Q1) Evaluate Apple’s strategies and how they have managed their strategic challenges

and strategic changes within this. In your evaluation you will need to consider the key
factors of success in relation to the different strategic groups within the industry.
Support your evaluation with relevant theory and academic models.

Apple is committed to bringing the best personal computing experience to student, educators,
creative professionals and consumers around the world through its innovative hardware,
software and internet offerings. Apple continues to lead the industry in innovation with its
award-winning computers, OS X operating system and iLife and professional applications.
Apple is also spearheading the digital media revolution with its iPod portable music and
video players and iTunes online store, and has entered the online phone market this year with
its revolutionary iPhone.
Apple is a vertically integrated company, manufacturing and supplying all hardware and
software as well as its own operating systems. Apple chose this strategy so they could retain
profit and ensure profit is not lost by financing other company’s profit margins. The practice
behind this theory is to heavily finance research and development and have have the
necessary means of production to cover all areas of the business. Marketing and advertising
are also a key component in Apple strategy to have a better market position.
Founded in 1976, Apple built its early reputation on innovative personal computers that were
particularly easy for customers to use and as a result were priced higher than those of
competitors. The inspiration for this strategy came from a visit by the founders of the
company- Steven Jobs and Steven Wozniack- to the Palo Alto research laboratories of the
Xerox company in 1979. They observed that Xerox had developed an early version of a
computer interface screen with the drop-down menus that are widely used today on all
personal computers. Jobs and Wozniack took the concept back to apple and developed their
own computer- the Apple Macintosh (Mac) that used this consumer friendly interface. The
Macintosh was launched in 1984 but Apple did not sell or share the software to rival
companies. Over the next few years, this non co-operation strategy turned out to be a major
weakness for Apple.

Although the Mac had initial success, its software was threatened by the introduction of
windows 1.0 from the rival company Microsoft, whose chief executive was the well-known
Bill Gates. Microsoft’s strategy was to make this software widely available to other computer
manufacturers for a license fee- quite unlike Apple. A legal dispute arose between Apple and
Microsoft because windows had many on-screen similarities to the Apple product.
Eventually, Microsoft signed an agreement with Apple saying that it would not use Mac
technology in windows 1.0

Unlike Microsoft with its focus on software strategy, Apple remained a full-line computer
manufacturer from that time, supplying both the hardware and software. Apple continued to
develop various innovative computers and related products. Early successes included the
Mac2 and PowerBooks along with the world’s first desktop publishing programme-
PageMaker. This latter remains today the leading programme of its kind. It is widely used
around the world in publishing and fashion houses. It remains exclusive to Apple and means
that the company has a specialist market where it has real competitive advantage and can
charge higher prices. Not all Apple’s new products were successful- the Newton personal
digital assistant did not sell well. Apple’s high price policy for its products and difficulties in
manufacturing also meant that innovative products like the iBook had trouble competing in
the personal computer market place.

In the year 2000, Apple identified a new corporate strategy to exploit the growing worldwide
market in personal electronic devices- CD players, MP3 players, digital cameras etc. It would
launch its own Apple version of these products to add high-value, user friendly software.
Resulting products included iMovie for digital cameras and iDVD for DVD players.
The iPod was launched in 2001 and was followed by the iTunes Music store in 2003 in USA
and 2004 in Europe. The product has proven unbelievably successful; over 100 million units
have been sold in the six years since its introduction. In 2003, Apple's iTunes Store was
introduced, offering online music downloads in integration with the iPod. The service quickly
became the market leader in online music services, with over 3 billion downloads by August
2007. Steve Jobs announced that iTunes had reached 4 billion downloads during his keynote
address at the 2008 Macworld Conference & Expo.

The iTunes was essentially an agreement with the worlds 5 leading record companies to
allow legal downloaded of music tracks using the internet for 99 cents each. This was a major
success for Apple- it had persuaded the record companies to adopt a different approach to the
problem of music piracy. At the time, this revolutionary agreement was unique to Apple and
was due to the negotiating skills of Steve Jobs, the Apple chief executive, and his network of
contacts in the industry.

By 2005,Apple’s music player- the iPod- was the premium priced, stylish market leader with
around 60% of the world sales. Its iTunes download software had been redeveloped to allow
it to work with all windows compatible computers (about 90% of all PC’s) and it had around
70% of the world music download market, the market being worth around US$330 million
per annum. However, by 2005, all the major companies like Sony, Philips and Panasonic
were catching up fast with new launches that were just as stylish, cheaper and with more
capacity. Apple’s competitors were even reaching agreements with the record companies to
provide legal downloading of music from websites.

Another Example of the likely competition came from the mobile telephone market leader,
Nokia, and the dominant software company Microsoft. In February 2005, they jointly
announced that all new Nokia mobile phones would come with Microsoft’s Windows media
10, allowing downloading of music from PC’s onto mobile phones- yet another threat to
apple. However Apple was the market leader and was able to demonstrate major increases in
sales and profits from the development of iPod and iTunes by early 2005.

One thing that has been established is that Apple releases a few versions of one great

computer and then offers new software that easily integrates with the other software. Well,

Apple has a lot of software that only within the last 4 or so years began to integrate with PC

things as well as hardware. For this reason Apple has only been able to gain supplies from a

limited set of suppliers, leaving Apple in a vulnerable position. However, one of Apples
competencies is a great designing department. They come up with fun looking machines and

professional looking machines. The other important thing is the size and the colour of the

machine.

Distribution

Apple has many forms of distribution from their own retail outlet, to business to business

selling, to their online store. First there are the Apple retail stores; most of these will be

found in major cities across the US and the UK. From these or the website anything can be

offered to customers and the products can be even more personalized than they already are.

Their most important deals are probably with education. For years they have been offering

their computers to schools for years and have grown a large following just from the children

that are familiar with Apple and comfortable with Apple interface. This also allows Apple to

watch market trends since their market is also people between 20 and 30 years old. The

young children will be the future so Apple simply watches what they are interested in.

Their final bit of distribution comes from other warehouse companies or help desk companies

that need the Apple parts and products to fix peoples’ computers. There are also third party

stores that might display the product amongst several other laptop options.

Their main manufacturing, development, designing stuff can be found in California and in

Ireland. These two points must serve as umbrellas under which warehouses and retail shops

would order or receive from them.

Marketing stratergy

I think Apples main stratergy is there appeal to their customers. What you find in general
with many of their products more btter looking than the competitions. One thing we can see
is Apple building on the popularity of the iPod. It appeals to the Mass market. Now appeal
less as a computer company and more of a electronics company and seem more user-friendly.
Apple have a differentiation stratergy. Apple products are known to have a unique appeal,
with its sleek designs a userbility. Due to this it gets a lot of attention from consumers and the
media. Without much advertising or marketing on their part. They give something new and
unique to talk about which everybody gets pulled in to.

With the iPod there not only selling a mp3 player, there selling a social chic. Everybody has
one and everybody wants one.

Target Market

Target market
• Apple Ipod focused particularly at those between the age of 12-25, consistent with
their advertising. Bright colours and and a man dancing.
• It will appeal to both males and females
• People who have a passion or interest in music and/or literature
• Technology enthusiasts

The iPod appeals to the mass market, everyone is a potential customer. Young or old. They
have music, literature and podcasts all avaiable for the iPod owners. The simplicity and sleek
design is what attracts people. Although the latest ones (the touch) are expensive, and may
be aimed at higher and older earners.

Word count 1371

use of appropriate models, such as environmental analysis, industry analysis,
lifecycle, analysis, resource analysis, swot and pest analysis, Porters 5 forces
etc (these do NOT form part of the word count).

PESTEL-Analysis:
Economical aspects:
• Inflation currently has increased in UK and the US and may affect current sales of
ipods which have already slowed.
• Global economy in a down turn
• The exchange rate will also affect Apple as they are importing or exporting goods within the
international market.

Socio-cultural aspects:
• Again Anti-American agenda may cause potential customers to but from another
company.
• A generally aging British population, so many may be put off by the technology
• As much as it is a iPod culture, it can go away as quickly as it came. People may find
something else which is better and more value for money.

Technical aspects:
The wide range of fast changing high-tech/high-quality download possibilities, encourages
consumers to download but it also puts more pressure on competing firms, as they have to
stay up-to-date with the newest technologies. Considerable developments in the mobile phone
market (3G handsets becoming reality and expanded features available to the customer) will
push the multimedia download market into new spheres and will open up great opportunities
for Apple.
Many substitutes available from iRiver, Samsung and Sony. Competition moving away from
copy protection on songs, Such as Amazon.
Peer-to-peer file sharing applications like Lime wire and Kazaa are still extremely popular.
Although this is a problem with the music industry on a whole. This still however affects
iTunes.
Legal aspects:
Issues of copyrights and illegal downloads greatly affect the music download industry and are
a major problem for active legal providers. A former lack of legislation in this area has
encouraged consumers away from commercial downloading services and as a response to
this, new technologies have been introduced that protect the copyright of owners and prevent
customers to download and share files illegaly. Digital Rights Managment (DRM) was
created to control the number of copies that can be made from a download and although for
the music industry there are many positive aspects to DRM, there are surely as many negative
for the consumer. Therefore, some companies have already planned to open big portals on
DRM-Free tracks that will legally enable the consumer to download files without being
limited to a certain number of computers, portable digital devices and CD burns for a
reasonable price.

Source: Corporate Stratergy finntrack.com

Porter’s 5 Forces:
Substitute products:
A substitute product is not a direct alternative to the product a company is selling. For
example, the new Sony Walkman media player is not a substitute for the iPod Touch, it is a
competitor. However, a personal CD player or MP3 player could be if certain aspects of the
market were to change, e.g. price and there was a high elasticity of demand. In the case of
iTunes, with music there is a wide range of options for buying music and therefore are many
substitutes within the music industry, for example tapes, CDs, vinyl and DVDs. All of these
are easily accessible and just as convenient as downloading from the internet. The benefit
which iTunes has is that you do not have to buy whole albums; you can download songs
individually and at a fraction of the cost of a single song on another format. Also you are
able to buy movies, TV shows, audio books and Podcasts, all available 24 hours a day, 7 days
a week. Reports by Mintel have shown that sale price and the volume of sales is falling for
non digital media, consequently as a result of internet downloading.
The Threat of new Entrants:
Already, there are hundreds of media downloading sites available to use on the internet.
Some are legal and some are not. It is more difficult to block and put barriers up for illegal
entrants into the market because they are not abiding by the law and therefore do not have
patents, licences or the rights to distribute media, but still do. With legitimate start up
companies, there are capital requirements, possible patents & licences to obtain and
ultimately the prospect of competing with already well established and reputable companies
such as iTunes. Mintel predicts that there will be an influx of new companies willing to invest
in the online downloading industry. A big threat for Apple constitutes the entrance of
Amazon into the market. The company announced the launch of a new music download
portal that offers a wide range of DRM-Free tracks to a reasonable price. Since there are
many advantages to DRM-Free tracks, like the fact that users can legaly copy the files
without being restricted to a certain number of copies, consumers are expected to highly
welcome the new download store. Apple has to be aware of the fact, that it could lose both
new and old customers by restricting them to Digital Rights Management tracks that can only
be played on Apple’s iPod and not on any MP3 capable device, as it is the case with Amazon.

Bargaining Power Of Customers:

Due to the vast range of direct alternatives and substitutes, iTunes needs to price
competitively as well as maintaining reputation and range & availability. Consumers are
easily swayed to alternative products, especially the ease and free use of illegal downloading
sites and therefore need to be drawn in to using legal downloading sites like iTunes.
Consumers have great power due to their ability to buy from any one competitor in the music
industry and can therefore potentially dictate prices by constantly buying from the cheapest
company, thus forcing competitors to reduce prices. Obviously one customer would not make
a difference, but collectively customers are strong. As for the Apple iPhone, it has to be
considered that network providers have great power over the company, as they could decide
not to sell the iPhone or put pressure on the company that forces them to pay a certain amount
of their revenues to the provider. At the moment, Apple has restricted itself to one provider,
O2, and therefore greatly depends on them selling the iPhone but this will surely change over
time.
Bargaining Power of Suppliers:
Similarly to bargaining power of customers, there is the bargaining power of suppliers.
iTunes have to submit to the requirements of the consumer market to be competitive, but on
the other hand have the ability to bargain with their suppliers due to the size and reputation of
the company, thus they are a supplier and a customer. Due to the volume of sales that iTunes
have, it would be foolish for companies such as SonyBMG, Universal, Warner and EMI to
not compromise on the costs and rights to distribute their music, as their success in the music
download market highly depends on the successful distribution of their music, mainly
through Apple. This fact clearly limits the bargaining power of suppliers to a certain degree,
although Apple has to consider that without their music iTunes could not function as
efficiently as the market demands. Therefore a compromise must arise that suits both
companies, a possible agreement could be initial fees plus percentage of sales.

Intensity of Rivalry:
Although the amount of companies operating in the music download market is pretty high,
Apple is the clear market leader. Still the multimedia download market is a market in its
growth phase with fast changing technologies and many new companies entering the market.
At the moment, it seems very unlikely that a company could seriously threaten Apple’s
market position but the company has to be aware of the fact that there are other big
multinational companies trying to enter the market with new technologies and ways of
offering their services.

SWOT-Analyses:
Strenghts:
Apple is the clear market leader in the music downloadand steady financial performance.
Revenues have grown from $5,742 million in 2002 to $19,315 million in 2006 and the
company’s net profit has increased from $65 million in 2002 to $1,989 million in 2006
(Datamonitor, 2007). Steady financial growth shows the good financial state of the company
and builds the base for future growth and expansion. Also, the company has a very strong
branding and enjoys a high level of brand recognition and brand awareness that allows the
company to differentiate its offers and stimulate sales. Strengths of the company is defined
by its successful distribution of the iPod and its software iTunes. With every iPod sold, the
consumer automatically installs iTunes on his pc, as it is only possible to download music
from Apple’s original software to an iPod. Moreover, Apple products’ are being considered
as “hip”, “stylish” and “fashionable” which is increasingly becoming important for
consumers. Furthermore, Apple devices and software attract customers for their convenience,
their ease of use and for always being up-to-date with the newest technology. Apple has also
collaborated with large brand companies like Nike, Starbucks, Coca Cola and Google, which
has had beneficial impacts on both Apple and their partners and has created a new profile,
e.g. linking sports and music culture.

Weaknesses:
First off all there is to say that although the interconnection between the iPod/iPhone and
iTunes has been a key factor to Apple’s success this restriction could become a problem in
the future, as more and more customers are looking for devices and online portals that allow
them to download MP3s to any MP3 capable device. Moreover, Apple has only a very
limited offer of DRM-Free tracks on iTunes, which can be defined as a strong weakness since
an increasing number of customers fancy DRM-Free downloads. Another weakness for
Apple lies in its pricing, especially for its iPhone. A Mintel research about the mobile phone
market in the UK defined “pricing and costs to be the most important factor when it comes to
purchasing a phone (Mintel, 2007). Also, the iPhone currently doesn’t allow the costumer to
directly download files to the mobile, which, compared to the new Nokia N-Series, is a
enormous weakness, since it could prevent customers to buy the Apple device and go for the
Nokia handset instead. This could lead to a loss of Apple’s market share to its competitor
Nokia. Also, technically, the iPhone isn’t quiet as good as its competitor the Nokia N95, as it
runs on a slower mobile data service and comes only with a 2 Megapixel camera. Another
weakness for Apple is, that they’ve only chosen one operator in each country where the
iPhone is available and thus has restricted the consumer’s choice of network operators.

Threats:
The comany’s biggest threat probably constitutes the entrance of Nokia into the digital
download market. By providing the opportunity to directly download files to a handset
device, Nokia could gain some of Apple’s a market share in the digital download market,
since customers are increasingly fancying mobile downloads that don’t restrict them to a
bulky pc or laptop. The mobile download market is “one of the most opportunity-rich
markets the world has ever seen”, as Nokia’s Chief Executive Olli-Pekka Kallasvuo states
(Halper,2007), and if Apple doesn’t catch up fast on this opportunity it is running risk to
loose its superiour market position to Nokia. Another threat for Apple constitutes the launch
of online portals that are specialized in marketing DRM-Free tracks. More and more
customers are looking for music that doesn’t restrict them to a certain number of copies or to
a special device as it is the case with iTunes and the iPod. Although Apple is currently trying
to improve its choice of DRM-Free tracks, it still lacks the greater choice and lower price of
companies such as Amazon which could lead to custmers switching over from Apple to those
in terms of DRM more convinincing sites. Also the threat of illegal download sites would
have an negative impact, due to the availability of free digital content that could sway
customers away from Apple’s iTunes.

Opportunities:
Although currently especially the youth customer segment is seen as the major target group
for downloading, as these customers seem to be less restrictive towards new technologies,
providing more substantial and sophisticated products and services for older and wealthier
people could proof very profitable for Apple. With the launch of its iPhone Apple has already
done an important move into the mobile phone market that might allow the company to
challenge its biggest threat Nokia on their home market. As more and more customers are
increasingly becoming aware of innovative techologies and of the benefits arising out of
Internet downloading Apple should now take advantage of the great opportunities arising
from the fast growing mobile phone download market by making its services directly
downloadable to its iPhone as its rival Nokia has already done. Also, the upcoming change in
the digital download industry towards ad-supported content could be an opportunity for
Apple, if the company manages to strike advertising deals with companies that allow Apple
to offer services for free to customers who agree to watching ads. This could bring a whole
new bunch of customers to the company. Although these customers won’t have to pay for the
add-supported services, they will probably buy an iPod or an iPhone or another Apple
hardware device.
Resource Analysis:-

The resources of an organisation include its human resource skills, the investment and the
capital in every part of the organisation. Apple has advantages in the production and
marketing of its new iPod music player and associated software that set the standards for the
industry. It had also invested heavily in branding its products and the Apple retail stores that
sold its products. All these were part of its resources.
Apple takes supplies it buys in- such as components, energy, skills and capital equipment and
then uses its own resources and expertise to create a product from these supplies- such as a
computer or an iPod- that has a value which is higher than the combined value of all the
supplies which have been used to make the product.
Environmental Analysis:-

Organisations need to develop corporate strategies that are best suited to their strengths and
weaknesses in relation to the environment in which they operate. For example, Apple faces a
highly competitive environment for its competitors in relation to the American companies
such as Dell, Hewlett Packard. In addition, the company had to cope with changing levels of
economic growth in many markets around the world, which influenced the decisions of its
customers to purchase new computers.