APPLE CASE ANALISYS

June 2011

R. SANCHEZ
INFOTEC - MGITIC MASTERS DEGREE PROGRAM

apple case analisys

apple case analisys

INFOT EC - MGI TIC MAST ER S DEGREE P R OGR AM Compared with the first quarter of 2010 there is a significa nt increase that Derived from analysis ranges from of the case it is clear 15.680 billion that Apple has taken a us dollars in distinctive role revenue and throughout its 3.380 billion in operations started in profits. It has 1976.Its competitive sold more than position is the result of 4 million many years of hard computers, work but especially representing because of the 23% more than significant investment in the first quarter of 2010. At the research, development and innovation that has gone into beginning of 2011 it is taking a creating products that offer huge growth in sales of MacBook Air. customers a special status, but also a simple and pleasant use It is important to notethat the of technology. APPLE offersits number of people switching customers a friendly, simple and from Windows to Mac OS X different technologic continues to increase and experience. highlights that 50% of people who buy a Mac are new users. INTRODUCTION In the first quarter of 2011 iPhone achieved a new sales record with more than 16.24 million smartphones sold, which represents 86% more than at the beginning of 2011 and the cumulative number of all models sold reaches 90 million units since June 2007 . From the point of view of all devices with iOS, Apple has sold a total of 32 million devices in the last three months. THE PROBLEM After nearly 10 years of consecutive smash hits, and to see Steve Jobs as the directly responsible for these successes that have changed the industry, the large uncertainty arises as to, whether Apple can keep the face of fierce competition from rivals including the deterioration of Steve Jobs health. In any case, this environment should be viewed as one of the greatest challenges so far APPLE has been beating, by designing and adopting innovative strategies and proposals such as the ones presented in this document. INDUSTRY According to available information, Apple has developed more than 80 products throughout its history, however, the vast majority, by its nature can be identified within the industry of COMPUTERS
& MOBILE DEVICES.

The results reached by the end of the first 2011 trimester shows net sales of 26,740 millions of dollars and a net income of 6,000million.2

APPLE1at

Apple has 323 official stores openedand they have registered almost 76 million of visitors. 62% of revenues come from outside the U.S.

GOAL Develop technology to change the world in the way people work, play and use technology.

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comparison in the industry in which it operates, we can mention BlackBerry (Research in Motion RIM) and Nokia's in the line of smartphones and HP, DELL and ACER in the line of personal computer. BLACKBERRY (RIM) There are many examples about products that have broken paradigms like the iPhone or the iPad, products that offered the users, different ways of doing and using technology, really different from the traditional ways, but intuitive and therefore easy to use, leaving its practicality over many competitive products, or generating to their competitors, the need to develop equivalent products. PRODUCT Excellent device with functions very attractive to corporate users.Along with Apple they are the most profitable firms in the market for smartphones.Both reached 60% of profits from the mobile market in 2009. However, in 2011, RIM lost ground to Apple and Google in the U.S. market for smartphones. A market research firm said that RIM's market share in the United States declined in the quarter ended in April. While Google's Android platform grew to a share of 36.4% and Apple's iPhone has 26% market share, RIM fell to 25.7% from 30.4% it had in the previous quarter (according to comScore report). 3

participation in the U.S. market is very weak where the market for this product is key. Its strategy is based on the introduction of a new operating system (MeeGo) which will be open source and free, with the intention of promoting the development of applications for its App Store Ovi. HEWLETT PACKARD HP Thanks to its strategy by which acquired Compaq in 2002, it got positioned as the leader in the industry. HP has diversified its offer in a successful way, offering as well, servers and storage services. HP maintains a strong presence around the world offering their products through 110,000 outlets. (See figure PCMKT). DELL directs its product mainly to businesses, which represents 86% of all its sales. His success in the corporate segment has been the manufacture just according to orders received. However, in recent years (from 2006) has been losing market share. (See figure PCMKT). ACER has been positioned importantly as the third of four major global competitors in the PC market (see figure PCMKT). ACER, like HP, made a couple of great acquisitions in 2007 through the purchase of Gateway PC's, leading brand in the United States and PackardBell which had a strong presence in Europe.

The products with which APPLE competes in the industry are: computers, smartphones, software and music services, however, the focus in this paper will be on computers and mobile NOKIA devices. While its market share has come down COMPETITORS (from 62% in 2006 to 46.9% in Apple has as many competitors 2009), NOKIA has remained as

as products has developed, the leader of smartphones over past 5 years. Its however, for purposes of a the

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AQUISITIONS AND MERGERS

As shown in the table, Apple has made many acquisitions and mergers along the time, however, compared with companies like GOOGLE, HP and CISCO SYSTEMS, those are really few. In 1996 the company acquired NexXT Apple Software which was owned by Steve Jobs; also it was announced the happy return of Jobs to Apple. Along with this decision, Apple suspendedthework on the development of Mac OS which had represented the company investmentsfor more than $500 million us dollars in research and development. This and other decisions brought heavy losses and a decline in APPLEs stock price and loss of market share. However, over time, the great benefit was the arrival and consolidation of the firm under the leadership of Steve Jobs. In 2008 Apple acquired the firm P.A. Semi, a microprocessor design company, achieving iPad to be the first APPLE product to runon its own branded chip (A4). In 2009Lala.com is strategically acquired for music streaming service, an important component iPhone. In 2010, it is relevant that Apple bought Quattro Wireless to enter the advertising business and compete with Google, also acquired SIRI to strengthen the Personal Mobile Assistants through voice voicerecognition, strengthening its offering of mobile devices. STRATEGIC ANALISYS MODELS

A. GENERIC STRATEGIES

satisfactionin a special way, it is, they are fancy, APPLEstodaysplacement (See innovative and reflect a figure GENSTAR): higher status.Customers Type of advantage sought (Xaccept to pay the price axis).Todays placement: premium. APPLEs products are  Apple invests important predominantly differentiated, resources in research and considering the following development (R&D). Since characteristics: 1981 its annual investment on R&D, has always been over 3% of its net sales, reaching also, in 1991, up to a 9%. Total research and develop ment expense was $1.8  APPLE has incorporated into billion, $1.3 billion and $1.1 its products differentiating billion in 2010, 2009 and features that have caused 2008, respectively. that its customers prefer and  Counts with a highly skilled buy them over those of their and creative product competitors. development team, as well  Its products differentiate as for its brand marketing. from others because they are  The reputation of the not easily matched nor corporation is very high; cheaply copied by its rivals. Apples brand is immediately  Its products create value and associated with quality enhance customers products and innovation.
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Captive customers are on the lookout for new releases and eager to acquire them. For example, the launch of iPod in 2001 represented an innovation for its elegant design, simple user interface and large storage capacity; it was positioned as an icon of the digital age. Over the next five years there were presented new versions of iPod and this reported that Apple had over 70% of the U.S. MP3 market. In addition, Apple's creativity led him to create an ecosystem around the iPod, introducing, from fashionable cases to docking devices. Target scope/market target (Yaxis). APPLEs products are predominantly niche targeted, considering the following characteristics:  APPLE operates with a broad industry wide scope, trying to reach any place in the world, however it has associated, in general, premium prices to its differentiated products so they are accessible just for a narrow segment of buyers which can pay for them, in fact, because of their preferences they are willing to pay for them and for any new one.  APPLEs has and allocates enough resources and capabilities to effectively serve such segment / niche. Annually announces the launch of new products that are impatiently expected by customers. Nada menos, en 2011se presentaron ms de 10 nuevos productos/lanzamientos [iOS 5, iMessenger, iCloud, OS X Lion, PhotoStream, iTunes Match, Twitter integrado, Newsstand, "Libre de PC",

Reminders, Cmara, Gestos foriPad, AirPlayMirroringforiPad 2].  Few other APPLEs rivals are specializing in same niche but the strength and preference on the brand makes really difficult to steal customers.

the memory of eventual new buyers and progressively become the as captive customers. B. FIVE FORCES

As a result of an analysis base Due to the previous reasons, don the Five Forces strategic todays strategic positioning of model, we have the next: APPLEcorresponds to a Focused Differentiation Strategy. Barriers to entry.LOW THREAT. APPLEsfuturesplacement (See figure GENSTAR): In order to increase sales, profits and market share without compromising product quality or lower prices, and considering that Apple is able to establish a strategy by which the future's Strategic positioning corresponds to a Broad Differentiation Strategy. Para ello APPLE debeser agresivo y orientar recursos para la adquisicin de empresas especializadas que pudieran estar en la mira de sus competidores para satisfacer determinadas necesidades del mercado. Con ello, se anticipar y bloquear a sus grandes rivales. Por otra parte, debe ampliar su cobertura publicitaria mundial para incidir en la memoria de compradores que eventual y progresivamente se conviertan en clientes cautivos. This proposal establishes that APPLE must be aggressive and dedicate resources for the acquisition of specialized companies that might be targeted by its competitors to meet specific market needs. With this Apple will anticipate and block their rivals. Moreover, coverage should expand its global advertising to influence
o Learning curve. Apple is the industry leader so it establishes the characteristics of its products and its rivals are waiting to follow. This power granted by R & D also has the benefit that it represents a learning curve for its rivals allowing Apple to position at an important distance from its competitors. o Economies of scale. The volume of supplies that APPLE requires for the production of its product lines are really great allowing APPLE to take advantage of economies of scale, unlike what this represents for new players, which will impact on their production costs and profit margins. o Band identity.APPLEs brand has a huge specific weight that has not been overtaken by rivals. For the captive customers of the brand, it is clear that the greatest value is derived from Apple products. o Capital requirements. It is really difficult but not impossible, for a new player just entering the industry to take market share and influence globally. Few competitors are, or have sufficient resources to be challenging. E.g. Apple decided to enter the phone market with iPhone devices,
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the best price/performance relation and this means that the highest value will be get from APPLEs products. oProduct differences. Given the innovation that Apple gives to his products, buyers are eager to buy their new releases. In addition APPLE is the one who sets the standard in new products, which are slow to be replicated so there is not much competition for each new product launched. Rivalry. MODERATE THREAT. when the market was dominated by 60% for Motorola, Nokia and Samsung. Apple did so at a cost of 2.5 years and $ 150 million R & D. Power of suppliers.MODERATE THREAT.
o Apple hands differentiation of inputs and this makes him to partly depend on few suppliers that will eventually constitute a hazard. o Switching costs.Few suppliers have the capacity to meet demand for Apple. In case one fails, or if APPLE makes the decision to change it, Apple should implement a strategy, whether to develop a second supplier, or eventually, acquire the supplier to eliminate the risk. For both cases, the switching cost will represent an important investment. o Impact of inputs on cost or differentiation.Apple must make significant efforts to ensure the best choices of inputs in their supply chain, i.e. performance, quality, cost, possibility of economies of scale, vision and strength

of its suppliers. The fulfillment o Product differences. Rivals of the specific features and are racing to offer better requirements established by performance features on a recognized and their products and strongly differentiated brand, of the push to gain buyers. final product delivered to the o Brand identity.APPLEs brand public depends on this. has a huge specific weight that has not been overtaken by rivals. For the captive Power of buyers.LOW THREAT. customers of the brand, it is clear that the greatest value o Bargaining leverage. Apple is derived from Apple has not needed to reach a products. point where have to consider an eventual negotiation with o Switching costs. Due to the premium prices of APPLEs buyers. In fact, throughout its products, it is not easy to operations, it has developed switch. products that simply have not o Diversity of competitors. New been good products, and has players are emerging in the not placed at a low price to competition for specific achieve their displacement. products. For example, a By purchasing volume of year after the launch of iPad, buyers, customers could there are about 16 new hardly exert any pressure. products from different firms. o Buyer switching costs. Due to o Market positioning. As for the premium prices of brand identity, APPLE has a APPLEs products, it is not privileged position in the easy for buyers to switch. market and is working hard o Brand identity. The specific (incorporating better weight of APPLEs brand is performance features and tremendous, as much that it improving quality of its has not been reached neither products) to get a better overcome by its rivals. position and looking for a APPLEs captive customers better market share. Also, are faithful to the brand, APPLE has been they have totally clear that successfulbuildinga strong APPLE products gives them
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dealer network developing its distribution channel. Threat of substitutes.LOW THREAT.

and 150 million and 2.5 years of Apple Worldwide Developers own effort. Conference (WWDC).5 Moreover, in the outbound logistics, Apple owns its distribution channel, more than 323 official stores, and also their products are sold in all stores in which the products of the competition are. It is remarkable that in these shops Apple has recorded almost 76 million visitors. Mac Store, for its part has created an ideal atmosphere where customers can see and feel the full range of Apple products. Surrounded by other products and the possibility to feel and test them, the possibilities of additional sales increase. In conclusion, the analysis of the value chain model indicates that Apple has a large differentiated positioning. ALTERNATIVES RECOMMENDATIONS AND

o Buyer inclination to substitute. APPLEs customers are completely convinced about the price/performance rate of its products and specially, about the value that they receive. o Substitute products available and relative price performance of substitutes. Para los productos ms innovadores y exitosos de Microsoft no hay sustitutos. APPLEs customers are completely convinced about the price/performance rate of its products and specially, about the value that they receive. They are not looking for any substitute. o Switching costs. Due to the premium prices of APPLEs products, it is not easy to switch.

Alternative # 1.iPoints Loyalty Program Based on the strategic Five Forces strategic model, it is proposed to develop a loyalty program to reward customers for their loyalty with some benefits because of the acquisition of products over time.

VALUE CHAIN

From the perspective and analysis of the model of internal strategy, in the value chain, specifically focusing on their primary activities, Apple has taken the chance that their profits have given him, dedicating significant resources to research and development of products, their high levels of investment are difficult to match by competitors. For example, for the launch This loyalty of iPhone (the programwill reinvention of the distinguishfrom others phone), Apple spent $ their new releases in the event because APPLE will provide customers withpremiumiPoints,

By its part, App Store just 18 months after being released Theloyalty program,like all of reached 4 billion downloads to theexisting, willreward pointsfor purchasesmade at any of iPhones and iPods Touch. theAPPLE product lines. This It should be noted that through points will be known as iPoints the App Store and Mac Store, and the percentage of iPoints Apple offers value in an earnedwill be greaterif intangible way, improving theacquired customer satisfaction. productlinescorrespond In their marketing activities, toPremiumproducts Apple has been extremely likeiPhoneorMacAir,and in such successful because it has cases, the points awardedwill generated an extraordinary also be identified asPremium buzz not only to their customers iPoints. but to the IT industry and the iPoints will be taken in account media in general. Year after for new products acquisition and year, Apple is a target to meet APPLE will make special sales everyday through Internet. This will attract more and more the attention of its customers and will have the opportunity to get feedback and know more about them.

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and very the benefit of guaranteeingthe Complementary deliveryof newpremium product importantly, Apple must increase releases before other customers. its advertising to penetrate the attention of potential customers, The program will generatea to influence all new andwidely seeking audiences, further expanding its acceptedimageby customersand brand presence and maximize indirectlygeneratemore the chance of winning new entrenchedcustomers by the customers. brand. According to the Five Forces strategic model this proposal will result in a bettercompetitive and strategic position inwhich the strength of the buyers and the degree of rivalry will be diminished. Alternative acquisition program # 2.Aggressive and merge

potential customers with medium purchasing power but that are eager of having an Apple product but the required investment overcomes his capacity. Added to this, the global advertising must be extended globally to cover the mediumlow purchasing power to influence the memory of eventual buyers and progressively become captive customers.

This proposal is composed of two initiatives: First, based on the Strategic Five Forces model, it is proposed that Apple strengthen its relationship initiatives with their customers through the implementation of a robust and aggressive Customer Relationship Management special program. This program will seek to attract strongly the attention and direct interaction with customers over the Internet and social media. APPLE will keep detailed records of visits and special interests from its customers while browsing and navigating the site and participating in the social media tools implemented on it. These social media tools will include special promotional campaigns (quizzes, discussions, etc.) for the various product lines, seeking to awaken interest in the captive customers about products that perhaps they did not know or had not been interested in.

This proposal will strengthen the brand positioning in all types of customers, captives and potential, in addition to introducing its image in the mind of public that sooner or later will be seeking to become It is important to emphasize that customers. this proposal does not look for Second, based on the five forces sacrificing product quality or model, I suggest that Apple, be value, simply seeks to leverage hunting and invest resources for the brand's global presence and the acquisition of specialized attract new buyers from a lower companies that are becoming purchasing power. dominant in their field and who According to the model of might be in the target of large generic strategies, by competitors. implementing this proposal, With this strategy, according to Apple will consolidate its competitive and the strategic model of five globally differentiated position, increase forces, facing the great pressure from its rivals, Apple is reducing sales and improve its market the degree of rivalry by share. blocking its eventual initiatives and positioning at the forefront RECOMMENDATION of such specialty. The acquired companies must Consideringthe differentiation achievedinthe address specific needs for the thatApplehas market, itsfuture strategymust launch of new products that measures respond to the main concerns considereffective toconsolidateits dominance, and needsexpressed by APLLEs customers, identified through the therefore, it is consideredof importancethat CRM special program great APPLEtoestablish concreteactions mentioned above (Alternative to maintainand raisetheir profits #2). andmarket share based on Alternative # 3.Price reduction thereductionof possible strategy on entrance models of threatsthat could selected product lines pose,especially, theirrivals Based on the Five Forces model andbuyers power.Derived from it is proposed to Apple, to work this,it is recommended to APPLE Alternative on a strategy of price reduction tofollow specifically for entrance models #1implementing of its product lines in order to theiPointsloyalty program. facilitate the penetration on

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REFERENCES AND SOURCES

     Apple Annual Reports http://investor.apple.com/financials.cfm Apple financial resultshttp://www.applesfera.com/apple/rueda-de-prensa-en-apple-resultadosfinancieros-del-primer-trimestre-fiscal-del-2011 APPLE Stock information http://investor.apple.com/stockquote.cfm Yoffie, David and Slind, Michael, Apple Computer, 2006, Harvard Business School Yoffie, David and Kim, Renee, Apple Inc, 2010, Harvard Business School 10-K Annual Report filed Oct 27, 2010 http://investor.apple.com/financials.cfm

12010 2Apple

financial results http://www.applesfera.com/apple/rueda -de-prensa-en-apple-resultadosfinancieros-del-primer-trimestre-fiscal-del-2011

http://www.cnnexpansion.com/negocios/2011/06/03/apple-nubla-el-futuro-de-blackberry Acquisitions and Mergers, http://www.slideshare.net/rishi2saint/apple-v12-1 Apple Worldwide Developers Conference (WWDC) http://developer.apple.com/wwdc/

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