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iPod

The Marketing Mix in Global Market and Proposed Strategy to Succeed in India

Ankit Gupta, 2003CS10153


Vidya Bhat, 2004BB50025

Indian Institute of Technology, Delhi

May 1, 2007

Abstract
iPod is the mp3 player marketed by Apple Inc. Since it was released in the USA market in 2001, it
has been the market leader enjoying the share of about 70 percent. iPod has also been the virtual refuge
for the other fading Apple products like the Mac which are now banking on the humongous sales of the
iPod. In this paper, we first study the existing marketing mix of iPod where we analyse mainly the
Product, Promotion and the Price. Developing economies like India which present a huge potential for
sales of mp3 players are still devoid of this product which is currently established only in the developed
countries. We look at possible changes in the marketing mix of the iPod to market it successfully in
India as well. These changes include major changes in the technology and promotion campaign to adapt
it to the Indian market. We also propose a possible pricing strategy to penetrate the market as well as
to generate good profits.
Contents
1 Introduction 1

2 Marketing Mix in the current Global market 2


2.1 Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1.1 Looks and User Interface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1.2 iTunes - An easy way to get songs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1.3 Accessories - A Complete integration . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1.4 Enough Choice in Product Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2.1 Focusing on the cognitive touch point of the user experience . . . . . . . . . . . . . . 6
2.2.2 Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2.3 Retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2.4 Tie-ups with Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2.5 Promotional Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2.6 Tie-ups with Educational Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2.7 Word of mouth Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3.1 Apple’s Pricing Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3.2 International Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3 Potential and Challenges in the Indian Market 12


3.1 Potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Technological Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3 Pricing Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3.1 Upsurge of Cheap mp3 Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3.2 Existence of big Gray Market for iPods . . . . . . . . . . . . . . . . . . . . . . . . . 15

4 Proposed Marketing Mix in Indian Market 15


4.1 Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Price and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.3 Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.3.1 Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3.2 Promotional Offers and Tie-ups with Companies . . . . . . . . . . . . . . . . . . . . 19
4.3.3 Retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

5 Conclusion 19

A iPod Currency Index 20

B Major mp3 Market Players 21


List of Figures

1 Impact of the iPod . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2 Music Players - Then and Now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

3 iPod Nano - Color variation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

4 Sales of Songs through iTunes and iPods over the years (source: [21]) . . . . . . . . . . . . . 3

5 iPod - Evolution (source: [1]) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

6 iPod Variants - Comparative Features (source: [1]) . . . . . . . . . . . . . . . . . . . . . . . 5

7 The Basic Image of an iPod . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

8 iPod - Costs and Pricing (source - [6]) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

9 Growth of Digital Music in India (source: Soundbuzz, Pricewaterhouse Coopers, IFPI [25]) 13

10 Internet Users and Penetration (source: [24]) . . . . . . . . . . . . . . . . . . . . . . . . . . 14

11 India - Internet Usage Patterns (source: Internet and Mobile Association of India [26]) . . . 14

12 Apple’s Song Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

13 An ad for the iPod designed by us for Promotion in India . . . . . . . . . . . . . . . . . . . 18


(a) iPod sales per quarter (source: [2]) (b) Apple’s revenue breakup for Quar-
ter 1, 2007 (source: [2])

Figure 1: Impact of the iPod

1 Introduction
Digital music has penetrated the human life to a large extent today. Audio CDs and DVDs have taken over
the areas where the audio casettes and gramophones once held their forte. This growth has been enhanced
by the human desires to pass their idle time with music. And this desire is being fulfilled by an upsurge of
portable devices which can play music. These include mainly the mp3 players and the cellular phones.
Till about 2000, companies like Sony were producing their Walkmans and were the market leaders
but only till Apple intervened. Apple Inc, then Apple Computers Inc, used to deal only with computer
hardware and software stuff. But their products like iMac and MacOS were completely overshadowed by
the brilliant marketing and technology of companies like HP, Dell and Microsoft. Hence Apple started
to follow a digital hub strategy, whereby the company began creating software for the growing market
of digital devices being purchased by consumers. Digital cameras, camcorders and organizers had well-
established mainstream markets, but the company found existing digital music players “big and clunky
or small and useless” with user interfaces that were “unbelievably awful”, so Apple decided to develop its
own. The product was developed in less than a year and unveiled on 23 October 2001.
Figure 1(a) shows the volume of the iPod sales over the time 2001-2006. The sales have been rising
continuously. Among the hard drive based players in US market, iPod’s market share rose from 33 percent
in 2002 to 82 percent in 2004. This clearly demonstrates the invincibility of the iPod in the market. Not
only this, the impact can also be seen on the dipping fortunes of Apple. Figure 1(b) shows the shares
of various Apple’s products in the company’s revenue for the first quarter, 2007. A whopping 48 percent
came from the iPods. It was just recently that Apple Computers Inc changed its name to Apple Inc clearly
declaring that no longer was the company relying solely on the personal computers.
Thus iPod has clearly had a huge impact both on the market as well on the company itself. This
motivated us to study the marketing mix of the product and understand the reasons behind its tremendous
success. This is discussed in Section 2 of this paper. Also, this product is currently only established in
the developed economies like USA, Canada and other European countries. The iPod is still to be officially
marketed and launched in huge economies like India. In Section 3, we study any changes that are required

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(a) Then (b) Now (c) ipod dimensions

Figure 2: Music Players - Then and Now

Figure 3: iPod Nano - Color variation

in the marketing mix of iPod to compete successfully in India. We conclude the paper in Section 4.

2 Marketing Mix in the current Global market


2.1 Product
iPod relies on its design and technology very heavily. Though almost all the internal system components
come from other companies, they have been put together with an amazing firmware, looks and user interface
compelling people buy it not just for listening music but to keep up with the fashion. Now we look at some
major aspects of the Product which essentially made an iPod the iPod.

2.1.1 Looks and User Interface


mp3 players existed before iPod came. Figure 2 shows the difference in the design of then popular Sony’s
Walkman and Apple’s iPod. Figure 2(c) shows the size of the iPod nano. It’s clearly evident that iPod
with its slim and sleek looks is definitely an attraction puller. The size has been reduced so that it can
easily fit into our pockets and this has come without any considerable decrease in the number of songs that
can be stored. Quoting from Apple’s first marketing campaign for the iPod - “A thousand songs in your
pocket.” Along with this Apple has also released the product in various colors (Figure 3) which indicates
that Apple wants to make iPod the new fashion in this generation. And with its sales soaring high, it has
definitely been able to do so.

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Figure 4: Sales of Songs through iTunes and iPods over the years (source: [21])

Compared to the push buttons interface in the Walkmans, Apple came up with a revolutionary user
interface in the iPod. With a touch sensitive scroll wheel and 4 touch buttons accompanying it (Figure 3),
it was never easier for the common man to operate a device. This supported by a cool operating system
and sound quality gave music listeners an unprecedented experience.

2.1.2 iTunes - An easy way to get songs


Apple does not look at iPod as a product of its own. The mastermind behind the success of the product
has been an excellent complementary ans compatible online music store - the iTunes. Quoting from the
official iTunes store website, “Open 24/7, the iTunes Store features more than 5 million 99 songs, 100,000
free podcasts, 27,000 audiobooks, 350 TV shows, and now, movies and iPod games.” [4] (April 26, 2007).
It excels in giving the consumers the dual advantage of combining the easily available cheap downloadable
music along with the highly fashionable iPod MP3 player. As seen in Figure 4, The sales trends for the
iPod and song downloads from iTunes are similar, with the no. of iTunes sold per iPod increasing over the
years (indicated by slight divergence of the two curves towards the end).

2.1.3 Accessories - A Complete integration


Apple also augments the regular features of the iPod through various accessories. This has two main
advantages. First, no changes in the technology are required in the product itself. And second, it gives
more options to the user to enhance their music listening domain. Besides Apple, many other companies
have also started to come up with accessories for the iPod so as to move with the tide. Some most popular
of these accessories are:

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Figure 5: iPod - Evolution (source: [1])

• Sound system for rooms


This accessory (named iPod HiFi) aims at broadening the usage of the iPods to the complete home
music systems. It eliminates the needs of having an extra music player along with the big speakers.
The iPod can just be plugged in and the users can listen to their favourite compiled songs on the
iPod relaxing in their rooms.

• Camera connector
It provides an extra attraction to the user enabling him/her to transfer the digital photographs on
the iPod. This can in turn be used as a photograph sharing device too. Though it doesn’t necessarily
broadens the market niche, but it definitely gives an additional reasons to the consumers to buy the
iPod.

• Radio Addon
This is one of the most popular accessories and caters mainly to the markets where radio channels
have their dominance. Radio in itself provides users much more than music - news, chat sessions etc.
Thus it gives an extra option to the users in terms what they want to listen.

The list of accessories is growing endless today and it’s not possible to list them all down here. But in
essence, the aim of the accessories is not just to satisfy the customer by the iPod experience but to delight
him by providing more options and flexibilities in the ways of entertainment.

2.1.4 Enough Choice in Product Line


The iPod has evolved since its first release in 2001. Figure 5 shows the different variants that have been
launched by Apple. Going by its motto of “Having an iPod for everyone”, it has come up with different
choices based on the constraints on size, memory and price. The basic functionality also varies from iPod
Shuffle to Nano to Video. The list of features of each iPod variant can be found in Figure 6. Basically
this strategy to diversify the product line within a product has led to better catering of a larger consumer
base and market segments.

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Figure 6: iPod Variants - Comparative Features (source: [1])

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2.2 Promotion
The iPod has become the phenomenon that it is today because of intelligent marketing. According to US
magazine Advertising Age, the Apple publicity machine has secured 6,000 iPod and iTunes stories in major
publications worldwide in a short span of 6 years.
Apple follows the Integrated Marketing Communications (IMC) approach for promoting the
iPod. IMC essentially means that all the communications and marketing associated with the product have
a common consistent message. In the case of the iPod, Apple has, right from Day 1, emphasized on three
aspects of the iPod and built all its promotion around them: Cool Factor, Design and Simplicity. The cool
factor being that such a small gadget can take care of all your music needs; in fact, the very first tagline
for the first iPod was “1000 songs in your pocket”. Apple realized that it had a great looking product
with an interface that was simple and easy to use and hence it leveraged its marketing campaign on these
points so as to build a competitive advantage centered on them.
Apple’s various modes of promotion are now identified and explained under the following headings.

2.2.1 Focusing on the cognitive touch point of the user experience


Contemporary firms use innovation and design to build and sustain competitive advantage, and this is
especially true in the technology market [23]. Kelloggs School of Management Center for Research on
Technology & Innovation has found that design decisions cast a big shadow on the commercial success of
any product over its life cycle. This is especially true in the case of the iPod.
Functional differentiation generally fades as technology evolves. This, coupled with the fact that most
of the technology involved in the iPod is outsourced to big names in the high tech hardware industry,
serves to rule out technology as a competitive advantage. Apple has, hence, built brand identity through
great design and has leveraged and secured critical design elements and cognitive touch points of the user
experience through trademarks. In the process, the company has created a strong, transferable brand
identity throughout the iPod product life cycle that it can leverage upon in future offerings.
If we examine the design evolution of the iPod over time, we find that the design features common to all
of these embodiments are the round Click Wheel and the square display screen. The various forms of the
iPod (over time) can be abstracted out and represented by the 2-dimensional rendering as seen in Figure
7. This rendering can be identified as the major cognitive touch point for the users, and our research for
the term paper has shown that Apple has been very smart in leveraging on it for all its advertising.

2.2.2 Advertising
Apple has used a variety of distinctive advertising campaigns to promote its iPod portable digital music
player. The campaigns include television commercials, print ads, posters in public places, and wrap
advertising campaigns.

• Ad Campaigns
The more famous commercials and print advertising featured dark silhouetted characters against
bright-coloured backgrounds [16] . The silhouettes are usually dancing, and in television commercials
are backed by up-beat music. The silhouettes are also usually holding iPods and listening to them
with Apple’s supplied earphones. These distinctively appear in white, so that they stand out against

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Figure 7: The Basic Image of an iPod

the colored background and black silhouettes. Again, as mentioned earlier, the iPod appears as its
2-D rendering shown above.
Since then, the television campaigns have evolved and the newer advertisements emphasize on the
latest features added to the new models introduced, in addition to its eternal underlying message of
being the coolest music player. (For instance, the video iPod ad showed its additional capability of
video output, the second-generation version of shuffle emphasized on the reduced size and variation
in colours.)

• Music featured in the ads


The tunes chosen for the ads are not necessarily the biggest-sellers, but they are recognizable to the
cognoscenti, which is what matters. The three biggest-selling, credible genres of the day (in the US)
- hip-hop, techno and garage rock - are all represented in the television ads [17].

• Signage
Apple follows a marked Guerilla marketing policy when it comes to signage, meaning employment
of huge banners, posters and billboards which are extremely hard to miss. Buzz marketing rules the
day, meaning that the product is seen at the right places, in the right hands. iPod advertisements
spring up at street corners, on major roadways, music stores and just about anywhere where there is
a crowd. It has also launched elaborate rail station iPod campaigns at the Mc Gill subway terminal in
Montreal, the Leidsestraat station in Amsterdam, the London Underground et al [18]. Here, colored
iPod silhouettes ads consume the ticket stands, the waiting platforms, and even appear to be painted
onto the turnstiles. Stairways leading out of the station have also been converted into colored iPod
murals, with the front of each step making up the canvas.
Apple has also undertaken massive wrap advertising campaigns in the past, with entire buses, trains

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and trams being used as 3-D billboards to promote the iPod.
• The Apple.com Product Page
With the Apple home page being visited by approx. 1 percent of the population using the Internet, it
serves as an immensely viable option of advertising. Here too, it leverages on the attractive looks of
the iPod and hence the pages are uncluttered with high-resolution images of the product in different
orientations and minimal text on a bright background. This approach is visually appealing to the
customer, raises his/her interest about the product and leads him/her to click on the appropriate
links to learn more about it.

2.2.3 Retailing
“Apple’s investment in its retail operations is paying off. Before opening its first store five years ago, the
company sought out experienced retailers from Target and the Gap. Then it built entire mock-ups in a
warehouse near its headquarters. Today, the 174 stores earn an average of $4,032 per square foot.” [15]
The figures speak for themselves. Apple has revolutionised the retail market with its attractive and
inviting retail stores, each one of them being a visual treat in itself. The design of all its flagship retails
outlets, called the Apple Stores, are consistent with Apples personality.
Through its retail outlets, Apple creates an experience in the customers mind. Its first priority
has been to make the customers want the products. And that desire it implants with the experience of
the products in the store. The stores are organized by the context in which people use the products.
By acknowledging this context in the design of the store, Apple encourages its customers to dream about
possibilities.
Cashiers put time and care into the transaction, which makes clear Apples philosophy that the purchase
is not the end of the customers relationship with them - its the beginning. The sales staff is enthusiastic
and helpful , and they carry iPods on their belts, indicating to the customer that they themselves live
the lifestyle that theyre trying to sell. The messages are prioritized. Product-specific messages are
placed and sized such that they are noticeable only after youve already narrowed your focus to a particular
product.
As a result, Apple stores have now become the benchmark for quality in the retail sector. It is not
surprising, hence, that these stores account for a major chunk of its iPod sales. Apples latest venture
for iPod retailing has been iPod vending machines with digital signage. They have cropped up at major
departmental stores and railway stations, and allow customers to check out the features of the iPod on a
digital screen and buy them using credit cards.

2.2.4 Tie-ups with Companies


Apples approach towards promoting the iPod has been significantly different from its corporate culture
and practice [22]. The company has long held the philosophy that its software and hardware should be
tied almost exclusively to the Macintosh computer for both quality and profit. But it is developing and
marketing the iPod with uncharacteristic openness to work with Microsoft’s Windows software and other
technologies. It has been an educated move on Apples part to relinquish some control in order to gain
access or control of a market that could be orders of magnitude larger than their old (PC) one. Another
factor that may have triggered this approach is the fact that in the rapidly expanding domain of consumer
electronics, customers may not like products that attempt to lock them in one single brand.

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Some major partnerships:

• Collaboration with Hewlett Packard (2004)


This deal involved HP (which has been a longtime Microsoft partner) selling HP branded iPods as a
part of its broader expansion into consumer electronics. In return, HP consumer PCs and notebooks
came preinstalled with Apples iTunes jukebox software and an easy-reference desktop icon to point
consumers directly to the iTunes Music Store, ensuring a simple, seamless music experience. This
deal ensured that HP could share a piece of the pie in the phenomenal iPod sales whilst allowing
Apple to showcase its iTunes + iPod combo to the broad consumer base of HP.

• Integration with automobiles (2006)


Apple has teamed up with Ford Motor Company, General Motors and Mazda to deliver seamless
iPod integration across the majority of their brands and models, making it easy for iPod users to
enjoy and control their iPods high-quality sound through their cars stereo system. With the addition
of these models, more than 70 percent of 2007-model US automobiles offer iPod integration.

• Integration with Airlines (2006)


Apple has teamed up with Air France, Continental, Delta, Emirates, KLM and United to deliver the
first seamless integration between iPod and in-flight entertainment systems. These six airlines will
begin offering their passengers iPod seat connections which power and charge their iPods during flight
and allow the video content on their iPods to be viewed on the seat back displays from mid-2007.
Additionally, Apple is working with Panasonic Avionics Corporation to bring even more leading
airlines in-flight iPod connectivity in the future.

• The iPod ecosystem


The success of the iPod has spawned a whole range of iPod accessories, produced by other companies
as well as Apple, and this network has been termed as the iPod ecosystem. Apple has collaborated
with many such accessory-makers with an aim of increasing the uses of the iPod and making it more
adaptable to everyday situations. Hence, it has teamed up with Levis and some jacket companies
that have attached iPod controls which eliminate the need of taking your iPod out of your pocket
to change the song. Docking systems, FM radio attachments, speakers and car charging units have
been designed to allow seamless integration of the iPod into any situation of the consumers lives.
The latest addition to the sprawling ecosystem has been the Nike+iPod Sports Kit which consists
of an accelerometer embedded in the shoe which connects wirelessly to the iPod (nano version only)
and stores the users daily workout statistics, allowing them to keep a track of their exercise routines
and in essence, acting as a personal fitness trainer. In addition, it also consists of Nike apparel that
holds the iPod nano and allows the user to listen to the song and playlist of their choice during the
workout.

2.2.5 Promotional Offers


Apple regularly brings forth promotional offers on iPods and iTunes which focus on making the iPod
synonymous with music. For example, it launched the Summer of Music in Japan in 2006 where it gave

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away free iPods and iTunes vouchers redeemable for free songs from its online store. In addition, live
performances were held at the Apple Stores by local popular bands to attract crowds [2].
Apple has also tied up with major record companies and bands to promote their iPod. Its most notable
collaboration has been with U2, one of the most iconic bands of this century, wherein for two weeks before
MTV debuted U2’s video for the new single “Vertigo”, fans had a chance to see the band perform the song
on TV - in an iPod commercial. This deal was remarkable because in their twenty-five-year history, U2
have never licensed their music for commercial use or even accepted tour sponsorship. Special edition U2
iPods were released with a unique red click wheel and band members autographs engraved into its back
casing.
It was, perhaps, to honour this association that Apple came out with iPod (PRODUCT) RED Special
edition, in which $10 from the sale of each unit was donated to the RED foundation (set up by U2 lead
vocalist Bono) directed towards treating AIDS victims in Africa.

2.2.6 Tie-ups with Educational Institutions


Realizing the existence of a huge untapped potential customer base amongst the teens and the youth,
Apple has tied up with major academic universities to promote iPod as an educational tool.
An experiment was first conducted in Duke University to find newer ways of integrating iPod into the
academic scenario and gauging their popularity amongst the faculty and students [14]. The experiment was
a grand success and the iPod is now used as a recording, course content dissemination and study support
tool in major academic institutions such as Stanford and Georgia College and State University. Apple
has developed software support for the colleges called iTunesU which allows easy uploads, downloads and
dissemination of iPod compatible academic material amongst the students and faculty. Apple stores have
been started on campus and special student discounts are given on the iPod to popularize it further.

2.2.7 Word of mouth Marketing


Word of mouth marketing campaigns hinge upon loyal customers spreading word about the product in a
favourable tone. Though the iPod marketing does not include this, the buzz that this product has created
has led to an ever-increasing base of loyal customers who swear by it and popularize it in their own ways.
Entire themes in bars and restaurants have been built around the iPod, for example, weekly events that
allow patrons to become DJs for 15 minutes by creating their own iPod play lists [19]. Even enthusiasts
in the past who have built April Fools campaigns around the iPod have garnered great publicity for the
product on the net [20].

2.3 Price
mp3 Player market in the US market is oligopolistic. That is, there are millions of consumers and few
major players. These include Sony, Sandisk, Creative, Toshiba, Apple and the latest entry being Microsoft
in Nov 2006. At present, the prices are very competitive with most companies’ product within breathing
space of each other. In such a market, any changes in the price by one company will affect the sales
drastically i.e. Sales are highly sensitive to the prices. The list of major players in the mp3 player market
in Appendix B gives an idea of the competition.

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Figure 8: iPod - Costs and Pricing (source - [6])

2.3.1 Apple’s Pricing Policy


A market like above gives very incentive for Apple to reduce its prices to the lowest extent and gain the
maximum market share. Figure 8 shows that in fact Apple have the potential to reduce the prices. But
still iPod variants are marked at the same level as their competitors. Even if we assume that 20% of the
price of each unit is for its marketing and overheads, even then each unit of iPod sold is making about
66% profit. This is an interesting aspect of the policy and we attempt to reason it out here.

• Belief in Superior Technology


Apple believes that it has the superior technology and design. Hence a consumer, if given a choice at
the same price, will definitely buy an iPod. Also, it aims at overcoming a psychological mindset of
the users that the cheapest things are not always the best. More so, since Apple is aiming at making
iPod a fashion statement rather than just an mp3 player, it’s aiming at giving the consumers which
they can proudly show off.

• Skimming R&D costs


“In addition to boosting its ad budget, Apple is investing more in research and upping its capital
spending. The company said it plans to spend $390 million in capital spending this year, up 50
percent from the $260 million spent last year, much of which went to Apple’s retail store effort.
Research and development costs for last year were $534 million, up 9 percent from the prior year.”
(quoted from [7] which has compiled data from Apple’s press releases)
iPod project was started in 2000 and in about 2 years of rigorous investment, Apple released the first
iPod in Oct, 2001. Since then a lot has gone into the research to come up with new innovations to
enhance the user experience. Thus Apple may have decided to skim off these investments through a
higher pricing of the iPods. And note that it still is not hurting them as the prices are still alongside
the competitors.

• Make up for iTunes


iTunes is the biggest online music store today and plays a perfect complement to iPod. Apple
only charges about a dollar for the song download. This money mainly goes in the digital right

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management. Thus, Apple needs to find a source of investment for iTunes also. This source is iPod.
Apple does not see iPod solely as a product. For it, (iPod + iTunes) is a single product. And
hence the charge for the iPod also includes the charges for development and maintenance of iTunes
in addition to iPod.

2.3.2 International Pricing


One of Australias biggest banks, the Commonwealth Bank, has used the latest version of Apples music
player - the slimline Nano to compare global currencies and purchasing power in 26 countries. Along the
lines of the Big Mac index launched 20 years ago by The Economist , the survey prices the 2GB Nano in
US dollars and found Brazilians pay the most for an iPod, shelling out $327.71, well above second-placed
India at $222.27. Purchasing power parity surveys compare the prices of goods in different countries and
at their simplest level can help show whether one currency is undervalued against another. Appendix A
shows the complete table of the iPod pricing index and it’s interesting to note the huge variation in the
prices.
These differences in the international prices could mainly be due to three reasons.

• Deliberate Pricing policy


It may be a policy of Apple to price it more in countries where the competitors are not established
and otherwise. But the case of India rules out that fact. Even when there are cheap mp3 players
available, iPod is very expensive in India.

• Economic Factors
An important reason for different prices could be the different import and custom duties in different
countries. This could be a major factor behind the observations.

• Consumers’ Buying Behavior


This is a factor which sometimes forces the company to increase or decrease the prices. For example,
one thing about China is the “quality signal” sent by high prices: clones and knock-offs are so
widespread that people who want “real” stuff won’t buy it unless they buy it from an expensive,
“trustworthy” store and at a high price. In such kind of a situation, Apple is forced to price the iPod
a bit on the higher side which is why costs in China are comparable (Appendix A) to other countries
when there are no custom duties (iPods are manufactured in China by the company Foxconn).

3 Potential and Challenges in the Indian Market


3.1 Potential
India is growing up to digital music. Figure 9 shows that by the end of the year 2007, India will become
only the second country after South Korea in the world where the sales of the digital music will exceed
the sales of the physical music. Currently, this digital music in India is mainly associated with the mobile
phones in form of ring tones and caller tunes provided by services like Hutch and Airtel. Combine this
growth with the huge customer base here and we have one of the biggest potential economy for the iPod.

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Figure 9: Growth of Digital Music in India (source: Soundbuzz, Pricewaterhouse Coopers, IFPI [25])

3.2 Technological Challenge


When we talk about an mp3 player, we must look at means at getting the songs into the player. Broadly
there are four means of stuff to your player:

1. From the Personal computer


This is most common way where the songs can transferred from a computer through USB ports. The
songs can be put on the computer through CDs etc.

2. Buy from an Online store


The songs can also be bought online through online stores. This option is today seriously threatened
by the growing piracy world wide and efforts are being made on digital right management front to
tackle it.

3. Songs through radios


In countries, specially like India, radios have become very popular, more so with introduction of
many new channels like Radio Mirchi, Red FM, Rainbow FM etc. But the current problem is that
you cannot actually download and save these songs from the radio on your device.

4. Sharing of Songs
This is another mode where songs could actually be shared between mp3 players through wireless.

Currently, Apple relies on the first two means of getting the songs on your iPod. This means that
having an iPod leads to a lot of dependence on the personal computer as well as on the internet. But this
could actually be the limitation of the product when we talk about the Indian market. Figure 10 shows
the number of internet users as well as the internet penetration in various countries. In India, though the
number of internet users is rising, but still internet penetration is very low. It’s only around 5 % compared
to around 60 % in countries like USA where iPod has clearly established its market lead. Zooming into
this picture, Figure 11 shows the main activities where most of the internet users actually spend their

13
Figure 10: Internet Users and Penetration (source: [24])

Figure 11: India - Internet Usage Patterns (source: Internet and Mobile Association of India [26])

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time on internet. It’s mainly email, internet chatting and education purposes that internet is mainly used
for. Using the network for eCommerce and entertainment is still in an embryonic stage.
Inferring from above, we cannot actually expect iPod to do well in the whole of the Indian music lovers
market. We cannot bank on the piracy to make songs available for the iPods. There is a need to come
up with something new on the technology front which can provide a smooth channel for song distribution
within the present constraints.

3.3 Pricing Challenge


3.3.1 Upsurge of Cheap mp3 Players
The surge of Chinese brands in the market is a common feat nowadays and it’s the same with the mp3
player market. Many new brands with the names Sonny, Tony etc have hit the market trying to imitate
the bigger players. They come with lesser warranty and very cheap prices ranging from Rs 1800 to Rs
5000. In comparison to this, the iPod shuffle in India costs Rs 5600. The Indian market is very sensitive
in terms of price given so many small players and the relatively lower per capita income. (Source: Price
comparisons at online buying sites like eBay and Amazon)

3.3.2 Existence of big Gray Market for iPods


Apple Computer products have to make their way from production facilities in China. Along the way,
they pick up several cost-inflating customs stamps. Shopkeepers have responded by smuggling huge loads
of illegal iPods from Singapore, Dubai and Malaysia. The term “gray market” is really just another word
for seedy and illegal black-market goods that the police don’t have the resources, or the will, to stop from
being sold. The shops don’t pay taxes. They only accept cash. But without a doubt, they’re the best
places to buy electronic goods anywhere in south Asia.
After a good deal of haggling, one can pick up a 30-GB video iPod for $280, which is only $20 cheaper
than you can get one at Best Buy in the United States, but a whopping $160 cheaper than the $440 that
authorized dealers sell iPods for in India.
In another perspective, Apple doesn’t have much incentive to push retailers to stay legit. Since added
costs go to the government, not Apple, it may well be in Apple’s best interest to look the other way and let
smugglers drive up the company’s sales numbers. But buying on the gray market has its dangers. Besides
counterfeit parts and rough handling by smugglers, customers also do not receive warranties and may not
be otherwise supported by the manufacturer.
Even though demand for iPods is as great in India as anywhere else in the world, Apple seems to have
cold feet about expanding its presence in the country. In May, Apple closed down its only call center in
Bangalore and halted plans to hire 3,000 new employees by 2007. It appears that high taxes and a strong
gray market have given the company pause.

4 Proposed Marketing Mix in Indian Market


4.1 Product
The iPod has a cool design and user interface to sell it itself to the customer. But as seen above, that in
Indian markets it’s not only the fashion that matters. We somehow need to come up with the idea which

15
(a) Current - iTunes as central server (b) Proposed - every iPod a server

Figure 12: Apple’s Song Network

removes the dependence of the iPod on the computer and internet to get songs.
We propose a technology change in the iPod itself to overcome this barrier - allow sharing of songs
among iPods. This would require every iPod to have wireless networking functionality where it can identify
the iPods within a certain radius around itself and then the user can download the songs which have been
shared by other users on their iPods. We cannot have totally free unlimited sharing of songs hence some
price has to be paid by somebody somewhere along the pipeline. We propose to follow a cellular phone
model where each iPod will have a certain money balance on it which will be charged with every download
from a nearby iPod. Also, to encourage users to start sharing stuff on their iPods, each upload from an
iPod will fetch a balance increase of certain amount. These amounts will have to be fixed very carefully
after performing a full financial analysis of the model. Also, the iPods can be recharged again and again
as we recharge our mobile phones today.
In essence, what we are proposing, is that instead of a centralized music store like iTunes, every iPod
in operation becomes a music store. Thus increasing sales of iPods will itself mean a better connected ad
hoc network where stuff can be shared readily. (Figure 12). Thus what we now have is a rechargeable chip
inside our iPod. The recharging process will require a big infrastructure to be setup. We also propose that
such a scheme be started in collaboration with a mobile phone service provider like Hutch or Airtel. Using
these chips in the iPod we will also be able to keep record of what downloads and uploads have occurred
which will help in the digital rights management also.
In this whole scheme, there is a possibility that we unknowingly might be promoting piracy. Consider
I have access to a huge set of pirated songs. Then if I put all of them on my iPod then I can earn lots and
lots of money with people downloading the stuff from me. This situation can be averted if we restrict the
sharing to only those songs which have been officially bought from Apple stores (online or offline).
Thus this model has the potential to break the internet barrier but a lot of security issues need to be
handled with new protocols which will then be embedded into the iPod.
Currently, there is one more limitation. Since Apple assumes the omni presence of internet, only
the basic software are provided on the CD that’s distributed in the product package. But now since we
are removing the internet from the pipeline, Apple must provide a more comprehensive set of softwares

16
including all file converters etc so as to minimise the hassles faced by the users while updating the firmware
on the device.

4.2 Price and Place


Price is going to be a big factor in the Indian economy specially when there is an upsurge of cheap mp3
players from China and other local producers. After studying the consumer segments, we propose a two
pronged pricing policy for the iPod variants in India.

• Low income segment or Casual users


This group of consumers consists of the common man who wants to listen to songs mainly while going
to work in bus, or passing time while standing in queues. The requirements are only of a small device
which can store enough songs and can fit into the pocket. It is here that iPod shuffle fits in. With it’s
small size, it has the potential to become a hit in this segment. And since there are a lot of very low
priced products already in competition, Apple can actually decide to offer lower prices than others
while promising the brand name and quality associated with the name Apple. The point to note
here is that Apple might not gain as much profits here as it would expect due to the penetrative
pricing policy but it can hope to earn them in the longer run or more cleverly by higher pricing of
it’s other variants in the next category.

• High income segment or Fashion lovers


This group of consumers is the one conscious about what it wears or uses. Everything it uses must
make a statement in the society. The product must speak of its own luxury. And we feel that iPod
nano and Video fit very well here. With their sleek design and sexy looks, they have the potential to
woo the customers only on the fashion factor. This along with their usual functionality makes them
a hot candidate for this market.
Hence, we propose that here, Apple should actually follow Premium Pricing policy and mark
prices a bit on the higher side. Where, iPod with its unique design technology has the potential to
lure the customers, this policy will also help to make up for a very low pricing of the iPod shuffle.

As seen in the Pricing section in US market, Apple has very low manufacturing costs for the iPod.
It’s only the extra import duties etc which make an iPod expensive in so many countries like India. Thus
if Apple sees a huge market here, it may decide to open its manufacturing plants here in India or even
outsource it to some company here as it has done to Foxconn in China. Apple is already in collaboration
with TransWorks and HCL Infosystems for distribution and after sales support and such team ups will
only help considering that Apple is considering to release its iPhone in Asia next year.
Thus, Apple with this policy of marketing the different iPod variants for different consumers and “made
for each other” pricing can be successful on this front.

4.3 Promotion
The promotion and publicity for the iPod has been negligible in India, with only two iPod advertisements
having appeared till date, and that too in the print media. Still, we see that a significant part of the youth
and teen population is aware about and use the iPod, and this has been mainly through word of mouth

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Figure 13: An ad for the iPod designed by us for Promotion in India

promotion through friends and relatives abroad. Hence, if Apple promotes the iPod even with a simple
promotion strategy, it will be able to make inroads into the huge potential market in India.

4.3.1 Advertising
The most popular form of advertising in India is through television advertisements. Apple needs to develop
ads specifically catering to the Indian market, possibly by showcasing the iPod as the ultimate music player,
which can serve the music needs of every single person in the family, young or old, owing to its ease of use.
Radio commercials will also serve as a viable option.
The publicity through print media and signage should be done, much in the same way as it does
elsewhere. Though wrap advertising is not really seen here, Apple could pioneer this form in India. This
would also be in sync with the companys image of revolutionizing the fields it generally enters. Figure
13 shows a potential advertisement developed by us for promoting iPod. It tries to identify iPod with the
Indian culture and festivals.
Since the iPod aims to make itself synonymous with music, the company should aim to associate the
iPod (in its ads) with the most popular form of music in India - film songs. Simultaneously, keeping in mind
the variations in music preferences according to the age of the population, it should also incorporate the
other popular genres of music in its ads, like classical, devotional, Punjabi, folk, rock etc (in a way similar
to the strategy of Worldspace satellite radio ads doing the rounds of TV nowadays). Simultaneously, it
should make all these genres available on iTunes as well.
An Apple India website should be set up as well containing all the details about the product, prices

18
and resellers in India. Presently, finding an iPod reseller in your area is an arduous task, since even the
apple.com homepage does not display any information about stores in India. To dissuade people from
taking recourse to other mp3 players, the company has to make the process of iPod purchase simple and
for that, it has to make the details of its resellers and customer service centers easily accessible.

4.3.2 Promotional Offers and Tie-ups with Companies


The iPod promotional offers can be dished out in the same ways as in other countries by giving special
festival discounts, vouchers that can be redeemed for free music on iTunes etc. Apple can tie up with major
soft drinks companies for such offers (eg exchanging labels for iPod accessories etc). It should also strive
to increase its visibility amongst the youth by bringing major international bands to India and sponsoring
the concerts. Additionally, the iPod university programme should be started here too, though for it to
be taken up by every student in the campus, the prices should be student-friendly (This point becomes
especially important in the Indian scenario since teens are still dependent on their parents for financial
support). Sponsoring major college festivals in the country would also be an effective form of promotion.
At the end of it all, the promotion strategies should be such that they emphasize on the fact that the
iPod can serve to fulfill all your music needs. Side by side, newer functions and uses of iPods must be
developed and highlighted, so that people who might desist from spending a sizeable amount on money on
a device that is simply a music player are enticed as well.

4.3.3 Retailing
The number of Apple stores and resellers needs to increase too so that the visibility of the product increases
at places where people are inclined to spend their money on consumer electronics. Presently, India has
only one Apple store in India and that is in Bangalore. More stores need to be set up so as to cover all the
major metropolitan cities. Apple could also tie up with countrywide electronic items retail chains such as
Subhiksha Mobile, The Mobile Store etc.

5 Conclusion
Even now, after so many years since its appearance, iPod still manages to rule the MP3 Player world
and this is even more remarkable if we think about the technologies short life cycles. Despite fierce
competition, users are still buying iPods like there is no tomorrow. And not only that, but it also acts
as a locomotive for the entire Apple train and for other companies specialized in iPod accessories which
have become millionaires overnight. An attractive design, a simple interface which can be operated by
anyone, efficient marketing, competitive prices, all these factors have turned iPod into an unstoppable
money making machine.
We have proposed few changes in the marketing mix strategy which will help iPod adapt to the Indian
market. In brief one is to add a full fledged song sharing feature to the iPod so as to move from a
centralized network model to an ad hoc network one. Second is to position the iPod variants correctly so
that they cater to the right market segment and also complement each other with their revenues. Thirdly
the promotion strategies have to be modified to adapt to the Indian culture.

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A iPod Currency Index
More information about the iPod index can be found in [10]. Data Source: [10]

Country Cost of iPod Nano (2 GB) in US dollars


Brazil $327.71
India $222.27
Sweden $213.03
Denmark $208.25
Belgium $205.81
France $205.80
Finland $205.80
Ireland $205.79
UK $195.04
Austria $192.86
Netherlands $192.86
Spain $192.86
Italy $192.86
Germany $192.46
China $179.84
South Korea $176.17
Switzerland $175.59
New Zealand $172.53
Australia $172.36
Taiwan $164.88
Singapore $161.25
Mexico $154.46
U.S. $149.00
Japan $147.63
Hong Kong $147.35
Canada $144.20

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B Major mp3 Market Players
The following are the major mp3 players in the global market. More details can be found here [11].

Name Manufacturer Released


Archos 404 Archos September 2006
Cowon D2 Cowon February 2007
Gigabeat S Toshiba April 2006
iAUDIO X5 Cowon May 2005
iPod 5.5G Apple September 2006
iPod nano 2G Apple September 2006
iriver clix iriver May 2006
Meizu M6 Meizu May 2006
PlayStation Sony December 2004
Sansa e200R SanDisk October 2006
TrekStor vibez TrekStor November 2006
Walkman NW-A800 Sony March 2007
ZEN V Plus Creative June 2006
ZEN Vision M Creative December 2005
ZEN Vision W Creative September 2006
Zune Toshiba/Microsoft November 2006
ZVUE 250 HandHeld Entertainment December 2006

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References
[1] Apple Inc, Official website.
http://www.apple.com

[2] Official Press Releases of Apple.


http://www.apple.com/pr

[3] Wikipedia - iPod.


http://en.wikipedia.org/wiki/IPod

[4] Official iTunes website.


http://www.apple.com/itunes/store/

[5] Study of iPod gray market in India.


http://www.wired.com/gadgets/mac/news/2006/08/71639

[6] “Your $200 iPod nano costs about $90 to make”.


http://www.engadget.com/2005/09/23/your-200-ipod-nano-costs-about-90-to-make/

[7] “Apple spends a bundle on iPod ads”.


http://news.zdnet.com/2100-9584 22-5978598.html

[8] “A Brief history of the iPod”.


http://lowendmac.com/orchard/05/1014.html

[9] “New ’iPod Index’ currency measure is based on Apples 2GB iPod nano cost”.
http://macdailynews.com/index.php/weblog/comments/12383/

[10] “The iPod purchasing power parity index”.


http://www.marginalrevolution.com/marginalrevolution/2007/01/the ipod purcha.html

[11] Comparison of portable media players.


http://en.wikipedia.org/wiki/Comparison of portable media players

[12] Xpress Digital MP3 Player.


http://www.techtree.com/India/Xpress Digital MP3 Player/551-53004-571.html

[13] Indian market mp3 players - reviews.


http://www.techtree.com/techtree/jsp/list.jsp?list=prodcat cathome&prodcat id=309

[14] Duke University iPod First Year Experience Final Evaluation Report, June 2005.
http://www.ecs.org/html/Document.asp?chouseid=6210

[15] “Apple Stores earn over $4000 per square foot” MacNews, The Mac Insider.
http://www.macnewsworld.com/story/56199.html
1
All the web links were last retrieved on April 29, 2007

22
[16] iPod Advertising - Wikipedia.
http://en.wikipedia.org/wiki/IPod advertising

[17] “Apple emerged from the Pod”, BBC News.


http://news.bbc.co.uk/1/hi/magazine/3321943.stm

[18] “Apple heats up to worldwide iPod advertising”, AppleInsider.


http://www.appleinsider.com/article.php?id=387

[19] Article on iPod.


http://www.ipodmonday.com.

[20] “Apple iPod: One Giant Leap for Advertising”.


http://boakes.org/apple-ipod-space-advert

[21] “Do the math: iTunes sales aren’t collapsing”, Blackfriars marketing.
http://blackfriarsinc.com/blog/2006/12/do-math-itunes-sales-arent-collapsing.html

[22] “iPod may define new era of open strategy”, CNET News.com.
http://news.com.com/Apples+diplomatic+core/2009-1041 3-5144714.html

[23] “Trademarks, Not Patents: The real competitive advantage of the Apple iPod” by James Conley.
http://www.core77.com/reactor/12.05 ipod trademark.asp

[24] Computer Industry Almanac–Press Releases.


http://www.c-i-a.com/pr info.htm

[25] “Indian Digital Music Sales To Surpass Physical Format This Year”.
http://www.contentsutra.com/entry/indian-digital-music-sales-to-surpass-physical-format-this-year-
study/

[26] “Mumbai tops the Internet users list with 2.6 million active users”.
http://www.iamai.in/section.php3?secid=15&press id=1357&mon=11

1
All the web links were last retrieved on April 29, 2007

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