The Dilemma of I Phone 5C

Term paper on Organizational Decision Making

MADS 6610

Prof. Michele Vincenti

Submitted by -TEAM 3

Jayamary AnthappaManasvini Vimal Kumar

Rajamohan JampaniRakesh Chigulapally

FAIRLEIGH DICKINSON UNIVERSITY

Dilemma of I Phone 5C 2

TABLE OF CONTENTS

Topic Page number

Introduction 3

Background 3

Problem statement 4

Problem analysis 9

Decision making process 25

Application of concepts from articles 29

Conclusion 31

References 32

Appendix

Dilemma of I Phone 5C 3

Introduction

Apple’s dilemma has affected the I phone’s loyalists, the Wall Street Journal and taken the analysts by surprise. The ‘cheaper’

5C was no competition to the much -hyped -about 5S, both of which were released last fall. As soon as the bright plastic back

was introduced on 11September 2013, the share prices fell to $ 467.07 from $ 506.38 on10 September, a straight fall of nearly

8% (MSNMoney, 2014). Nothing seemed to work as Apple CEO, Tim Cook had expected for the bright and light new phone.

Why this problem is being considered? So, contrary to his expectations, Tim Cook is now being faced with a decision -whether

to continue or stop the production of I Phone 5C, especially when there is an unsold inventory of 3 million units in its warehouse

inTaiwan.

What this paper contains? This term paper focuses on the decision making process of Apple, when it is to decide "Whether the

production of iPhone 5C should be stopped or continued"

Background

Description of problem at hand and important contributing causes-When analyzing how Apple landed into this situation, we

come across only one major over-ambitious decision. Generally, Apple’s strategy has been to decrease the price of it’s previous

models once the new model is released in September, every year; but this last year, in 2013, they wanted to infact re-introduce

their best selling i Phone 5S, in a slightly different way,in the form of i Phone 5C opening it to the potentially untapped

customer base of middle and low income roup countries, perhaps specially focussing on the fact that India and China together

make around half of the world's total population. The dream was big, now standing in competition against the very successful

Android Technology, but, the company failed to realize that not many places in these developing countries sell phones on

contracts and hence, for them , the price of 5C was quite out of reach. Hence, the targeted customers could not purchase the

Dilemma of I Phone 5C 4

sleek and stylish 5C, and that is how the company has landed in this limbo. The CEO is almost at crossroads of the decision

making process, where he might have to decide to lose revenue on the 3 million unsold 5C phones in Taiwan, or, improvise

technology for those phones-which would cause labor, time and money, in addition to that already spent on them, or, it should

just sell these phones cheaper than it originally expected to.

Factors leading to the present situation-Besides, other factors such as being rigid about introduction of cheaper, pocket friendly

i-phones, reducing profit margins to keep market share, may be even underestimation of competition -meaning Google in Apps

and Samsung , Sony and Nokia in cell phones, and last but not the least-the death of Steve Jobs; have been the underlying

causative and supportive factors for the downfall of Apple (Blodget, H., 2013).

Statement of Problem

PROBLEM STATEMENT– There is less than expected (expected sales of i phones altogether was 55 million units, but actual

sales were only 51million units) sales of 5C , now, should Apple discontinue the production of i Phone 5C or not. (Please refer

to summary of Quarter 1, 2014, Apple in appendix )

Looking at the state of affairs in the share market, Apple must be able to make a decision soon enough about it's not-much-liked

iPhone 5C. The very fact that the company CEO Tim Cook in an earnings call after the results of Q1 of 2014 were announced,

said " the mix was something very different than we thought" and also indicated that if it would be felt necessary, Apple might

just drop the product "if we decide its in our best interest to make a change, then we'll make one" (Cook,T. 2014). To many

analysts, the above quoted statements clearly meant two things-

i. The I Phone 5C sold less than expected.

ii. The I Phone 5S sold way more than it was thought.

Dilemma of I Phone 5C 5

Now this could further be interpreted into 2 things- that 5C phones that did not sell are a liability in terms inventory, contrary to

its usual position in the 'assets' part of the balance sheet, since it is not expected to sell. This interpretation was confirmed by

reports that upto 2 million units waiting to be called for, from Pegatron facility and around 1 million were piled up with carriers

and shopkeepers, who do not see many customers demanding the phone (Rosgani, 2014).

The second interpretation could be that the company was not prepared with as many 5S models as there was demand for.

However, reports to support this have not been found. Interestingly, as Apple never shares a break up of sales under different

heads of i Phones, not much can be said with certainty, but, the above is supportive evidence of what is most likely going on.

(Please refer to Figure 1 in Appendix)

Taking into consideration the stiff competition being posed by Samsung and Nokia Lumia, it is time that Apple decides the

strategy that is best for its long held position in the cellular phone market, for which the Cupertino giant will either decide in

favour of, or, against continuing its 'unapologetically colorful' i Phone 5C.

Dilemma of I Phone 5C 6

GRAPH 1:

GRAPH 1: Share prices of Apple from May 2013-April 2014 (1st and 15th of every month)

Source: http://finance.yahoo.com/echarts?s=AAPL+Interactive#symbol=AAPL;range=1y(Yahoo Finance, 2014)

Explanation

To support our statement, the following graph shows the share prices of Apple Inc. during the Financial year 2013-2014, from 1

May 2013 up to 15 April 2014. Evidently, the share prices have not been consistent, with a significant drop during the time of

release of i Phone 5C and 5S in mid September 2013. The phones were launched on 16 September 2013. Not only

that,afterwards also, the prices slipped twice in mid- November, mid-December and mid-January, explaining the lack of

Dilemma of I Phone 5C 7

confidence in the investors' minds, most likely due to the sales of i Phone 5C, as it cannot be accounted for any other major

disturbance in the company , noted during the trimester.

GRAPH 2:

GRAPH 2: Opening and Closing prices of Apple's shares during second and third weeks of September 2013.

Source- http://investing.money.msn.com/investments/charts?symbol=US:AAPL#{"zRange":"11","startDate":"2013-8-27","endDate":"2013-9-

23","frequency":"d","chartStyle":"mountain","chartCursor":"1","scaleType":"0","yaxisAlign":"right","mode":"pan"}

Explanation

Dilemma of I Phone 5C 8

The following graph shows the opening and closing prices of Apple Inc's shares during a very significant period of the second

and third weeks of September 2013, precisely when the 2 iPhones were launched. Noticeably, a week before 5C was officially

launched, most likely due to the rumors that it is going to be a plastic- back phone, the opening price of Apple's shares showed a

steep fall $505 to $468 per share. On the day of it's launch, the shares were already trading at a low price of $460/ share, which

fell further till $445/share the next day indicating market apprehension.

Problem Structure

According to the methodolgy adopted by Kepner and Tregooe, in their book, The New Rational Manager, chapter 5, the problem

structure of Apple's problem, which is also the scope of this paper, as understood by the team is as follows:

CHOICES

Stop further production and incentivize sales

Improvise 5C and add missing features of 5S

Continue production and target a different market

UNCERTAINITIES

I Phone 5's ability to recover costs and market share

I Phone 6's ability to regain customers' confidence

Improved sales of other Apple products to recover losses

OBJECTIVIES

To bring back and then sustain growth rate

Dilemma of I Phone 5C 9

To regain market share

To offer better 'Apple' alternative to android phones to a new customer base

To maintain its competitive position in the market

PROBLEM ANALYSIS

We have used the following tools for the analysis of the above-mentioned problem

Fish Bone Analysis- to understand all the possible causes leading to the effect 'I phone 5c failed'. We undertook two

kinds of Ishikawa analysis, one analyzing the equipment, processes, people, materials, environment and management

responsible for the effect, and, the other analyzing factors of production, place, people, price, process and promotion that

affected the i phone5C such that it resulted in a fiasco.

Porter's Analysis- to understand the market forces that influence Apple's position in the market and the cause of Apple's

looming downfall. The five forces model of Michael Porter gives a wholistic view of the situation being faced by Tim

Cook.

SWOT and PEST Analysis- The internal strengths and weaknesses of a company cannot be underestimated whenever a

company finds itself on decision making cossroads, and, neither can the external opportunities and threats of the external

environment be overemphasized. hence, SWOT for the strengths and weaknesses and an assessment of political,

economic, social and tecnological factors, called PEST in the environment has been thrown light upon.

Dilemma of I Phone 5C 10

Market tactics- consisting of price, product, place and promotion have been assessed to understand the potential in the

company and the existence of loopholes.

Market analysis- We also had the opportunity to conduct a market analysis for Apple, elaborating upon segmentation of

the market, competition in the market, the competitive advantage that Apple has, and, the need of it's customers. This

knowledge helped us decide what should be the likely course of action that Apple should be looking at, based on the

present scenario.

Comparative analysis- lastly, we tried to compare the important features of i Phone 5C, with those of its two main

competitors- Samsung Galaxy S4 andNokia Lumia 1520

1.FISH BONE I (CAUSE AND EFFECT ANALYSIS)-

These are all possible causes, both relevant and also those that are not directly relevant to the facts, but may be a cause for the

effect too. The Effect is- The I Phone 5C failed

According to our understanding, the possible causes for the failure of I Phone 5C, are

Equipment

Polyvinyl plastic exterior failed to impress the customers, specially business class

Colors being offered are too bright, have a feminine feel and completely non-formal

Process

No innovation, same old technology has been packed in colorful cases

Possibly, phone does not work well enough-the software hangs often

Dilemma of I Phone 5C 11

Possible, the type of networks that are present in most countries, do not support its applications, for example 2G network

People

People do not have the purchasing capacity to buy such an expensive phone, $549 without contract

People do not want to enter into contract with service providers, so they are not likely to buy even a cheaper $99 5C

phone

People have better and/or cheaper options for example an android phone

People do not trust Apple i Phones any longer

Materials

Quality of the phone itself is not upto the mark

Plastic fades out or is not heat resistant or it's colors are not fast

Environment (Mother nature)

There is a power cut so they cannot charge this phone that does not have a great battery back up

Lightening, thunderstorms cause voltage problems

Management

Management failed to understand the purchasing power of the customers and priced it too high for the fact that it has a

polycarbonate cover and that it is not available in business-friendly colors

Uncompetitive prices- specially keeping in mind, the fact that there are much cheaper phones available with better

features

Dilemma of I Phone 5C 12

Management failed to convey the message that they are probably changing the trend of 'price skimming' this time, which

is a usual routine whenever a new product comes in, the older one's price is reduced

Dilemma of I Phone 5C 13

Dilemma of I Phone 5C 14

2. FISH BONE II

The Effect is- The I Phone 5C failed

Production

Production or manufacturing defects have been found

No new technology or new feature added in 5C

There was delayed production- people waited but could not get the phone even after a long waiting period, so they were

upset and bought another phone and when the inventory arrived, it was not in demand any longer

Place

Not selling in the eastern part of the world

Looks like it was meant only for the rich, capitalist countries, not the developing market which would have infact been a

great customer base

People

Do not want to invest in an Apple product with a plastic back

Price

Uncompetitive price

Process

Marketing process was not effective-people do not know much about the product

I Phone 5C does not work well

Promotion

Dilemma of I Phone 5C 15

Did not market the fact that this was an improved version of i Phone 5, so people expected something new and their

expectations were not met

Dilemma of I Phone 5C 16

Dilemma of I Phone 5C 17

3.MICHAEL PORTER'S 5 FORCES MODEL

PORTER’S 5 FORCES SITUATION

HIGH

NEUTRAL

LOW

THREAT OF NEW ENTRANTS

1.Samsung S4-Samsung's decision to develop its own operating system called BADA2. Nokia Lumia 620 -another looming threat

++

++

BARGAINING POWER OF CUSTOMERS

1.Apple's customers cannot bargain on their products2.They might be able to change into android customers though

++

BARGAINING POWER OF SUPPLIERS

Because spare parts are made in large quantities, so its high

++

THREAT OF SUBSTITUTES 1.Not any immediately, but a possibility of threat from Samsung S4 and/or Google Nexus2. 5S can replace 5C

++

INTENSITY OF COMPETITION

Apple is being charged with rather anti-competitive behavior (Hartley,2013)

++

Dilemma of I Phone 5C 18

The above table shows that Apple faces a strong threat from Samsung's S4 model as a new entrant in the market. As a

matter of fact, the South Korean company, Samsung,has emerged to become the largest manufacturer of handsets, a fact

that sees Apple in the eye (Gustin, s., 2013).

The Cupertino giant also faces medium-range neutral threats from bargaining power of suppliers because the

number of items bought is many, so the margins can be bargained upon quite a bit. However, because of its 93 different

suppliers, Apple also enjoys a wide choice and hence this threat may not be really great (Wingfield, N & Duhigg,

C.,2012). Interestingly, Nokia Lumia also has the potential to become a threat to Apple in the price sector (Bohfah,

K.,2013). Though the Windows phone has just started regaining market share, it does have a long way to go to be able to

hit Apple's quality in terms of operating system, however, Microsoft and Nokia may attract customers due to the price of

the Nokia Lumia 1520 , which for now, is a light but looming threat (Bohfah, K.,2013). Keeping in mind the fact that

Apple's prices are not competitive, which has infact incurred the wrath of U.S Government's Department of Justice, we

can interpret that the intensity of competition for Apple is rather low (Stempel, J., 2013). Looking at the bargaining

power of customers, we did not think that there is too much power in customers' hands for Apple's products as the Apple

loyalists will buy Apple products only, and they seem to be prepared to spend those 'extra bucks' for the brand value of

the telecom giant. So, we conclude that the threat due to bargaining power of the customers is quite low.

4.INDUSTRY CONDITIONS' ANALYSIS

Key success factors:

Customer service and stores are the GOLD STANDARD for Apple-the service is commendable and the stores have a

state of the art appearance, one finds it sheer pleasure in just visiting the store.

Dilemma of I Phone 5C 19

“YOU MUST WANT TO HAVE THE PRODUCT YOURSELF”-Steve Jobs. This statement made by the co-founder of

the firm, has been keeping the company and edge ahead. Apple really believes in making technology such that it attracts

people who wish to have the best. It is probably this reason alone that the company does not mind being uncompetitive.

‘KEEP THINGS SIMPLE’ -Steve Jobs. Those who have used Apple products and other phones, know what it means to

use an Apple product. The beauty lies in the fact that the technology is the best and yet, it is simple to use attracting

people towards the phone and having them always to want it.

Improvisation more than innovation- is the motto that guides the technological development of the products (Bajarin,

2012). Unless the products made are made to the best of the capability of technology, there is secondary preferance given

to innovation.

5. DRIVING FORCES (Positive and Negative)

Positive network effect- This typically implies that if I am using an Apple i Phone (or any other product) and I like it,

which is most likely the case always, I would influence my friends and other people in my circle to purchase the same

product as I would feel it is value for money. More the people around me buy the product, more is the positive network

effect.

Direct and 2-sided network effects- Direct network effect is maintained by the fact as more and more people use the

feature of Face timing, i-messaging and Game center, there is an increase in the value of the product because of its

operating system that supports so many features. 2-sided network effects implies the positive relation creaed between the

user and the application developer, as there will be more value to his work.

Dilemma of I Phone 5C 20

6.

MARKET TACTICS and MARKET ANALYSIS

The major weakness note is its much higher price than competitors- Samsung and Sony Xperia, inability to operate well

without LTE, on other operating systems, inability to attract customers from developing countries like India and China . On

the other hand, the major strengths include its unique finger printing technology, its own operating system and its cutting edge

technology.

MARKET TACTICS STRENGTHS WEAKNESSES

PRICE -6% more expensive than Samsung S4 and 17.8% more than Sony Xperia (Expert reviews, 2013).

PRODUCT -Finger printing technology - Incompatibility with other operating systems (Expert reviews, 2013).

PLACE - US share=41.6% (Mac Rumors,2014)

- Unable to market itself well in China and India

PROMOTION -Price skimming usually done (Kirk, 2013).

-price of i phone 5C is equal to Christmas price of i phone 5

MARKET ANALYSIS 5S 5C

SEGMENTATION Business class, US & developed countries

Developing nations-India, China, Kids, Youngsters, People wanting to feel Apple products

COMPETITION -Samsung S4, Google Nexus and Nokia Lumia in long run

-All androids -same price or cheaper

COMP. ADVANTAGE -Own operating system -Finger print scanner - Camera 8 MP

-Cheaper than 5S -Still an Apple i phone

CUSTOMER NEEDS -Satisfies routine Apple loyalists -Useful for youngsters, developing, new markets -On deal, 16 GB, $99 only

Dilemma of I Phone 5C 21

7. SWOT and PEST ANALYSIS

Strengths of Apple Inc.

Market Leader- With the huge success of I Phone 5, Apple was able to reclaim the status of market leader in manufacturing

smart phones with 36.3% share (Nathan. E, 2013)

Reknown for quality products and innovation- Apple loyalists trust the brand for its quality and reputation, it is almost a part

of their lives (Parrish. R, 2012 )

Reputation- the name says it all, always (Parrish. R, 2012 )

Customer loyalty- they seem to be finding no other phone as efficient and as competitive (Strategic Management Insight, 2013

Weaknesses:

Prices very high-end for the elite

Does not offer feasible alternatives for people in developing countries

Only operates on own operating system i OS 7

Decreasing Market Share - Graph 3 (Pepitone, J., 2013)

(Please refer to GRAPH -III in Appendix- Showing the market share of Apple over last 7 years)

Dilemma of I Phone 5C 22

7 (a)PEST ANALYSIS

OPPORTUNITIES THREATSPOLITICAL Chinese government

agreed on use of 4G (Einhorn, B. , 2013)

Apple's anti- competitive prices being investigated by US department of justice and European Commission (Thierer, A. ,2012)Spectrum limitation by the government, with growing demand (Goldman, D.,2012)Apple being questioned for involvement in ' Privacy Leak' (Aljazeera America, 2013)

ECONOMIC Tie up with state run China Mobile-Country's largest carrier (Apple, 2013)Affordable labor in China Foxcon employs1.4million in China (DeWitt, P.E., 2013)

Labor issues growing (Yan, S.,2013)Price sensitive markets -India & China -difficult to penetrate well (Phneah, E.,2013) Lenovo and Coolpad -threats in China (Businessweek.com, 2013)

SOCIETAL Developing countries progressively showing more interest in Apple's products (Paczkowski, J.,2013)

People look for options and Apple has competitors

Dilemma of I Phone 5C 23

TECHNOLOGICAL

Samsung is trying to develop it's own operating systemNokia heads market in speed of network connectionSamsung S III & Note 2 support LTE, Apple does not

Evaluation of Threats

The important point to note here is the Anti-trust problem posed by The US Department of Justice and European Commission

antitrust officials (US Department of Justice, 2013). They are investigating the anti-competitive prices at which Apple is

selling its e-book specifically (US Department of Justice, 2013). This is because firm is vertically integrated and integration is

the source of innovation and antitrust problem tends to limit this innovation thereby increasing the pressure from

competitors(Forbes, 2013). The other important threat to the company is that its applications consume a lot of data and even

if a company lobbies with the ministry of telecimmunication to the best of its capability, the spectrum width can still be

stretched only upto a limit (Forbes, 2013).

Besides, there is a huge uproar on the working conditions of employees working for Apple's major supplier Foxconn in

China, and ironically, even despite Apple's requests to the Chinese government for implementation of labor laws, the situation

is still grim (Forbes, 2013). This even holds the capacity to raise the product prices of Apple's products once regulations are

put in place at the company's cost (Forbes, 2013). Further, there has been company's association with the personal information

leak of American citizens as being claimed by Edward Snowden (Forbes, 2013).To make matters still worse, there is a war of

patents where the worst hit is Apple Inc. which is sued the most (Forbes, 2013). (Please refer to figure 5 in Appendix)

Dilemma of I Phone 5C 24

Nevertheless, the company as of now is capable of hiring lawyers and getting the suits decided in their own favor, but, this

may definitely be a threat to innovation- an aspect that Apple is known for (Forbes,2013).

GAP ANALYSIS- Difference among I Phone 5C and its main competitors

Criteria I Phone 5C Samsung Galaxy S4 Nokia Lumia 1520

Design

OS iOS 7.x Android 4.4.2 Windows Phone 8

Size 4” 5” 6”

Material Polycarbonate Polycarbonate Polycarbonate

Display

Resolution 640*1136 pixels 1080*1920 pixels 1920*1080 pixels

Pixel Density 326 ppi 441 ppi 368 ppi

Camera

Camera 8 MP 13 MP 20 MP

Flash LED LED Dual LED

Features Black Illuminated sensor(BSI), Auto focus, Touch to focus, Digital Image Stabilization, Face detection, Digital Zoom, High Dynamic Range mode,

Black Illuminated sensor(BSI), Auto focus, CMOS Image sensor, Touch to focus, Digital Image Stabilization, Face detection, Smile detection, High Dynamic Range mode, Voice Activation, Self-timer.

Black Illuminated sensor(BSI), Auto focus, Touch to focus, Digital Image Stabilization, Face detection, Exposure Compensation, ISO Control, White Balancing Presets, Burst Mode, Digital Zoom, Self-timer.

Camcorder 1920*1080(1080 P HD) 30 fps 1920*1080(1080 P HD) 30 fps 1920*1080(1080 P HD) 30 fps

Dilemma of I Phone 5C 25

Hardware

Processor Apple A6 Qualcomm Snapdragon 600 APQ8064T

Qualcomm Snapdragon 800

Inbuilt Storage 16 GB 16 GB 32 GB

Storage Expansion Company provided Micro SD, Micro SDHC, Micro SDXC

Micro SD, Micro SDHC

Battery

Talk time(3G) 10 hrs 17 hrs 10.8

In the above analysis, the notable points are better battery life and smile detection of Samsung S4, Dual LED and better

pixellation of Nokia Lumia 1520 than Apple I Phone, better screen size and resolution of Nokia Lumia 1520, as compared to

Apple I Phone.

DECISION MAKING PROCESS

After looking at the internal and external influences, strengths, situations and environment at large, we could arrive at the

following three choices for Apple.

• OPTION 1- Stop production of i Phone 5C and sell the inventory at lesser prices

• OPTION 2- Improvise 5C, add finger printing technique and keep price same, offer “Value for money”

• OPTION 3- Continue production and sales of 5C but target a different market

Also, we zeroed down to the following reasons to determine as to why, the 5C units did not sell.

Dilemma of I Phone 5C 26

Plastic back- plastic back was probably not expected by people and they did not want to spend money on an Apple

product , as it does not speak it's value.

Price similar to that of (old) i phone 5- from the consumers' point of view, people do not like to spend the same amout of money

that they had spent on something the previous year, specially if it is claimed to be a newer version of the same phone and is

meant to attract a new potential base of customers, it was expected to be cheaper. They ignored the depreciation of I Phone 5,

which means it would have costed much lesser a year after its original date of launch, pricing i Phone 5C at $ 199 still, which

was the introductory price of I Phone 5 too. And, if one would like to purchase a contract free phone, there is a premium of

around $300 for an online purchase, totaling up to $549 (Arnold, 2013).

No innovation (i phone prices, 2012)- There was practically no difference technically between the old i phone 5 and the new

5C, except for the colorful plastic back.

Affordable android phones available for same price- There was not enough potential in the 5C model to attract customers when

better phones in terms of screen, camera and battery life were available at a cheaper price. This is also because the majority of

the population that Apple was wanting to target is not in the capitalist countries, it resides in the eastern world, where

affordability is much lesser because of lower salaries and extreme competition. $ 549- the price of a non-leased (without

contract) I phone 5C when converted, comes to Chinese yuan 3359.58, which may be even more than a driver’s salary for

three months (Koetsier, 2013). Is it not obvious that no one living in a high inflation world, where there is struggle to even

earn bread enough for two times’ dinner, cannot even think of flaunting an I phone? And, that too, in which crowd? A typical

person in India or China which have around half of the world’s population put together, is too busy making enough for a

living. Then, maybe Apple cannot justify it’s strategy. More so, as there is a Chinese mobile leader Xiaomi, which sells for

Dilemma of I Phone 5C 27

merely $130= 809 Yuan ( Koetsier,2013). Similarly, in India, $549 would cost Rs. 35,048/- which is much beyond a month’s

salary for an average Indian, so, unless you are a rich person, or win a jackpot, you are quite unlikely to think about owning an

I phone 5C (Koetsier, 2013).

No doubt that Apple tried giving its legacy I phone 5, a new look by adopting a polycarbonate cover with a steel

reinforcement inside, but, it failed the purpose of innovation- which is the central idea of the company. According to Steve

Jobs, the co founder of the company, “Man should be above systems and structures, not subordinate

to them.” This means that it should be human beings who should decide what action is to be taken with devices, and not be a

servant of technology.

DECISION

Our Decision- Choice 1 Apple should stop the production of I Phone 5C

Reasons:

For its price it is not feasible for customers

Low demand, inventory pile up is already a loss

Demand is not even expected to build in future

Even though China is OK with 4G network, people would look up to i Phone 6

Company’s growth rate is already down .Apple's growth decreased from 46% to 13%,whereas Samsung sat at 46%)

(Blodget, 2013).

Share prices went down by 5% with news of plastic covers (Daniel, P., 2013)

Its losing global market share- Apple=12%,Samsung=32% (Blodget, 2013)

Dilemma of I Phone 5C 28

Please refer to the decision tree below

I Phone 5C failed

OPTION I-Stop production

OPTION II-Improvise I Phone 5C

OPTION III-Continue production and target a different market

loss of revenue

recover from sale of other products

decide selling price of Iphone 6 accordingly

shows Apple is responsible

can bring back revenue and market share

Growth rate will improve slowly

Lot of time, labor and money invested

May be successful

May not be successful-UNCERTAINTY

BAD DECISION-more loss

For this, price has to be reduced

revenue loss

demand is already low, due to no innovation & high price & colorful plastic not appreciated

Unlikely to succeedDECISION TREE-

deciding whether to stop or continue the production of I Phone 5C

Dilemma of I Phone 5C 29

OBJECTIVES OF DECISION MAKING -

To bring back & sustain growth rate

To regain market share

To offer better alternative to android phones to a new customer base

To maintain its competitive position in the market

Application of concepts from articles

At present the issue of whether to stop the production of 5C or not is a highly polarized one, within Apple, as most probably the

ecision makers are not being able to reach a consensus (Contandriopoulos, D and Brouselle, A.,2012 in Evaluation models and

evaluation use) . Because this case is a very sensitive one and what Apple decides would reflect on its market image, so, the

decision makers should use Case Based Decision Analysis. First they must understand if they are aware of all the factors that

will lead to success and what are the critical success factors out of those. They should be able to specify clearly the causal model

that they use for decision making, the financial model that they are expecting to implement and the estimated market share loss

and how to gain it back later on, which would depend to a great extent on gaining back the consumer as well as shareholders'

confidence by new invention and relatively reasonable pricing of new models . Hence, analytical tools should be used as they

help decision makers to be practical and specific and hence make good decisions. Also, they should consider the aspect of

potential problems and try to find a way to manage risk that might come up later (Courtney, H.,Lovallo, D. & Clarke, C.,

2013, in Deciding how to decide).

Dilemma of I Phone 5C 30

According to Phil Rosenzweig, the decision that Apple faces now, belongs to the fourth category of decisions; and

therefore the decision makers have to have a tactical, gambler-like and a psychologist-like approach (Rosenzweig. P, 2013, in

What makes strategic decisions different). In this context, we think that it is important to mention that Apple should understand

the psyche of the potential consumers also, besides that of regular customers and shareholders, because ultimately, at least the

shareholders behave according to what and how 'people in general' like or dislike the products Apple has to offer.

Additionally, going through Kepner and Tregoe's text, the subdivded evaluations should be taken into consideration, in

which the evaluation of vendors as well as products must be done separately (Kepner, C., & Tregoe, B. (1997). The New

Rational Manager.) Commercial considerations, technical capabilities, quality, delivery and storage are the lines on which

vendor evaluation must take place, and, on analyzing this Apple can possibly decide if it may request vendors to even use some

of the components used in the unsold inventory, in new upcoming models (Kepner, C., & Tregoe, B. (1997). The New Rational

Manager.) Also, specifically, the book mentions that in decisions where to continue or to change a particular situation have to be

taken, the inside out knowledge of Status Quo should be had (Kepner, C., & Tregoe, B. (1997). The New Rational Manager).

Further more, it is important to analyze the decision once it has been taken,as a part of the standard decision making process

(Kepner, C., & Tregoe, B. (1997). The New Rational Manager).

Interestingly, the nomenclature of the problems that Apple is being faced with, is very important in order to reach a

particular, workable decision through an analytical procedure (Scherpeel, C.M, 2004 in Decision orders: A decision taxonomy).

According to the author's classification, this decision falls under the category of III order -decisions to problems that have

Dilemma of I Phone 5C 31

genuine uncertainty, complexity and changing dynamics to them (Scherpeel, C.M, 2004 in Decision orders: A decision

taxonomy).

CONCLUSION

In conclusion, we believe that Apple should stop the production of its I Phone 5C immediately and try to sell the inventory at

reduced prices by incentivizing. After research, we found that Apple has actually stopped the production of its 5C units (Singh,

J. ,2013). We believe it is actually the right decision and a timely one, as it was taken in November 2013, though it has not been

announced officially. It is indeed in the interest of the company-its shareholders and its reputation in the market.

Dilemma of I Phone 5C 32

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Dilemma of I Phone 5C 36

APPENDIX

Figure 1: Sales of I Phones in Quarter 4 of 2013 (first quarter of 2014)

The pie chart shows less than expected performance of I Phone 5C, which leads Wall Street to state that Apple is thinking of scrapping the plastic exterior (Zibreg, C.,2014). This is just an estimate of the sales by analysts as Apple never releases information on its sales figures broken down into in to different products' sale.

Dilemma of I Phone 5C 37

Graph III: Change in market share of Apple over 6 years

Source: Apple, 2014.

Source: Pepitone, J. (2013 September 3). Retrieved from: http://money.cnn.com/2013/09/03/technology/mobile/apple-market-share/index.html

Graph III shows the market share of Apple Inc. from 2008 until later part of 2013 in the field of cellular phones. The significant point to note is that while there was almost 50% share in early 2013, it fell steeply during the later part of the year to less than half, around 25%. This is infact precisely when the new series of I Phones 5C and 5S were released. Also, one should keep in mind the 'major player at a cheaper price'- Samsung and the growing Nokia and re-attempting Blackberry.

Dilemma of I Phone 5C 38

Figure 5: Fight over patents in cellular industry market

Source: Thierer, A. (2012 April 8). Retrived from: http://www.forbes.com/sites/adamthierer/2012/04/08/regulatory-anti-trust-and-disruptive-risks-threaten-apples-empire/

Explanation: Figure shows the war of patents that clearly affects Apple Inc. the most.

Q1'14

R evenue

$20,098

13,073

8,844

4,948

3,633

6,998

Q1'14

Units R evenue

51,025 $32,498

26,035 11,468

4,837 6,395

6,049 973

4,397

1,863$57,594

Dilemma of I Phone 5C 39

Apple Inc.Q1 2014 Unaudited Summary Data

(Units in thousands, Revenue in millions) Source: US Securities and Exchange Commission Annual Report FY 2013

Operating Segments

Q4' 13 Q1' 13 Sequential Change Yea r/Y ear C hange

R evenue R evenue R evenue R evenue

Americas $13,941 $20,341 44% - 1%

Europe 8,005 12,464 63% 5%

Greater China (a) 5,733 6,830 54% 29%

Japan 3,341 4,443 48% 11%

Rest of Asia Pacific 1,980 3,993 83% - 9%

Retail 4,472 6,441 56% 9% Total Apple $37,472 $54,512 54% 6%

Q4' 13 Q1' 13 S equential C hange Yea r/Y ear C hange

Product Summary

iPhone (b)

iPad (b)

Mac (b)

iPod (b)

iTunes/Software/Services (c)

Total Apple

U nits R e v enue U nits R e v enue U nits R e v enue U nits R e v enues 33797 19510 47789 30660 51% 67%

14097 6186 22860 10674 85% 85%

4574 5624 4061 5519 6% 14%

3498 573 12679 2143 73% 70%

4260 3687 3%

1319 1829 41%

37472 54512 54%

40