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Apple Computer, Inc.

Case Study (or Critical Analysis): Apple Computer, Inc.: Maintaining the Music Business while Introducing the I-Phone and AppleTV Dana Andresen Minnesota School of Business Business Program Capstone (MB 475) Doctor Gordon E. Whitehead April 22, 2010

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Overview/Introduction In this analysis, I will address the following: (a) the main components to the success of Apple Computer, Inc., (b) how Chuck & Dons has applied some of these successes, and (c) identify an additional company that could benefit from the lessons from this case. Apple Computer, Inc. Success From this case study, four main components of success for Apple Computer Inc. surface: Innovation Strategic thinking and partnerships Marketing savvy Learning from past mistakes Apple Computer Inc. demonstrates a history of innovation. From its beginnings and introduction of the Apple II, to the Mac, to its more recent iTunes and iPhone, Apple has managed to maintain a competitive advantage and in recent years been able to stay ahead of its competition (Ireland, Hoskissen, & Hitt, 2009). Establishing an online iTunes store, that is not a money-maker, yet drives sales of the hardware involved, the iPod/iPhone products is truly innovative. The innovation continually demonstrated by Apple is setting a standard for design in many business categories. Apples new position as a successful business-case study has had a ripple effect in the world of design, from product and service design to development and branding strategy (Scanlon, 2007, p. 19). Jason Snell (2009) discussed an interesting excerpt from Steve Jobs surprise visit to the companys financial results phone call. In discussing the emergence of netbooks, Jobs stated that they will be watching the category and have some great ideas if it emerges; this call was in late 2008. One could speculate that those comments refer to the newly released iPad.

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Comment [GW1]: This is a great way to put it!

Apple is strategy. The previous iTunes example demonstrates strategy; the partnerships with major record labels, the pricing, the accessibility, and the universal system use (PC). The company uses strategic thinking with its product design, the partnerships that accompany the products, and its approach to the current economic climate. As of January 2009, Apple had $25 billion dollars in the bank and was debt free; these cash reserves were intended to help Apple through the downturn and emerge with an improved competitive position and with better products (Snell, 2009). Apple has forged strategic marketing agreements with Volkswagen of America, Burton Snowboards, Nike, and Starbucks. These partnerships generate consumer confidence and exposure (Ireland, et al, 2009). The marketing strategy of this company is recognized globally for its creativity, consistency, and originality. Apple begins its marketing strategy with the product and follows through with well thought out campaigns that capture current and new customers. With the previously mentioned strategic marketing agreements, Apple has broadened its reach and gained new markets. With the focus of these agreements being solely on the iPod, there are exciting possibilities with the emergence of other Apple products. Learning from past mistakes this last component is not as defined in the case study, but warrants mention. Many companies do not listen to customers and do not evaluate their own performance making changes to improve their brand. Apple is a company that has learned from its mistakes. When Jobs left the company in 1985, it Apple seemed to lose its way. The company floundered for years, with Jobs returning in 1996. Examples of learning from mistakes include (Ireland, et al, 2009): A sales strategy including online and phone direct sales.

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Using a universal platform for the iPod to include PC users and broaden its customer base. Using $100 Apple store credits for disgruntled customers after the iPhone price reduction (three months after the product release). Apple seems to have mastered the ABCs of Tech Success (A the way things are, B the way they could be, C what has to happen to get there), as indicated by Brad Silverberg (2005), A the entertainment industry has a jumbled approach to the internet. Users are confused with the clutter and complexity. B people want music available anytime, anywhere, to anyone. C Apple closes the gap introducing simplicity, elegance, and fun with the iPod. Apple integrates its strengths, and demonstrates the ability to continually utilize its human capital creating innovative and exciting products with an almost immediate customer base. This company sets an example to which many businesses aspire and few attain. Apples Successes Applied While Chuck & Dons uses the components of success that Apple has demonstrated, there is opportunity to fine tune and further explore in the strategic paper assignment. Examples of successes include: Innovation o Setting the example in 2000, making customer service, customer engagement, and earning company/business advocates and evangelists long before it was a popular approach or deemed necessary. The implementation of a strong customer service program is the cornerstone of this success. o Creating competitive benefits and programs to attract management and team member candidates including bring your pet to work, pet feeder program, non-

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mandatory (manager) evening and weekend hours, a liberal bonus program, and more recently implementing community volunteer opportunities, a strong internal recognition strategy, 360 degree feedback programs, and personalized business cards with team members own pet. o Organizing two annual fundraisers benefiting local spay and neuter causes in the state of Minnesota, which since inception have collectively raised over $140,000. Strategic thinking and partnerships o Creation and implementation of basic operations, human resources, information technology, and marketing infrastructure. Standards manuals Accountability to standards Sales forecasting New site forecasting VPN, email system, and scanner technology

o Professional organization, community, and business partnerships, which have increased exposure, created new customer markets, and continued creation of advocates. Chambers of commerce Minnesota Shopping Center Association Patrick Nau Photography Pet Haven Inc. of Minnesota Hubbard Broadcasting

Apple Computer, Inc. 6 o Consistent review of service through customer surveys, quarterly mystery shop service, and now targeted surveys posted on the website and via email to gain market information. The latest survey will determine direction on our social media strategy. Marketing savvy o Continuing six-year partnership with The Art Farm Advertising firm, which possesses a strong retail marketing background and local advertising ties. Increased newsletter from two-color, four-page document with 10% subsidy and 20% redemption of rebates, to a four-color, 20 page document with 35% subsidy and 50% redemption of rebates. Tied together marketing and branding successfully transitioning branding from Pet Food Outlet to Chuck & Dons. o Marketing strategy combining rewards program, radio endorsements, the expert bi-weekly TV news segments, community sponsorships, strategic cooperative advertising partnerships with food manufacturers, fundraising, email marketing, and an unprecedented volume of in-store events. Learning from past mistakes o Strong service-recovery program, resulting in strengthened customer loyalty. o Refinement of a site/location strategy that reduced square footage, depth/width of assortment, and locator criteria to find a new customer markets and reduced break-even time frames for new locations. o Creation of interview panels for all new corporate office staff additions to mitigate poor hiring decisions and turnover.

Apple Computer, Inc. 7 Chuck & Dons has experienced great success and growth over the past ten years with over 450% increase in sales volume. Net income was negative from 1996 through 2001 and is now positive 5-6% of revenue. This company has a mix of tenured (15 20 years) staff to newly hired team members. One of our greatest challenges is to motivate our tenured team members to embrace change. Taking a company from seven locations to 16 has been a challenge. Approaching 25 locations and moving into other markets (regionally and nationally) will take a different strategy and acceptance of change. We must all be in-sync to this strategy, gain buy in, and move together in attempting the transition to this new level. This will be my challenge to establish in my business strategy paper. Apples Successes: Potential Application to Retail Pro International, LLC. A firm that could learn from Apple Computers success is Chuck & Dons point of sale vendor, Retail Pro International. This company has a rocky past and its situation and position are cause for Chuck & Dons concern. Excellent application. Very impressive connection. In 2004, Island Pacific signed a letter of intent to purchase Retail Technologies International (former entity, now known as Retail Pro International) at the time having placement with 9,000 customer sites, revenue of $9 million, and representing 63 countries (Island Pacific to Buy Retail Technologies International, 2004). In attending the Retail Pro user conference in September of 2005, I witnessed a key-note speech from then CEO, Barry Schechter. In this speech, Schechter informed the audience, (consisting of users, business partners, and vendors) of some startling information (Andresen, 2005): The Audit Committee of the Board of Directors was investigating the timing of revenue recognition during its 2003, 2004 and 2005 fiscal years. Independent counsel was appointed to perform the investigation.

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In July, 2005 the United States Securities and Exchange Commission informed the Company it was conducting a formal investigation of the Company. The Company's common stock was delisted from the American Stock Exchange. As the audience sat with mouths open, in shock, it became very clear that Chuck & Dons POS software vendor was less than healthy. At this conference, Retail Pro representatives promoted their beta version of Retail Pro 9.0. To this date, that software is not viable as a full release. In addition to other operational issues, Retail Pro has not developed accounting links for all accounting programs supported on version 8, including Chuck & Dons accounting software, MAS 90, by SAGE. Paul Sobota (2009), noted that Retail Pro had filed bankruptcy in January 2009, and recounted information that the SEC filed securities fraud charges against Retail Pro and two of its former CEOs and a former CFO for their roles in an accounting fraud scheme designed to falsely inflate revenues. It seems that Retail Pro can benefit from the Apple Computer Inc. successes of strategic thinking and partnership and learning from past mistakes. Retail Pro has spent five years talking about the wide release and viability of version 9.0. With its financial and legal woes, this has not occurred. With a strategy to tie together the following components of their business, this software company could potentially become a force in POS software: Complete programming and testing for version 9.0 to ensure functionality for current users on versions 8.0 8.6. Survey its users to establish their needs and requirements for continued usage. Survey the technology environment to see where they stand against the competition. Establish a research and development path that will meet the needs of its users and put it in a better market position against its competitors.

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Focus on the core modules of its system and perfect the operating issues that have consistently plagued users. Establish a long-term vision, share this with employee, business partners, and users, and implement a strategy to achieve the long-term vision. Retail Pro presents itself as a leading international point of sale provider. As a user, Chuck & Dons has never seen any vision statement, survey, or response to system issues in this ten-year business partnership and is skeptical of this designation. Retail Pros over 20 alliances/partnerships must fit into a larger vision. Retail Pro recommends users transact with these partners, but there seems to be little strategy involved (Retail Pro Alliances and Partnerships, n.d.). Conclusion Apple Computer, Inc. sets a high standard in strategic and innovative leadership. They consistently provide exciting, high quality, and innovative products and retain their customer base while increasing sales volume and company value. In researching this firm, how others view the firm, and the results achieved, I see opportunities in application of Apples success to Chuck & Dons and my management within the company.

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References Andresen, D. (2005, September). Notes from Retail Pro User Conference 2005. Las Vegas, NV. Ireland, R. D., Hoskissen, R. E., & Hitt, M. A. (2009). Understanding Business Strategy. Mason: South-Western Cengage Learning. Island Pacific to Buy Retail Technologies International. (2004, February). Chain Store Age , p. 44. Retrieved from Business Source Premier database. Retail Pro Alliances and Partnerships. (n.d.) Retrieved April 25, 2010, from Retail Pro website: http://www.retailpro.com/company/AlliancesAndPartnerships.php?type=premier Sabota, P. (2009, January 21). O&F: Retail Pro and Page Digital File Bankruptcy. Retrieved April 25, 2010, from Multi Channel Merchant: http://multichannelmerchant.com/opsandfulfillment/advisor/01-21-retail-pro-pagedigital-bankruptcy/ Scanlon, J. (2007, January 8). Apple Sets the Design Standard. Business Week Online , p. 19. Retrieved from Business Source Premier database. Silverberg, B. (2005, March 3). The ABCs of Tech Success. BusinessWeek Online , p. N PAG. Retrieved from Business Source Premier database. Snell, J. (2009, January). Steve Jobs Holds Court. Macworld , 26 (1), pp. 24-25. Retrieved from Business Source Premier database.

60 Dana: This paper is simply wonderful. I occasionally provide a few bonus points for a star paper. This is one of those times this is a star paper. The research is phenomenal, the application perfect, and the discussion very professional. Well done.

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I can think of one small phrase that differentiates Apple from everyone else Apples mission is to Change the World. Thats bold and brash! And that is an attitude that really helps them succeed. Other companies, like Nike (in my view) have similar attitudes and it pays off. Perhaps, one of the key things a company might learn from Apple is just that simple change the world. Competition and the pace of technological change are the most critical issues facing Apple Computer. Its strategic moves into mobile communication devices and portable entertainment downloading places the company in stiff competitive environments at every angle. New competitors, low-priced rivals, and potential substitute products all threaten to reduce the perceived value of Apple products and the success of its strategy. Apple is also challenged to maintain its core competencies - marketing, innovation, relationship building, and brand management - as it manages a broader range of products and markets. Its customer base is now more diverse, and new sets of competitors have a wider variety of strengths and strategies. The technology and entertainment industries are constantly and rapidly changing. It is uncertain whether Apple will be able to sustain its brand's reputation for innovative design, continually release technological breakthroughs, and launch products that will "hit the consumer mark. In addition, the company's suite of products is no longer based on its internally developed hardware and software, but depends upon the ability to secure media content, which has its own competitive forces, dimensions of entertainment value, and proprietary issues. With Apple's success and growth, balancing stakeholder demands has become increasingly difficult. Managing the sometimes-conflicting expectations of customers, investors, suppliers, partners, legal/governmental entities, and other stakeholders puts an increasing amount of pressure on Apple's management team. And the company's dependence on Jobs' charisma, vision, and public communication and relationship-building skills puts Apple at risk without a reliable succession plan and a pool of equally-talented brand champions. Apples continued success lies in careful and thoughtful strategic management of these complex issues and challenges. Apple Computers business strategy leverages the company's unique ability to internally design and develop operating systems, hardware, application software, and services to deliver superior new products and solutions which are differentiated by their ease-ofuse, seamless integration, and innovative industrial design. Marketing begins with simple and aesthetic product design, which generates viral customer interest in Apple products. In an industry of low profit margins and cost cutting, Apple focuses on revealing radical concepts and appealing designs to making its products different. Its differentiation increases brand loyalty and reduces price sensitivity. While competitors seek to imitate Apple's successful products and the innovative complementary relationship between iPod and iTunes, Apple continues to introduce ground-breaking new products timed perfectly to achieve first mover advantages. The company continually re-invents itself to enter new product categories and avoid price competition in maturing product markets. Identifying emerging trends and exploiting the advantages of early market penetration has been fundamental to Apple's revolutionary success in the distribution of music, and the company plans to achieve similar results in video distribution and mobile phone connectivity. Apple seeks to change the way people behave rather than just competing in the marketplace for traditional

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products or with incremental innovations. Product refinement and development now aims at capitalizing on the convergence of PCs, digital consumer electronics, and mobile communications. Using the company's core competencies in different product markets (employing a mulitproduct strategy) decreases Apple's dependence on revenues from a single market. Related diversification allows the company to share resources, activities, and technologies across product lines, and the transfer of skills and intangible core competencies can build a competitive advantage that is difficult for rivals to emulate. Apple's valued supply chain relationships, reseller agreements, wireless carrier contracts, and innovative co-branding arrangements play a critical role in supporting the company's differentiation strategy, powerfully linking the success of strategic partners together. The company's strategic alliances have provided an effective avenue for gaining sizeable market share. Also, affiliations with other strong brand names serve to increase Apple's marketing exposure and build consumer confidence. Apple's strategy also involves the pursuit of opportunities to create demand for its products in the global market. In today's business environment, it is common to expand into international markets when domestic markets mature and commodity pricing tactics infiltrate the industry. The impact of downward pressure on prices can be minimized when alternative markets are discovered. For high-tech products like the iPhone, immediate success can be found in many different cultures and societies. Additionally, operating and selling beyond the home market can enhance the company's ability to compete with major rivals and bring knowledge into the organization to expand its pool of innovative ideas.

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