Cupertino, CA-based Apple Inc. (Apple) manufactures and markets a wide range of products including mobile communication and media devices, computers, portable digital music players, software, and third-party digital content and applications (The New York Times). A great deal of credit for Apple’s resurgence goes to its charismatic co-founder and late CEO Steve Jobs who refused to compromise on quality and design of products as well as overall user experience.
Two segments of the general environment that would rank highest in their influence on Apple may be technological and economic factors. Apple is in the software and hardware industry which has been experiencing one of the most rapid paces of technological progress over the last few decades. The pace of technological progress is so fast that the industry is still characterized by the infamous Moore’s Law which states that the number of transistors on a chip doubles approximately every two years (Intel). Anyone who follows Apple and its rivals such as Samsung and Nokia may be aware of the fact that they regularly introduce upgraded versions of existing products or entirely new products almost every year. Another way technological progress affects Apple and its rivals is through efficiencies in manufacturing processes which explains why prices continue to drop even though the performance and the quality of the products continues to improve.
Apple seeks to differentiate itself from the competition through better design and quality and its brand power allow the company to charge premium prices as compared to the competition. Thus, economic factors have the potential to exert considerable influence on the company’s financial performance because when economic climate is difficult, consumers scale back their spending and become more price-sensitive. Not surprisingly, Apple’s CFO attributed Apple’s sales slowdown to poor economic conditions in Europe (Hughes, 2012). Similarly, one of the reasons Apple has been unable to make significant inroads into China is that most Chinese consumers cannot afford premium prices for Apple’s products (Cohan, 2013). This presents considerable growth barriers for Apple because most of the growth potential lies in emerging economies like India and China.
The two forces of competition which are the most significant for Apple are competitive rivalry and bargaining power of buyers. Apple competes in an intensely-competitive industry where market shares are rapidly gained and lost and product life cycles are extremely short as compared to many other industries. One great example if Apple’s experience in the tablet device market. Apple was not the first company to introduce tablet device but it was responsible for revolutionizing tablet device market just as it had done with smart phone and portable digital players markets. Apple’s tablet product iPad helped the company grabbed the major share of the market but technological sector is characterized by intense competition and even Apple is not immune to competitive pressure. 96 percent of all tablet devices shipped worldwide during the second quarter of 2009 were Apple’s iPad tablets but the number had fallen to 75 percent just after two years in 2011 (Siwicki, 2011).
Despite Apple’s brand power and its ability to charge higher markups than the competition, buyers enjoy high bargaining power in the industry in which Apple competes and even Apple is forced to listen to them. The high bargaining power of the buyers is a natural product of the fact that consumers have too many choices today and not only in terms of product features but also prices. Apple holds great bargaining power over buyers for a brief period when it introduces revolutionary products that are far superior to competitors’ offerings. But the rapid pace of technological advancement in the industry means the competition gets close in no time and the balance of power shifts from Apple to the buyers. Steve Jobs showed skepticism regarding the market for smaller tablet devices but Apple was forced to introduce iPad mini (Reed, 2013) because buyers wanted it. CNN reported last month that a cheaper iPhone may be offered in the near future (Schroeder, 2013) which may be a sign that Apple has been paying more attention to buyers’ preferences as compared to the past. It is clear that Apple has become more responsive to external market forces such as intensity of competition and buyers’ power because the company doesn’t have the visionary leadership of Steve Jobs anymore. The introduction of iPad mini and now cheaper iPhone models is a sign that the company’s competitive focus may be moving from quality to volume.
The intensity of competition will continue to erode Apple’s pricing power but Apple’s brand has prestige, thus, the company’s pricing power may still be higher than the competition. Apple will try to compensate some of the loss in pricing power through greater volume to protect or even improve its overall profitability. The lower prices may also enable the company to finally crack markets such as India and China where there is tremendous growth potential but where the consumers are also more price-sensitive due to lower average income levels as compared to developed markets such as Western Europe and the U.S. The greater volume will be achieved through wider product selection in each product category so that most of the price points are covered. Apple will continue to closely control software and product development so that better overall user experience continues to differentiate its products from the competition.
As far as buyers’ bargaining power is concerned, the company may continue to closely monitor the external environment to identify potential opportunities to introduce new revolutionary products that help it restore the brand perceptions it enjoyed during Steve Jobs’ second tenure. The last revolutionary product introduced by Apple was iPad but there are signs that Apple is working on some products it hopes may redefine their respective product categories such as Mac Pro which looks nothing like a traditional personal computer in the teaser images on the company’s website (Apple Inc.). Apple may be hoping that these products may give a long-needed boost to the company’s reputation for innovation and help it regain some of the lost pricing power and brand prestige.
The greatest external opportunity available to Apple is probably to make serious inroads into emerging economies such as Brazil and China that alone have combined population of over 2 billion and a growing middle class. Apple has realized that there are limited growth opportunities abroad and any delay would result in competitors such as Samsung and Nokia grabbing a major share of the highly lucrative markets in emerging economies. Apple needs to introduce lower-priced products to take advantage of this opportunity and fortunately, the company has already shown its willingness to offer more affordable products. The company’s profit margins may be difficult to maintain going ahead unless it introduces another market-redefining revolutionary product, thus, the best alternative is to seek ways to improve volume. It is difficult to break into emerging economies with the greatest growth potential, thus, Apple has now choice but to introduce more affordable products. Another great opportunity for Apple lies in cloud computing which is the future of data management. Leadership in cloud computing will enable Apple to capture a significant share of the corporate computing sector where profit margins are more attractive. In addition, clients usually make high volume purchases and update hardware and software at regular intervals. This will help Apple develop another valuable stable revenue stream. Apple’s management is already aware of the commercial potential of cloud computing and has been investing significantly in it. Company’s cloud computing service called iCloud now has over 250 million users (Sande, 2013).
Probably the greatest threat facing Apple is changing consumer spending habits, especially regarding products that account for a significant proportion of the company’s total revenues. A recent article in Wall Street Journal reports that fewer customers are upgrading their smart phones because smart phones do not carry the oomph they once did (Smartphone Upgrades Slow as “Wow” Factor Fades, 2013). To counter this threat, Apple should allocate more resources to research and innovation so that I could increase the probability of introducing new revolutionary products that can convince customers to pay premium prices and upgrade more frequently. Smart phones and tablet devices are now commodity products and do not carry the social status they once did. Thus, Apple should allocate more resources to recover its lost mojo and compensate for the loss of growth in currently major products such as smart phone and tablet devices. Another threat facing Apple is the potential of significant distraction due t legal issues. Apple is already locked in a legal battle over patent infringement issues (Heisler, 2013) and recently, a judge ruled against the company, finding it guilty of price fixing regarding e-book prices (Lee, 2013). These legal issues do not only result in waste of precious time and resources as well as loss of competitive focus but also results in negative publicity for the company.
Apple’s greatest strength is arguably its brand name that enjoys high recognition as well as customer loyalty rates and is synonymous with innovative, eye-pleasing, high quality, and intuitive products. As of 2011, Apple was the most valuable brand in the world, with an estimated net value of $153.3 billion (Culpan & Cho, 2011). Thus, Apple enjoys significant advantage over competition because due to its brand power, its new products are awaited more eagerly and the company free and intensive media coverage due to history of excellence. Apple seems to have lost some of the glamour since Steve Jobs’ untimely death because the arguably the last revolutionary product Apple came with was iPad and that was under Jobs’ leadership. Apple has no dearth of resources as the company’s cash reserves were in the neighborhood of $100 billion as of last year (Wingfield, 2012). Apple’s competitors such as Samsung and Nokia can only dream of Apple’s cash reserves and Apple should allocate some of the cash resources to research and innovation to explore ideas of new products so that its brand power continues to remain as strong as it was during Jobs’ tenure.
Another company strength is its huge financial resources and strong financial performance. Company’s sales grew by approximately 44.6 percent between 2011 and 2012 and net income grew by approximately 61 percent during the same period (Apple, Inc., 2012). Even though both net income and sales growth figures are impressive given the nature of the industry, both figures were lower as compared to the period 2010-2011. This is a sign Apple has lost some of the glamour and needs to reinvent itself.
Apple’s greatest weakness may be its business model which has served it well for quite some time but is not emerging as a weakness in the face of changing circumstances. Apple has historically discounted emphasis on price due to its brand power but the intense competition in the industry has caught up with it and making the matters worse is the fact that the greatest growth opportunities lie in countries with lower average incomes than Apple’s traditional markets. The obvious solution is to recognize the changing competitive landscape and study customer segments and markets with the greatest potential so that competitive strategies could be developed to develop strong presence in these respective markets. For example, Apple may study Chinese customers and then create products with the price-quality ratio that offer the greatest commercial potential in China. Another weakness is size because the huge size of the company has probably led to some loss of innovative spirit due to greater focus on market share. Larger size also makes it more difficult to effectively manage financial and human resources as we have already seen in the case of Apple’s historical rival, Microsoft.
Apple’s resources include its people, its assets including huge cash reserves, and its brand which enable the company to be competitive and exploit potential opportunities. Apple’s capabilities include hardware development, software development, and marketing while its core competencies include innovative culture, product design, supply chain network, and customer service.
One of the areas in the Apple’s value chain where the company can use its resources, capabilities, and core competencies to create value is the company’s supply chain network. Today, customers are more socially conscious and they do not only care about the products and services provided by the companies but also the ethical conduct displayed by the companies in everyday operations. A report criticized one of Apple’s major suppliers Foxconn for overworked workers and dangerous working conditions (Racoma, 2012). Apple could use its human talent and proprietary technology to improve monitoring of working environment at its suppliers’ facilities to avoid negative publicity in the future as well as harm to its reputation.
Apple can also add value to the supply chain network by providing consulting services to other companies and create another valuable revenue stream. Apple has achieved impressive progress in making its supply chain network more environmentally friendly and sustainable business practices can be a source of competitive advantage and should encourage other companies to seek Apple’s expertise. For example, the current retail packaging for iPad uses 13 percent less material than the original iPad allowing Apple to ship 52 percent more units in each airline shipping container (Apple Inc., 2012). Apple manufactures and markets a wide range of products, thus, the company operate a complex yet efficient supply chain network. It should be able to possess the expertise to help both small-scale and large-scale companies to make their supply chain networks greener as well as more efficient.
Apple has come a long way since its beginnings but the company has made actual progress only since last decade. It is now a market leader in several product categories such as smart phone and tablet devices but the competition has been catching up. Apple possesses tremendous financial and human resources and the company should invest more in research and design to reclaim the competitive edge it enjoyed during Steve Jobs second tenure.
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