcanLmarkeLshares1hechocolaLe lndusLrvhasaslanlflcanLeconomvofscaleenLrvbarrlerbecauselaraecompanlesexlsLlnLhelndusLrvLhaLhas hlah producLlon ouLpuL and lL reduces Lhe LhreaL of enLranLs ln addlLlon Lo economv of scale producL dlfferenLlaLlon ls anoLher enLrv barrler ln Lhe chocolaLe 1here are manv compeLlLorslnLhelndusLrvLhaLhaveremarkablvldenLlflablebrandnamesandcusLomerlovalLvllke8oaers ChocolaLe lLself new companv musL lncrease lLs spendlna Lo overcome Lhe repuLaLlon and larae cusLomer base of Lhe exlsLlna companles 31hreaL of SubsLlLuLes 8oaers'schocolaLelsofLenusedasalfLdurlnanumerousseasonsandcelebraLlonslncludlnaChrlsLmasLasLer PalloweenvalenLlne'suavannlversarlesandblrLhdavsCLherLvpesof alfLsdurlnaLheseseasonsarevlewedas subsLlLuLeproducLs1heseproducLsareflowers[ewelrvandsLuffedanlmalsAllofLheseproducLscanbe purchased lnsLead of 8oaers's chocolaLe unless Lhev [usL wanL onlv 'ChocolaLe' as alfLs ManvchocolaLebrandsanda wldevarleLvofseasonalalfLsmakeLheLhreaLofsubsLlLuLeproducLs lsconsldered lowLomoderaLelnLhlslndusLrvPoweverlf8oaersChocolaLescanmalnLalnlLslocalherlLaaeespeclallvlnlLs LradlLlonal area llke vlcLorla and 8rlLlsh Colombla Lhen Lhe LhreaL for 8oaers can be mlnlmlzed 4ower of 8uvers lfabuverrepresenLsalaraepercenLaaeofLhesuppller'ssalesLhebuverhasmorebaraalnlnapoweroverLhe suppller 8oaers'schocolaLe30ofsales lsconLrlbuLedfromlLs11 reLallsLoreswhlchlsasLronaonePowever slnceLheprevlouspresldenLMr!lm8alphhad arown lLswholesalemarkeLupLo30LhusLhevhaveLoLakea aood care of lLs bla wholesale buver AnoLher condlLlon LhaL affecLs Lhe power of buvers ls producL dlfferenLlaLlon lf Lhe producL ls undlfferenLlaLed Lhe buverhasLhepowerLoplavcompeLlLorsaaalnsLeachoLherandreduceLhecosL1hepremlumchocolaLehasa dlfferenLlaLed producL whlch reduces Lhe power of buvers 8oaers have brand ldenLlflcaLlon and cusLomer lovalLv whlchmakeslLhardforbuversespeclallvLhelovalonesnoLLoconsume8oaersforLhelrpremlumchocolaLe consumpLlon 1odavbuversdemandlnachocolaLe moreLhan[usLaLasLeLhevbecomlnamorehealLhconsclousLhereforeLhe demand for oraanlc chocolaLe and dark chocolaLe are arowlna 3 ower of Suppllers 1he baraalnlna power of suppllers ls a compeLlLlve force LhaL can dlmlnlsh a flrm's proflLablllLv bv ralslna prlces or reduclna Lhe quallLv of Lhe suppller's producL 1he suppllers of Lhe chocolaLe lndusLrv have slanlflcanL baraalnlna power over Lhe lndusLrv because of Lhe llmlLed suppllersln addlLlon Lhe suppller aroups' baraalnlna power lncreases lf Lhere are no subsLlLuLe producLs 8ecause Lhe cocoa bean ls a requlred lnaredlenL ln chocolaLe Lhe suppllers do noL have anv subsLlLuLe producLs for whlch Lhev musL compeLe 1hls lack of subsLlLuLes lncreases Lhe baraalnlna power of Lhe chocolaLe lndusLrv 1he sLronaesL CompeLlLlve lorces lromLheflvecompeLlLlveforcesLhevarerelaLlvelvlowLomoderaLelnaffecLlnapremlumchocolaLelndusLrv especlallv 8oaers ChocolaLe Powever Lhe presence of Pershev's and Cadburvs ln Lhe premlum chocolaLe markeL wlllcauseLhesLronaesLLhreaLasLhevhave enormous resourcesandexperlences1heweakesLforcesshouldbe Lhe suppller as Lhev can onlv affecL Lhe cosL Lhus as lona as people sLlll love chocolaLes Lhen Lhe markeL ls sLlll bla 1he poLenLlal proflLablllLv of new enLranLs from ouLslde lndusLrv ls low slnce Lhe barrler of enLrv for Lhls lndusLrv ls vervhlahPoweverlLwlllbeadlfferenLsLorvlfLhoseblaauvslnLhechocolaLelndusLrvllkePershev'sareverv serlous enLerlna Lhls premlum chocolaLe markeL as happenlna laLelv 2 urlvers of Chanae 1hose compeLlLlve forces as explalned above can be a drlver of chanae elLher lndlvlduallv or collecLlvelv AnoLher unlquedrlverofchanaelsconsumerbehavlorLowardshealLhconsclousness1odavLhedemandfororaanlc producLs and dark chocolaLe are arowlna worldwlde 8oaers has responded well Lo Lhls healLhv llfesLvle bv offerlna nonsuaar added chocolaLe eople also puL sLrona lmaae Lo Lhe companv LhaL pracLlce aood corporaLe soclal and envlronmenL responslblllLv 1hereforeLhepremlumchocolaLeplaversLhaLwlllremalnlnLhemarkeLareonlvLhosewhocouldrldeLhe chanaes and rlse above Lhe expecLaLlon of consumers because brand and quallLv plav a slanlflcanL role ln cusLomer purchase declslon 3 kev Success lacLor ln Lhe premlum ChocolaLes lndusLrv 31 undersLandlna Lhe Consumer's needs 1he companv musL undersLand LhaL Lhev musL have Lhe feaLures requlred bv Lhe consumers lorpremlumchocolaLe consumersLhelr reasonslnbuvlnaareforLhemselvesorfor alfLs1heflrsLLhlnalnLhe consumer mlnd for Lhe producLs ls Lhe LasLe and Lhen packaalna shopplna experlences and Lhe prlce 8oaersChocolaLeshasearneda repuLaLlonasoneofCanada'spremlerechocolaLe makersand manvconsumers sLaLlna LhaL 8oaers' ls one of Lhe besL chocolaLe Lhev have ever LasLed (CusLomer 8evlew 2010) 1he reLall sLores creaLe a unlque cosLumer experlence wlLh Lhe aromas and lmaae of Lhe sLore and one of Lhe frlendllesL sLaff Slnce LhepremlumchocolaLesserveasaalfLelLherlndlvlduallvorascorporaLealfLslnspeclaloccaslonLhenLhelr packaalna need Lo be unlque and aLLracLlve 1he 8oaers packaalna are appeallna and oLher compeLlLors are Lrvlna verv hard Lo lmprove Lhelrs AnoLher30percenLof8oaers'scosLumersarewholesaledlsLrlbuLorsandsLores1herelaLlonshlpLhaL8oaers malnLalns wlLh Lhese cusLomers has been essenLlal Lo Lhe arowlna success of Lhe companv 1hev have Lo sLrlve Lo provlde compeLlLlve prlce areaL cusLomer servlce and lnvenLorv ln a Llmelv manner 32 8rand Awareness 8oaers'ChocolaLeshadabrandshareofapproxlmaLelv6ouLof$167mllllonCanadlanChocolaLesmarkeLln 2006 Consumer pav premlum prlce for premlum chocolaLes and Lhls facL can be looked lnLlmldaLlna Lo Lhe reLall andwholesalecusLomerswhoareunawareofLhebrandandunwllllnaLoLrvlL1hereforeLhechocolaLe's companles need Lo have a sLrona brand name and brand lmaae 8oaersChocolaLes'brandlslconlcandlocalherlLaaelnvlcLorlabuLlessknownlnLheresLofCanadaLlLher cusLomers love Lhe brand or compleLelv unknown 33 ulverslfled roducLs WebouahLraspberrvfllllnadarkchocolaLeplsLachloandfrulLslnmllkchocolaLeawhlLechocolaLebaranda lemon merlnaues and couple of Lruffle bars uld we buv Loo much chocolaLe beLween Lhe 2 of us? nonsense one canneverhaveLoomuchchocolaLe"1herevlewabovecamefrom1omCallfornlawhovlslLed8oaersShopln vancouver on CcLober 3 2009 (CusLomer 8evlew 2010) eopleloveLochooseLhelrownselecLlonandfavourlLes1hecompanvhasLosLrlveLoprovldelnnovaLlveand dellclousproducLsLomeeLLhemarkeLdemand8oaersalsohasaddressedLhehealLhconsclousconsumerbv provlde nonsuaar chocolaLes 8oaers can offer a areaL breadLh of producLs LhaL enables Lhe companv Lo reach a larae cusLomer seamenL 34 Lnhanced CompeLlLlveness lncreasedmarkeLplacecompeLlLlonhasslanlflcanLlvalven anlmpacLln8oaers'sbuslnessandasaresulL8oaers musL conLlnuouslv seek for areas for lmprovemenL ln order Lo enhance compeLlLlveness aaalnsL oLher compeLlLor ln Lhe markeL lmprovlna weakness could be done ln Lerms of producL lnnovaLlon operaLlonal and manufacLurlna markeLlna adverLlslna and promoLlon lnvenLorv and dlsLrlbuLlon and cusLomer relaLlonshlp 1he companv has Lo observe Lhelr capablllLles and make Lhe mosL of Lhem ln order Lo sLav and wln ln Lhe compeLlLlon 4 SWC1 analvsls |SLrenaLhs |CpporLunlLles | |roducL |MarkeL| |LsLabllshed brand |1ourlsL approach ln crulse shlp | |CuallLv LasLe |Crowlna MarkeLs 20 annuallv| |Awardwlnnlna |?ouna people markeL | |varleLv |uSA and lnLernaLlonal MarkeL| |Consumer LovalLv ln vlcLorla|2010 Clvmplcs | |Puman 8esources |Llcenslna lranchlslna and parLnershlp| |Lmplovee prlde and lovalLv|roducLs | |Skllled and experlenced manaaemenL|lce cream | |8oaers own reLall sLores|PealLh consclous producLs | |Sam's uell erformance|Consumer 1rends | |SLrona flnanclal poslLlon |Affordable luxurv producLs| ||PealLhv llfesLvles| ||1echnoloav| ||Moblle markeLlna| ||roducLlon capablllLles | ||lnLerneL| |Weaknesses|1hreaLs | |roducL/8rand |lnLense compeLlLlon and new enLranLs| |LlLLle awareness ouLslde vlcLorla |Lconomlc uownLurn/ urop LourlsLs| |roducLlon|Chanae consumer Lrafflc Lo vancouver| |lannlna uocumenLaLlon and lorecasLlna |rlvaLe label ChocolaLe | |Suppllers |llucLuaLlna demand| |CapaclLv|LnvlronmenLal and human concerns| |LqulpmenL and processes || |Puman 8esources || |8eslsLance Lo chanae|| |ConfllcL manaaemenL || |MulLlple responslblllLv || |Sales force || |ulsLrlbuLlon|| |LocaLlon|| |MarkeL Coveraae || |lnvenLorv manaaemenL|| |llnanclal || |Sales arowLh|| 1he 8CLu/ lLallc and 8lC SlZL fonLs are Lhe kev facLor for each caLeaorv 1he companv has a sLrona seL of sLrenaLh 8oaers ChocolaLe ls small/medlum buslness Lhus lLs weaknesses sLlll noL vervdamaalnaandLhecompanvslLuaLedlnfalrlvsLronaposlLlonPoweverlooklnaaLLheLhreaLsLhecompanv needs Lo repalr lLs weakness especlallv ln 8randlna roducLlon and lnvenLorv ln order Lo susLaln ln Lhe buslness 1he opporLunlLv Lable shows areaL opporLunlLv for 8oaers Lo arow and expand Powever 8oaers needs Lo expand lLs sLrenaLh bevond ouLslde vlcLorla especlallv Lowards vouna people and deflnlLelv repalr Lhe weaknesses Lo caLer Lhe arowlna markeL 3 SLraLeales and poslLlonlna 8oaers ChocolaLes poslLloned as Plah quallLv premlum prlce ChocolaLe As sLaLed ln Lhe companv webslLe 8oaers's phllosophv ls maklna onlv premlum producLs and packaalna eleaanLlv ln Lhe premlum ChocolaLe markeL 8oaers's chocolaLes conLrol onlv 6 and prlce Lhe producLs ln hlah prlce polnL buL sLlll compeLlLlve and even sllahLlv lower Lhen Codlva and CallebauL Plah CuallLv 8oaers CallebauL urdv's Codlva LlndL Low rlce CadburvPershevs Plah rlce Low CuallLv 8oaers brand ls well respecLed amona Lhose who wanL hlah quallLv chocolaLe 8oaers's producLs have no addlLlves and use hlah quallLv lnaredlenLs 1he brand ls verv wellesLabllshed ln vlcLorla and has loval consumers Mlsslon SLaLemenL 8oaersChocolaLeslscommlLLedlnproduclnaandmarkeLlnaflneproducLswhlchreflecLandmalnLalnour repuLaLlon of quallLv and excellence esLabllshed for over a cenLurvAll aspecLs of our buslness wlll be conducLed wlLh honesLv and lnLearlLv upholdlna our proud Canadlan LradlLlon (8oaers ChocolaLes 2010) CCAL 1o double or Lrlple LoLal sales wlLhln 10 vears" ManaaemenL's SLraLeav SelecLlon 8ased on 8oaer's aoal of doubllna or Lrlpllna LoLal sales wlLhln 10 vears Lhen Lhe maln sLraLeav wlll be lncreaslna brand awareness 8oaers's producLs are alreadv proven superlor desplLe Lhelr dlsLrlbuLlon whlch clrculaLes malnlv ln8rlLlshColomblaareaLhuscompanvhasLoexpandlLsmarkeLranaeLoareaLerareaandLoLasLCanadaor overseas8oaershasalreadvwonLhe2010ClvmplcsCfflclalChocolaLesLoaeLherwlLhurdvs(Lazarus2008) whlch ls a Lremendous opporLunlLv Lo creaLe awareness naLlonallv and lnLernaLlonallv 1o arow a markeL facLors such as Llcenslna franchlse and parLnershlp ls belna consldered Cne ldea under conslderaLlon for developlna Lhe wholesaleneLworkwasLhecreaLlonofaLurnkevsLorewlLhlnasLoreseLupLhaLwouldallowwholesalecllenLs wlLh a reLall presence such as deparLmenL sLores Lo add a mlnl8oaers sLore ln Lhelr shop 8oaers's manaaemenL also alm Lo lncrease Lhe number of onllne shopplna 1hose sLraLeales are conslsLenL wlLh 8oaers's aoal Lo lncrease Lhe sales bv double and Lrlple ln Len vears Powever belna a small/medlum companv 8oaers's manaaemenL can onlv choose Lo acL on several opLlons whlle noL puLLlna a rlsk on lLs culLure and LradlLlon Llcenslna franchlslna and creaLe sLorewlLhlnasLore ls a cheaper opLlons Lo expand Lhe markeL compare Lo open lLs own reLall sLores ln Lhe new areas however does lL reallv approprlaLe Lo 8oaers excellenL reLall experlences? (source)s LoaeLher wlLh urdvs Concluslon lnearlv2009arkhllland8oaers'manaaemenLchoseLofocusonexpandlnaLhecompanv'sreLallneLwork arkhlllsavsLhaL8oaerswlllalsoconLlnueLodeveloplLswholesalechannelbuLwlllbeselecLlvelnchooslna parLnerswhoflLLhecompanv'sbrandCurfoundaLlonlsreLall"hesavslL'sLhe'Wow!'experlenceLhaL cusLomers aeL when Lhev walk lnLo our sLores are areeLed and are handed a free sample of our chocolaLes lrom Lhls cusLomer experlence success comes ln oLher Lhlnas LhaL we do such as wholesale and onllne sales" 8oaer ls hlah quallLv premlum chocolaLe Lhus Lhe experlences for shop and consumes 8oaers chocolaLe has Lo be excellenL as well lf Lhe 8rand ls belna franchlsed or creaLe a small shop aL Lhe corner of somebodv else sLore Lhen Lhe quallLv of servlce and Lhe sLore amblances can noL be conLrolled eople noL onlv sav abouL how aood 8oaers ChocolaLe was buL also Lhelr areaL experlences ln 8oaers SLore 1herefore Lhe declslon of developlna 8oaers own reLall ls aood declslon and conslsLenL wlLh lLs aoal and phllosophv 8eferences CusLomer 8evlew 2010 8oaers ChocolaLe Avallable hLLp//wwwvelpca/blz/roaerschocolaLesvancouver Accessed 3 !une 2010 Lazarus 2008 SweeL deal for urdv's and 8oaer's ChocolaLes AuausL edn MarkeLlna Maaazlne MorrlsseLe 2008 Cn Lhe case Pow sweeL ls Lhls reallv? llnanclal osL Maaazlne 8oaers ChocolaLe 2010 PlsLorv Avallable hLLp//wwwroaerschocolaLescom/hlsLorv Accessed 3 !une 2010 1hompson SLrckland Camble 2010 CrafLlna and LxecuLlna SLraLeav 1he CuesL for CompeLlLlve AdvanLaae ConcepLs and Cases 17Lh edn McCrawPlll lrwln unlLed SLaLes ZleLsma 2007Case 8oaers' ChocolaLes lvev ManaaemenL Servlce ALk 3 LkLCU1IVL 5UMMAk kLCCMMLNDA1ICN5 %8oaers ChocolaLes ls one of Canada's premlere chocolaLe makersln 2006 Lhe Canadlan markeL slze was $167 mllllon annuallv %CrowLhraLeofLheCanadlanremlumChocolaLe markeL lsexpecLedLorlse20annuallvvs1radlLlonal ChocolaLes arowLh raLe of 2 annuallv %Sales ln Lhe 8 weeks prlor Lo ChrlsLmas rouahlv equaled 23 of chocolaLe sales and 20 of heavv users" accounLed for 34 of Lhe preChrlsLmas sales ln 2006locus on approprlaLe LaraeL markeL Lo achleve maxlmum awareness and brand recoanlLlon %ConLlnueLofulfllllLscommlLmenLbvparLlclpaLlnalnrecvcllnaandreduclnaemlsslonsasparLofa commlLmenL Lo susLalnablllLv %8oaer'saoodcorporaLesoclalpracLlceswlllalsofocusonhumanrlahLspackaalnaprocuremenLand operaLlonal declslons%8oaer's performance over Lhe lasL Lwo vears conflrms LhaL sales have remalned sLaananL and had a beLLer 8Cl ln 2006 Lhan lL does now %8oaerswlllseekouLparLnershlpsorcollaboraLorssuchasLhe2010vancouverClvmplcsandreach consumers on a alobal level %8oaers wlll re sLrucLure lLs manaaemenL Leam Lo a more efflclenL coheslve Leam%8ebrand Lhelr LradlLlonal lmaaes Lo lnsplre new cllenL base Lo Lrv Lhelr producLs %8esLrucLure reLall shops wlLh lower conLrlbuLlon maralns %CreaLe reLall experlence around rlch LradlLlon and hlsLorv producLlon and quallLv %uellver unlque reLall experlence %CeneraLe sales ofaL leasL $17000000 bv 2017%lncrease brand awareness ln Canada bv 30 and reLall locaLlons bv 2017 %lncrease onllne sales Lo $11 mllllon bv 2017 %keep exlsLlna and loval cusLomers saLslfeld wlLh cusLomer rewards and promoLlons %romoLeromoLeromoLeChocolaLeofLhemonLhclubsspeclaloccaslonalfLs(araduaLlon laLher's/MoLher's uav Annlversarles 1eacher alfLs eLc) MlSSlCn S1A1LMLn1 C8!LC1lvLS8oaersChocolaLeslscommlLLedLoproduclnaandmarkeLlnaflneproducLswhlchreflecLandmalnLalnour repuLaLlon of quallLv and excellence esLabllshed for over a cenLurv" 1A8CL1 MA8kL1 S18A1LC? 8oaers' LaraeL markeL ls boLh end users and consumers who buv chocolaLes Lo lndulae Lhemselves or Lo alve as a alfL8oaers' LaraeL buvers are new and exlsLlna chocolaLe buvers LhaL love quallLv chocolaLesuemoaraphlcsLendLobe malnlvwomenaaes2333vears oldwlLh mlddleLohlahhousehold lncomeof$30000 upward1hev aenerallv have colleae educaLlon and are professlonals whlLe collar workers manaaers or owners1he ma[orlLv wlll be frequenL Lravelers and lnLerneL usersA nlche dlfferenLlaLor sLraLeav wlll be emploved Lo dlfferenLlaLe Lhe new 8oaers brand" lmaae ln LasLern Canada and uS1o drlve lnLerneL sales 8oaers wlll promoLe Lhe webslLe beneflLs of convenlence and fasL dellvervMore aLLenLlon Lo 8oaers' reLall shops wlll be pursued ln order Lo aeL LhaL excluslvlLv" feelSam's uell wlll1hekevLoLhlssLraLeavandmarkeLlnaplanwlllrevolvearoundralslnabrandawarenessarLnershlpand collaboraLlonsareacrlLlcalwavLoralseawarenesssuchassponsorlnaanClvmplcevenL/aLhleLe(lceskaLlna)as Lhe Clvmplcs are scheduled Lo be ln vancouver ln 2010 8ulLulnC AWA8LnLSS 1hemosLproducLlveandefflclenLwavLobulldawarenesslsLolncreaseonllnesaleswhlchwllllncreasemarkeL exposureln addlLlon corporaLe sales and parLnershlp wlll aeneraLe much needed awareness ln Lhese secLors LhaL wlll compllmenL Lhe onllne campalan8oaerswlllposlLlon lLselfasa companvLhaL valuesLhelrcusLomersboLhonllneandlnLhelr reLallshopsAnew easv Lo use and lnLeracLlve webslLe wlll be lnLroduced Lo esLabllsh Lhe new and lmproved" 8oaers ChocolaLe llneSamples wlll alwavs be avallable ln Lhe reLall shops and sLores wlll feel llke vour ln chocolaLe heaven 8uuCL1 AaenerousbudaeLofapproxlmaLelv$2mllllonwlllbeprovldedandsupplemenLedbvaprlcelncreaseofabouL 3SmallwholesalerswlllbereducedandscaledbackwhlleSalesAaenLswlllbereLralnedLofocusonLhebla plcLure (corporaLe evenLs sponsorshlp) 30 of Lhe budaeL wlll be dlrecLed Loward 8rand Awareness 23 of Lhe budaeL wlll be dlrecLed Loward rebrandlna Lhe new face of 8oaer's remlum ChocolaLes 13 of Lhe budaeL wlll be uLlllzed Lo updaLe Lhe webslLe 10 of Lhe budaeL wlll be spenL on promoLlonsSWC1S18LnC1PS %Well esLabllshed and repuLable 8rand %Lxperlenced ManaaemenL 1eam %8lch hlsLorv and LradlLlon ln Canada %Award wlnnlna recoanlLlon %8evenues %Loval cusLomers%uevoLed Lmplovees and asslonaLe Lmplovees %CuallLv producLs hand wrapped WLAknLSSLS %roducLlon process noL efflclenL and no measurlna capablllLles %uemand forecasLlna dlfflculL due Lo seasonallLv of sales %ManaaemenL's and Lmplovee's reslsLance Lo chanae %ManaaemenL Leam confllcLs %ackaalna%Lack of brand lmaae and cusLomer awareness %CosL of seLLlna up and cleanlna equlpmenL %lnvenLorv ManaaemenL CuL of SLock and Cver sLock producLlon plannlna lssues %Wholesale %Cnllne Sales onlv 4 CC81unl1lLS %CrowLh ln Luropean and Aslan markeLs %8eLall and Cnllne expanslon %lncreased producLlon capaclLv %1rends and shlfLs ln consumer confecLlonarv markeL%2010 Clvmplcs %!olnL parLnershlps nPL ML8 n8A eLc %klosks ln alrporLs %Second shlfL posslblllLles %Craanlc and/or lalr 1rade Llne 1P8LA1S %Lconomv and demand flucLuaLlons %CompeLlLors %Consumer 1rafflc decrease ln Lourlsm %LnvlronmenLal concerns and human rlahLs concerns expressed bv some consumers %CovernmenLal or luA rules redeflnlna" chocolaLe C81L8'S llvL lC8CLS AnAL?SlS 8araalnlna ower of 8uvers 1he chocolaLe and cocoa lndusLrv has several larae volume reLallers llke WalMarL LhaL have slanlflcanL baraalnlna power 1hese larae volume reLallers can baraaln for lower prlces and reduce Lhe lndusLrv's proflLs AnoLher condlLlon LhaL affecLs Lhe power of buvers ls producL dlfferenLlaLlon lf Lhe producL ls undlfferenLlaLed Lhe buver has Lhe power Lo plav compeLlLors aaalnsL each oLher and reduce Lhe cosL 1he chocolaLe and cocoa lndusLrv has a dlfferenLlaLed producL whlch reduces Lhe power of buvers 1he lndusLrv has several larae plavers LhaL have brand ldenLlflcaLlon and cusLomer lovalLv whlch makes lL hard for buvers noL Lo use a parLlcular suppller AsfarasreLallsalesao chocolaLe lsanexLremelvaccesslblecommodlLvLhaLhasamulLlLudeofpurposes for lLs buvers and end users1he buver mav noL alwavs be Lhe end user and Lherefore chocolaLe mav be and ofLen are purchased as alfLs for famllv frlends and/or corporaLe occaslonsCenerallvLherelssLrona compeLlLlonamonaLhepremlumchocolaLemanufacLurersLo aalnbuvers/end usersof flnechocolaLesespeclallvlnadowneconomvremlumchocolaLemanufacLurerssuchas8oaerswlllbe compeLlnaaaalnsLlowerquallLvchocolaLeslnsomecases asconsumersaremorebudaeLconsclous1herefore consumers mav have some leveraae ln neaoLlaLlna favorable Lerms of sale or purchaslna premlum chocolaLes aL a dlscounL Lhan when markeL condlLlons are favorable Powever Lhe buver musL be wllllna Lo accepL LasLe chanaes ln Lhe producL whlch resLrlcLs Lhelr baraalnlna power 1hreaL of new LnLranLs 8arrlers 1he chocolaLe and cocoa lndusLrles do have a slanlflcanL economv of scale enLrv barrler because larae companles exlsLlnLhlslndusLrv1hlslsslanlflcanLbecauseLhelaraeesLabllshedcompanleswouldmosLllkelvhavehlah producLlon ouLpuL whlch reduces Lhe cosL Lo produce chocolaLe and cocoa lf a new compeLlLor wanLed Lo enLer LhemarkeLLhecompanvwouldhaveLoenLerLhemarkeLproduclnaalaraequanLlLvaLLhesamelowprlceas compeLlLors or Lhe companv would have Lo compeLe wlLh a cosL dlsadvanLaae 8ecause economles of scale exlsL ln Lhe lndusLrv lL deLers smaller compeLlLors from enLerlna lnLo Lhe markeL and reduces Lhe LhreaL of enLranLsAlso caplLal requlremenLs mav acL as a barrler 8araalnlna ower of Suppllers 1he suppllers of Lhe chocolaLe and cocoa lndusLrv have slanlflcanL baraalnlna power over Lhe lndusLrv because of Lhe llmlLed number of Lhese suppllers 8ecause Lhe cacao Lree ls arown ln areas LhaL have a Lroplcal cllmaLe manv plavers ln Lhe lndusLrv are forced Lo lmporL Lhe producL 1hechocolaLeandcocoalndusLrv rellesonsuppllersLodellverhlahquallLvproducLsLhaLmeeLfoodreaulaLlons andconsumerLasLeLesLslfLhesuppllers'producLlsnoLavallableordoesnoLmeeLLhequallLvexpecLedLhe lndusLrv wlll suffer areaLlv 1hls dependencv on Lhe suppllers' producL lncreases Lhe suppllers' baraalnlna power lLlslmporLanLforLhesuppllers'producLLobeacerLalnquallLvoraradehoweverlfLheproducLmeeLsarade auldellneslLlsrelaLlvelvundlfferenLlaLed1hlslsLrueofallsuppllersofLhelndusLrvlncludlna cocoabeanmllk and suaar suppllers 1hreaL of SubsLlLuLe roducLs and Servlces 1hechocolaLeandcocoalndusLrvmusLcompeLewlLhnumeroussubsLlLuLeproducLsLhaLcanLhreaLenLhe lndusLrv'sproflLablllLvAlLernaLecooklnaflavorsareasubsLlLuLeproducLLochocolaLeandcocoa1heseflavors lncludevanlllalemonbuLLerormlnLflavorlna1heseflavorscanbeusedbvLhelndusLrv'scusLomersLhaLuse chocolaLe and cocoa producLs for lndusLrlal and cooklna use AnoLherslanlflcanLcaLeaorvofsubsLlLuLeslssnacksManvnonchocolaLesnacksareavallablesuchaspeanuL buLLerfrulLspoLaLochlpslcecreameLc1herelsnoneedLosLlckwlLhaspeclflcsnackoLherLhanpersonal preference lurLher manv consumers conslder chocolaLe unhealLhv and are wllllna Lo subsLlLuLe lL readllv 8lvalrv CompeLlLors AnlndusLrv'scompeLlLor rlvalrv lslncreased lfLherearenumerouscompeLlLorsor lfLhe compeLlLorsareequallv balanced1hlscondlLloncancreaLeasLralnonrawmaLerlalsandconsumeraroups1hechocolaLeandcocoa lndusLrv has numerous lndusLrv leaders LhaL are slmllar ln slze and producL offerlnas Manv of Lhe leaders creaLe newproducLllnesand acLlvelvparLlclpaLelnadverLlslnawars8ecauseLherearenumerouscompeLlLorsLhaLare equallv balanced compeLlLor rlvalrv ls lncreased AnoLhercondlLlonLhaLlncreasesLhelnLenslLvofrlvalrvamonacompeLlLorslslfLhelndusLrvhashlahflxedor sLoraae cosLs lf flxedcosLsarehlahflrmslnan lndusLrvareunderpressureLolncreasecapaclLv1hechocolaLe andcocoalndusLrvhasboLhhlahflxedcosLsandhlahsLoraaecosLs1helndusLrv'sflxedcosLsconslsLoflarae amounLsofequlpmenLandhuaefaclllLlesLohousemanufacLurlnaoperaLlonsAlLhouahLhelndusLrvconslsLsof perlshablefoodsandlnaredlenLswhlchLvplcallvhaveashorLshelfllfeLhesLoraaecosLsarehlahdueLoLhe preclse sLoraae envlronmenL needed lor example boLh mllk and chocolaLe musL be kepL aL a proper LemperaLure and humldlLv ALk 4 CASL 9 8oaers ChocolaLes SLraLealc ManaaemenL ln18CuuC1lCn 8oaersChocolaLeslsLheoldesLchocolaLecompanvlnCanadabasedlnvlcLorla8rlLlshColumbla8oaers ChocolaLes focuses on Lhe premlum chocolaLe markeL and dlfferenLlaLes lLself bv dellverlna award wlnnlna quallLv producLsaLafalrprlceLhlscomblnaLloncreaLesaaoodvalueforlLscusLomers1hevalsohaveexperLlseaL creaLlnaanouLsLandlnacusLomerexperlencewlLhlnLhelrvlcLorlanLhemedreLalllocaLlonsLhaLhavealsowon awards1hecompanvlsprlvaLelvheldandcurrenLlvfocuseslLsbuslnesslnfourmarkeLareasdlrecLreLall onllne/mall order wholesale and sales from a resLauranL ln vlcLorla 1he companv also produces and sells a llne ofpremlumlcecream1hecompanvemploves130peopleLhema[orlLvofwhlcharelnreLallSalesfromLhe companvs reLall esLabllshmenLs accounL for 30 of revenue roducLlon Lakes place on a oneshlfL operaLlon ln a 24000 square fooL faclllLv and ls labor lnLenslve 1here are currenLlv no measuremenLs ln aauae producLlvlLv and efflclencv ln Lhe planL 1he pasL presldenL focused a arowLh sLraLeav ln Lhe wholesale markeL and currenL order fulflllmenL sLraLeav ls Lo alve prlorlLv Lo onllne and mallorder buslness followed bv wholesale accounLs leavlna Lhe reLall locaLlons lasL Lo beservlced lnLernallvSaleshaveseasonalswells durlnaLheholldavsanddemandforecasLlnahasbeenanlssue Lhev have lncreased lnvenLorv Lo deal wlLh Lhese sales paLLerns buL sLlll encounLer ouL of sLock slLuaLlons 1he new presldenLhasbeenalvenaaoalbvLheboardofdlrecLorsLodoubleorLrlpleLheslzeofLhecompanvwlLhln10 vears 8C8LLM S1A1LMLn1 1he focus on Lhe wholesale markeL does noL lnllne wlLh Lhe sLrenaLhs of Lhe companv lurLhermore Lhe lssues ln operaLlonalefflclencvwlLhreaardLoproducLloncapablllLlesanddemandforecasLlnaarehlnderlnaLhe companv from lncreased arowLh poLenLlal AL1L8nA1lvLS locus on sLrenaLhenlna currenL reLall operaLlons locus arowlna Lhe reLall buslness lnLo new aeoaraphlc markeLs ConLlnue Lo arow complemenLarv buslness llnes (le lce Cream) uevelop core compeLence ln operaLlons manaaemenL Lo drlve efflclencles and reduce lnvenLorles uparade Lechnoloav ln producLlon Lo lncrease capaclLv CreaLe new producL llnes and packaalna Lo broaden Lhe cusLomer base lranchlse Sams uell lranchlse reLall chocolaLe sLores AnAL?SlS ln 2006 Lhe chocolaLe markeL slze for Canada was uS$167 mllllon wlLh Lhe premlum chocolaLe markeL arowlna aL a raLe of 20 annuallv CompeLlLlon wlLhln Lhe premlum markeL ls a broad mlx of small local nlche plavers Lo larae mulLlnaLlonal corporaLlons and ls arowlna as laraer LradlLlonal manufacLurers enLer Lhe markeL vla acqulslLlons or newproducLlaunchesroducLdlfferenLlaLlonlshealLhvandLherearenolndlcaLlonsofaprlcewarsLarLlna beLween rlvals roducL lnnovaLlon appears llmlLed mosLlv focuslna on new flavor lnLroducLlons and varlaLlons ln moldlnaandcolorlnaSeasonaldemandsespeclallvLheelahLweeksprlorLoChrlsLmascancreaLedemandLhaL canchallenaesmallcompanleswlLhlowproducLloncapaclLvand/orlnadequaLeforecasLlnaandlnvenLorv manaaemenL CompeLlLors varv ln Lhe level of verLlcal lnLearaLlon and companles wlLh laraescale operaLlons and dlsLrlbuLlon neLworks en[ov a compeLlLlve advanLaae Lhrouah economles of scale 8lvalrv amona compeLlna sellers ls acLlve and falrlv sLrona due Lo Lhe followlna condlLlons 1here ls llLLle Lo no cosL for buvers Lo swlLch brand 1here ls a falr amounL of producL sLandardlzaLlon ln Lhe lndusLrv 1heproducLslnLhechocolaLemarkeLhavelaraeseasonalswellsandareperlshablecauslnasomeprlce compeLlLlon Plaher flxed producLlon cosLs adds Lo Lhls pressure 1he addlLlon of new compeLlLlon bv esLabllshed companles such as Pershevs and Cadburvs CompeLlLlvepressurefrompoLenLlalnewenLranLslsmedlumasmosLofLhema[orplaverslnLhelndusLrvare alreadvlnLhepremlumchocolaLemarkeLLhepro[ecLedarowLhraLelnLhemarkeLwlllsLronalvaLLracLnew upsLarLsbuLLhevwlllhavechallenaesdeveloplnadlsLrlbuLlonandreLallpeneLraLlonwlLhllLLleLonobrand awareness llrms ln oLher lndusLrles wlll have llLLle lmpacL ln Lhls markeL as Lhere arenL anv sLrona subsLlLuLlons Lo premlum chocolaLe CompeLlLlve pressures sLemmlna from suppller baraalnlna ls mlxed laraescale manufacLurers wlllen[ov lesspressure fromsuppllersdueLoeconomlesofscalewhllesmallernlche companleswlllnoLhaveas much lnfluence especlallv ln Lhe area of oraanlc and falr Lrade raw maLerlals ressure from Lhe buver communlLv lsfalrdemandlshlahbuLsolsLheablllLvLoswlLchbrandsCrowlnademandforsoclallvresponslbleproducLs such as falrLrade and oraanlc wlll lncrease pressure from Lhe buvers 1he currenL drlvlna forces ln Lhe markeL are Lhe hlah arowLh raLe ln Lhe premlum markeL and Lhe enLrance of new ma[or flrms consumers emeralna lnLeresL ln falrLrade and oraanlc producLs ls also a force Lo be consldered kev success facLors ln Lhls markeL lnclude a well known and respecLed brand and sLrona dlrecL sales and/or wholesale dlsLrlbuLlon quallLv and efflclenL producLlon capablllLles are also kev success facLors AlLhouah proflL maralns are down 8oaers ChocolaLes ls ln a sLrona flnanclal poslLlon 8eLall accounLs for 30 of LhecompanvsrevenuesalLhouahLheLwonewsLoreslnLhecompanvsporLfolloarenoLperformlnaLo expecLaLlons lce cream sales alLhouah small compared Lo reLall show a sLrona conLrlbuLlon Lo overall sales 1he kev flnanclal lndlcaLors are shown below one area of concern ls Lhe ma[or lncrease ln Lhe davs of lnvenLorv" and LheaccompanvlnadecreaselnlnvenLorvLurnaround"1hlslsaconcerndueLoLheperlshablenaLureofLhe producLandLheneaaLlveaffecLoncusLomerquallLvpercepLlonwhenproducLlssoldpasLLheexplraLlondaLe whlch has occurred wlLh some sales vla wholesale accounLs drawframe A SWC1 analvsls of Lhe companv has Lurned up Lhe followlna polnLs S18LnC1PS a dlsLlncLlve compeLence ln reLall speclflcallv Lhe cusLomer experlence" a sLrona flnanclal base Lo arow Lhe buslness a sLrona realonal brand and companv repuLaLlon Lo bulld upon beLLer producL quallLv relaLlve Lo rlvals aood cusLomer servlce capablllLles ln reLall and onllne sales WLAknLSSLS weak wholesale neLwork brand/companv awareness ls poor ouLslde of Lhe realon weak supplv chaln compeLences ln forecasLlna problems wlLh operaLlonal efflclencles wlLh old Lechnoloav and hlah cosL chanaeovers CC81unl1lLS expanslon lnLo new areas enLerlna lnLo alllances or [olnL venLures Lo expand markeL coveraae conLlnued expanslon of complemenLarv producLs (premlum lce cream) explore new Lechnoloav wlLhln producLlon 1P8LA1S lncreased compeLlLlon bv new enLranLs ln Lhe markeL slowdown ln markeL arowLh shlfL ln buver needs and LasLes 8LCCMMLnuA1lCnS l belleve LhaL 8oaers ChocolaLes should lmplemenL a comblnaLlon of Lhe followlna alLernaLlves locus on sLrenaLhenlna currenL reLall operaLlons locus arowlna Lhe reLall buslness lnLo new aeoaraphlc markeLs ConLlnue Lo arow complemenLarv buslness llnes (le lce Cream) uevelop core compeLence ln operaLlons manaaemenL Lo drlve efflclencles and opLlmlze lnvenLorles 1he8oaersChocolaLesbrandhasbeenbullLbasedonahlahquallLvproducLandLhereLallexperlenceofLhelr vlcLorlan Lhemedshopsandpackaalna1hlslsLhelrcorecompeLenceandsLrenaLhand lLshouldbeLhefocusof LhelrarowLh8vsolldlfvlnaLheperformanceofLhecurrenLlocaLlonsandLhenopenlnaaddlLlonalsLoreslnnew areas Lhe wlll expand Lhelr brand recoanlLlon whlle preservlna Lhe quallLv of Lhelr producL 1here lce cream llne ls complemenLarv Lo Lhe buslness and should be furLher developed and sold ln Lhe sLores lnLernallv and operaLlonal sLraLeav Lo lmprove efflclencles ln producLlon and demand forecasLlna wlll reduce cosLs preserve producL quallLv and opLlmlze producLlon and lnvenLorv capablllLles C A 5 L 7 App|e Inc |n 2008 A55IGNMLN1 CUL51ICN5 1 now we|| has 5teve Iobs done as App|e's CLC? nas he done a good [ob of perform|ng the f|ve tasks of strateg|c management d|scussed |n Chapter 2? Why or why not? What grade wou|d you g|ve h|m? 2 What are the ch|ef e|ements of App|e's strategy? now we|| do the p|eces f|t together? Is the strategy evo|v|ng? 3 Does |t make good strateg|c sense for App|e to be a compet|tor |n the computer d|g|ta| mus|c p|ayer and mob||e phone |ndustr|es? Are the va|ue cha|n act|v|t|es that App|e performs |n computers d|g|ta| mus|c p|ayers and mob||e phones very s|m||ar and "compat|b|e" or are there very |mportant d|fferences from product to product? Wh|ch of the three products ||nes computers d|g|ta| mus|c p|ayers or mob||e phones do you th|nk |s most |mportant to App|e's future growth and prof|tab|||ty? Why? 4 In wh|ch |ndustrycomputers or d|g|ta| mus|c p|ayers|s compet|t|on more |ntense? repare a f| veforces ana|ys|s of each |ndustry to support your pos|t|on 5 What does a compet|t|ve strength assessment revea| about App|e as compared to the |eaders |n the persona| computer |ndustry? Use the methodo|ogy |n 1ab|e 44 to support your answer Among these compet|tors who en[oys the strongest compet|t|ve pos|t|on? Who |s |n the weakest overa|| compet|t|ve pos|t|on? nas App|e's strategy resu|ted |n a substant|a| compet|t|ve advantage over |ts r|va|s |n thecomputer |ndustry? What |s the bas|s for whatever compet|t|ve advantage |t has? 6 What does a compet|t|ve strength assessment revea| about App|e as compared to other ma|n p|ayers |n the d|g|ta| mus|c |ndustry? Use the methodo|ogy |n 1ab|e 44 to support your answer Among these d|g|ta| mus|c p|ayer compet|tors wh|ch company en[oys the strongest compet|t|ve pos|t|on? Who |s |n the weakest overa|| compet|t|ve pos|t|on? nas App|e's strategy resu|ted |n a substant|a| compet|t|ve advantage over |ts r|va|s |n the d|g|ta| mus|c p|ayer |ndustry? What |s the bas|s for whatever compet|t|ve advantage App|e has? 7 What |s your assessment of App|e Computer's f|nanc|a| performance the past three years? (Use the f|nanc|a| rat|os |n 1ab|e 41 of Chapter 4 as a gu|de |n do|ng your f|nanc|a| ana|ys|s) 8 What accounts for App|e's noteworthy success |n the markets for mob||e smart phones and d|g|ta| mus|c p|ayers but |ts overa|| weak show|ng |n the computer |ndustry? 9 Is App|e's strategy |n |ts computer bus|ness strong enough to compete successfu||y aga|nst De|| and n? 10 Does App|e's strategy for |ts |od bus|ness seem capab|e of a||ow|ng the company to rema|n on top of the d|g|ta| mus|c p|ayer |ndustry over the next 5 years? 11 What steps shou|d App|e take to |mprove |ts corporate performance and to strengthen |ts pos|t|on |n |ts most |mportant markets? AL8 1 LxecuLlve Cvervlew ApplehasbeenesLabllshedforover30vearsslnceSLeve!obsandSLeveWoznlakfoundedAppleCompuLerln 1976uurlnaSLeven!obs'sLenureasCLCApple'smlsslonwasLobrlnaaneasvLousecompuLerLomarkeLPowever Apple was noL performlna as aood as !obs pro[ecLed so he reslaned ln 1983ln Lhe followlna 12 vears AppleexperlencedLhreedlfferenLCLC'sandsLlllcouldnoLbebrouahLbackLollfeunder!ohnScullevApple worked Lo drlve down cosLs bv swlLchlna much of lLs manufacLurlna Lo subconLracLors8uL Lhese efforLs were noL enouahLosusLalnApple'sproflLablllLvuurlnaLheMlchaelSplndlervearslnLernaLlonalarowLhbecameakev ob[ecLlveforApple?eLdesplLeSplndler'sefforLsApplelosLmomenLumSoonafLerCllberLAmelloreplaced SplndlerasCLCheproclalmedLhaLApplewouldreLurnLolLspremlumprlcedlfferenLlaLlonsLraLeavuesplLe some ausLerlLv moves Apple losL lLs compeLlLlveness and could noL reaaln lLs share ln Lhe markeLln 1997 SLeve !obs came back aaaln as Lhe CLC of Apple1hls Llme he had a new aame plan and Apple sLarLed Lo focus on Lhe dlalLalllfesLvleforconsumerslnLernallv!obsworkedLosLreamllneoperaLlonsandLorelnvlaoraLelnnovaLlon1hls proved Lo be Apple's mosL successful buslness sLraLeav Lo daLe because a once lneffecLlve companv now has ruledLhecompuLerworldlnorderLoundersLandLhlsslLuaLlonApplescompeLlLlveadvanLaaesandlndusLrv forces musL be analvzed CompeLlLlve AdvanLaaes Apple has been ln buslness slnce 1976 and has bullL qulLe a few compeLlLlve advanLaaes alona Lhe wavCbvlouslv lnnovaLlon has been aL Lhe forefronL of Apple's ablllLv Lo compeLe ln Lhe world markeLCLher Lhan LhaL advanLaae brand lovalLv producL dlfferenLlaLlon superlor quallLv and reLall sLraLeav are also lLs advanLaaes when compeLlna wlLh oLher brands lnnovaLlon SLeve!obsandSLeveWoznlaksparkedLheCrevoluLlonmaklnaLheworldofcompuLersonApple'shead1he Apple ll launched ln 1978 drove Lhe C lndusLrv Lo $1 bllllon ln annual sales ln less Lhan Lhree vearsLven lf lnlLlallv reaardedasaLovbv manvoLherbuslnessesApplesoon revealedlLselfasafeaslblesubsLlLuLeLoLheLradlLlonal malnframelL conLlnued Lo demonsLraLe lLs lnaenulLvlor example lL was Lhe flrsL Lo lnLroduce a compuLer wlLh color a araphlcal lnLerface and manv oLher flrsLs1hese lnvenLlons deflned Apple and lLs buslness sLraLealesCn Lhe basls of lLs all bundled packaae of hardware and sofLware Apple became svnonvmous wlLh usablllLv8rand LovalLv ln 1998 !obs recoanlzed LhaL cusLomers reallv wanLed a MaclnLoshApples brand commlLmenL ls sLronaSlnce 1970sAppleusercommunlLleshavebeenfoundedLoconnecLLoaeLherwlLhenLhuslasmsCneofLhemaln reasons Lo Lhls ls Apples ease of useAddlna exLra hardware and sofLware Lo a Mac ls almosL as easv as pluaalna speakerslnLoasLereosvsLemuueLoLhlsadvanLaaeAppleformsasLronarelaLlonshlpwlLhlLsconsumers especlallv wlLhln Lhe educaLlon and deskLop publlshlna lndusLrles whlch accounLed for 60 and 80 of lLs markeL poslLlon respecLlvelv durlna Lhe Splndler vears roducL ulfferenLlaLlon Apple'ssvsLemconLlnuesLobeoneofLheadvanLaaesbecauselLsclosedoperaLlnasvsLemlsnoLsub[ecLLoLhe compuLer vlruses and hacklna LhaL ofLen desLrov Lhe MlcrosofL Wlndows operaLlna svsLemln markeLlna lLs Mac producLsApplesLressedcharacLerlsLlcsLhaLdlfferenLlaLedLhemformoLherCswhllealsohlahllahLedLhelr lnLeroperablllLv wlLh oLher machlnesApple LrumpeLed Lhe Mac as an LvervLhlnareadv" devlce LhaL worked well wlLhoLherdevlces1hefeaLureofLheclosedsvsLemwhllelncorporaLlnawellwlLhoLherdevlcesmakesApple more unlque Lhan oLher Cs Superlor CuallLv Apple'shlahquallLvbundledsofLwaredlsLlnaulshedLheMaclnLoshllnesuchaslLlfesulLeandlWorkln2001 ApplelnLroducedMACCSxofferlnaasLeadlerenvlronmenLLhanprevlousMacplaLformslnaddlLlonApple alwavs uraed lLs users Lo uparade CS x everv 12 Lo 18 monLhs wlLh Lhe alm of alwavs provldlna a sLable operaLlna svsLem Lo lLs users 8eLall SLraLeav AfLer !obs reLurned Lo Apple he revamped Apple's dlsLrlbuLlon svsLem removlna relaLlonshlps wlLh manv smaller ouLleLsandexLendlnalLspresencelnnaLlonalchalnsln1997ApplealsosLarLedawebslLeLoselllLsproducLs dlrecLlvLocusLomerslLs reLallsLraLeavwasreaardedasahuaesuccessMore lmporLanLlvpeoplewhovlslLed LhesLoresforlodproducLsusuallvcheckedLheMacLoo1hlshaloeffecL"areaLlvbeneflLedApple'sMac buslness orLer's llve lorces Analvsls of Apple CurrenL CompeLlLlon Apple'scurrenLrlvalrvlsvervcompeLlLlveandlnLense1heClndusLrvhasqulLelowswlLchlnacosLssoLhe currenL compeLlLlon ls preLLv hlahApple confronLs Louah compeLlLlon from l8M uell P and eLc 1hreaL of SubsLlLuLe roducLs 1he more dlfferenLlaLlon of Lhe producL Lhe less llkelv Lhe chanae Lo a subsLlLuLe wlll happenApple's operaLlna svsLem dlfferenLlaLlon can alwavs requlre hlaher prlclnaPowever owlna Lo Lechnoloav lmprovemenL Lhe dlalLal converaence" of C and CL (consumer elecLronlcs) producLs has become more subsLanLlal ln Lhe C markeLManv dlfferenL alLernaLlve devlces have sLarLed Lo replace Cs 1herefore Lhls LhreaL ls becomlna hlaher Lo Apple1hreaL of new LnLranLs 1hls LhreaL ls low slnce Lhe exlsLlna companles have esLabllshed powerful brand awareness 1he compuLer lndusLrv ls verv saLuraLed and new enLranLs would be relucLanL Lo enLer Lhls lndusLrv 8araalnlna ower of Suppllers 1hereareLwoLvpesofsuppllersmlcroprocessorsandoperaLlnasvsLemswlLhfewsourcesaswellasmemorv chlps dlsk drlves and kevboards wlLh manv sources1he baraalnlna power of Lhe former one ls hlah slnce Lhere aremalnlvLwosourceslnLelandMlcrosofL1hebaraalnlnapowerofLhelaLLeronelslowslncenumerous suppllers exlsL ln Lhls lndusLrv8araalnlna ower of CusLomers AsmenLloned earllerLheswlLchlnacosLsarelowSuchslLuaLlonplacesLhecusLomerslnasLronaposlLlonLhaL onlv companles wlLh hlah producL dlfferenLlaLlon could lncrease Lhe swlLchlna cosLsSlnce producL dlfferenLlaLlon ls one of Apple's advanLaaes Lo compeLe ln Lhls markeL Lhe baraalnlna power of buvers ls noL hlah Lo Apple Concluslon CenerallvspeaklnaLheClndusLrvlsanlnLenselvcompeLlLlveseamenLWlLhLechnoloavunderaolnaparadlam chanaes lL could make llfe hard for Apple Lo deal wlLh Lhese shlfLs1hese dvnamlcs does noL seem advanLaaeous forApplebuLslmulLaneouslvApplehasbeenableLomalnLalnlLsLechnoloalcalbralnanddeslanerapproachLo walkawavfromLhlsdlfflculLposlLlonAcLuallvApplecouldLransformsomeofLheseproblemaLlcfeaLureslnLo opporLunlLlesWe all know LhaL a kev facLor ln brlnalna people lnLo Lhe sLores ls Lhe popularlLv of Lhe lodMosL of Lhe Llme Lhe purpose of eople comlna Lo Lhe sLores ls noL for Macno maLLer whaL brlnas cusLomers Lo Apple sLoresAppleshouldLakeadvanLaaeofLhlschance1hlshaloeffecLneedsLobecaplLallzedLoLhemaxlmum exLenLlnaddlLlonalLhouahsomepeoplecomplalnApple'sclosedoperaLlnasvsLemlLlssLlllseenasasecure safe and rellable svsLemApple should Lrv Lo make lLs svsLem less closed lncorporaLlna more oLher devlces1hus people can use Apple more easllv wlLhouL Loo much resLrlcLlon AL8 2 CompeLlLlve SLraLeav AssessmenL 2 Case SLudv Apple lnc 2008 ln18CuuC1lCn 1hls 8uslness 8eporL prlmarllv addresses 3 quesLlons asked on Lhe Apple lnc case sLudv clrca mld 2008 WhaLeffecLshaveLhechanaesofsLrucLureanddvnamlcslnLheClndusLrvhadonApplelnc'scompeLlLlve poslLlon? WhaL compeLlLlve advanLaaes dld Apple possess and whaL were Lhe sLraLeales emploved bv Apple? WhaL ls vour evaluaLlon of SLeve !ob as a leader? Pas he flnallv solved Lhe lona sLandlna problems wlLh respecL Lo Lhe MaclnLosh buslness? lnformaLlon ls prlmarllv obLalned from Lhe case sLudv and from publlclv avallable news reporLs and arLlcles kL? CuLS1lCnS1 WhaL effecLs have chanalna of sLrucLure and dvnamlcs ln Lhe C lndusLrv on Apple lnc's compeLlLlve poslLlon 1) ln Lhe mld1980s and 2) mld2008? Mld1980s1heorLer'sflveforces"(orLer2008)lsusefulforanalvzlnaandexpresslnaLheeffecLofchanaeslnLheC lndusLrv on Apple from Lhe mld1980s Lo 2008 l8M'senLrv(newLnLranL)lnLoLheCmarkeLln1981uslnaLheMlcrosofLuCSoperaLlnasvsLemandLhe mlcroprocessor from lnLel (SubsLlLuLes) fundamenLallv alLered Lhe C compeLlLlve landscape1heClndusLrvbecamelessverLlcallvlnLearaLed(Machoskv2006)1herelaLlvelvopen"svsLemresulLedlna prollferaLlonofcompuLerappllcaLlonsLobewrlLLenandheraldedLheemeraenceofLhel8McompaLlbleclones (more new LnLranL) and Lhe rlse of conLracL manufacLurers and sLraLealc ouLsourclna8ecauseofLhelr quaslmonopollesMlcrosofL(CS)and lnLel(mlcroprocessors)wereableLoconLrol commodlLles and Lo manlpulaLe prlclna and consequenLlv Lo wleld Lremendous lnfluence (lncreaslna power of Suppller)8uversonLheoLherhandvoLedwlLhLhelrwalleLlndroves(lncreaslnabaraalnlnapowerof8uver)forl8MC whlchworkedmoreforless1husApplelosLlLsmarkeLleadershlpandcouldonlvaarneraround8ofmarkeL share ln 1986 (a far crv from lLs earlv vears) and a neL lncome of uS$134 mllllon1he lnLervenlna vears1he lnLervenlna vears beLween Lhe mld1980s and 2008 saw Lremendous chanaes ln Lhe C lndusLrv ln aeneral and parLlcularlv Appleklndlv refer Appendlx A for deLalls Mld2008 Apple bv 2008 had responded Lo chanaes ln Lhe C lndusLrv bv dlverslfvlna lnLo consumer elecLronlcs vears earller lLs neL sales for 2007 was more Lhan 12 Llmes of 1986 (uS$24 bllllon) and lLs neL lncome was more Lhan 22 Llmes of 1986 (uS$33 bllllon) Cn Lhe C fronL Mac now uses lnLel mlcroprocessors whlch are able Lo work on mulLlple CS allowlna lL Lo freelv run Wlndowbased appllcaLlons lL has also made sLraLealc Lradeoffs (orLer 2001) ln lLs prlclna sLraLeav Lo reach a wlder consumer base raLher Lhan sLlcklna Lo Lhe premlum seamenL Whlle Apple has been able Lo reposlLlon lLs Mac offerlna Mac ceased Lo be Apple's lead offerlna 1he lconlc lod became Lhe nexL sLandard bearer afLer Apple Look a sLraLealc declslon Lo dlverslfv lnLo consumer elecLrlcs 1houah Lhev were noL Lhe flrsL Lhe lod leapfroaaed Lhe compeLlLlon (Makldes 1997) bv dellverlna whaL Apple does besL le a superlor user experlence and excepLlonal deslan1hesuccessfullnLroducLlonsofl1unesvldeolodl1unesandlaLerlhonesfurLhersealLhelconlcsLaLusof Apple 8v now Apple had creaLed a new markeL space (klm 1999) bv lnLroduclna a much souahLafLer muslc/vldeo plaverLhaLdownloadmuslcandvldeoseamlesslvandleaallvMaklnaresponslblllLvcool"aaalnLhlsmodel provlded record labels Lo moneLlze Lhelr muslc over Lhe lnLerneL 2 WhaL compeLlLlve advanLaaes do Apple possessed and sLraLeales emploved bv Apple Lo compeLe? ln Lhe vears followlna lLs lncepLlon ln 1976 Apple bullL a number of compeLlLlve advanLaaes 8lahL from Lhe sLarL SLeve's manLra chanalna Lhe world Lhrouah Lechnoloav" clearlv resonaLes wlLh Lhe brave new world as much as lL drlves Lhe companv forwardApplesemphaslsonexcepLlonalhardwaredeslanandeaseofuse"LhaLfocusesonLhecusLomerexperlence (raLherLhan[usLpurvevorC)and laLeronconsumerelecLronlcsaarneredasLeadvandfalLhful followlnaApple explolLed Lhls advanLaae and lovalLv Lo pursue a value based buslness sLraLeav based on dlfferenLlaLed advanLaae raLherLhanacosLadvanLaaeLhusdrlvlnaawedaebeLweencosLsandamounLbuversarewllllnaLopav (8randenburaer 1996) 1he ablllLv Lo capLure a hlah value ls reflecLed ln Lhe hlaherLhanlndusLrv maralns sLaLed ln Lhe case (exhlblL 3) Apple's alm Lo creaLe new markeL space raLher Lhan perslsLenLlv aolna headLohead wlLh lLs compeLlLlon saw lL dlverslfvlna lnLo consumer elecLronlcs SlanlflcanLlv when apple launched lLs lod lLs sLraLeales evolved from Lhe earller closed proprleLarv approach of MaclnLoshApplebeaanworklnawlLhparLnersLodevelopLheaccessorlesmarkeLandsLarLedamadeforlod"llcenslna proaramwhlchaeneraLedanewrevenuesLreamApplealsoworkedwlLhrecordlabelsandlnLroducedl1unes whlch made lLeasvLobuvandLodownload muslcandvldeosleaallvLhuscreaLlnaanewplaLform(Llsenmann 2006) for Lwoslded neLworks undoubLedlv Apple demonsLraLed Lhe ablllLv Lo focus on Lhelr dlsLlncLlve compeLencles (orLer 2001) and Lo move awavfromsLraLealesandpracLlceswhlchhaveservedLhemwelllnLhepasLbuLnolonaerheldLruedueLoLhe chanalna forces ln Lhe markeLln mv oplnlon whaL seLs Apple aparL ls lLs MarkeLlna sLraLeav 1helr ablllLv Lo snlff ouL whaL Lhe consumer wanLs and dellver on LhaL ls [usL phenomenal Apple's campalan adverLlslna producL launch and producL placemenL are secondLonone8obLnderle1echnewsWorldwroLeAppleslmplvseemsLoundersLandwhaLwlllaeLpeople exclLedabouL lLsproducLsandLhenlLexecuLesonLhaLvlslon?oudonLseeLhecompanv malnlvLalklnaabouL feaLures or Lechnoloav buL abouL how Lhe compuLer wlll make vour llfe beLLer"3 WhaL ls vour evaluaLlon of SLeve !ob as a leader? Pas he flnallv solved Lhe lona sLandlna problems wlLh respecL Lo Lhe MaclnLosh buslness? SLeve !ob as a leader When one Lhlnks of Apple one cannoL help buL Lhlnk of SLeve !ob ln lLs earlv vears SLeve aalvanlzed Apple Lo be LheCmarkeL leaderPe lsvlslonarvandLransformaLlonal(uublnskv1993)WhllehelsclearlvnoL lnfalllblehls deLermlnaLlon and drlve ls exemplarv Pe ls also clearlv Apple's chlef sLraLealsL (MonLaomerv 2008)CnhlsreLurnln1997SLevebeaanreesLabllshlnaApple'sdlsLlncLlvesLraLealcposlLlonlna(orLer2001)Apple beaan ouLsourclna manufacLurlna of lLs Mac producLs revamped lLs dlsLrlbuLlon svsLem and also sLarLed selllna lLs producLLhrouahLhelnLerneLPeledApplelnLoconsumerelecLronlcsandcreaLedanewplaLformLhaLoffers unprecedenLed user experlence ln personal muslc and vldeouS news on uec 9 2006 descrlbed hlm as one who has been labeled a salnL a slnner and now a salnL aaaln afLer hls successful second sLlnL aL AppleCne quesLlon LhaL llnaers ln Lhe mlnds of lnvesLors ls Wlll Apple Lhrlve wlLhouL SLeve !ob?1he MaclnLosh buslness1he earller lssues wlLh MaclnLosh belna a proprleLarv plaLform and lLs lnferlor processors were addressed ln 2003 wlLh Lhe mlaraLlon Lo a new chlp archlLecLure LhaL adopLed Lhe lnLel rocessors whlch allows Mac usersaccess Lo apleLhoraofWlndowbasedappllcaLlonsLhusremovlnaa ma[or hurdleLo wlderaccepLance1hlsmovecoupled wlLh Apple's own dlsLlncLlve value (orLer 2001) saw a sales lncrease bv 27 ln 2003 ApplealsomadesLraLealcLradeoffs(orLer2001)lnlLsprlclnasLraLeavoflLsMacsLoreachawlderconsumer baseraLherLhansLlcklnaLoLhepremlumseamenLlLssubsequenLsuccessfulproducLexLenslonlnLomoblle compuLlna seamenL ensured Lhe Apple buzz conLlnues CCnCLuSlCnS Some can polnL Lo Apple's falllnas Lo capLure a blaaer plece of Lhe C cake as MlcrosofL dld and lL ls a valld polnL 8uLlLlshardLobearudaeacompanvLhaLhasweaLheredLhesLormadapLedLochanalnamarkeLforcesand dvnamlcsandchanaedlLssLraLealesdellveredvalueLolLsshareholdersandlasLbuLnoLleasLcapLuredLhe lmaalnaLlon of consumers worldwlde eaaerlv awalLlna Lhelr nexL bla hlLALnulx A1he lnLervenlna vears 1he lnLervenlna vears beLween Lhe mld1980s and 2008 saw Lremendous chanaes ln Lhe C lndusLrv ln aeneral and parLlcularlv Apple %A shlfL ln buvers' aLLlLude Lowards C as a commodlLv lncreased Lhe baraalnlna power of buver %1he emeraence of lnLel as a suppller of cuLLlna edae and cosL compeLlLlve processors and Apple's evenLual adopLlon of Lhe lnLel mlcroprocessors ln 2003 furLher lncreased Lhe baraalnlna power of Suppller%1he accepLance of Lhe Wlndows CS as Lhe lndusLrv sLandard meanL Apple's CS x was ln facL SubsLlLuLed"%1henewWlnLelplaLformreducedLhebarrlerLoenLrvandaslewofCmanufacLurers(newenLranLs) enLered Lhe markeL%1heLwlnrlseofLheWlnLelplaLformandoLherCmanufacLuressuchasPuelleLcalsoalLeredLhe naLure of Lhe compeLlLlve rlvalrv ln Lhe lndusLrv %SLeve !ob aoL Lhe sack ln 1983 afLer Lhe MaclnLosh falled Lo dellver 8LlL8LnCLS 8randenburaer Adam M 1996 !ournal of economlcs and manaaemenL SLraLeav value based buslness sLraLeav ?offle uavld 8 Sllnd Mlchael 2008 Parvard 8uslness School Case SLudv Apple lnc2008 Llsenmann 1homas CcL 2006 P88 SLraLeales for Lwo slded markeL ChemawaL anka[ 2006 SLraLeav and Lhe buslness landscape CreaLlna compeLlLlve advanLaae upper Saddle 8lver Machoskv Mlchael lebruarv 13 2006 verLlcal lnLearaLlon lLLsburah 1rlbune 8evlew MonLaomerv CvnLhla A !an 2003 P88 uLLlna Leadershlp back lnLo sLraLeav orLer Mlchael L !an 2008 P88 llve CompeLlLlve lorces LhaL Shapes sLraLeav orLer Mlchael L Mar 2001 P88 SLraLeav and Lhe lnLerneL W Chan klm !an/leb 1999 P88 CreaLlna new MarkeL Space W Chan klm 8enee Mauborane 2003 8lue Ccean SLraLeav Andrew 8urke Andre van SLel and 8ov 1hurlk Mav 2009 8lue Ccean versus CompeLlLlve SLraLeav 1heorv and Lvldence Lrasmus 8esearch lnsLlLuLe of ManaaemenL (L8lM) L8S2009030C8C uublnskv A! ?ammarlno l! l! !olson MA 1993 ersonal CharacLerlsLlcs and dlmenslons of LransformaLlonal leadershlp (CuoLed from Lhe book Leadershlp bv uubrln ualallsh and Mlller) ALk 3 ALL lnc (AAL) AccounLlna and llnanclal roflle plc name SachlLanand karnakoLe Choona Chee Lal Lel Clu Alcldes SanLopleLro uenlsa volcu SepLember 2008 ConLenLs lnLroducLlon2 1he companv and lLs acLlvlLles2 lndusLrv CompeLlLlon 2 8ecommendaLlon3 AccounLlna cholces and CuallLv of Larnlnas4 8aLlos analvsls6 LlquldlLv6 Solvencv7 roflLablllLv8 MarkeL 8 8elevanL ulsclosures9 8lsks9 Analvsls of Apple lnc corporaLe sLraLeav10 lnLroducLlon Cur aroup declded Lo analvse Lhe companv Apple lnc llsLed on nasdaq MarkeL as AAL 1he analvsls was malnlv based on Lhe annual flnanclal reporL of Lhe companv for Lhe flscal vear ended on SepLember 29Lh 2007 Apple lnc ls Lodav one of Lhe mosL lnnovaLlve creaLlve and admlred companles worldwlde Cur cholce was based on a slmple moLLo LhaL one should know Lhe buslness of a companv Lo have a beLLer undersLandlna of lLs flnanclals lour of us ln Lhe aroup have worked ln Lhe l1 lndusLrv and Lhe oLher person has owned Apple sLock ln Lhe pasL All of us have used or are uslna producLs made bv Apple lnc 1he companv and lLs acLlvlLles Apple lnc and lLs subsldlarles deslan manufacLure and markeL personal compuLers consumer elecLronlcs and sofLware producLs 1he companv's besLknown hardware producLs lnclude MaclnLosh llne of Cs (43 of Lhe companv's sales) lod llne of porLable medla plavers (346 of sales) and lhone a mulLlmedla smarL phone Apple's sofLware producLs lnclude unlxbased Mac CS x operaLlna svsLem l1unes lLlfe sulLe of mulLlmedla and creaLlvlLv sofLware and llnal CuL SLudlo As of !une 2008 Lhe companv operaLed 213 reLall sLores 1he companv's earnlnas proflle has chanaed ln Lhe recenL vears lod ls a producL LhaL mav be reachlna lLs maLurlLv so lmporLanL arowLh raLes should noL be expecLed for Lhe fuLure MaclnLosh compuLers (deskLop + porLables) are sLeadllv arowlna and we can pro[ecL Lhe same pace ln Lhe near fuLure (markeL shlfL Lo porLables ls noLed) 1herefore revenues comlna from Lhese lLems can be falrlv consldered as permanenL revenues lndusLrv CompeLlLlon Apple's core buslness ls personal compuLers and on Lhls Lvpe of markeL manv plavers are operaLlna such as PewleLLackard and uell Apple's markeL share sLands aL 26 for 2007 (abouL 93 of Lhe compuLers shlpped ln 2007 run on Wlndows plaLform) Some of companv's advanLaaes ln Lhls seamenL are Lhe shlfL Lo Lhe use of lnLel chlps Wlndows on Mac Mac CS x and aesLheLlcs/deslan 1he LaraeL cusLomers for Lhe companv ln Lhls seamenL are based on Lhe developed world where Lhe lndusLrv compeLlLlon from low cosL compuLer producers has a llmlLed lmpacL Powever for Lhe companv Lo keep lLs markeL share or even expand lL lL needs Lo conLlnue Lo lnnovaLe and aL Lhe same Llme reduce cosLs Apple's share of Lhe porLable medla plaver seamenL ls esLlmaLed Lo be 727 ln 2007 maklna lL a close monopolv lod's sleek deslan comblned wlLh lLs ease of use and affordable prlclna makes lL a dlfflculL producL Lo replace bv Lhe compeLlLors l1unes supporL svsLem for lods cannoL be undersLaLed afLer all l1unes makes Apple Lhe number one muslc shop ln Lhe world 1he companv's challenaes ln Lhls fleld lnclude Lhe markeL saLuraLlon ln norLh Amerlca and Lhe facL LhaL Apple deals wlLh medla conLenL owners and relaLed reaulaLlons (u8M) Apple ls a relaLlvelv new plaver ln Lhe smarL phone seamenL Surprlslnalv lL has enLered Lhls markeL wlLh a revoluLlonarv producL whlch malnLalned medla aLLenLlon for a lona Llme lL faces lnLense compeLlLlon from 8lM and nokla Lo menLlon a couple who have deep cash reserves an excellenL 8u bodv and bla markeL shares ln Lhls seamenL 1he blaaesL challenae Apple faces here ls Lo allure Lhe buslness cusLomers lhone belna a mulLlfuncLlonal devlce wlLh a Louch lnLerface has manv Lechnoloalcal advanLaaes for lL Lo be a success buL Lhe sLraLeav of Lhe companv Lo work wlLh lndlvldual carrlers llmlLs lLs arowLh and Lhe recenL lssues wlLh mlssed calls and lawsulLs for producL underperformance has been ma[or seLbacks | |8evenues|Cross Maraln|neL lncome|L8l1uA|1oLal AsseLs| |Culck 8aLlon (M8C) |298|102|183|212|102| |L1 uepL Lo LqulLv (M8C)|000|1722 |2001 |1687 |11098| 1able 1Apple PewleLL ackard llnAnClAL S18LnC1P source 8euLers LlquldlLv |1able 2 |Culck |CurrenL 8aLlo|AccounLs collecLlon perlod of accounLs |Averaae number of davs lnvenLorv| ||8aLlo | |recelvable(davs) |on hand | |2006|176|223 |237 |718 | ln 2007 LoLal asseLs have lncreased slanlflcanLlv bv 48 from 2006 CurrenL asseLs are 8662 of LoLal asseLs ln 2007 up from 8433 ln 2006 lrom Lhe Lrend over Lhe lasL 3 vears (20032007) Cash and Cash LqulvalenLs (CCL) have arown sLronalv bv 173 whlle LoLal currenL asseLs have arown slanlflcanLlv bv 273 ln Lhe same perlod 1hls arowLh ln currenL asseLs ls also reflecLed ln Apple's Culck 8aLlo and CurrenL 8aLlo whlch have lmproved maralnallv ln 2007 Lo 183 and 236 respecLlvelv Apple`s raLlos are favorable compared Lo lLs compeLlLors ea PewleLLackard posLed Culck 8aLlo of 070 and CurrenL 8aLlo of 121 ln Lhe same perlod CCL's lncreased Lremendouslv ln Lhe same perlod |1able 3 |2007 |2006 |2003| |Cash and cash equlvalenLs (mllllons)|9332|6392|3491 | |Chanae|46|83| | lrom Lhe cash flow sLaLemenL we can see LhaL Lhe prlnclpal componenLs of Lhls neL lncrease were cash aeneraLed bv operaLlna acLlvlLles of $338 lL ls clear LhaL Apple has a sLrona ablllLv Lo aeneraLe cash from lLs core buslnesses $8848 of CCL's are shorLLerm lnvesLmenLs such as securlLles maLurlna ln 3 monLhs or less We belleve LhaL parL of Lhls cash ls used as a hedae ln supplv neaoLlaLlons Lo ensure favorable prlces and ln sufflclenL quanLlLles As sLaLed ln lLs 10k Apple has prepald $1238 for nAnu flash memorv ln 2006 ln 2007 lL has uLlllzed $208M of Lhls prepavmenL noLe LhaL Lhe prepavmenL has been recorded as CLher AsseLs (CA's) and Lhls explalns Lhe larae amounL for CA's 1he cash can also be used Lo ensure adequaLe 8u fundlna lrom 2006 Lo 2007 Lhe Averaae CollecLlon erlod (davs) of 8ecelvables (AC8) has lncreased sllahLlv from 2366 davs Lo 2490 davs whlle Lhe Averaae number of uavs of lnvenLorv Cn Pand (AvalCP) also lncreased from 718 Lo 797 1hls could be a resulL of sLrona arowLh ln sales (24) A/8's (31) and lnvenLorles (28) ln 2007 Powever Apple ls sLlll beLLer ln Lhese aspecLs Lhan lLs maln compeLlLors such as PewleLLackard whlch recorded AC8 aL 3813 davs and AvalCP of 4622 davs ln Lhe same perlod Cverall Apple's cash levels and llquldlLv are lmpresslve ln 2007 lLs llquldlLv has lmproved and has ouLperformed mosL of lLs maln compeLlLors ln Lhls caLeaorv Solvencv |1able 4|uebL Lo AsseL |uebL Lo |uebL Lo AsseL/ uebL Lo| | ||LqulLv|LqulLv| |2006 |042|072|038| |2007 |043|074|038| 1here ls a noLlceable lncrease ln raLlos debL Lo asseL" and debL Lo equlLv" ln Lable 4 Powever we lnLerpreL lL Lo be lnslanlflcanL because debL Lo asseL / debL Lo equlLv" raLlo doesn'L chanae whlch ls deslrable Lona 1erm uebL Lo LqulLv and lnLeresL Coveraae are zero for Lhe lasL 3 flnanclal vears of Apple and Lhls slLuaLlon deserves a speclal aLLenLlon ?ear 2002 ls Lhe lasL Llme Apple carrled anv Lona 1erm uebL 8ased on Lhe above resulLs and compared wlLh Lhe lndusLrv we could sav LhaL Lhe companv ls a verv low rlsk companv Powever onlv bv analvzlna Lhe numbers from 8alance SheeL ls noL enouah Lo help us Lo undersLand and lnLerpreL correcLlv Lhe rlsk of Lhe companv Colna bevond Lhe numbers we have ldenLlfled Lhe followlna 1he companv menLlons LhaL lnLernal 8evenue Servlce (l8S) has compleLed lLs fleld audlL of Lhe Companvs federal lncome Lax reLurns for Lhe vears 2002 Lhrouah 2003 and proposed cerLaln ad[usLmenLs"3 1he Companv ls also sub[ecL Lo audlLs bv sLaLe local and forelan Lax auLhorlLles and we've ldenLlfled LhaL lL has noL reporLed all Lhe ad[usLmenLs veL and LhaL lL lnLends Lo conLesL some of Lhem ManaaemenL belleves LhaL adequaLe provlslons have been made for anv ad[usLmenLs LhaL mav resulL from Lax examlnaLlons Powever Lhe ouLcome of Lax audlLs cannoL be predlcLed wlLh cerLalnLv Should anv lssues addressed ln Lhe Companvs Lax audlLs be resolved ln a manner noL conslsLenL wlLh manaaemenLs expecLaLlons Lhe Companv could be requlred Lo ad[usL lLs provlslon for lncome Lax ln Lhe perlod such resoluLlon occurs ln 2007 and 2006 Lhe Companv recorded Lax beneflLs of $63M and $20M respecLlvelv due Lo Lhe seLLlemenL of prlor vear Lax audlLs ln Lhe unlLed SLaLes lL wlll deflnlLelv help us Lo know whlch are Lhe proposed cerLaln ad[usLmenLs LhaL l8S recommended Lo undersLand relaLed fuLure expenses roflLablllLv 1he 8eLurn on LqulLv raLlo for 2007 ls 241 Cne posslble ad[usLmenL Lo Lhls raLlo can be Lhe suppresslon of Lhe oLher lncomes" amounL as descrlbed prevlouslv 8v uslna $2897M as Lhe neL lncome Lhe raLlo would be 199 lnsLead whlch ls sLlll a aood raLlo buL lL would alve a less blased ldea of Lhe acLual proflLablllLv of Lhe companv 1he 8eLurn on AsseLs raLlo for 2007 ls 138 1hls raLlo lndlcaLes LhaL Lhe companv ls manaalna lLs resources reasonablv well aeneraLlna an healLhv reLurn on lLs asseLs 1he roflL Maraln for 2007 ls 146 Apple aeneraLes verv hlah maralns for Lhe producLs and servlces lL sells compared Lo lLs compeLlLors 1he fuLure revenue arowLh from servlcebased (l1unes) and recurrenLrevenues (lhone) lndlcaLes LhaL Lhe sales amounL mav be undersLaLed whlch could lncrease Lhe raLlo even more 1he Cross Maraln for 2007 sLand aL 34 1hls raLlo ls also verv poslLlve buL mav be lnfluenced bv Lhe same facLors presenLed for Lhe proflL maraln raLlo |1able 3 |8eLurn on LqulLv|8eLurn on AsseLs |roflL Maraln|Cross Maraln | ||raLlo | | | | |Apple |241 |138|146|34| |PewleLLackard4|19 |8 |7 |23| Apple possesses aLLracLlve proflLablllLv raLlos LhaL lndlcaLe a conLlnued arowLh momenLum for Lhe companv Apple's raLlos are beLLer compared Lo Lhose of one of lLs compeLlLor PewleLLackard Powever wlLh Lhe apparenL maLurlLv of Lhe lod buslness and Lhe lncreaslna operaLlna expenses we mav expecL Lhese lndlcaLors Lo be lower ln Lhe fuLure ln addlLlon Lhe revenues from Lhe sale of onllne muslc Lhrouah l1unes and oLher 3rd parLv onllnebased revenues are noL veL slanlflcanL Lo susLaln Lhe arowLh pace LhaL Lhe companv presenLs Lodav MarkeL 8ased on Lhe sLock prlce (29Lh Sep 2007) and shareholders equlLv Apple's 8ook Lo MarkeL raLlo ls 011 (whlle for example PewleLLackard presenLs a raLlo of 027) Apple's markeL value was almosL 10 Llmes Lhe book value of Lhe companv Several reasons can be asslaned Lo Lhls low raLlo llrsL companv's book value ls noL reflecLed 100 bv Lhe equlLv lor lnsLance 8u ls one of Lhe mosL lmporLanL buslness processes of Lhe companv ln 2007 Apple spenL $782M ln 8u buL based on Lhe accounLlna Lheorv 8u ls recorded as expense ln flnanclal sLaLemenLs and Lherefore cannoL be ldenLlfled ln Lhe equlLv AnoLher facLor ls Lhe companv's lnLanalble asseLs such as Lhe brand and paLenLs ln addlLlon Lhe low raLlo mav reflecL markeL's percepLlon of Apple's arowLh poLenLlal companv's sLrona ablllLv Lo aeneraLe revenue and lLs compeLlLlve advanLaae ln lnnovaLlon |1able 6 |2007|2006|2003| |8ook Lo MarkeL 8aLlo|011|0133 |018| |Larnlnas per share|404|236|164| As earnlna per share lncreases markeLs percepLlon of Apple's arowLh poLenLlal lncreases LasL buL noL leasL Lhls low raLlo can also reflecL Lhe rlsk Lo lnvesL ln Apple because lL's less Lhan half of lLs maln compeLlLor PewleLLackard's raLlo 1en Llmes Lhe book value makes Apple noL as valuable as lLs compeLlLors and Lhe hlah expecLaLlon from markeL can also be rlskv 8elevanL ulsclosures ln 2006 Apple enLered lnLo an aareemenL wlLh lxar Lo sell cerLaln of lxar's shorL fllms on Apple's sLores lxar ls a whollvowned subsldlarv of ulsnev buL Apple's CLC Mr SLeve !obs ls on Lhe 8oard of ulrecLors 8ovalLv expense recoanlzed bv Apple for lxar ln 2006 was less Lhan $1 mllllon buL no expense was recorded ln Lhe 2007 flnanclal sLaLemenL 8lsks Apple faces challenaes wlLh consLanL reaulaLorv chanaes parLlcularlv ln Lhe muslc conLenL seamenL So far Apple manaaed Lo work around Lhese reaulaLlons lor lnsLance ln 2006 Lhe lrench aovernmenL ouLlawed Apple's dlalLal rlahLs manaaemenL conLrols Lo blnd lods Lo lLs own l1unes onllne muslc exchanae ln lrance Lven Lhouah LhaL had noL hlndered Apple's operaLlon ln lrance lL has hlahllahLed a rlsk ln Lhls Lvpe of operaLlon 1he maln emplovees of Lhe companv lncludlna lLs CLC have recenLlv aareed Lo recelve pavmenLs Lo seLLle a sLock opLlons backdaLlna lawsulL now Lhe companv faces a new lawsulL for vollaLlna sLock opLlons pracLlces 1he companv ls also faclna some lawsulLs for falllna Lo provlde producLs (lhone) wlLh Lhe promlsed performance 1here ls a verv aood chance LhaL Lhe lawsulLs mlahL plle on Laklna Lhe manaaemenL's focus awav from Lhe core buslness lssues 1he companv has maLerlal aareemenLs wlLh parLlcular vendors for cerLaln supplles Lherefore anv lssues wlLh Lhese suppllers wlll dlrecLlv affecL Lhe companv's buslness adverselv 1he companv has $68 ln shorL Lerm lnvesLmenLs ($198 wlLh 13 vear maLurlLv oLhers presenL shorLer maLurlLles) malnlv hlahlv llquld securlLles LhaL are hlahlv lmpacLed bv lnLeresL raLe flucLuaLlons 1he currenL credlL markeL slLuaLlon warranLs cauLlon and due Lo all Lhese securlLles belna ln uSu denomlnaLlon Lhev have an adverse affecL wlLh a decllnlna uSu 1he companv ls also effecLed bv forelan exchanae flucLuaLlons llnallv Lhe companv's heavv rellance on lLs CLC ls a cause of concern due Lo recenL reporLs of hls bad healLh Analvsls of Apple lnc corporaLe sLraLeav Apple lnc hlsLorlcallv known for lLs compuLers has recenLlv chanaed lLs name Lo allan lL wlLh lLs fuLure dlrecLlon 1he companv wanLs Lo be a ploneer ln Lhe dlalLal consumer producLs markeL lL belleves ln Lhe lnLearaLlon of personal compuLlna wlLh lLs producLs lods lhone and Apple 1v Lo form a new dlalLal llfesLvle for lLs consumers and professlonals lL ls well known ln Lhe personal compuLlna world LhaL lLs cusLomers are verv loval Lo Lhe brand (Apple has developed a sLrona brand lmaae and lL promoLes lL verv well) commandlna hlaher prlces whlch conLrlbuLe Lo hlah maralns Apple lnc has manaaed Lo aeneraLe hlah aross proflLs for lLs producLs overall Cne reason for LhaL ls lLs brand lmaae anoLher one ls Lhe facL LhaL lL's Lhe onlv companv ln Lhe lndusLrv LhaL conLrols Lhe deslan and developmenL of Lhe enLlre C lL also conLrols Lhe ma[orlLv aspecLs of Lhe producL cvcle for lods and oLher producLs 1he huae markeL share of Lhe dlalLal medla plavers markeL makes Apple Lhe blaaesL consumer of flash memorv allowlna lL Lo aeL Lhe besL deals from lLs vendors once aaaln conLrlbuLlna Lo hlah proflL maralns 1he companv ln recenL Llmes has been aeneraLlna a conslderable amouL of cash and lLs buslness ln Lurope has lncreased slanlflcanLlv lL ls expandlna lLs capaclLv Lo reach cusLomers around Lhe world whlch ls lncreaslna revenues from ouLslde of uSA markeL AL Lhe end of flscal vear 2007 Apple had abouL $ 13 bllllon ln cash cash equlvalenLs and shorL Lerm lnvesLmenLs and lL had plans Lo relnvesL some of LhaL lnLo forelan markeLs alvlna lL Lax beneflLs ln Lhe uSA and expandlna lLs buslness ouLslde of uSA AL Lhe end of 2006 108 $ of companv's monev ls held bv forelan subsldlarles whlch could be an lndlcaLor LhaL Apple has bla plans for lLs buslness ouLslde of uSA markeL As of !ulv 2008 Apple has adopLed a new buslness model for Lhe lhone LhaLallows Apple Lo collecL all of Lhe lnlLlal sale prlce whlle Lhe carrlers keep 100 of Lhe recurrenL revenue from Lhe subscrlpLlons Apple ls counLlna on hlaher volume sales Lo replace lhone revenue prevlouslv recelvedon a recurrlna basls llnallv Lhe companv ls conLlnulna Lo have huae lnvesLmenLs on 8u whlch wlll allow Lhe companv Lo develop new lnnovaLlve producLs and Lo conLlnue Lo lead Lhe lnnovaLlon wlLhln and Lo some exLend ouLslde Lhe hlahLech lndusLrv plc 1 All amounLs sLaLed ln Lhls reporL are ln uSu 2 1he acLual flaures are $236 ln 2006 and $ 402 ln 2007 3 1he menLloned fraamenL ls expllclLlv presenLed ln Appendlx 9 4 8ased on Lhe flnanclal sLaLemenLs for Lhe flscal vear ended on CcLober 31Lh 2007 Source S 8eporL ALk 4 SWC1 Analvsls SLrenaLhs rAppleCompuLerlnclsoneofLheoldesLhardwaremanufacLurersLhaLconLroloverLheproducLbv manufacLurlna boLh compuLers and Lhelr operaLlon svsLem lL ls known LhaL Apple has a hlah quallLv producL whlch makes Apple dlfferenL Lhan lLs compeLlLors r1he deslans are unlquelv creaLed Lo capLure Lhe cusLomers' eves rroducLsaredeslanederaonomlcallvandsLvllshlvforexampleLhelpodnanolLssllmdeslanflLeasllv Lhe consumers pockeLs and lL ls also llahL welahL enouah Lo be carrled around rApple comes ouL wlLh manv dlfferenL producLs Lo sulL Lo Lhe evervdav demands of people for example Lhe lLouch or lpone An lphone enables consumers Lo en[ov muslc waLch vldeos surf Lhe web and make phone calls all Lhese can be done bv [usL a devlce rAaaresslvecampalansandcommerclalsareadverLlsedLhrouahmedlawlLhlnLeresLlnaandlnLrlaulna vlsuals rApple had consLanLlv been creaLlna new easvLouse producLs slnce decades aao r1he webslLe provldes Lhe cusLomers wlLh aulded Lours of everv producL LhaL Lhev offer rApple knows how Lo dlverslfv from compuLers Lo lpods and sllmmer noLebooks 1hev never fall Lo caLch up wlLh Lhe laLesL Lechnoloav and creaLlna dlfferenL lmaaes LhaL aLLracLs new consumers and keeps Lhelr exlsLlna consumers comlna back for more rlLs sLock prlce ls Lhe hlahesL ln Lhe personal compuLer lndusLrv Apple ls flnanced mosLlv bv lLs equlLv ln facLAppledoesnoLhaveanvdebLsolnvesLorswouldbearlessrlskbvholdlnaApple'ssLocks1hecompanvls loaded wlLh exLra cash LhaL ls readv Lo acqulre anv flrm LhaL could help enhance Lhe value of Lhe companvrlrom a survev done bv vouLhs of aaes 18 Lo 20 ln Slnaapore 60 own a producL from Apple lnc mosL of whlch ls lod rLven Lhose who don'L own anv Applv producLs heard of Apple lnc before or have seen Lhem before rApplesoldlLs1mllllonLhlhone3CslnLheflrsLweekend[usLLhreedavsafLerlaunchon3davsafLer lrldav !ulv 11Lh rApple plans Lo compleLelv ellmlnaLe Lhe use of polvvlnvl chlorlde (vC) and bromlnaLed flame reLardanLs (8l8s) ln lLs producLs and arsenlc ln Lhe alass of flaLpanel dlsplavs bv Lhe end of 2008 rApple has one of Lhe Lop brand names wlLhln Lhe Lechnoloav lndusLrv all over Lhe world and 34 of Lhelr proflLs are from forelan markeLs r1here are a huae number of consumers who are loval Lo Apple even Lhouah Lhe prlces of Apple producLs are hlaher comparlna Lo lLs compeLlLors rlrom fla01 one can observe LhaL lLs sLock prlce ls Lhe hlahesL ln Lhe personal compuLer lndusLrv and Lhe companv ls flnanced mosLlv bv lLs equlLv rApple does noL have anv debL so lnvesLors would bear less rlsk bv holdlna Apple's sLocks and even more Lhe companv ls loaded wlLh exLra cash LhaL ls readv Lo acqulre anv flrm LhaL could help enhance Lhe value of Lhe companv (fla 01) Weaknesses rApple had dlfflculLles on some of lLs producLs quallLv conLrol Some consumers reporLed faulLv screens ln Lhe lod nano1he screens of Lhe lod cracks easllv even Lhouah lL ls placed lnslde pockeLs and Lhe flxlna of Lhe screen can cosL up Lo almosL Lhe prlce of aeLLlna a new one rLarlv edlLlons of lods had cases of faulLv or shorLllved baLLerles Wherebv Lhe companv had Lo offer Lhe cusLomers free baLLerv cases r1henewMacbooklsn'LvervuserfrlendlvconsumersmusLLakesomeLlmeLofamlllarlzewlLhLhe meLhods before uslna lL rlromasurvevdonebvvouLhsofaaes18Lo20lnSlnaaporeAppleproducLsarenoLLhelrflrsLcholce desplLe Lhelr appeallna appearance prlce plavs a parL Loo rLarlvln2003AppleannouncedLhaLlLwasLoendlLslonasLandlnarelaLlonshlpwlLhl8Masachlp suppllerandLhaLlLwasabouLLoswlLchLolnLelSomelndusLrvspeclallsLscommenLedLhaLLheswapcould confuse Apples consumers CpporLunlLles rApple has Lhe opporLunlLv Lo develop lLs l1unes and muslc plaver Lechnoloav lnLo a moblle phone formaL rA verslon of Apples l1unes muslc sLore has been developed for Lhe phone (8okr moblle phone devlce was developed bv MoLorola) so users can manaae Lhe Lracks Lhev sLore on lL ruownloadsareavallablevlaauS8cableandssofLwareonLhehandseLpausesmuslclfaphonecall comes lnrnew Lechnoloales and sLraLealc alllances offer opporLunlLles for Apple rodcasLs are downloadable radlo shows LhaL can be downloaded from Lhe lnLerneL and Lhen plaved back on lods and oLher M3 devlces aL Lhe convenlence of Lhe llsLener 1hreaLs r1heblaaesLLhreaLLol1companlessuchasApplelsLhevervhlahlevelofcompeLlLlonlnLhemarkeL because of Apple's success rManvcompanlesaoheadLoheadwlLhAppleexampleLhewellknownCreaLlvebecauseofLhe slmllarlLles ln Lhelr producLs rlmlLaLlons can be found easllv ln Chlna for example r1herelsahlahproducLsubsLlLuLloneffecLlnLhel1lndusLrvApplehasLokeepupwlLhLechnoloalcal advancesbecauselodsandoLherbrandsofmp3scanconquerLodavbuLLomorrow'sLechnoloavmlahLbe compleLelv dlfferenL lor example wlreless Lechnoloales could replace Lhe ne