The Apple Case

8/6/2019 The Apple Case

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APPLE CASEANALISYS

June 2011 R. SANCHEZ

INFOTEC - MGITIC MASTER·S DEGREE PROGRAM



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apple case analisysI N F O T E C - M G I T I C M A S T E R · S D E G R EE P R O G R A M

INTRODUCTION

Derived from analysisof the case it is clearthat Apple has taken adistinctive rolethroughout itsoperations started in1976.Its competitiveposition is the result ofmany years of hardwork but especiallybecause of the

significant investment inresearch, development andinnovation that has gone intocreating products that offercustomers a special status, butalso a simple and pleasant useof technology. APPLE offersitscustomers a friendly, simple anddifferent technologicexperience.

The results reached by APPLE1atthe end of the first 2011trimester shows net sales of26,740 millions of dollars and anet income of 6,000million.2

Compared with the first quarter

of 2010 there is a significantincrease thatranges from15.680 billionus dollars inrevenue and3.380 billion inprofits. It hassold more than4 million

computers,representing

23% more thanthe first quarter of 2010. At thebeginning of 2011 it is taking ahuge growth in sales ofMacBook Air.

It is important to notethat thenumber of people switchingfrom Windows to Mac OS Xcontinues to increase andhighlights that 50% of peoplewho buy a Mac are new users.

Apple has 323 official storesopenedand they haveregistered almost 76 million ofvisitors. 62% of revenues comefrom outside the U.S.

In the first quarter of 2011

iPhone achieved a new salesrecord with more than 16.24million smartphones sold, whichrepresents 86% more than atthe beginning of 2011 and thecumulative number of all modelssold reaches 90 million unitssince June 2007 .

From the point of view of alldevices with iOS, Apple has solda total of 32 million devices inthe last three months.

THE PROBLEM

After nearly 10 years ofconsecutive smash hits, and tosee Steve Jobs as the directlyresponsible for these successesthat have changed the industry,the large uncertainty arises asto, whether Apple can keep theface of fierce competition fromrivals including the deteriorationof Steve Jobs· health. In any

case, this environment should beviewed as one of the greatestchallenges so far APPLE hasbeen beating, by designing andadopting innovative strategiesand proposals such as the onespresented in this document.

INDUSTRY

According to availableinformation, Apple hasdeveloped more than 80products throughout its history,

however, the vast majority, byits nature can be identifiedwithin the industry of COMPUTERS& MOBILE DEVICES.

GOAL

Develop technology to changethe world in the way peoplework, play and use technology.



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There are many examples aboutproducts that have brokenparadigms like the iPhone or theiPad, products that offered theusers, different ways of doingand using technology, reallydifferent from the traditionalways, but intuitive and thereforeeasy to use, leaving its

practicality over manycompetitive products, orgenerating to their competitors,the need to develop equivalentproducts.

PRODUCT

The products with which APPLEcompetes in the industry are:computers, smartphones,software and music services,however, the focus in this paperwill be on computers and mobile

devices.

COMPETITORS

Apple has as many competitors

as products has developed,however, for purposes of a

comparison in the industry inwhich it operates, we canmention BlackBerry (Research inMotion RIM) and Nokia's in theline of smartphones and HP,DELL and ACER in the line ofpersonal computer.

BLACKBERRY (RIM)

Excellent device with functionsvery attractive to corporateusers.Along with Apple they arethe most profitable firms in themarket for smartphones.Bothreached 60% of profits from themobile market in 2009.

However, in 2011, RIM lostground to Apple and Google in

the U.S. market for smartphones.A market research firm said thatRIM's market share in the UnitedStates declined in the quarterended in April. While Google'sAndroid platform grew to ashare of 36.4% and Apple'siPhone has 26% market share,RIM fell to 25.7% from 30.4% ithad in the previous quarter(according to comScore report).3

NOKIA

While itsmarket share has come down(from 62% in 2006 to 46.9% in2009), NOKIA has remained as

the leader of smartphones overthe past 5 years. Its

participation in the U.S. marketis very weak where the marketfor this product is key. Itsstrategy is based on theintroduction of a new operatingsystem (MeeGo) which will beopen source and free, with theintention of promoting thedevelopment of applications forits App Store Ovi.

HEWLETT

PACKARD HP

Thanks to itsstrategy by which acquiredCompaq in 2002, it gotpositioned as the leader in theindustry. HP has diversified itsoffer in a successful way,offering as well, servers andstorage services. HP maintains astrong presence around theworld offering their productsthrough 110,000 outlets. (Seefigure PCMKT).

DELL directs itsproduct mainly tobusinesses, which represents86% of all its sales. His successin the corporate segment hasbeen the manufacture justaccording to orders received.However, in recent years (from2006) has been losing marketshare. (See figure PCMKT).

ACER has been positionedimportantly as the third of fourmajor globalcompetitors inthe PC market (see figurePCMKT). ACER, like HP, made a

couple of great acquisitions in2007 through the purchase ofGateway PC's, leading brand inthe United States and Packard-Bell which had a strongpresence in Europe.



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AQUISITIONS AND MERGERS 4

As shown in the table, Apple hasmade many acquisitions andmergers along the time,however, compared withcompanies like GOOGLE, HPand CISCO SYSTEMS, those are

really few.In 1996 the company acquiredNexXT Apple Software whichwas owned by Steve Jobs; alsoit was announced the happyreturn of Jobs to Apple. Alongwith this decision, Applesuspendedthework on thedevelopment of Mac OS whichhad represented the companyinvestmentsfor more than $500million us dollars in research and

development. This and otherdecisions brought heavy lossesand a decline in APPLE·s stockprice and loss of market share.However, over time, the greatbenefit was the arrival andconsolidation of the firm underthe leadership of Steve Jobs.

In 2008 Apple acquired the firmP.A. Semi, a microprocessordesign company, achieving iPadto be the first APPLE product to

runon its own branded chip (A4).In 2009Lala.com is strategicallyacquired for music streamingservice, an important componentiPhone.

In 2010, it is relevant that Applebought Quattro Wireless toenter the advertising businessand compete with Google, alsoacquired SIRI to strengthen thePersonal Mobile Assistantsthrough voice voicerecognition,strengthening its offering ofmobile devices.

STRATEGIC MODELSANALISYS

A. GENERIC STRATEGIES

APPLE·stoday·splacement (See

figure GENSTAR): «

Type of advantage sought (X-axis).Today·s placement:APPLE·s products arepredominantly differentiated,considering the followingcharacteristics:

APPLE has incorporated intoits products differentiating

features that have causedthat its customers prefer andbuy them over those of theircompetitors.

Its products differentiatefrom others because they arenot easily matched norcheaply copied by its rivals.

Its products create value andenhance customer·s

satisfactionin a special way,it is, they are fancy,

innovative and reflect ahigher status.Customersaccept to pay the pricepremium.

Apple invests importantresources in research anddevelopment (R&D). Since1981 its annual investment on

R&D, hasalways

beenover 3%of its net

sales,reaching

also, in1991, upto a 9%.

Totalresearch

anddevelop

ment expense was $1.8billion, $1.3 billion and $1.1billion in 2010, 2009 and

2008, respectively. Counts with a highly skilled

and creative productdevelopment team, as wellas for its brand marketing.

The reputation of thecorporation is very high;Apple·s brand is immediatelyassociated with qualityproducts and innovation.



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Captive customers are on thelookout for new releases andeager to acquire them. Forexample, the launch of iPodin 2001 represented aninnovation for its elegantdesign, simple user interfaceand large storage capacity;it was positioned as an iconof the digital age. Over thenext five years there werepresented new versions ofiPod and this reported thatApple had over 70% of theU.S. MP3 market. In addition,Apple's creativity led him tocreate an ecosystem aroundthe iPod, introducing, fromfashionable cases to dockingdevices.

Target scope/market target (Y-axis). APPLE·s products arepredominantly niche targeted ,considering the followingcharacteristics:

APPLE operates with a broadindustry wide scope, trying toreach any place in the world,however it has associated, ingeneral, premium prices to itsdifferentiated products so

they are accessible just for anarrow segment of buyerswhich can pay for them, infact, because of theirpreferences they are willingto pay for them and for anynew one.

APPLE·s has and allocatesenough resources andcapabilities to effectivelyserve such segment / niche.Annually announces thelaunch of new products that

are impatiently expected bycustomers. Nada menos, en2011se presentaron más de10 nuevosproductos/lanzamientos [iOS5, iMessenger, iCloud, OS XLion, PhotoStream, iTunesMatch, Twitter integrado,Newsstand, "Libre de PC",

Reminders, Cámara, GestosforiPad,AirPlayMirroringforiPad 2].

Few other APPLE·s rivals arespecializing in same niche butthe strength and preferenceon the brand makes reallydifficult to steal customers.

Due to the previous reasons,today·s strategic positioning of APPLEcorresponds to a FocusedDifferentiation Strategy.

APPLE·sfuture·splacement (See

figure GENSTAR):

In order to increase sales, profitsand market share withoutcompromising product quality or

lower prices, and consideringthat Apple is able to establish astrategy by which the future'sStrategic positioning corresponds to a BroadDifferentiation Strategy.

Para ello APPLE debeseragresivo y orientar recursospara la adquisición deempresas especializadas quepudieran estar en la mira de suscompetidores para satisfacer

determinadas necesidades delmercado. Con ello, se anticiparáy bloqueará a sus grandesrivales. Por otra parte, debeampliar su coberturapublicitaria mundial para incidiren la memoria de compradoresque eventual y progresivamentese conviertan en clientescautivos.

This proposal establishes thatAPPLE must be aggressive and

dedicate resources for theacquisition of specializedcompanies that might betargeted by its competitors tomeet specific market needs.With this Apple will anticipateand block their rivals. Moreover,coverage should expand itsglobal advertising to influence

the memory of eventual newbuyers and progressivelybecome the as captivecustomers.

B. FIVE FORCES

As a result of an analysis basedon the Five Forces strategicmodel, we have the next:

Barriers to entry .LOW THREAT.

o Learning curve. Apple is theindustry leader so itestablishes the characteristicsof its products and its rivalsare waiting to follow. Thispower granted by R & D

also has the benefit that itrepresents a learning curvefor its rivals allowing Appleto position at an importantdistance from its competitors.

o Economies of scale. Thevolume of supplies that APPLErequires for the production ofits product lines are reallygreat allowing APPLE to takeadvantage of economies ofscale, unlike what thisrepresents for new players,which will impact on theirproduction costs and profitmargins.

o Band identity.APPLE·s brandhas a huge specific weightthat has not been overtakenby rivals. For the captivecustomers of the brand, it isclear that the greatest valueis derived from Appleproducts.

o Capital requirements. It is

really difficult but notimpossible, for a new playerjust entering the industry totake market share andinfluence globally. Fewcompetitors are, or havesufficient resources to bechallenging. E.g. Appledecided to enter the phonemarket with iPhone devices,



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when the market wasdominated by 60% for

Motorola, Nokia andSamsung. Apple did so at acost of 2.5 years and $ 150million R & D.

Power of suppliers.MODERATETHREAT.

o Apple hands differentiationof inputs and this makes himto partly depend on fewsuppliers that will eventually

constitute a hazard.o Switching costs.Few suppliers

have the capacity to meetdemand for Apple. In caseone fails, or if APPLE makesthe decision to change it,Apple should implement astrategy, whether to developa second supplier, oreventually, acquire thesupplier to eliminate the risk.For both cases, the switching

cost will represent animportant investment.o Impact of inputs on cost or

differentiation.Apple mustmake significant efforts toensure the best choices ofinputs in their supply chain,i.e. performance, quality,cost, possibility of economiesof scale, vision and strength

of its suppliers. The fulfillmentof the specific features and

requirements established bya recognized anddifferentiated brand, of thefinal product delivered to thepublic depends on this.

Power of buyers.LOW THREAT.

o Bargaining leverage. Applehas not needed to reach apoint where have to consideran eventual negotiation with

buyers. In fact, throughout itsoperations, it has developedproducts that simply have notbeen good products, and hasnot placed at a low price toachieve their displacement.By purchasing volume ofbuyers, customers couldhardly exert any pressure.

o Buyer switching costs. Due tothe premium prices ofAPPLE·s products, it is not

easy for buyers to switch.o Brand identity. The specific

weight of APPLE·s brand istremendous, as much that ithas not been reached neitherovercome by its rivals.APPLE·s captive customersare faithful to the brand,they have totally clear thatAPPLE product·s gives them

the best price/performancerelation and this means thatthe highest value will be getfrom APPLE·s products.

oProduct differences. Giventhe innovation that Applegives to his products, buyersare eager to buy their newreleases. In addition APPLE isthe one who sets thestandard in new products,which are slow to bereplicated so there is notmuch competition for eachnew product launched.

Rivalry . MODERATE THREAT.

o Product differences. Rivalsare racing to offer betterperformance features ontheir products and stronglypush to gain buyers.

o Brand identity.APPLE·s brandhas a huge specific weightthat has not been overtakenby rivals. For the captivecustomers of the brand, it isclear that the greatest valueis derived from Appleproducts.

o Switching costs. Due to the

premium prices of APPLE·sproducts, it is not easy toswitch.

o Diversity of competitors. Newplayers are emerging in thecompetition for specificproducts. For example, ayear after the launch of iPad,there are about 16 newproducts from different firms.

o Market positioning. As forbrand identity, APPLE has aprivileged position in themarket and is working hard(incorporating betterperformance features andimproving quality of itsproducts) to get a betterposition and looking for abetter market share. Also,APPLE has beensuccessfulbuildinga strong



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dealer network anddeveloping its owndistribution channel.

Threat of substitutes.LOW

THREAT.

o Buyer inclination to substitute.APPLE·s customers arecompletely convinced aboutthe price/performance rateof its products and specially,about the value that theyreceive.

o Substitute products availableand relative priceperformance of substitutes.Para los productos másinnovadores y exitosos de

Microsoft no hay sustitutos.APPLE·s customers arecompletely convinced aboutthe price/performance rateof its products and specially,about the value that theyreceive. They are not lookingfor any substitute.

o Switching costs. Due to thepremium prices of APPLE·sproducts, it is not easy toswitch.

VALUE CHAIN

From the perspective andanalysis of the model of internalstrategy, in the value chain,specifically focusing on theirprimary activities, Apple hastaken the chance that theirprofits have given him,dedicating significantresources to researchand development of

products, their highlevels of investment aredifficult to match bycompetitors. Forexample, for the launchof iPhone (thereinvention of thephone), Apple spent $

150 million and 2.5 years ofeffort.

Moreover, in the outboundlogistics, Apple owns itsdistribution channel, more than323 official stores, and alsotheir products are sold in all

stores in which the products ofthe competition are. It isremarkable that in these shopsApple has recorded almost 76million visitors.

Mac Store, for its part hascreated an ideal atmospherewhere customers can see andfeel the full range of Appleproducts. Surrounded by otherproducts and the possibility tofeel and test them, the

possibilities of additional salesincrease.

By its part, App Store just 18months after being releasedreached 4 billion downloads toiPhones and iPods Touch.

It should be noted that throughthe App Store and Mac Store,Apple offers value in anintangible way, improvingcustomer satisfaction.

In their marketing activities,Apple has been extremelysuccessful because it hasgenerated an extraordinarybuzz not only to their customersbut to the IT industry and themedia in general. Year afteryear, Apple is a target to meet

their new releases in the event

Apple Worldwide DevelopersConference (WWDC).5

In conclusion, the analysis of thevalue chain model indicates thatApple has a largedifferentiated positioning .

ALTERNATIVES ANDRECOMMENDATIONS

Alternative # 1.iPoints LoyaltyProgram

Based on the strategic FiveForces strategic model, it isproposed to develop a loyaltyprogram to reward customersfor their loyalty with some

benefits because of theacquisition of products overtime.

Theloyalty program,like all oftheexisting, willreward pointsforpurchasesmade at any oftheAPPLE product lines. Thispoints will be known as íPointsµand the percentage of iPointsearnedwill be greateriftheacquiredproductlinescorrespond

toPremiumproductslikeiPhoneorMacAir,and in suchcases, the points awardedwillalso be identified asPremiumiPoints.

iPoints will be taken in accountfor new products acquisition andAPPLE will make special sales

everyday throughInternet. This will attractmore and more theattention of its

customers and will havethe opportunity to getfeedback and knowmore about them.

This loyaltyprogramwill

distinguishfrom othersbecause APPLE will providecustomers withpremiumiPoints,



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the benefit of guaranteeingthedeliveryof newpremium productreleases before other customers.

The program will generateanew andwidelyacceptedimageby customersandindirectlygeneratemore

entrenchedcustomers by thebrand.

According to the Five Forcesstrategic model this proposalwill result in a bettercompetitiveand strategic position inwhichthe strength of the buyers andthe degree of rivalry will bediminished.

Alternative # 2.Aggressive

acquisition and mergeprogram

This proposal is composed oftwo initiatives:

First, based on the StrategicFive Forces model, it is proposedthat Apple strengthen itsrelationship initiatives with theircustomers through theimplementation of a robust andaggressive CustomerRelationship Managementspecial program. This programwill seek to attract strongly theattention and direct interactionwith customers over the Internetand social media. APPLE willkeep detailed records of visitsand special interests from itscustomers while browsing andnavigating the site andparticipating in the social mediatools implemented on it. Thesesocial media tools will include

special promotional campaigns(quizzes, discussions, etc.) for thevarious product lines, seeking toawaken interest in the captivecustomers about products thatperhaps they did not know orhad not been interested in.

Complementary and veryimportantly, Apple must increaseits advertising to penetrate theattention of potential customers,seeking to influence allaudiences, further expanding itsbrand presence and maximizethe chance of winning newcustomers.

This proposal will strengthen thebrand positioning in all types ofcustomers, captives andpotential, in addition tointroducing its image in the mindof public that sooner or laterwill be seeking to becomecustomers.

Second, based on the five forcesmodel, I suggest that Apple, be

hunting and invest resources forthe acquisition of specializedcompanies that are becomingdominant in their field and whomight be in the target of largecompetitors.

With this strategy, according tothe strategic model of fiveforces, facing the great pressurefrom its rivals, Apple is reducingthe degree of rivalry byblocking its eventual initiatives

and positioning at the forefrontof such specialty.

The acquired companies mustaddress specific needs for thelaunch of new products thatrespond to the main concernsand needsexpressed by APLLE·scustomers, identified through theCRM special programmentioned above (Alternative#2).

Alternative # 3.Price reductionstrategy on entrance models of selected product lines

Based on the Five Forces modelit is proposed to Apple, to workon a strategy of price reductionspecifically for entrance modelsof its product lines in order tofacilitate the penetration on

potential customers with mediumpurchasing power but that areeager of having an Appleproduct but the requiredinvestment overcomes hiscapacity.

Added to this, the global

advertising must be extendedglobally to cover the medium-

low purchasing power toinfluence the memory of

eventual buyers and

progressively become captive

customers.

It is important to emphasize thatthis proposal does not look forsacrificing product quality orvalue, simply seeks to leverage

the brand's global presence andattract new buyers from a lowerpurchasing power.

According to the model ofgeneric strategies, byimplementing this proposal,Apple will consolidate itsglobally competitive anddifferentiated position, increasesales and improve its marketshare.

RECOMMENDATION

Consideringthe differentiationthatApplehas achievedinthemarket, itsfuture strategymustconsidereffective measurestoconsolidateits dominance,therefore, it is consideredofgreat importancethatAPPLEtoestablish concreteactionsto maintainand raisetheir profitsandmarket share based on

thereductionof possiblethreatsthat couldpose,especially, theirrivalsandbuyers power.Derived fromthis,it is recommended to APPLEtofollow Alternative#1implementingtheiPointsloyalty program.



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REFERENCES AND SOURCES

Apple Annual Reports http://investor.apple.com/financials.cfm Apple financial resultshttp://www.applesfera.com/apple/rueda-de-prensa-en-apple-resultados-

financieros-del-primer-trimestre-fiscal-del-2011 APPLE Stock information http://investor.apple.com/stockquote.cfm Yoffie, David and Slind, Michael, Ápple Computer, 2006µ, Harvard Business School Yoffie, David and Kim, Renee, Ápple Inc, 2010µ, Harvard Business School

12010 10-K Annual Report filed Oct 27, 2010http://investor.apple.com/financials.cfm

2Apple financial results http://www.applesfera.com/apple/rueda-de-prensa-en-apple-resultados-financieros-del-primer-trimestre-fiscal-del-2011

3http://www.cnnexpansion.com/negocios/2011/06/03/apple-nubla-el-futuro-de-blackberry

4Acquisitions and Mergers, http://www.slideshare.net/rishi2saint/apple-v12-1 5 Apple Worldwide Developers Conference (WWDC) http://developer.apple.com/wwdc/

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The Apple Case