Apple Inc. in 2008 Essay Example

  • Category:
    Business
  • Document type:
    Case Study
  • Level:
    Masters
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    3
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    2114

Apple Inc. in 2008

Apple Inc. is well known to design, manufacture and market their personal computers, media devices, mobile communications, portable digital music player and offer their related services, software and peripherals worldwide (Apple, 2011) . They also provide third-party digital content and applications as well as networking solutions. This paper analyses the key elements of Apple’s strategy in competing with other players in the computer, digital music player and mobile phone industries. It further proposes ways in which it can improve its corporate performance and strengthen its performance in these industries.

Apple’s strategy has evolved ever since by constantly introducing innovative, high quality consumer products in attempts to maintain their substantial operating profit margins within the competitive market. Introduction of new products is among the chief elements of Apple’s strategy. Apple launched iPhone 3G in the market as well as application store where individuals could download various programs for the iPhone. Gottfredson & Mosher (2010) argue that innovative performance support can greatly improve the performance of an organization. Similarly, Apple was able to realize some success in both the iPod and the PC divisions regardless of the concerns that there was no increase in the gross margins, a worldwide crash on the iPhone activation system as well as the U.S. economy which seemed to gain no traction in heading to the second half of 2008.

Since the introduction of its first computer in 1976, Apple has made significant improvements in the design of the computers as well as other electronic devices which aim to meet the customers’ needs. Apple continued bringing innovative products into the market as a company’s strategy against key players such as Microsoft and IBM. Under this product line, their next product was Macintosh (Mac) released in 1984 which offered user friendly computing experience. In 1991, Apple successfully introduced the PowerBook, their first generation notebook computer. By 1993, Apple was able to accomplish their project of developing a personal digital assistant (PDA) and by 1994 they released the PowerMac family of PCs. Such product design helps in reshaping the computer industry (Hornbach 1999).

Having been faced with bigger problems that included $1 billion in back orders, stiff competition and insufficient parts to build the PowerMac PCs which led to a major loss during the winter of 1995-96, Apple sought to sweep various changes in the company. The company was split into seven distinct divisions with each being responsible for their losses or profit (Marino, Hottaway and Jackson KB 2008). Besides, the company adopted better ways of conducting their activities. This strategic move enabled the company to bring down the losses from $740 million in the first quarter of 1996 to $30 million profit thus moving out of the initial difficulty situation.

Another strategic move taken to ensure success of the company was the formation of a joint venture. Bearnish (n.d) argues that the formation of strategic alliances through joint ventures enables a firm to enter into new markets or bring a new product in the market. Apple acquired NeXT in their plan to move into a next generation operating system Rhapsody (Marino, Hottaway & Jackson 2008). This anticipation, however, led to the company making a multimillion dollar quarterly loss in the summer of 1997. This challenge made Apple to announce significant changes that would turn the company around including an aggressive advertising campaign, changing the entire board of directors and forming an alliance with Microsoft. The formation of this alliance enabled the two companies to solve their existing legal battle and with the signing of a 5 year patent cross license, they both agreed to make windows 98 available to the Mac users.

Selling through the web and the phone was another strategic move by Apple in entering the e-commerce and through it, Apple was able to report profit in all the four quarters of 1998. According to (Silverstein 2001), internet marketing provides unlimited shelf space for every product of the company. Through the internet, Apple made a one-to-one marketing a reality which boosted their performance. They further released the iMac, an all design for the Macintosh that serves the lower-end consumer market. The sell of iMac computers was successful and was followed by the introduction of the iBook which was meant to be stylish, powerful and affordable (Marino, Hottaway & Jackson 2008). To counter the loss realized in 2000, Apple decided to cut down prices across the board and it announced to sell third-party products such as digital cameras, MP3 players and digital video cameras. In 2001 they released an ipod with a unique style design and technology.

Changes in both the software and hardware in the product line revolutionized the company through the release of the iTunes which substituted the MP3 player. The integration of the elements of Apple’s strategy enabled it to increase its sales to $ 14128 in the fiscal year 2007 from $ 334 in the fiscal year 2005 and$ 11456 in the fiscal year 2006 (Marino, Hottaway & Jackson 2008). In fact, the strategy leveraged the company’s ability to bring to the world the compelling solutions and products through the design and development of hardware, operating system as well as software applications and technologies.

An examination of the Apple using porter’s five forces analysis determines the effectiveness of its strategy for competitiveness (Porter 2008; Porter 2009). Although Apple is seen as a company that offers digital entertainment products and services, it specializes in other scope of products such as PC, MP3 players, mobile phones and online music services. Apple Inc. initially belonged to personal computer and software industry, and later expanded its business to digital music player, and mobile phone industries. Porter’s five forces analysis of Apple in the three industries is shown in the table below.

Table 1. Porter’s Five Forces for PC, digital music player and mobile phone industries.

PC industry

Personal media player industry

Mobile phone industry

Threat of new entrants

Product differentiation:

Apple offers personal computers with a unique design and operating system.

Cost advantage:

The company offers proprietary technologies at a good cost hence a high demand for their products.

Product differentiation:

Apple offers iPods with their own music store, iTunes, allowing customers to download music more conveniently.

Cost advantage:

There is high demand of the company’s proprietary technology. Besides, they have signed patents for iPods as well as favourable access for raw materials.

Economies of scale:

Apple iPods was ranked to have gained high overall quality, ease of use, sound quality and overall reliability

Product differentiation:

Apple’s iPhones have add-ons with technologies from their own MP3 player and PC.

Cost advantage:

The company offers high proprietary technologies and has a favourable access of raw materials enabling it to sell their products at favourable prices in order to increase their market share.

Economies of Scale:

The need for cell phones with add-ons such as voice recorder, camera, FM receiver, MP3 player and speakerphone.

In addition, they have inbuilt memories to store pictures, record and retain voices as well as the facility to download them into a computer.

Threat of rivalry

Although there are relatively few competing companies compared to other industries, there is rivalry between Dell Inc., Hewlett-Packard, Acer and Toshiba.

Companies such as Dell has offer low priced PCs and thus making it gain a larger market share.

Moderate

Apple receives competition from various firms such as SanDisk, Creative, Microsoft and iRiver in the media player industry. However, Apple’s iPod has an 80% of the market share.

If Apple does not keep to their innovativeness, other companies’ products which sell at a cheaper price may be a threat in anytime.

There is stiff competition from firms such as LG, Samsung, Motorola, etc., but estimate from latest market data indicate a 28% market share of the US smartphones in the 4th quarter of 2007 (Techztalk, 2008).

Threat of substitutes

Apple’s PC product line range from desktops, notebooks, and mac books. These products can be substituted with products such as PDA, calculators, DVD player but they can only substitute few functions of PC.

Moderate

Apple’s iPod can be substituted with MD player, CD player, radio etc.; but ease access and cheapness of the MP3 files make customer to leave all the other music players.

Home phones, internet messengers can substitute mobile phones in the industry but not the convenience that mobile phones have in terms of portability.

Bargaining power of supplier

Moderate

The major suppliers of this industry include those of labour with proprietary technologies and have the power to impact price.

There is a variety of suppliers for raw material even if they also supply to Apple’s competitors.

The suppliers such as writers, players and singers hold the main profitability. Other suppliers include those of labour and raw materials.

Another threat to this industry is music piracy and illegal downloads as well as P2P sharing which encourages free access to the MP3 files becoming a threat to iTunes.

The mobile phone industry offers a wide range of functions besides the receiving and calling such as the camera, Video players, MP3 players, memories, etc.

With Apple’s operation in the PC and MP3 industry, it mostly deals with internal suppliers and mediators.

Bargaining power of buyers

Moderate

There are a growing number of PC customers as new technologies are being introduced.

Apple offers a differentiated PC design and with their own operating system that is unique. However, companies such as Dell or HP differentiate through lower pricing.

Customers are continually increasing. There is a high demand for new and updated products.

The music file providers and the internet are developing in the industry and thus encouraging the MP3 buyers.

In addition, iPod has got relatively loyal customers who would not wish to quit buying from them.

Unlike the low cost handsets, the smart phones create a high demand from buyers even more than PCs.

The buyers have increased even more with the entry into new markets in the developing countries.

According to Porter’s five forces analysis the threat of internal rivalry is high in both PC and mobile phone industries and bargaining power is the highest in the personal media player industry. Apple’s strategy has actually been utilized to increase the profitability through the integration of all the three industries. Based on porter’s five forces analysis, Apple’s future growth and profitability lies on the mobile phone industry because the threat of new entrants is low, low bargaining power of buyers and suppliers, no threat of substitute products especially in the smartphone sector.

For the mainstream corporate performance, Apple should form part of various joint ventures either to enter new markets for their products, to diversify into a new business, bring foreign products that can be sold in the company’s existing markets or to strengthen their existing businesses (Bearnish n.d; Datta 1998). In strengthening the existing businesses, the joint venture seeks to achieve the economies of scale and allow them to reduce the risk of major projects. This can also increase the chances of eliminating any potential competitor in the same product lines (Hitt, Ireland & Hoskisson 2009; Bearnish & Killing 1996). Joint ventures also ensure easy and cheap availability of manufacture components. They can be able to share research and development efforts to bring more innovative products in the market which boosts their performance. Besides, they can be able to achieve the economies of scale through marketing and distribution logistics. The participation in strategic alliances enables a firm to acquire technology useful in their core business.

References

Apple Inc. 2011, Apple Inc. [online]. Available at http://www.apple.com/ [Accessed 31July 2011].

Bearnish PW & Killing P 1996, “Special issue on cooperative strategies,” Journal of international business studies, 27 (5), 276-301

Bearnish PW n.d, The design and management of international joint ventures, pp 120-139.

Datta, DK 2000, “International Joint Venture: A framework for analysis,” Journal of general management 14 (2), 157-186.

Gottfredson, C & Mosher B 2010, Innovative Performance Support: Strategies and Practices for Learning in the Workflow, McGraw-Hill Professional, New York, NY.

Hitt, MA., Ireland RD & Hoskisson RE 2009, Strategic management: competitiveness and globalization: concepts & cases, Cengage Learning, Mason, OH.

Hornbach K 1999, Competing by business design-the reshaping of the computer industry, Long Range Planning Journal 29 (5), 616-628.

Marino, L., Hottaway J & Jackson KB, 2008, Apple Inc. in 2008, pp145-161

Porter, M 2009, “The five competitive forces that shape strategy”, Harvard Business Review Journal, pp.79-93

Porter, ME 2008, Competitive Strategy: Techniques for Analysing Industries and Competitors, Simon & Schuster, Chester.

Silverstein B 2001, Internet marketing for information technology companies: Proven online techniques to increase sales and profits for hardware, software and networking companies Maximum Press, London

Techztalk 2008, Apple releases iPhone [online]. Available at http://techztalk.com/techwebsite/ [Accessed 31July 2011].