Apple Inc. 2008 Case Analysis
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- Length: 2934 words (8.4 double-spaced pages)
- Rating: Excellent
After three tumultuous decades, Apple recently surpassed Microsoft to become the largest technology firm in the world. Since his return 13 years ago, Steve Jobs has steered Apple through profound changes to create completely new product lines, such as: iPod, iTunes, iPhone, Apple TV and Macbook Pro. According to the Boston Consulting Group’s growth-share matrix, Apple’s growth coupled with a steady market share is elevating them into “star” status. The company’s ability to dominate the marketplace and reinvent entire industries has strategically positioned Apple and relatively insulated them from the competition (Exhibit A, B). This “Apple bubble” in the market has yet to be penetrated. To avoid repeating historical mistakes, Apple needs to tread carefully on licensing, partnerships, and premium pricing—factors that served as significant obstacles in the founding stages of the company.
Alternative Courses of Action
Based on Apple Inc’s financial health, large cash reserves, high growth rates, and global brand recognition, it would appear the immediate marketing and competitive threats to the company are relatively minor (Exhibit F). However a long-term horizon view of the company reveals emerging threats, potential loss of market share, and missed business opportunities (Exhibit G). The following is an overview of the marketing arenas Apple should consider focusing on to mitigate competitive threats and increase its product and service market share.
Reintroduce Mac Products to the Business Market. Most companies prefer to use traditional PC technology due to its broad compatibility with business software, customer familiarity, and competitive pricing. Apple needs to focus on creating an opening for businesses that would be interested in switching to a more user-friendly and elite Mac, but currently worry about Apple’s premium pricing and the difficulty of conversion to a new system.
Education. Apple should move to reestablish its position in the educational arena to market product bundles to school systems. By adding user support and adapting familiar educational software for Mac use, Apple could reinvigorate the stale education technology world. Apple can safely rely on its existing brand equity with the younger generation of students who are already familiar with Apple’s other products, such as the iPod and iPhone making a jump back into education viable.
Apple TV. A technological revamp of the struggling Apple TV product could help to reverse its disappointing sales. An evaluation of the marketing channels used to promote Apple TV and the partnering with major television manufacturers to include Apple TV’s operating system in their products are tactics Apple should consider to transform Apple TV into a more practical product.
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Blackberry vs. iPhone. With new consumer- and businesses-focused entrants in the smartphone market, RIM’s leadership position in the market is slowly deteriorating (Exhibit C). To date, the Apple iPhone has primarily competed with Blackberry in the consumer smartphone market. Apple should shift its focus to the business market in an attempt to chip away at the Blackberry market segment. Blackberry continues to reign as the market leader as it is more appealing to the business community. While the iPhone is the frontrunner in simplifying functionality, Blackberry is the leader in business management and IT security options. The iPhone is at a significant, strategic disadvantage in the business market as long as it does not provide matching security and functionality with the Microsoft Exchange Server 2010 and SSL VPN support through Cisco and Juniper. Apple also needs to target enterprise users with better security and email features while simultaneously working with carriers to provide competitive messaging services both nationally and internationally.
iPhone vs. Google Android. The domestic challenges for Apple Inc. include the emergence of new smartphone competitors—particularly those that use Google’s recently launched Android operating system. Apple needs to take steps to prevent erosion of its current market share from Google, while implementing marketing strategies to continue its growth in the consumer and business sectors.
Expansion into International Markets – China Focus. Apple’s international market share currently remains between 2-3% despite internet sales, global shipping capabilities, and the introduction of retail stores in Australia, Canada, China, Italy, Japan, and the United Kingdom. China’s market serves as an opportunity through which Apple can effectively expand it international market share. Apple’s lack of international presence in China is an issue that must be addressed if the company wishes to continue growth at consistent rates and improve its international position.
Philanthropy and Market Share. Apple’s low public visibility on corporate responsibility and philanthropy threatens the long-term brand image of the firm. The company currently makes no mention of outreach on its corporate website and recently came under fire from a number of philanthropic organizations for its ban of donation applications in the iTunes Apps store. Actively marketing any philanthropic programs Apple has implemented will help increase the firm’s brand image.
Down-market Strategies. With newer technologies emerging from Apple every 12 to 18 months, older items are quickly becoming obsolete. Instead of abandoning this older technology, Apple can use it to build brand recognition with a lower income population—one that is unwilling to spend large sums of money on newer items, but desires the elite status and ease of use that Apple provides. Due to the risk of cannibalizing domestic sales, this strategy would need to focus on emerging economies. By marketing to economies that are stable, but developing in terms of their technological sophistication, they can create a new audience for future Apple goods, and still make a profit from items no longer marketable to their traditional target group.
Marketing Theories and Concepts
The following concepts are used in our strategic recommendations.
Strategic Recommendations for Apple
Apple faces multiple strategic threats, due to the complexity of multiple business divisions, products, and services the company offers consumers. For the purpose of this exercise we will focus our marketing recommendations on a few key areas.
Although Apple experienced staggering growth in US markets from 1998-2010, the company has struggled to replicate its dominance in the international markets—where market share remains a modest 2-3%. Apple unsuccessfully attempted to establish itself as an international player despite opening multiple Apple Stores abroad and utilizing the Internet as a medium to reach international consumers. Apple must employ international distribution channels in order to attain its goal of 8% international share in the worldwide PC market. At the forefront of developing its international brand, Apple must make concerted efforts to increase its brand recognition in countries such as China. China’s emerging middle class has the potential for enormous buying power (Exhibit H). To reach this group Apple needs to focus on several marketing areas: international brand development, market introduction, product distribution, and strategic partners.
To accomplish sustained international growth, Apple must build its international brand. This can be accomplished by seeking partnerships with large international electronic superstores, such as the partnership formed with Best Buy in 2006. In foreign economies, the use of parent electronic distribution companies that own hundreds of store fronts in a geographic region are extremely prevalent. By partnering with electronic superstores and parent companies, Apple would be able to introduce their brand into foreign markets and supplement the growth of international Apple Stores and internet sales. This tactic can be applied in many international markets, however, China will be the focus of this analysis.
Before introducing Apple products in the Chinese market Apple needs to assess both its communication/advertising mix and branding strategy. Reliance on an advertising firm based in the host country will be extremely beneficial in the development of ads that reflect China’s collectivistic culture. This will also reduce the risk of missteps—ensuring a smoother entry into the marketplace
The development of distribution channels for Apple products in China is key to the company’s success in this region. While the country may have 1.3 billion inhabitants, a majority of these citizens live in rural areas—areas effectively outside of Apple’s reach. As part of introducing the company to China, the company should open Apple-branded stores in cities that have sizeable populations of middle to upper class consumers, such as Beijing and Shanghai. In addition, Apple should leverage an exclusive distribution strategy and align with only large retailers in major cities. This strategy is not to prevent an erosion of product price, but to reduce logistical roadblocks and shipping costs in delivering Apple products to these retailers.
As part of its broader strategy, Apple should finalize necessary partnerships with Chinese mobile companies to officially sell the iPhone in the country. By reducing or eliminating its proposed service plan revenue sharing strategy and establishing a new pricing model that is more favorable to local mobile companies, Apple would finally gain access to China’s massive mobile marketplace. If the iPhone is well received by consumers, the resulting improvement in brand image is likely to have a positive impact on the sale of all other Mac products and further Apple’s market penetration in China.
Apple can be found in niche market sectors within the business arena, such as design, and desktop publishing, but on a broader scale Windows Operating Systems (WOS) dominate the marketplace. The corporate gravitation towards (WOS) is a direct result of greater software compatibility. Apple needs to target the small and entrepreneurial business community initially. The company should also consider adjusting its price strategy for the business market. It can campaign demographically to emerging young media with creative growth potential. By bundling components, products and services specific to a business’s needs, Apple can lower its base price for orders allowing it to compete directly with the less expensive PC market. In terms of their targeting strategy, Apple needs to focus demographically on media and creative-centered businesses initially, as a test for its new concept. Eventually, non-media outlets, but those close to Apple customer service centers should be the main focus. Targeting emerging business allows Apple to establish a presence in the business world while building relationships with companies that have significant long term growth potential. Apple exposes itself to lower entry risk by entering the business market through small businesses with high growth potential.
Apple should also conduct market research to address the business needs of this target market; while we do not recommend the company create new computer systems—there are potential improvements it can implement to make the Apple products more appealing to the business community. Working directly with corporate technology purchasing departments, Apple can build systems to work within the confines of the client’s budget and daily needs. As enticement for those corporations concerned about the actual conversion, Apple can provide additional services such as direct consulting that guides employees and technology departments through the transition process. Walking companies through daily activities with Apple products, Apple can directly address any potential conversion obstacles. This gradual entry is beneficial for Apple as it does not expend extensive resources, but it allows the company to explore growth in a new segment. This entry strategy aligns with Apple’s overall business strategy as it appeals to creative and youth based clients. Moving forward, Apple can determine the aggressiveness of its long term strategy based on the level of success they experience within the developing, small business community.
In the first quarter of 2010, Apple’s iPhone had 21% market share—third to Blackberry’s 35% share and Androids 28% share. Apple’s share of the global smartphone market, currently stands at 15.8% and is anticipated to rise with the release of its fourth generation iPhone. Technical analysts are impressed by iPhone OS 4.0 (iOS 4’s) enterprise support features; in fact, the release of iOS 4 in June 2010 puts Apple in direct competition with the BlackBerry in the business user market. The iOS 4 incorporates upgrades like in-house apps, multitasking capability, email data protection, and support for SSL VPN through applications from Juniper and Cisco. While the features of the new iPhone directly compete with those of the Blackberry, this is only Apple’s first step in growing its share of the business market.
Gaining leverage in the business user market as well as in the global smartphone market is essential for Apple’s continued success since the iPhone accounts for approximately 40% of the company’s revenue. Presently, the iPhone’s target audience is the consumer market: As consumers are exposed to a myriad of innovation and competing products – Apple will benefit from marketing its new capabilities to a new audience. Securing a solid business user following has the potential to save and likely further Apple’s position in the entire smartphone market. Companies worldwide, like the British bank Standard Chartered, are beginning to consider the switch from BlackBerry to the Apple iPhone; but a widespread shift isn’t likely to occur overnight. Blackberry has developed strong brand recognition and loyalty amongst businesses both small and large for its quality data encryption and email service. Now that Apple is able to provide matching features and quality, it needs to market those features effectively and truly sell them to the business world.
While enacting market-challenger strategies to erode Blackberry’s market share, Apple needs to remain vigilant in protecting its future market share from smartphones using Google’s Android operating system. Google is providing Android free to any phone manufacturer that wishes to use it. Using an operating system from a technology giant at essentially no cost to the manufacturer allows Apple competitors to focus on the phone hardware and produce products that could be viewed as “iPhone killers.” As the technology and hardware specs for smartphones become standardized, it is the operating systems that will likely be seen as the biggest differentiator and product seller (Exhibit E). While the Android operating system in 2008 is still in its initial growth stage—we can assume it will proliferate greatly as manufacturers adopt the technology. Apple has done extremely well in the smartphone marketplace due to its continuous innovation, but the same can be said for some of its mobile competitors (Exhibit D). There will come a time when continuous innovation in this market segment will not be enough to fend-off competitors. Apple will then need to undertake additional strategies like counteroffensive defense in the US (such as the lowering of price of its products) or a mobile defense (international expansion).
An additional perceived domestic weakness of the Apple iPhone is the AT&T mobile network. Apple should move to broaden the mobile carriers that offer the phone in the U.S. so that it can capture a larger share of US consumers before Google has a chance to further capture consumers’ attention (an additional example of the mobile defense). Since most mobile customers are locked in to two year contracts, Apple can then rely on their continuous innovation to maintain them as customers once their contract period runs out.
Apple’s brand of innovation and creativity has allowed the company to surpass its competitors and become the leading technology company in the US. While Apple receives incredibly high marks for the products it introduces to the consumer marketplace, the company needs to enact marketing strategies to both grow and defend its market share. In the upcoming years, Apple should dedicate significant marketing resources to expanding internationally to capture a larger share of the business marketplace. As technological advances allow computing to become increasingly mobile, Apple is well positioned with its laptops and other mobile platforms to continue increasing its market share. However, Apple needs to remain vigilant and recognizes the serious threat presented by other smartphone competitors—particularly those running Google’s Android software. With the emergence of strong competition, the world is watching to see if and how Apple will continue to dominate in the technological sphere. The question remains, will Apple continue to dominate the marketplace by relying on its core competencies and continuous innovation in the face of multiple emerging competitors, or will Apple repeat its historical mistakes and come crashing down? Only time will tell.
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Case | HBS Case Collection | February 2008 (Revised September 2008)
Apple Inc., 2008
by David B. Yoffie and Michael Slind
In January 2007, three decades after its incorporation, Apple Computer shed the second word in its name and became Apple Inc. With that move, the company signaled a fundamental shift away from its historic status as a vendor of the Macintosh personal computer (PC) line. Mac sales remained vital to Apple's future, but they now accounted for less than half of its total revenue. The company's line of iPod media players, its iTunes online content store and its newly launched iPhone mobile handset business made up increasingly large shares of its operations. In early 2008, on the strength of sky-rocketing sales in those areas and by resurgent sales of Macintosh products, Apple's revenues and its stock price reached record levels. The case explores the sustainability of Apple's current business model, one that positioned the company simultaneously in the PC industry and the consumer electronics industry. While Apple enjoyed a high market share in digital media players and in online music sales, it remained a niche player in the worldwide PC industry. The case examines the history of Apple's strategic moves under the leadership of CEOs Jobs, Sculley, Spindler, Amelio, and (again) Jobs; places those moves in the context of structural features of the evolving PC industry; and covers the iPod and iPhone businesses at considerable length.
Keywords: Business Model; Leadership; Industry Growth; Corporate Strategy; Hardware; Online Technology; Consumer Products Industry; Electronics Industry; Technology Industry;