Table of content



PEST ANALYSIS«««««««««««««««««««««««««««..4

PORTER FIVE FORCES««««««««««««««««««««««««..8

SWOT ANALYSIS««««««««««««««««««««««««««...12



Introduction: On the Nov 9, 2007, Britons got their hands on the iphone. Apple¶s iphone had been widely extolled as a breakthrough due to its dynamic touch panel user interface, effective web-browsing and multi-media capabilities. Apple¶s CEO, Steve Jobs, had described the iphone as a ³revolutionary and magical product that¶s literally five years ahead of any other mobile phone.´(Apple¶s iphone ---,)


According to Sloman, J., 2003.

Structure: refers to market structure defined mainly by the concentration of market shares in the market. (Number and size of firms, Industry concentration, Technological and cost conditions, Demand conditions, Ease of entry and exit) Conduct: behavior of firms - competitive or collusive. (Pricing, advertising, production, choice of technology, entry barriers,) Performance: social efficiency: mainly defined by extent of market power (Greater market power =lower efficiency). (Profitability and Social welfare) Apple entered the market with a totally new and innovative hand phone that had features not yet available in any of its competitors (as mentioned earlier). Apple had a competitive advantage over its competitors in the market. Now, In a market structure like the mobile industry (oligopoly Structure), all the members¶ decision are influenced by other members of the same market . Apple introduced a new idea at the beginning, the Iphone, gaining good deal of shares in its markets, and then after competitors introduced

that is through lower prices. Apple has a market structure of Monopoly in which he was the only supplier of iPhone in market. or reshape. selling one million units in a record of 74 days. US and EC competition legislation. The relationship between industry structure and performance has maintained a central role in UK. Apple acts as a monopolist firm who sets its own price for iPhone. the I-phone. there was no barrier for apple to enter the mobile phone market. As Apple was expert in its own software and hardware development. But in the long run Apple will be no more in monopoly market because . because of the features of the new product i. strategic conduct may damage the competitive process and so must be taken into account when undertaking a competition analysis. So. and what helped Apple is the market structure it chose (mobile phone market). In other cases.their smart. however. In many cases this will stimulate competition by causing other market participants to respond in ways that benefit consumers. It may cause structural change. Particularly in markets that are oligopolistic strategic behaviour may shape.e. the competitive environment. innovative and new devices. In the case of the Apple introducing the I-phone. it performed well at the beginning and for a period of time. product differentiation. product innovation. When Apple launched iPhone there was no substitute threat for apple from its competitors because no other companies were able to replace iPhone. Apple lowered its prices on the 8GB version (model) by 200 $ and phased out the 4GB version (model). The structure-conduct-performance (SCP) paradigm predicts that the structure of the market in which a firm operates will determine its performance. and the like. or it may alter conduct without directly altering the structure of the market.

such as Hong Kong. iPhone is not a global commodity and is currently only being sold in a select few countries. pricing policies. On the basis of above theory. Ireland. (2003). increasing the competition. whenever firms enter the market. research to give better competition in market structure to its competitors. etc. United Kingdom. Apple will no longer earn profit in market because of the competition . those being the United States. Apple is not an exception to competition.There are many events that will influence the Apple Company to move from Monopoly market to Oligopoly. advertising. Apple will have to improve their conduct and performance in innovation. According to Sloman.of many large firms who are in competition to apple coming with new phone which can be substitute to iPhone. conduct and performance. Germany. This competition will influence its markets structure. it is important to study the different structures of the market for apple industry . and Australia. According to Begg et al (2001) The Market structure is a description of the behaviour of buyers and sellers in that market. Gray markets are considered legal and are very commonplace in many countries. Brazil. PEST Analysis: Political: One of the main political barriers for the iPhone is the existence of gray markets. . Apple management must perform effectively to increase their iphone sales. selling products with low prices it is understandable that the profit margins are to reduce. China. France. Gray markets are created when so called "store owners" import goods from a foreign country at a cheaper price and sell it at their store front at a price that is usually cheaper than what is being given at authorized retailers. When more firms producing the same products enter into the markets it increases the competition in the market.

but in December 2007. It is unclear what the government will do with the iPhone but for consumers. and since one of the major components of the iPhone is its music playing abilities. a company is not allowed to lock the SIM card to itself. the idea of a locked phone that can only run pre-approved software carried by a pre-chosen phone network that is subject to government surveillance will definitely hurt its market performance. However. iPhone's sole carrier is AT&T Mobility. for UK O2. Apple has continued to do so. With USA. copyright laws will come into the question. and so forth. introducing such a high tech phone into foreign markets will generate imitators and bootleggers who can and will mimic its technology. Also. This Simlock for the carrier's company has sparked a lot of controversy over whether a company should be allowed to do so. . since gray markets already provide unlocked iPhones and the existence of these gray markets are so widespread and so readily available. it would seem that this single carrier policy would no longer be an effective strategy. the iPhone is being distributed and opens the market for the iPhone prematurely and without the approval and consent of Apple. In the United States. under the condition that after the customer's contract expires. T-Mobile will unlock the iPhone. Another political issue of iPhone is the single carrier contracts that so far iPhone has signed in each of the countries that it has been introduced. In Germany. AT&T has a history of letting the government spy on its phone networks on top of the long history of government regulations on phone networks. a German court granted exclusive rights to T-Mobile which enabled them to sell the iPhone with the SIM card locked. This poses a large problem for Apple because they lose a lot of the sales and revenue they would get during product launch into new markets.Through these gray markets. Despite the people's objections towards iPhone's single carrier policy.

the iPhone has no true competitors and is considered the choicest gadget. Also its technological superiority places its utility value high above most if not all competitors. fulfilling both categories for technology and aesthetics. where phones are replaced less often. . price will not be an issue to the innovators. its price is a major obstacle to its success.Economical: As a high end product. Since Apple is widely recognized nationwide its strong brand image comes into play. However. In America. iPhone is currently launched in countries with some of the highest income per capita in the world. utility and product life is much more of a concern for consumers. For countries such as Hong Kong. it is geared towards the middle to upper class. Social: One of iPhone's greatest selling point is its sleek design and strong brand image. With its high price tag. cell phones are replaced on average in a semi-annual basis for a more technologically advanced or aesthetically appealing phone. Therefore. Second and third world countries are practically automatically excluded which limits viable market for the iPhone. Being in a category of its own. iPhone in markets such as these would be immensely successful. Apple adds another tool in its arsenal to appeal to the trendy. iPhone must search for markets which has the highest potential for consumer demand coupled with buying power. iPods and iBooks have been coveted by many and with the introduction of the iPhone. economic growth must also be taken into concern to evaluate future market potential. Apple's product design has always been adored by the trendy and many of the time.

Technological: The iPhone was announced as the best invention of the year for 2007. just like with computers. However. Some of the major barriers of entry for a lot of technologies are the existence of major competitors as well as the learning curve of consumers for the new product. or even in a new category of its one: the first of its kind. there are currently very few to no true competitors to Apple¶s iPhone that can cause any major problems to its market performance. is that many of the older generations have difficulty understanding and transitioning into many of the functions and capabilities of iphone. but with such high capabilities it would seem more fitting in the PDA market. iPhone was launched into the phone market. Although Apple did not invent the touch screen. the iPhone is highly susceptible to copycats and competitors that can backwards engineer their technology and implement it for their own products to market. The other issue. being the forefront in the market. iPhone utilizes the touch screen capabilities to such an efficient degree that it seems it as though this was the first and foremost touch screen user interface gadget. . As mentioned before.

industry is being influenced by five forces. which means that 25% of . customers of other networks will have to wait until their contract expires. The strategic business manager planning to develop an advantage over rival firms can use this model to better understand the industry plans in which the firm operates.PORTER¶S FIVE FORCES: According to Michael Porter (1979). Harvard Business Review. Porter¶s Five Forces New entrants Bargaining Power of customers Bargaining power of suppliers Rivalry within industry Threat of substitutes Source . 'How competitive forces shape strategy'.Porter ME. (1979). The average duration of a cell phone contract is 2 years. or pay an early cancellation fee (typically $200). Competitive Rivalry (Growth and Competition) Barriers to Adoption of iPhone As iphone is offered by single networks such as O2 in UK .

com Apple introduced the device at high price for early adopters to earn abnormal profits and it slashed down iPhone price by 50% for rest of market segment.consumer¶s plans will expire in the next 6 months.By Michael S. For Reference. in service package ranging from $59. Apple reduces its prices or introduces new models for price-sensitive consumers. ³The Financial Lobe´. Putting Prices Into Focus.99 consumer were force to deal with the mobile carrier AT & T mobility. .99 to $399. But in UK. It will also reduce the problem of growth in market share.99 to 99.99 per month. In US When it reduce the price from $599. For reference. Pricing Policy Pricing: Model Price 4gb model 499 $ 8gb model 599 $ Source .washingtonpost. O2's iPhone deal allowed 200 inclusive minutes for pound 35 versus competitors that offers of 750 minutes in addition to a free phone. www. Rosenwald (2008). Since a $200 switching fee makes the iPhone very expensive. This would increase the potential market for the iPhone.(Apple¶s iphone case study) Growth Potential It is likely that future releases of the iPhone will not be restricted to any single network for example AT&T in US. low amount of inclusive minutes was not competitive. and its sales could expand considerably.

crucially. the iPhone will only be sold through Apple stores and single network stores. bundled within an Internet enabled PDA and an iPod body. O2 and Carphone warehouses shops in UK. The features are what give Apple the competitive advantage. According to Michael Porter. (1985) When a firm sustains profits that exceed the average for its industry. The goal of much of business strategy is to achieve a sustainable competitive advantage. large memory capacity and. and the fact that it is not easy to reinvent those features quickly is what makes the competitive advantage defensible. research and funds .Distribution: Unlike iPods. internet access. Apple has managed to create a Macintosh computer with mobile phone capabilities. the firm is said to possess a competitive advantage over its rivals. For other manufacturers to come up with something better takes time.simply copying the iPhone is not that easy. The iPhone combines smart phone capabilities with a simple to use graphical . Features such as touch-screen capability. Michael Porter identified two basic types of competitive advantage: cost advantage differentiation advantage y y Differentiation advantage for Apple (Product differentiation strategy) For other device manufacturers getting into this market may be important. iPhone was available through 1300 Apple. This is where competitive advantage comes in. The problem is that they have to try to develop a product that not only matches the iPhone but give competition to it. design are all things that the iPhone has been well known for. which are available through many retail channels. For instance.

When it reduce the price from $599.interface projected on a large multi-touch display with Wireless Internet Communication Device. The Apple store and complete security for handset build goodwill for company.99 per month. The iPhone . now US consumer were force to deal with the mobile carrier At & T mobility. y y Hardware invented by Apple is fashion trend and style-conscious cell phone. in service package ranging from $59.99 to 99. Here the company target the price sensitive market segment. So what's strategy behind the price drop? Is it a long-planned strategic move to pick up a second category of customers following those early adopters for whom price was no object. y . fashionable.Sustainable Competitive Advantage What could give an iPhone an edge over its rivals? The question is that Apple Company is going to sustain with this competitive advantage forever or not? Smart phone software and applications of Apple are highly reliable and have good brand identity and are user friendly. Style-conscious cell phone consumers who would like to browse the Internet and enjoy entertainment t. the iPhone is a smart phone that combines a web browser.99 to $200. they are expert in the applications introduced for iPhone. iPod and personal computer into a single. easy-to-use device. PC Expertise As software and hardware are owned and developed by Apple. email. y y Apple has a brand identity and loyal customers. Cost advantage for Apple (Price based strategy) Apple s plan of slashing down the price of iPhone by $200 after few months of its release.

they will struggle to compete because of Apple s first mover advantage that will likely cause consumers to ssociate similar products with the iPhone (similar to what has happened with the iPod) SWOT ANALYSIS: Apple entry into the mobile sector market will make a grate impact on the industry structure. I comes with the unique product which is extremely different from the products already exist in the market. And when it comes in the sector of mobile telephone. After seeing the abnormal profit of the company other companies are being attractive towards that particular segment (iphone). As we saw in the introduction of the company apple is a very well known company in the market it has already repudiated name the mind of the consumer.y Even if Apple s competitors produce copies of the iPhone. Because with it s unique product apple is earning the abnormal profit for the company. .its mean in the 3-5 year the industry will be very competitive. That s mean apple created a greater competition in the market. We can see that with the help of SWOT Analysis by MC gee et al (2005).

Apple also has a . The iPhone is significantly different than its competitor s product. These include its unique look and feel accompanied by a mobile operating system. Finally. It has phone sensors that work with the multi-touch screen. the fact that the company is first to deliver in this arena of computer phones is one of its greatest strengths. Strengths The iPhone has several features that add to the strength of the product. which is a new patented technology.SWOT ANALYSIS Strengths Style/Brand Sensors User base Rich UI Hype No UMTS First mover Weaknesses High price / high end Limited distribution channels Missing features Migrate people to Apple Port existing apps New social device Distribute iTunes content Similar devices Highly developed market Opportunities Threats A. These new features are presented to a large and loyal user base that Apple has accrued over the years.

These include the fact that it has a sub par camera. The average duration of a cell phone contract is 2 years. or pay an early cancellation fee (typically $200). The emergence of Wi-Fi networks is pushing for there to be visitor fees instead of having a provider lock in users. But to keep product differentiation consistent in long run would be challenge for Apple. there are is a set of weaknesses. its purpose is to be questioned does the phone fulfill corporate duties or is it just an entertainment system. Several of the iPhone features are also not particularly impressive. standing at about 2 mega pixels as well as its memory not being removable. The phone is priced around 500 to 600 dollars and surveys have shown that consumers are happy with their current mobile device. Finally. All of their phones are 3G compliant. Weaknesses Like every new product. this phone is geared towards the high end consumers. B.certain amount of protection through the strength of its brand identity. It is likely that . essentially. customers of other networks will have to wait until their contract expires. Also. Apple s choice of distribution channel has also been construed as a weakness as they re limiting it to only Cingular and Apple retailers. Since iPhone is only offered by single networks such as O2 in UK and AT&T in US. People have also noted that the Mac OS applications for desktop can be seamlessly adapted for the iPhone. iPhone launch was extremely different technology from other mobile companies. which means that 25% of consumer s plans will expire in the next 6 months. Since a $200 switching fee makes the iPhone very expensive. Opportunities There is quite a demand for a better mobile computing experience. The iPhone tries to combine both powerful computing as well as entertainment into one system. C. The iPhone is not a 3G device and will not work in technologically advanced countries such as Japan and Korea. this is the first step towards an Internet Protocol-based network.

It will also reduce the problem of growth in market share. and T-Mobile in Germany and Orange in France. (For example AT & T. Smart phones are one popular example that stands to compete against the iPhone. D.future releases of the iPhone will not be restricted to any single network for example AT&T in US. Apple claims various patents relating to this technology. Substitution reduces the demand for particular class of a product as customers switch to the alternatives even to the extent that this class of products or service becomes obsolete. However. However. and Google with their respective products. Synaptics and LG have already disclosed details of coming products which feature touch-screen interfaces. O2 in UK. This would increase the potential market for the iPhone. The iPhone mainly distinguishes itself from competitors over its user interface which is driven by a multi-touch screen. it is still likely that other players in the market will soon be able to deliver similar products. The iPhone s market is limited by two factors: 1) the high price ($499 for 4 GB) and 2) Apple s exclusive US carrier agreement with Cingular. Sony. Threats The majority of threats come from other companies including Nokia. In case of Apple the buyers of the iPhone are price sensitivel. the iPhone s compelling mix of features makes it attractive to a broad set of cell-phone consumers. as well. The demand of the iphone might be reduce in the future because of the availability of the substitutes Given the relatively high price of the iPhone it remains to be seen whether consumers will pay a high price for Apple iPhone features when their needs may be equally met by cheaper alternatives. O2) .

author said that if the organization wants to have sustainable competitive advantage than its product must be less imitable but in the case of iphone. SAMSUNG have already announced their touch screen phones as a substitute of iphone.Summary In the next 3-5 year if we see the industry would be more competitive than today. And the supplier will have the power to raise the price of the raw material because of the high demand on the same time. because iphone will have to face the competition. and they can force the companies to reduce the prices of their product. which would reduce the profit of the firms. so the company will have to spend more money on the advertising for selling it¶s product which will increase the cost and one possibility is that supplier can raise the prices because of the more demand of the raw material. . Consumer will have more choice because of substitution. If the company want to sustain on the bases of price based strategy then it would not be possible for the long time. Evaluation If we see the above theories. the biggest rival of the company LG. So many firms will be competing in the market and new firms will be try to come in the market for taking the advantage of profitability.

60 51.915.641.80 54.Apple should increase its distribution and launch in many other countries so that it can increase its market share.By using product distribution strategy the apple can improve it sharehold in the mobile industry which is shown in exhibit 3.80 1.10 73.60 Market share 32.70% 12.90 1. 4. 1.60 61.30% 2005 sales 2.Apple should reduce the price of the product so that it can increase the sales and get more profits.From the Exhibit 1 the basic configuration of iphone has been easily implemented by the other companies like Samsung. Mobile Handset Market Shares Worldwide M obile Terminal sales to End -Users in 2006 (Thousand of Units ) Company Nokia Motorola Samsung Son Ericsson LG 2006 sales 3.90 2.40% 6. 5.986.773.920.250.Conclusion: From the above discussion and analysis the following can be made regading the sustainability of iphone in the present competitive market.00 Market share 34.70% .44.65.924.40 1.614.According to exhibit 2 these are the market share of different mobile companies until 2007 .80% 7.50% 17.10% 11.753.16.30% 6. 2.80% 21.480.09.LG in affordable prices with wide range of distribution.03.44. 3.70% 6.Apple should innovate in such a way that it continues its market sustainability with the launch of new products.

10% 25.20% 0. Market Shares Q4 2006 .562.00% 54.20% 7.63.60% 5.jsp?id=501734 Global Mobil Shipments and Shares as of Q3 2007 Vendor Nokia Samsung Motorala Sony Ericsson LG Others Total Vendor Nokia Samsung Motorola Sony Ericsson LG Others Q3 2006 34.029.7 42.60% 7.30% Q3 2006 88.29.8 Q2 2007 100.11.930 92.10% 7.30% Q4 2005 shipments 1. http://www.260 14.30% 6.90% 14.gartner.4 253.55.1 41.50.00% Source: http.10 1.68.9 21.580 15.itfacts.40 8.20% 100.8 37.630 18.16.php?id=p9112 Worldwide Total Smart Mobile Device Market .70% 9.5 24.00% Q3 2007 111.680 1.11.9 45.60% 9.50% 18.930 11.9 19.Benq Mobile Others Total 23.360 53.70% 16.80% 6.20% 7.40% 15.8 46.37.7 285 Source: Strategy Analysis.9 % share 100.8 16.68.30% .70.50 2.00% 41.30% 7.4 35.80 9.6 37.00% 50.40% 21.40 1.40% 16.20% 14.00% 39.40% 13.90 4.90% Q3 2007 39.090 12.862.20% 100.90% 11.www.50% 5.410 11.90.130 % share 100.10% 9.30 1.692.7 19. Q4 2005 Vendor Total Nokia RIM Motorola Palm Sony Ericsson Others Q4 2006mshipments 22.5 28.90% 24.90% 19.3 259 Q2 2007 38.53.558.

Features .

. M. Porter. (1979). Putting Prices into Focus.E. Economics: with the collaboration of Mark Sutcliffe. [online] Available from www. . pp.Bibliography Apple.2. Competitive Advantage. "How competitive forces shape strategy".E. [Accessed date 21 December 2009] Begg et al (2001) foundations of economics Berkshire : Mc graw-hill Education Baumol and Blinder (1988)fourth edition Economics principles and policy Florida : Hartcourt Brace Jovanovich [Accessed date 12 December 2009] Porter.[online] available from: www. Free Press. 57 No. 2003.washingtonpost. J. Harvard Business Review. (1985). 5th ed. (2008).apple. (2009)³Features of iPhone.[online] available from: www.texty. Vol. Texty Staff (2007) ³iPhone: Who's the real manufacturer? (It isn't Apple).com [Accessed date 9 December 2009] .137-45. NY. ³The Financial Lobe´. New York. M. Harlow: Pearson Education. M.

Sign up to vote on this title
UsefulNot useful