Apple's Business Competitive and Innovation Strategy - Case Study Example

Business Strategy Name Course Lecture Date Executive Summary Apple is one of the leading technology world’s in the globe. Apple success continues to baffle most people as other companies in the computing business fold-up. This paper analyzes the competitive strategy Apple have used to gain and maintain a competitive edge over Samsung, HP, Dell, Lenovo and other competitors. The report introduces Apple’s company profile noting the diversified product offering of the company. The report finds that Apple has been successful in suing the differentiation strategy to reduce the effect of the porter’s five forces in its operations. Through innovation, Apple has been able to differentiate its products to make them more appealing to consumers and thus charge a premium for them. However, competitors soon catch—up with Apple’s innovation therefore requiring the company to vary its differentiation strategy. This report recommends that able take the following moves to maintain and expand its market share in its industry segment: Reduce prices whose unique features have been copied by competitors. Expand retail operation to unexploited foreign markets. Produce new innovative products. Table of Contents Table of Contents 3 1.0 Introduction 4 1.1 Company Profile 4 2.0 Porter Five Forces Analysis 5 2.1 Threat of new entrants. 5 2.2 Bargaining power of suppliers 6 2.3 Bargaining power of buyers. 6 2.4 Threat of Substitutes 7 2.5 Rivalry among existing competitors. 8 2.6 Complements 8 3.0 Conclusion 9 4.0 Recommendations 10 4.1 Expand to new foreign markets 10 4.2 New products 10 4.3 Lower the prices of Products 10 5.0 References 12 1.0 Introduction Most industries in the modern business environment have become highly competitive. The technology industry is no exemption and companies like Apple have to adopt appropriate strategies to realize and maintain a competitive edge over rivals. This paper analyzes the generic strategy used by Apple one of the most dominant firm in the technology market. The paper starts with a brief company profile of Apple. Inc, it also introduces the Apple’s product range and scale of operation. The second part analyzes Apple’s industry environment using porter’s five forces and discusses the strategy that Apple applies to deal with the five competitive forces. Notably, Apple has embraced the concept of product complement an additional competitive force suggested by business strategist. The third section analyzes the differentiation strategy as applied by Apple. Finally, the report provides recommendations on how Apple can solidify and expand its presence in its industry segment. 1.1 Company Profile Apple is a technology company founded in 1976 by Steve Jobs and Steve wojniak (Yoffie and Slind 2006). Apple corporate headquarters are located in Cupertino California. Apple offers a range of Technology products to its customers across the Globe. In the hardware segment it offers the Mac personal computer series and the Apple remote desktop. Apple’s hardware segment offers Mac OS X, Mac OS X server, i life, quick time player, cinema display and Logic pro (Hasan 2013). Some of Apple’s consumer electronics include the iPod, iPhone, Apple TV and iPad. The iPod, the iPhone and the iPad were innovative apple products that introduced new disruptive technology in computer technology industry. Recently, Apple diversified into cloud computing and now offers the icloud service. Apple’s main advantage in the market has been the ability to produce and introduce unique products in the market before its competitors (McGregor 2008). While apple is originally an American company it has a presence in most markets across the globe. Apple has divided its market into five operating segments: Asia Pacific, Europe, Americas, Japan and retail. Apple retail operations span 13 countries with over 390 retail stores; a majority 250 stores in the US and another 140 international stores (Hasan 2013). 2.0 Porter Five Forces Analysis The porters five forces model proposed by Micheal porter can be used to analyze apples competitive position in its markets and identify the strengths apple can leverage to maintain and strengthen their position in the market (Porter 1998). The analysis also identifies areas where apple is vulnerable and needs improvement. 2.1 Threat of new entrants. The threat of new entrants in apple’s market can be considered to be low due to a number of factors. To establish a Technology company that can operate on the same level as apple takes a lot of capital investment. Secondly, Apple’s major competitors like Samsung, HP, and Dell are likely to react to make sure that new entrants do not succeed in the market. Thirdly, Apple holds patents and trademarks over its unique products like the iPad and most of the features in the iPhone (Barnett 2006). Currently apple is embroidered in a legal battle with Samsung over violation of patents its hold over iPhone technology. Without patents over the major technology any new entrant is unlikely to threaten the apple’s position in the market (Burrows 2004). However, some companies that use new disruptive technology are emerging in the technological market (Hasan 2013). Apple customers are also highly loyal to the company’s products and their new products are highly anticipated and millions of pieces are sold on their introduction in the market (Mudambi 2008). This popularity of Apple products can be owed to the fact that they are highly differentiated and almost always introduce a previously unknown technology in the market (Plummer et al 2008). However, Government regulations in the technology market are low across the global market. Apple has been able to deal with new entrants by differentiating their products and making sure they hold patents over the technology that differentiates their products. As proposed by Reppel, Szmigin and Gruber (2006), Apple has used innovation and has leveraged IP protection of their technology to stay ahead of their competitors. 2.2 Bargaining power of suppliers The bargaining power of suppliers in the technology market is considered to be high. To make their products, apple requires high quality parts which they can only find from a few suppliers. For example, Apple can only get computer memory and processors from IBM, Intel and Motorola (Hasan, 2013). The suppliers of media that is sold by Apple are well established companies that offer their products at a premium. For example apple gets movies from Disney, Fox, ABC and Sony. Music, one of apple’s leading products is obtained from large suppliers such as BMG, Warner, Universal and Sony. Microsoft one of Apple’s competitors is also supplies apples with some of the applications used on Macs and sold from the Apple’s app store. Microsoft has started forward integrating and now offers the Windows phone a competitor to Apple’s iPhone (Hasan 2013). Other suppliers may also decide to forward integrate and offer their products to the market directly. The scale of operation of these suppliers makes them a huge threat to apple’s business in case they decide to forward integrate (Porter 2001). Furthermore, Apple has to pay loyalties to the publishers of content its sells over ibookstore. 2.3 Bargaining power of buyers. The bargaining power of buyers in the technology market is high due to a number of factors. First, the development in communication technology means consumers are better informed when making their buying decision. Furthermore, they can compare a company’s products with those of competitors across a number of products aspects like price and features. In Apple’s case, peer-to-peer networks such as Limewire and Areanet that enable customers to share music without paying for it are a threat to Apple’s music business (Hasan, 2013). The economic depressions being experienced in most parts of the world are dampening consumer spending and are likely to lead retailers to pressure Apple to supply its products at a lower price. However, Apple holds considerable power over its customers sometimes by producing new products and publicizing them as a must have product for any apple customer (Grundy, 2006). Therefore, apple consumers have shorter refresh cycles than other technology consumers. Apple’s effort to differentiate its products also means its products are more resistant to the bargaining power of customers (Grundy 2006). 2.4 Threat of Substitutes The threat of substitute products is moderate in the Technology market. Most of the substitutes that exist for Apple’s products cannot offer the same convenience as most of apple’s products are highly portable (Crossan and Olivera 2006). Alternatives to Apple’s music download services include Satellite and Internet radio stations such as XM and Sirius (Hasan, 2013). XBOX and PS2 are also highly popular forms of entertainment which are viable alternatives to apple’s products. Music can also be obtained in DVD or CD format; this is the situation in some of the less developed countries that form apple’s market. Broadcast theatres and cable Tv form another class of alternative products to apple’s digital content. However, most of these products comes at a substantial switching costs as most of Apple’s products come with multiple capabilities while most of these products have a single function (Laugesen and Yuan 2010). 2.5 Rivalry among existing competitors. Rivalry among existing players in the market is the major determinant of the attractiveness and profitability of a market (Porter 1998). The technology market is characterised by big and aggressive competitors. Most of Apple’s product lines are faced by strong competing products from Apple’s rivals. Windows media player and other music playing software are major competitors to Apple’s iTunes (Hasan, 2013). Apple’s Mac OS X competes for market domination with Window OS and Linux another open source OS. iOS, the operating system for iPhone has come under major threat from the more flexible Android operating system which is available free of charge and has been adopted by Samsung a competitors in the Smartphone market. In the hardware section Dell, Lenovo and HP produce hardware of equal quality to Apple’s Mac (Hasan, 2013). Creative, Samsung and Sony have also developed stylish portable media players that now threaten Apple’s iPod market. Napster and other online music stores also remain a great threat to apple’s iTunes business. However, most of apple’s products remain highly differentiated from those of competitors. Secondly, apple’s iPhone dominates the premium Smartphone market one of the fastest growing industry segment in the technology business (West and Mace 2010). 2.6 Complements Grundy (2006) suggests complement as a sixth competitive forces that affects an industry’s attractiveness. Complements are products that are used together with a primary product and add value to both the primary and complementary products. Apple has excelled at the complementary strategy by offering iTunes services to enhance the experience of iPod users. For Mac users, Apple provides services where they can download the application for their Macs. The iTunes services ensure that each purchaser of an iPod will keep on coming back to apple to purchase music from them (Vinyard 2013). Through the iTunes services, Apple is able to retain most of its iPod customers which is easier that pursuing new customers. 3.0 Conclusion From the porters five forces analysis of Apple it can be gathered that Apple are using the differentiation strategy to stay ahead of competitors in the technology market. According to Porter there are three generic strategies that a company can use to stay ahead of competitors; cost leadership, differentiation and focus (Grudy 2006). Apple has adopted the differentiation strategy by offering products with real or perceived advantages over those of competitors. Apple is well known for introducing new products or including innovative features in each product it introduces. Each generation of the Apple’s iPhone and iPad has come with new features from the older generation of the same product. Apple’s products are also differentiated by the fact that they carry the Apple brand name. Apple is one of the world most recognizable brand names and a person who owns an apple product is considered sophisticated and in touch with modern trends. So far Apple has been able to maintain exceptional product quality and most of its products have lived up to the company’s reputation of offering high quality products (Galbreth and Shor 2010). A company that successfully differentiates its products is able to offer them to consumers at premium prices as is the case with most of apple’s products. According to Jones and Hill (2010), differentiation is a strategy that is based on product innovation, quality, style and image. Apple has been able to include these elements in most of its products thus the success of the differentiation strategy. As seen earlier Apple has been able to use the differentiation strategy to reduce the bargaining power of suppliers, make substitute products less appealing, and reduce competitive rivalry as its rivals are unable to offer similar products. Apple also holds patents over most of the technologies it uses to differentiate products therefore deterring new entrants in the technology industry. However, the differentiation strategy for Apple works only for a short period of time as competitors soon catch up. When Apple introduced the iPhone it was the first phone of its type in the market (Kay 2009). Today, many other companies make cheaper Smartphone’s of similar quality and functionality to the iPhone. The situation is also the same in the tablet computer market which was initially dominated by Apple’s iPad. When competitors are able to copy Apple’s differentiation strategy, its products are at a significant disadvantage as they are offered at higher prices. 4.0 Recommendations 4.1 Expand to new foreign markets Apple’s global presence is still low. Apple needs to establish more stores in locations like China and Africa. Apple’s 140 global retail stores are not enough to serve apple’s enthusiasts across the Globe (Grant 2010). 4.2 New products Apple is well known for introducing disruptive technologies in the market. Apple should focus on coming up with products that introduce new technologies in the market in the same way the iPod, iPhone and iPad did (Trott 2008). 4.3 Lower the prices of Products Nowadays, products of similar quality, features, style and image can be obtained from Apple’s consumers. For, example Samsung Galaxy tab offers almost similar features and functionality to Apple’s iPad but it is offered at a lower price. By continuing to offer its products at higher prices when they have lost their unique features Apple is likely to lose its market share to its competitors. 5.0 References Barnett, TO 2006, Interoperability between Antitrust and Intellectual Property. Geo. Mason L. Rev., 14, 859. Burrows, P 2004, The seed of Apple’s innovation. Business Week, 12. 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