Apple’s Competitiveness in the 21st Century, Assessment Example

Introduction

Apple has been known by customers worldwide as an innovative information technology and entertainment company. It has been a market leader for many years, providing users with solutions that no other company was able to give them. However, it seems that Apple is losing market today for new, innovative companies, such as Samsung Mobile. The below study will focus on the market’s competitive forces, customer trends, and brand value in order to answer the below question: “Has Apple got the ability to maintain its market share and position through effective marketing, branding, innovative product development and positioning in the 21^st Century?”

Background and Industry Information

The mobile phone industry, according to GFK Research (2015), grew by 6 percent between 2012 and 2013, to 1.83 billion units in total. Further, the proportion of smart phones (Android or Apple operation system) grew significantly during the last year. According to the report, today’s smartphone industry is a duopoly with two powerful and strong players: Apple and Samsung. The two companies today take above 75 percent of the industry’s revenues. Apple captures one third of the smart phone market, with a strong loyal customer base. One of the main advantages of Apple over other industry players is its high profit margin (GFK, 2015:6), combined with a high level of differentiation that justifies prices.

One of the main challenges of the smartphone market highlighted by a recent CSS Insight report (2014) is that large manufacturers are facing increased competition, and their market shares are becoming squeezed. The increased competition poses several challenges to the two market leaders: Apple and Samsung. Further, the marketing expenditure associated with brand diversification and differentiation is increasing, hindering companies’ profitability. Smart phone customers are also becoming more critical to companies, and – due to the technological advancements of search facilities – they research products before making a final purchase decision (ComTech, 2014). High brand preference that is one of the main strengths of Apple might have a lower relevance to future market trends. The next part of the paper will provide a detailed analysis of Apple’s competitive forces and the market trends that might affect the company’s future.

Competitive Forces Analysis

Based on Porter’s theory of Five Competitive Forces, the situation of Apple on the smart phone and mobile device market is extremely vulnerable. Competitive forces, according to Porter (1980) should influence a company’s overall strategy related to product positioning, market targeting, and pricing. The below analysis will be providing the main characteristics of the marketplace.

Threat of New Entrants

According to the CSS report (2014: 7), “Low barriers to entry favour further disruption” in the smart phone market. Patents for designs are readily available for global companies, and open-source software can be utilized to create competitive products. The threat of new entrants is becoming greater, due to the increased demand and lower start up cost. However, it is also important to note that new entrants to the market would not necessarily capture a significant market share, due to the high level of brand loyalty among existing smart phone customers.

Threat of Substitute Products

The threat of substitute products in the smartphone marketplace is also high. Companies are creating phones with functions almost completely equivalent to Apple’s devices. Pagers, small tablets used with a SIM card and Android watches can also create a competition for Apple’s phones and mobile technology devices. The marketplace has several devices to offer that can be used instead of Apple’s iPhone.

Bargaining Power of Suppliers

Suppliers have limited bargaining power, as there are large industries in developing countries that focus on providing mobile phone and device manufacturers with parts. Android system is available for all new companies, therefore, supply is undisturbed, Based on Brostoff et al.’s (2014) analysis of the other major player of the smartphone market, Samsung, the bargaining power of suppliers is also low. The authors state that smartphone manufacturers either make their own components or outsource the process to developing countries. This is the case with Apple, given the secrecy that surrounds new product launches, not relying on suppliers is essential for maintaining the company’s image.

Bargaining power of Customers

As it has been mentioned previously in the background chapter of the current paper, the bargaining power of customers is high in the smartphone and mobile communication marketplace. The mobile phone industry is extremely competitive, and the recent ComTech report (2014) highlights the fact that in the first quarter of 2014 only 30 percent of customers made buying decisions without conducting an online or offline research of alternatives.

Overall Competitive Rivarly

Overall, the competitive rivalry of the smartphone market is high, and differentiation is needed in order to increase brand loyalty and maintain market share. Apple is starting from a good position of a high brand value and loyalty, however, it needs to carry on diversificating its products and strategies to reduce the threat of substitute products, which has been identified as the main source of competitive rivalry.

VRIO strategic capabilities

Rothaermel (2013) created the VRIO framework to assess a company’s strategic capabilities based on four criteria: how valuable, how rare, how costly to imitate the capability is, and how organized the firm is to capture value. In the case of Apple, it is clear that rarity is not one of the product’s attributes, as Apple phones are the most popular devices globally. The firm, however, is organized to capture value through high profit margins and operational efficiency. The product is valuable, as it has a high value perception among customers, and – due to the secrecy surrounding the design of Apple phones – it is hard to imitate.

One of the strategic capabilities of Apple that can create value and a competitive advantage for the firm is high brand value and reputation. Despite several ethical and legal cases against the company, (Blanchard, 2012) Apple is still considered to be one of the most effective and reliable companies.

The distinctive Apple logo is considered to be a symbol of sophistication, and the devices are hard to copy, therefore, the company can build on this capability, as well. Apple is, on the other hand, a well-organized company, focusing its strategy on maintaining both profit margins and market share. By far, according to the CSS Insight Report (2014), Apple is the most profitable smartphone manufacturer.

Apple’s SWOT Analysis

In order to determine the future strategy for Apple’s market positioning and diversification, it is important to review the brand’s strengths, weaknesses, the market opportunities, and threats. The below table will feature some of the most important factors that influence the company’s competitiveness.

From the above list it is evident that there are several threats that Apple is facing from other innovative smartphone manufacturers. The main strength of the brand is great reputation and customer loyalty, however, this is negatively affected by product fault scandals and the price advantage of other brands, such as Samsung and HTC. The main opportunity that can help Apple create a competitive advantage lies in wearable and collaborative technologies. While innovation in these product areas is costly, the potential return on investment is high. While Apple has already started developing related products, Samsung is also creating their own solution, therefore, innovation is time sensitive.

Diversification Strategy

Apple uses a broad diversification strategy. The main product features that serve the purpose of diversification are distinctive and high-end product design, user-friendly features, customization, and advanced applications. This means that the company does not restrict its marketing and product development to one customer segment. Apple phones are suitable for beginners, as well as sophisticated users who would like to make the most out of the features. The high end quality is reflected in the price, and due to the high perceived value of the brand, the price is justified among customers.

Burgers, Padgett, Bordeau & Sun (2009) examined the link between the industry and the product based on corporate performance and the rate of diversification. High profitability of products calls for increased diversification, while low profitability discourages it. As it has been previously found, Apple is one of the most profitable companies, therefore, it uses a broad diversification. That stated, it exposes the brand to a fierce competition, as the products have little or no product features. Further, instead of developing several models to suit the needs of different market segments, it only brings in one smartphone at a time, with little variation (usually a high end version).  While Samsung has dozens op  phones to offer to customers brought out each year (A series, S Series, smaller phones, mini phones, and simple cheap models), Apple only develops the one model and the high end version of it. This way, it creates a momentum in the marketplace, and customers often queue up to get their hands on the latest model first.

The business models of the two companies differ greatly. Samsung uses vertical integration strategy, defined by Riordan (2005) as an approach that can create competitive advantage through reduced costs associated with market penetration and product development. Apple, on the other hand, relies on three distinctive market strategies: innovation, design, integration, and outsourcing. This way, it creates a competitive advantage by reducing the cost of production, while increasing the perceived value of the product due to the high end design. Apple’s diversification strategy is based on its innovative features, and mostly utilizes horizontal diversification.

Findings

From the above competitive analysis, it is clear that Apple’s main strengths that have the ability to create a competitive advantage are: high profit margin, strong customer loyalty and brand reputation, innovative capabilities, and effective / cost-effective production. However, at the same time it has also been determined that Apple is losing market share over competitors, diversifying themselves based on price. As customers are becoming more aware of tools available for them to compare product features, prices, and offers, in order to remain competitive in the 21^st century and maintain a strong market position, the company’s marketing and corporate communication needs to focus on innovative features, uniqueness of the products, and the advantage of design. While Apple can still draw on its innovation experience and resources to develop new products, it also needs to analyze its competitors’ market behavior, in order to determine how to position the brand and products in the future. The main opportunity for Apple still remains innovation, however, it needs to work on developing products that solve customers’ problems better than competitors’ devices.

Recommendations

The competitive analysis of Apple has revealed that innovation and design are the strongest features of the brand that are highly regarded by customers. The increased competition, due to the high bargaining power of customers and threat of substitute products creates several challenges for the company that can be overcome following the below strategies:

1. Listening to customers and seeking feedback on Apple’s diversification strategy and product features
2. Completing ongoing competition analysis in order to determine opportunities and threats in a timely manner
3. Maintain brand value by protecting the company’s reputation from international scandals and lawsuits
4. Take advantage of the new market opportunities (i.e. wearable technology), and become the first to develop products, in order to maintain the “innovative company” image.

Bibliography

Blanchard, B. (2012) Apple, Foxconn Scandal Highlights Exploitation Of Chinese Workers By Foreign Firms. The Huffington Post. 03/07/2012.

Brostoff, B., Levin, H. & Browers, T. 2014. Samsung client report. Danger Zone Consulting.

Burgers, Willem, Dan Padgett, Brian Bourdeau, and Andy Sun. 2009. “Revisiting the Link Between Product and Industry: Diversification and Corporate Performance. “International Review of Business Research Papers Vol. 5 No. January (2009): 367-379.

Com Tech Kantar Worldpanel. 2014. The smartphone purchase experience.

CCS Insight Report. 2014. Global Smartphone Market Analysis and Outlook: Disruption in a Changing Market.

GFK Research. 2015. Four key trends in the global smartphone market. GFK Trends and Forecasting.

Porter, M.E. 1980. Competitive strategy. New York: Free Press, Riordan, M. 2005. Competitive Effects of Vertical Integration. Department of Economics Columbia University,  New York, NY 10027

Rothaermel, F. 2013. Strategic management: Concepts. McGraw Hill.