ASSESSMENT

Ananya Khanna

Section - C | 16P127

OF APPLE
WATCH
WORD COUNT: 2316
INTRODUCTION
Apple Computers Inc., a company which began as a dream, to put a personal
computer in every household, today, as Apple Inc. is cited as the most valuable
brand. An American MNC which made technology not just trendy but user
friendly and have been doing so for the past 40 years.

A closer look at Apples history would make you realize that Apple has never
relied on new inventions. Instead, its strategy lies in taking technology that
existed and making it useable and cool. They did it with their range of personal
computers (the Mac), laptops (Macbooks), phones (Iphone), tablets (iPads) and
MP3 players (iPods). So much so that the iPods have now become synonymous
with MP3s and music in the mid 00s.

Apple today is trying to achieve the same feat in wearables, that they did in
Personal Computing, taking technology that many can see the potential for, but
are unwilling to use it because of the status quo behind it, and make it into a
household name.

Apple watch, Apples newest product category and the brain child of Tim Cook
was released in April 2015. With this product category, Apple forayed into a
completely new segment of wearable technology for the wrist. The idea behind
the product was to give an accessory to the users of iPhones to enhance its uses.
They wanted to provide technology in a slightly non-invasive, a little more
human way.

One can use the Apple Watch by pairing it with an iPhone via Bluetooth. Basic
features of the phone calling, texting through a custom made keyboard,
Quickboard, and any watch compatible Apps stored on the mobile device can
be accessed through the watch. It also incorporates fitness tracking through built
in GPS system and heart monitoring feature.

When Apple came up with the Smart-watch, there was a general perception in
the market about such gadgets. They were popular but only with tech-savvy
people. The masses didnt relate to the product and it was supposed to be a
gadget for the geeks. Apple has a history of changing perceptions and
increasing the size of the pie. With their unique positioning and different
variations for the Apple Watch, Apple succeeded in popularizing its gadget.

The watch quickly became the best-selling device in wearable technology with
Apple capturing a little over 50% of the smart-watch market globally.

The following report is an assessment of electronic manufacturer Apple Inc. of its

latest product Apple Watch.
In this report in order to examine the product, firstly I will be looking at the
external environmental factors for the global market, the probable potential of
the market other factors that may directly or indirectly affect the product. Post
the external environment analysis, I would analyse the wearable technology
industry by applying the framework of Porters 5 forces and subsequently a
market analysis would be done to find out the attractiveness of the product and
competitive advantage that Apple has.
CONTENTS
INTRODUCTION 2

CONTENTS 4

EXTERNAL ENVIRONMENT ANALYSIS: P.E.S.T.L.E ANALYSIS 5

POLITICAL: 5
ECONOMIC: 5
SOCIAL: 5
TECHNOLOGICAL: 6
LEGAL: 6
ENVIRONMENTAL: 7

INDUSTRY ANALYSIS: PORTERS FIVE FORCES 8

THREAT OF NEW ENTRANTS: 8
HIGH INITIAL CAPITAL INVESTMENT 8
WELL KNOWN BRAND NAMES 8
CONSUMER SWITCHING COSTS ARE HIGH 8
PATENTS LIMIT COMPETITION 8
PRODUCT DIFFERENTIATION 8
THREAT OF SUBSTITUTES 8
AVAILABILITY OF SUBSTITUTES 8
SWITCHING COSTS 9
BARGAINING POWER OF SUPPLIERS: 9
AVAILABILITY OF SUBSTITUTES 9
LOW DEPENDENCY 9
INDUSTRY FIRMS ARE A SIGNIFICANT CUSTOMER 9
BARGAINING POWER OF BUYERS 9
LOW VOLUME PURCHASES 9
HIGH SWITCHING COSTS 9
HIGHLY DIFFERENTIATED PRODUCTS 10
INTENSITY OF RIVALRY 10
NUMBER OF COMPETITORS 10
INDUSTRY GROWTH IS EXTREMELY FAST 10
HIGH SWITCHING COSTS 10

CONCLUSION 10

BIBILOGRAPHY 11
EXTERNAL ENVIRONMENT ANALYSIS: P.E.S.T.L.E Analysis

Political:

One of the key political factors that will play an important role will be the
removal of state aid or preferential treatment Apple received in Ireland,
where some of the profits of Apple from EU countries, were taxed at a
considerably lower rate than the standard Ireland rate acceptable by EU of
12.5% and others were funneled to a stateless head office without levying
of any taxes. The breakout of this unfair tax avoidance practice employed
by Apple can be seen as to negatively impact its image to its consumers,
and also shows a clear hit on their profit margins.

Another key political factor has been the criticism of post sales services
provided by apple by the state owned news outlets in China, Apples
second largest market after the US, accounting for 13% of the sales of all
products or apple, this had led to a drop in the companys share price by
3.1% in one day and can have a major impact on the sales of Apple
products within the country despite an apology issued by Apple and its
figureheads.

Economic:

Stagnation of smart-phone markets in the developed countries and an

economic slowdown in countries like Canada, Russia and Brazil led to
declining growth of Apple for the first time in over a decade in January
2016 and could lead to stagnation in Apples growth.

Apples expansion plan in developing countries teamed up with rapid

urbanization and increasing spending power of the population of these
countries could lead to an increase in Apples potential market.

Apple has lost out on sales in countries like China. This may be because of
a ban on several apple services by the government or because of cheaper
competitive and innovative alternatives.

Social:

Apple as a brand is considered within the developing countries as status

symbol. The product has an aspirational value attached to it. This brand
proposition has worked tremendously well for Apple in the developing
countries and is bound to attract millennial who would step into work.

While there have been cost benefits to manufacturing in China, the human
cost had been long ignored by apple. Ethical concerns about Apples
manufacturing in China could limit its products appeal to socially-
conscious consumers.
Technological:

Apples Operating System, IoS limits the compatibility of its technology

with other devices which limits their potential customer base for consumer
products.

Even though there are filed technological patents by Apple, it has been
seen time and again that competitors such as Google and Samsung have
duplicated Apples services and products and continue to do so. This
ensures that Apple has no competitive advantage over its main
competitors.

One of the main competitive advantage Apple had was its reputation for
high level security and safety. The growing capabilities of cyber criminals
is causing a disruption in its reputation.

Legal:

There has been a huge debate going on about Wearable Technology and
the infiltration of privacy it causes. With Apple entering into the Smart-
Watch segment, it is bound to get driven into the debate. It is imperative
for apple to maintain the privacy of its users and use their data ethically.

Another legal implication that will continue to impact the production of

Apple products is the belligerent flouting of Labour Laws in China by its
suppliers that leaves Apple susceptible to future litigation.

Environmental:

One of the biggest environmental issue being faced by Apple is the

disposal of old electronic devices. The devices contain Lithium batteries
which is a hazardous waste material. More emphasis needs to be laid on
recycling and reuse of these batteries.

Apple could soon face increased manufacturing cost and higher regulation
in China due to growing pollution and other environmental side effects
from its production facilities.

Chinas efforts to reduce CFC emissions and limit the use of fossil fuels
could lead to incremental electricity costs for Apple. This makes Apple be
in an extremely vulnerable position due to its large dependency on
electricity through data centres.
INDUSTRY ANALYSIS: PORTERS FIVE FORCES

Threat Of New Entrants:

High Initial Capital Investment

The industry requires large investments for Research, Development
and Production. With competitors like Google, Apple, Samsung, etc.
already in the market, new entrants would need path breaking
technology or exceptional promotion strategy to be seen in this
environment. Both the alternatives would require huge capital
investments.

Well known brand names

Wearable smart technologies are in the boom years of development
and more and more companies with different types of products are
joining the market. Transparency Market Research 2014 has
predicted that the market would be worth 5.8 million USD in 2018.
Such positive predictions of the market has led to an influx of
brands entering the market.
About 40 companies launched a smart-watch alone in 2013
(Smartwatch Group 2013). The big names in the industry include
Apple, Google, Xiaomi, MotoG, etc.

Consumer Switching Costs are high

With the current technology, there is no seamless integration
possible between different Operating Systems, which means that if
a user currently has an Android Phone, he wont be able to use an
IOS Apple watch. This makes it more expensive for the user to
switch devices. Also, once an investment in a device has been
made, the user is unlikely to change the product within a year. Thus,
switching costs for wearable technology is extremely high for the
consumers.

Patents Limit Competition

Most of the technology companies have patents over their
technology and design of various devices. This leads to a reduction
in the potential competition.

Product Differentiation
The attractiveness of the product in this industry is based on the
differentiation factor. There are products ranging from Smart
Technology Glasses to Watches. There is huge investment required
in Research and Development to create such differentiation which
makes it difficult for new entrants to enter the market.

Threat of new entrants in this industry thus, is relatively low.

Threat Of Substitutes

Availability of Substitutes
Since the industry is currently in booming phase, a considerable
amount of investment has been made in it. A number of companies
with the prospects of profits have entered into the same domain. For
eg, in 2013 some 40 companies forayed into the Smart-Watch
Segment.
Thus, there is availability of substitutes. However, there are no
complete substitutes possible. Due to copyrights on technology and
design, it is essentially impossible for one company to make the
same product as another.

Switching Costs
As described before, the switching costs faced by the customer are
high

Through the above analysis, we can infer that the industry has a low
threat of Substitutes.

Bargaining Power of Suppliers:

Availability of Substitutes
A single electronic device is made of hundreds of hardware which is
from different suppliers from all around the world. In general, there
are multiple suppliers for a single unit of hardware. Most of these
factories of suppliers are located in developing economies due to
the availability of cheap labour and they are willing to supply
millions of components every year.

Low Dependency
Due to the availability of suppliers in large numbers, companies
generally dont rely on a single supplier leading to lower
dependency on suppliers. Also, the availability of substitutes further
reduces the dependency on suppliers.

Industry firms are a significant customer

The business for the suppliers is concentrated with the certain firms.
The buyers (or firms) make high volume purchases which make
companies a significant customer of the supplier. Also, the buyers,
firms in this case, are more concentrated than the suppliers. This
increases the bargaining power of the buyers.

Thus, the bargaining power of suppliers is low.

Bargaining Power Of Buyers

Low Volume Purchases

Buyers typically purchase in unit quantities for personal use. The
buyers are not concentrated unlike the suppliers of the product. This
means that the sales of products purchased do not account for a
significant portion of the sellers revenue. This gives the bargaining
power to the suppliers or the firms in this case.

High Switching Costs

As described before, the switching costs for consumers is
considerably high.

Highly differentiated Products

The products available in this industry are highly differentiated.
There are various categories of wearable technology which are
possible. Among the categories too, there is high differentiation
among various products. The product range in this category caters
to la wide variety of people with prices ranging from as low as $ 100
to a few thousand dollars.

The bargaining Power of buyers, is thus, relatively low.

Intensity of Rivalry

Number of Competitors
Wearable Technology is growing at a magnanimous rate, which is
causing more and more companies with different types of products
to join the market. The IOT market has grown rapidly leading to
innovations and extensive investments. This has increased the
number of competitors in this sphere.

Industry Growth is Extremely Fast

There are predictions that the wearable technology industry is
going to grow at a very strong pace over the coming years. The
average growth rate over the years is a 140%. Predicted figures also
point out that there will be more than 110 million wearable devices
in 2018 with the market value being 5.8 million dollars a whooping
jump of 86% from 2012 (Statista 2015)

High Switching Costs

As has been described, the customers face extremely high switching
costs.

We can infer that the industry rivalry in this cluster is low.

CONCLUSION

With the Apple Watch, Apple took the next logical step as a maker of
Premium Products.
Wearable technology was never as popular till the launch of Apple Watch.
Two weeks before the launch of the Apple Watch, about 20 companies
launched their versions of Smart Technology Watches. Despite being
priced on the higher side of the spectrum in comparison to its
competitors, Apple was easily able to sway the market share to its side
with Apple Watches currently having a market share of over 50% in the
Smart Watch Segment. The Watch was more than just a cool way to get
notifications and make phone calls, it became a fashion statement.

Through our analysis above, we can say there were many things that are
working for Apple. One of them being Apples customer base. It has the
most profitable, high-spend consumer base on the planet. These
customers are who watch companies are already trying to sell to but
reaching them is not easy which is not the case for Apple.

Apple with its strong and loyal customer base has a unique opportunity to
double up the watch business in the coming years. Apple successfully
merged fashion with function. They have a chance to get everyone who
owns an Apple cell phone to go and buy another watch. They would not
only increase their business but would lead to an increment in the size of
the market for wearable technology.

The watch industry has been growing steadily since 2009 and the margins
in this industry are comparatively higher. This makes Apples investment
into wearable technology through Apple Watch a very viable option.
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