APPLE COMPUTER, 2006

INTRODUCTION
"Man is the creator of change in this world. As such he should be above systems and structures, and not subordinate to them."

Apple lives this vision through the technologies it develops for consumers and corporations. It strives to make its customers masters of the products they have bought. Apple doesn't simply make a statement. It lives it by ensuring that its employees understand the vision and strive to reach it. It has put systems in place to enable smooth customer interaction. It has put objectives in place to continuously move forward; implemented strategies to fulfill these objectives; and ensured that the right marketing, financial and operational structures are in place to apply the strategies.

INDUSTRY ANALYSIS:
External analysis using porters five forces model
The industry has a fast growth. Everyday new and innovative products flood the markets. From mobile phones to laptops there is a new product advertised almost every week. The major players of the industry are Dell, HP, Apple, Acer and Lenovo. There is a high entry barrier due to the standardization of the PC components. If any new players wish to come into this business, they need to have a differentiated strategy form the existing companies. Also, a high learning curve exists which means the customers take time to get accustomed with the new product. The existing brand names make the entry barriers high.

Bargaining power of suppliers:

Suppliers for this industry are powerful. There are only a handful of companies like Intel and Microsoft which manufactures microprocessor and operating systems (OS). These suppliers are hard to switch due to dominant production of such components. There is always a threat of forward integration by the suppliers since the products manufactured by these suppliers are highly sophisticated and the other

components needed for the production of PCs are not so difficult to imitate. But there are many sources which do provide small PC components like memory chips, disk drives and keyboards.

Low

Threat of New Entrants

Low Low

Bargaining power of Suppliers

Current Competitor s very

High
Bargaining Power of Customers

Intense

High

Threat of Substitutes

Very High

Threat of substitutes:
Substitutes for most of the products are easily available at a lower price. Although buyers do look for quality and brand name, some of the components they need are purchased from these substitute

providers at a low cost. For example if a consumer cannot afford to buy an Apple iPod then he/she has the option to buy any alternative low cost CD player or recorder from some other company. There is high competition due to high industry growth. Manufacturers of these products try every possible strategy to attract the attention of customers through promotion and advertising. Apple fights with its highly innovative products whereas Dell and HP have better marketing and distribution strategies.

Rivalry:
It is almost reaching a status of mature market with intense competition but it is still growing. There are companies which are coming up with low cost strategies to compete with the existing manufacturers and this had led to intense rivalry. Companies like Lenovo and HP are already competing with Apple and other companies with notebooks on the basis of cost. Also there are a wide range of MP3 players available in the market which ranges from $30 to $499 and from 1 GB to 160GB. Also there are several websites which give access to downloading and listening music which becomes a high threat for products like iTunes.

Bargaining power of customers:

The type of consumers for this market can be categorized as home, small and medium sized business, corporate, education and government. Since buyers are mostly not concentrated they have less bargaining power for prices and models. Buyers do have a high switching cost which discourages them from buying a similar product from another supplier. But there are a number of substitutes available which makes buyers powerful to choose from the available options and also because they are very price sensitive. The customers always have an advantage of choosing the electronic good according to the need and taste. This industry has a vast customer base and companies have to be customer oriented and should innovate according to their demand. Apple targets customers who are techno savvy, who look for something unique. They have a wide range of products like computers (Mac book), iPods and iTunes which are highly differentiated. Customers desire to buy its products as they are icons of the digital industry.

Threat of new entrants:

Exit barriers for this industry are high. There is a lot of capital requirement to establish a firm inside the electronics and PC industry. There is a chance of exit becoming almost impossible due to strategic interrelationships between these firms. The firms depend on other firms in the industry for making a final product ready for the customers. That is the reason why there are low entrants in this field.

Internal analysis through SWOT analysis Strengths:

Branding (Well established Brand) Innovation Differentiated product Integrated Product (Computers + OS) Ease of Use (plug & play solutions) Technically Elegant Products Superior Quality Colorful and Trendy Marketing and Distinctive Advertising Retail strategy Customer loyalty Online Sales (Informative website) Financial Vitality (resisting market pressures to reduce costs, tightly integrating product packages, and forming strategic alliances)

Weaknesses:
High Priced Proprietary system No Customization Lack of Compatibility Cannibalization

Opportunities:
Fast growing Industry (Customer Electronics Industry) Technological Innovations Extend new products to loyal customers High Potential music phone market

Strategic Alliances with peripheral component manufacturers (speaker, home stereo, etc) and media transmission giants (Disney, TBS, Verizon, etc).

Threats:
Extensive Competition Substitute Products Low prices of Competitors Technical Advancements Economy downfall

VALUE CHAIN ANALYSIS:

New Product Idea Generation

Designing/ Funding

Product Creation

Distribution

Sales and Marketing

Customer Service

Apple has been able to perfect the chain of activities in innovation. Apple starts from its new ideas of product design, designs it through its own resources and funding, then manufactures it and finally markets it wholeheartedly.

Technology and Product Design

This Component is the true core of Apples Capability. Apple contributes around 5-9% of its sales in R&D. From being the first platform to run an electronic spreadsheet (VisiCalc on the Apple II Plus) to the first to establish a digital lifestyle hub (the Macintosh product lines), Apples history is rich with cutting-edge technology development. The Apple operating system is universally regarded as more

stable and reliable than Windows. The learning and innovation in technology in its products has led Apple to leverage its expertise in iPod, iTunes and iLife suite of products.

Suppliers
It is really the strongest advantage for a company to be independently manufacturing from scratch to finished product with application and peripherals .Apple produces its own disk drives, monitors, computers chassis and unique chips. The company never backward integrated in Microprocessors. In 1990s it was supplied by Motorola. Later on Apple switched to IBM and then finally to Intel (2005) for its Core Duo microprocessors.

Production
The bundled packages of Apple-developed hardware and software became the cornerstone for its own production process though there were situations when the company outsourced the production of iMacs to Foxconn electronics. Apple achieved unparalleled performance via 64-bit architecture, integrated distinctive styling with the multi-colored translucent iMac cases, and redefined intuitive operation with the iPod. The research and development oriented products give an extraordinary performance and products like Mac which soon became an identity of Apple Inc.

Distribution
Earlier Apple used small outlets to deal with its customers. Later in 1997, Steve job revamped the distribution system by eliminating relationships with thousands of small outlets and expanding in Nationals presence. For the first time it also a website to directly deal with it customers. By 2001, the online store accounted for 40% of the companys sales. In 2001, company opened its own retail store in Virginia. The company now owns 135 and above stores all over the world.

Marketing and Advertising

Distinctive marketing campaigns have been a strategy of Apple to attract customers and to spread the information among them. Television commercials, Print Advertisements, Posters in Public areas and wrap advertisement campaigns have been successful ways of outshining the new product. Apple continues to command a market premium for producing a better mousetrap throughout its history. Apple hired TBWA Chiat/day, an advertising agency that designed the campaign of Think Different featuring Albert Einstein.

Customer Service
Apple believes in keeping a place in customers heart, the customer loyalty is a great strength to the company. The credit for such a strong relationship between the company and its customers goes to companys customer service and the nature of products which fulfills the need of todays stylish people. Apple created a virtual love affair with their customer base by delivering technically superior products (iPods vs. other MP3 players, Macs vs. PCs, etc.), and aggressively pursuing hardware and software updates. Apple integrated their primary activities so well that it is transparent to the consumer where one activity begins and the other ends. A perfect example of this is Apples willingness to develop software to run Windows XP on its new Intel-based iMac and then post it online free to iMac users. In such an environment, customer service merely becomes the realization of receiving a little more than expected.

STRATEGIES:
Vertical & horizontal integration
The company practiced horizontal & vertical integration. It designed its products from scratch, using unique chips, disk drives, and monitors. It never backward integrated into microprocessors which were supplied exclusively by Motorola. It also developed own Operating system and bundled it with Mac, own application software and peripherals like printers.

Premium price strategy

Apple provided the complete desktop solutions for its customers, including hardware, software, and peripherals that allowed customers to plug and play. On the other hand, customers found it difficult to handle IBMs PC. Customers were, hence, more attracted towards Apple, products. This easy to use strategy allowed apple to sell its products at a premium price.

Offensive strategy
In 1990s Apple planned to compete head-to-head with low priced IBM clones to become a low cost producer of computers with mass market appeal. For this, Apple launched Mac classic and one year later it again launched the Powerbook notebook.

Targeting price sensitive segments

Apple always offered premium price to its customer that could not be afforded by middle class customers. For the first time, in almost a decade, Apple launched Mac Mini to target price sensitive customers.

Differentiation strategy
Apple prides itself on its innovation. When reviewing the history of Apple, it is evident that this attitude permeated the company during its peaks of success. For instance, Apple pioneered the PDA market by introducing the Newton in 1993. Later, Apple introduced the easy-to-use iMac in 1998. It released a highly stable operating system in 1999. Apple had one of its critical points in history in 1999 when it introduced the iBook. This completed their product matrix, a simplified product mix strategy formulated by Jobs. This move allowed Apple to have a desktop and a portable computer in both the professional and the consumer segments. The matrix is as follows:
Professional Segment Consumer Segment

Desktop Portable

G3 PowerBook

iMac iBook

In 2001, Apple hit another important historical point by launching iTunes. This marked the beginning of Apples new strategy of making the Mac the hub for the digital lifestyle. Apple then opened its own stores, in spite of protests by independent Apple retailers voicing cannibalization concerns. Then Apple introduced the iPod, central to the digital lifestyle strategy. Philip W. Schiller, VP of Worldwide Product Marketing for Apple, stated, iPod is going to change the way people listen to music. He was right. Apple continued their innovative streak with advancements in flat-panel LCDs for desktops in 2002 and improved notebooks in 2003. In 2003, Apple released the iLife package, containing improved versions of iDVD, iMovie, iPhoto, and iTunes. Apple continued its digital lifestyle strategy by launching iTunes Music Store online in 2003, obtaining cooperation from The Big 5 Music companiesBMG, EMI, Sony Entertainment, Universal, Warner. This allowed iTunes Music Store online to offer over 200,000 songs at introduction. In 2003, Apple released the worlds fastest PC (Mac G5), which had dual 2.0GHz PowerPC G5 processors. Product differentiation is a viable strategy, especially if the company exploits the conceptual distinctions for product differentiation. Those that are relevant to Apple are product features, product mix, links with other firms, and reputation. Apple established a reputation as an innovator by offering an array of easy-to-use products that cover a broad range of segments.

Strategic alliances
Apple has a history of shunning strategic alliances. In 1987, Sculley refused to sign licensing contracts with Apollo Computer. He felt that up-and-coming rival Sun Microsystems would overtake Apollo Computer, which did happen. Then, Sculley and Michael Spindler (COO) partnered Apple with IBM and Motorola on the PowerPC chip so as to leapfrog the intel based platform. Apple and IBM also formed a joint venture, Taligent to create revolutionary new operating system. The two companies formed another joint venture called Kaleida to create multimedia applications. But the prospects for a breakthrough faded fast and Apple & IBM parted there ways.

Apple turned the corner in 1993. Spindler begrudgingly licensed the Mac to Power Computing in 1993 and to Radius (who made Mac monitors) in 1995. However, Spindler nixed Gateway in 1995 due to cannibalization fears. Gil Amelio, an avid supporter of licensing, took over as CEO in 1996. Under Amelio, Apple announced the $427 million purchase of NeXT Software, marking the return of Steve Jobs as an adviser. But, market share for the software remained low and it lost $1.6billion. Amelio resigned and job became the new CEO. Jobs despised licensing, calling cloners leeches. He pulled the plug, essentially killing its largest licensee (Power Computing). Apple subsequently acquired Power Computing customer database, Mac OS license, and key employees for $100 million of Apple stock and $10 million to cover debt and closing costs. The business was worth $400 million. A massive reversal occurred in 1997 and 1998. In 1997, Jobs overhauled the board of directors and then entered Apple into patent cross-licensing and technology agreements with Microsoft. In 1998, Jobs decided to divest significant software holdings (Claris/FileMaker and Newton). Apple continued its restructuring and outsourcing. For example, company outsourced the manufacturing of iMacs to Foxconn electronics, a Taiwan based assembler. Finally in 2005, Apple announced its partnership with Intel and began producing two products with Intel Core Duo chips. These Intel Mac machines were: updated iMac, and Mcbook pro, a replacement of Powerbook. Other alliances of apple included, Starbucks coffee shop where the iTunes wi-fi music store is available, Adobe that provided Mac versions of Adobe photoshop, Epson that provide driver support for Apples printer and scanners, etc. There is economic value in strategic alliances. In the case of Apple, there was the opportunity to manage risk and share costs, facilitate tacit collusion, and manage uncertainty.

Retail strategy
In 2001, Apple opened its first retail store in Virginia. By the end of 2005, it had opened 135 stores in US, Canada, Japan and UK. Apples retail division resulted in 17% of its revenues. This is because Apple now reached large no. of consumers. The store also allowed the sales people to cross sell them a computer to go with their iPod. Many of the customers switched from windows to Mac. The sales were high and the revenue came to $6.275billion, for a year over year increase of 27% in 2005.

STRATEGY MAP:
FINANCIAL PERSPECTIVE After 5years of turmoil, due to the proper implementation of strategies like product differentiation, diversification, retailing, etc, Apple finally was riding high. In the fiscal year of 2005, it posted $1.3 billion in sales and recorded an opening margin of 11.8%. its sales had grown at a compound annual rate of 2% since 2001.

CUSTOMER PERSPECTIVE Apple inc. has always taken care of their customers. Their user friendly software and plug & play system has retained their existing customers and attracted the new ones also. Depending upon the customer demands and needs, Apple introduced various products like iMac, iPod, computers with intel core duo microprocessor, and the latest is iPhones. For the customers to get better access to the newly launched products Apple adopted the retail strategy. Customers are satisfied with the products and are loyal towards this brand even when the prices are high because they are getting quality that is worth paying.

INTERNAL PERSPECTIVE Internal perspective is where Apple lead others. Its terrific technology has resulted in cutting edge performance. Around 5-9% of sales is used for R&D. Companys efforts can be seen with the introduction of iPods, iLife, iPhones, etc. Along with the long term plans Apple believes in short term plans as well. It introduces new technologies after 6months or once a new year that brings revolution in technological field. For eg. Apple introduced Mac classic and one year later it introduced Power book notebook.

LEARNING AND GROWTH PERSPECTIVE

The company has been through many difficult phases especially the years 1993-1997. During these years the company was losing momentum. Its sales were dropping; Apple reported $69 million loss during 1993-1995 and $1.6 billion during 1996-1997. Apple learned from his own mistakes and for further improvement implemented various strategies like- partnership with Intel, Adobe, Epson; outsourcing of iMacs; retailing in US, UK, Canada & Japan; technological leapfrogging through iLife, iTunes, iPods, etc.