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

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

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

. it would seem that this single carrier policy would no longer be an effective strategy. and since one of the major components of the iPhone is its music playing abilities.Through these gray markets. It is unclear what the government will do with the iPhone but for consumers. copyright laws will come into the question. iPhone's sole carrier is AT&T Mobility. Apple has continued to do so. T-Mobile will unlock the iPhone. 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. since gray markets already provide unlocked iPhones and the existence of these gray markets are so widespread and so readily available. under the condition that after the customer's contract expires. This Simlock for the carrier's company has sparked a lot of controversy over whether a company should be allowed to do so. Despite the people's objections towards iPhone's single carrier policy. Also. With USA. 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. In the United States. 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. introducing such a high tech phone into foreign markets will generate imitators and bootleggers who can and will mimic its technology. However. but in December 2007. for UK O2. a company is not allowed to lock the SIM card to itself. 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. and so forth. the iPhone is being distributed and opens the market for the iPhone prematurely and without the approval and consent of Apple. In Germany.

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

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

Harvard Business Review. Porter¶s Five Forces New entrants Bargaining Power of customers Bargaining power of suppliers Rivalry within industry Threat of substitutes Source . The average duration of a cell phone contract is 2 years. customers of other networks will have to wait until their contract expires. industry is being influenced by five forces. 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 . (1979). 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. which means that 25% of .Porter ME. 'How competitive forces shape strategy'.PORTER¶S FIVE FORCES: According to Michael Porter (1979).

Putting Prices Into Focus. This would increase the potential market for the iPhone. and its sales could expand considerably. Pricing Policy Pricing: Model Price 4gb model 499 $ 8gb model 599 $ Source . For Reference.consumer¶s plans will expire in the next 6 months. ³The Financial Lobe´. www.99 to $399. It will also reduce the problem of growth in market share. In US When it reduce the price from $599.99 to 99. O2's iPhone deal allowed 200 inclusive minutes for pound 35 versus competitors that offers of 750 minutes in addition to a free phone. in service package ranging from $59. For reference. Rosenwald (2008). Since a $200 switching fee makes the iPhone very expensive.99 per month. low amount of inclusive minutes was not competitive. . Apple reduces its prices or introduces new models for price-sensitive consumers.(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.washingtonpost.99 consumer were force to deal with the mobile carrier AT & T mobility.By Michael 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. But in UK.

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

easy-to-use device. The iPhone .99 to $200. the iPhone is a smart phone that combines a web browser. email.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. y y Apple has a brand identity and loyal customers. Here the company target the price sensitive market segment. fashionable.99 to 99. they are expert in the applications introduced for iPhone. 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 . y y Hardware invented by Apple is fashion trend and style-conscious cell phone. PC Expertise As software and hardware are owned and developed by Apple. 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.interface projected on a large multi-touch display with Wireless Internet Communication Device. When it reduce the price from $599. The Apple store and complete security for handset build goodwill for company. iPod and personal computer into a single. in service package ranging from $59.99 per month. now US consumer were force to deal with the mobile carrier At & T mobility. Style-conscious cell phone consumers who would like to browse the Internet and enjoy entertainment t.

. 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. We can see that with the help of SWOT Analysis by MC gee et al (2005).its mean in the 3-5 year the industry will be very competitive. That s mean apple created a greater competition in the market. 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. After seeing the abnormal profit of the company other companies are being attractive towards that particular segment (iphone). And when it comes in the sector of mobile telephone.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.

Finally. Strengths The iPhone has several features that add to the strength of the product. The iPhone is significantly different than its competitor s product. These include its unique look and feel accompanied by a mobile operating system. These new features are presented to a large and loyal user base that Apple has accrued over the years. It has phone sensors that work with the multi-touch screen.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. the fact that the company is first to deliver in this arena of computer phones is one of its greatest strengths. Apple also has a . which is a new patented technology.

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

Apple claims various patents relating to this technology. 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. 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. 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. D. (For example AT & T. This would increase the potential market for the iPhone. O2) . Smart phones are one popular example that stands to compete against the iPhone.future releases of the iPhone will not be restricted to any single network for example AT&T in US. It will also reduce the problem of growth in market share. and T-Mobile in Germany and Orange in France. 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. O2 in UK. it is still likely that other players in the market will soon be able to deliver similar products. Sony. Threats The majority of threats come from other companies including Nokia. Synaptics and LG have already disclosed details of coming products which feature touch-screen interfaces. as well. The iPhone mainly distinguishes itself from competitors over its user interface which is driven by a multi-touch screen. However. and Google with their respective products. However.

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. 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. And the supplier will have the power to raise the price of the raw material because of the high demand on the same time. which would reduce the profit of the firms. If the company want to sustain on the bases of price based strategy then it would not be possible for the long time. 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. and they can force the companies to reduce the prices of their product. Evaluation If we see the above theories. Consumer will have more choice because of substitution. the biggest rival of the company LG. 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. because iphone will have to face the competition. .

09.Apple should reduce the price of the product so that it can increase the sales and get more profits.641.480.44.03.40% 6.From the Exhibit 1 the basic configuration of iphone has been easily implemented by the other companies like Samsung. 2. 1.Apple should increase its distribution and launch in many other countries so that it can increase its market share.924.773. 4.30% 6.70% 6.60 61.250.10% 11.70% 12. 5.80 1.40 1. 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 3.44.Apple should innovate in such a way that it continues its market sustainability with the launch of new products.70% .00 Market share 34.614.90 1.By using product distribution strategy the apple can improve it sharehold in the mobile industry which is shown in exhibit 3.16.60 51.50% 17. 3.According to exhibit 2 these are the market share of different mobile companies until 2007 .986.10 73.80 54.915.920.65.753.Conclusion: From the above discussion and analysis the following can be made regading the sustainability of iphone in the present competitive market.90 2.80% 21.60 Market share 32.30% 2005 sales 2.80% 7.LG in affordable prices with wide range of distribution.

60% 7.30% .90% 13.8 37.37.gartner.29.30% 7.210 % share 100.6 37.00% 54.80 9.883.029.60% 5.558.50% 5.80% 6.40 8.00% 4.50% 18.61.260 14.40% 21.4 35.1 41.5 28.90% 19.90.20% 100.70% 14.Benq Mobile Others Total 23.php?id=p9112 Worldwide Total Smart Mobile Device Market .30% Q3 2006 88.10% 9.10 1.410 11.7 285 Source: Strategy Analysis.40% 13.930 11.9 21.68.630 18.8 46.11.4 253.68.00% Q3 2007 111.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 34.3 259 Q2 2007 38.00% 50.60% 24.30% Q4 2005 shipments 1.20% 8.itfacts.30% 6.63.9 53.70% 9.680 1.562.710 41.20% 0.50 2.340 7.www.90 4.8 16.50.00% 39.70.862.692.00% Source: http.7 19. Q4 2005 Vendor Total Nokia RIM Motorola Palm Sony Ericsson Others Q4 2006mshipments 22. http://www.40% 16.40 1.20% 24.930 92.360 53.16.130 % share 100. Market Shares Q4 2006 .090 12.9 19.90% 11.2 15.20% 100.30 1.90% Q3 2007 39.77.20% 7.5 24.580 42.60% 9.8 Q2 2007 100.9 45.

Features .

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