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Case Analysis: Apple Inc., 2008
XLRI GMP 034
1) Competitive Advantages:
-Design and innovation oriented
-Greater horizontal and vertical Integration
-Designing from scratch to finish bundled with applications and peripherals.
-‘’Plug and Play” solutions
-An everything ready device
Operations Marketing/Sales Service
Alliances with Design & Horizontal & Plug and play I-tunes gives a
major suppliers Innovation vertical solutions major edge
Linkages with Technology Complete bundle Operating system
independent Driven of applications more secure, and
software vendors less prone to virus
Collaborating I-pod—I-tunes Apple’s retail
with other combo gives experience, new
leaders. brand awareness mac consumers
a push. bought more.
Apple has been able to command a premium in the market and gain above average returns owing to
its innovation and differentiation of technologically superior products. This learning and innovation
in its products has led apple to leverage its expertise in the i-pod,i-phone, i-tunes, i-works suite of
products. Over due course of time Apple has been able to perfect the chain of activities in
Innovation and design leading to a fit between the activities which is difficult to imitate and hence
offers them an edge over competitors.
New products: Ideation Designing/funding Product Creation
2) Analysis of the PC Industry based on Porter’s 5 Forces.
Power of Power of High
-Current Rivalry: Very intense and fierce and the PC industry also has very low switching
costs. This makes current rivalry very high. Apple faces stiff competition from Dell, HP, IBM
-Threat of new Entrants: Since there are considerable investments to be made for setting up
this industry, new entrants would be reluctant. Though there is scope for White-box PC’s
having a share of 36% world -wide in 2006, but since the existing companies have created
strong branding awareness, this threat would be low.
-Bargaining power of Suppliers: Two types of suppliers- microprocessors and OS: very few
suppliers but memory chips, keyboards, disk drives: many suppliers. Suppliers will adjust
pricing and quality to make their products more attractive so competition is high leaving
them in a low supplier power position.
-Bargaining power of buyers: Switching costs are low. This situation places the buyer power
in a strong position that can only be countered by companies with strong product
differentiation that would increase the switching costs
-Threat of substitute products: The more differentiation of product the less likely the switch
to a substitute will occur. If prices are higher then the company with the higher price has to
provide justification for the increase. Apple's operating system differentiation can command
higher pricing when it is presented to the creative designer community but not to the
individual computer buyer unless they are specifically looking for such enhanced
Overall the PC Industry is a very competition intense sector and with technology undergoing
paradigm shifts, coping with these changes can make life difficult for the players in the
These dynamics do not look favourable for Apple, but at the same time Apple has been able
to manage to retain its technologically savvy and designer approach to come out of this
quagmire. Apple could convert some of these problematic features into opportunities by
looking at its SWOT analysis which is discussed further.
3) Apple’s difficulty in the PC industry.
-Brand awareness/ Halo effect from the i-pod to the PC
-Product differentiation- The system continues to be strength for the company since
its closed operating system is not subject to the computer viruses and hacking that affects
the Microsoft Windows operating system.
-Complete package of hardware and software-enabling plug and play and
aesthetics by designing unusual shapes for its computer chassis.
-Heavy Investment in Research- As compared to other players this forms a major
cost for Apple.
-Not a lean operations management- Unlike Dell, where the forecasting is accurate
and inventory costs are minimal, Apple has to bear the cost of components and parts that it
-Not completely independent- Apple is reliant on Motorola and IBM for processor
chips so if these companies run short or increase the price on the chips Apple must either
absorb the cost or pass it along to consumers. Either of the two scenarios is can make Apple
-Taking Microsoft head-on with its image- Apple has always come up with
innovative ways to ridicule and expose the shortcomings of the Microsoft OS- Reference:
http://in.youtube.com/watch?v=FxOIebkmrqs. Apple should finally take the plunge and go
all out with its brand image to attack Microsoft.
-Taking advantage of the MAC OS-Since the Mac OS is seen as a safe, reliable and
secure system, apple should leverage the differences over competing OS. The latest launch
of its Leopard-OS received rave reviews with sales totalling 4 million copies, and creating
20% of the Mac installed base.
-The i-pod-i-tunes combo- The halo effect of the i-pod needs to be capitalised to the
Apple started off as a straight out of the box machine which was easy and simple to
use. When IBM-PC entered the market in 1981, Apple was confident of its position owing to
its proprietary designs and graphics. But this “closed” system was their undoing, as the IBM-
PC started to spawn clones, who started to collaborate.
With windows 3.0 the ease of the apple products was questioned, and apple was
also burdened with maintaining high costs required for research for premium computers.
In 1991 alliances were being forged IBM, which did not materialise later. Shifting
manufacturing costs were also not enough to sustain profitability.
The frequent changes in strategies were responsible for some of the problems that
Apple found itself in. What Apple needed to realise was that it was actually operating in a
Niche market of premium and high end PC’s and it was earning handsome profits per unit
sold, but its penetration was an issue.
Closed system of the Apple Mac,
Frequent changes of strategies and
application software not easily
leaders at the helm
Reasons for facing
Niche market operator, less Premium segment, research
penetration oriented, hence costly
4) Apples Mac business:
In his second stint with Apple as CEO Steve jobs had his task cut out. He had to turn around
the Apple mac business and he undertook multiple steps to achieve it.
-Agreement with Microsoft to invest $150 Million in Apple
-Macintosh licensing program was abolished, thus restricting clones and cannibalizing
-Consolidated product range from 15 to 3
-Launched the iMac, plug and play with multiple colours
-outsourcing and restructuring, while expanding to national chains
-Direct selling through website and streamlining operations
-Pared down inventory and increased spending on R&D
-Re-energized apples image as a hip brand
Notebook Products Launched:
Technology and Innovation:
-Integrated with the Intel platform
-Mac users able to operate both windows and Mac based applications
-Leopard OS launched
-Built independent applications (iLife suite)
-Web browser Safari
-MS-Office suite for MAc
Distribution and Sales:
-Retail stores opened
-Collaboration with Best buy
-i-Pod halo effect benefitted sales
Owing to all these measures, the Mac sales grew thrice as fast as the overall PC market,
which increased by about 14% in 2007. Apple had become the third-largest PC maker within the US
market with a market share of 8.5%. But to continue the robust trend of the Mac growth saga, Apple
will need to look outward. Since the US market is not growing at a great pace, Apple will have to look
at the emerging asian markets and tap its potential.
5) Sustainable competitive advantage:
As Apple is operating in a Fast-cycle market in which the firms capabilities that contribute to
competitive advantage aren’t shielded from imitation and where imitation is often rapid and
inexpensive, its strategic decisions need to be undertaken quickly and in an effective manner.
The i-pod-itunes business has been a spectacular success for Apple. The Razor/Blade strategy in
Apple’s case is even more profitable unlike in the case of a printer-toner relation, as in Apples case
its a reverse Razor/Blade, and the returns will be even higher for Apple, as it is the devices like the i-
pod, i-phone which would require replacement.
Apple has always differentiated itself on its innovation and design, and the same is the case for the i-
phone i-tune combination. But this is not a competitive advantage which will last for long, and hence
Apple will have to adapt and offer new services to keep itself one-up from the competition. Steve
Jobs has perfected the art of coming up with a innovative product to keep this advantage from
falling over. It is difficult for firms competing in fast-cycle markets to maintain a competitive
advantage. However, Innovation plays a dominant role in the competitive dynamics in fast cycle
markets, and here is where Apple is able to leverage its skills.
Threats and Competitors:
6) I-Phone: Initial Strategy
Rationale to launch i-Phone: To integrate the i Pod with a mobile phone service and to
reinvent the phone as a multifunction communication device.
• 8GB $399, 16GB $499
• AT&T plan $59.99
• Service revenue sharing model
• No third party distribution
• Edge network 2-2.5G
• Battery life affected by 3G
• 19.5% share during first quarter
• Gray markets in China russia- a concern
• Los of service-share revenue
• 8GB $199 16GB $299
• AT&T plan $69.99
• Fixed premium model
• Best buy retail channel
• 3G bandwidth
• Google, youtube partnership
• i-tunes integration
• New application packages
• Launched in 22 markets
The initial launch of the i-phone at a high price band and with exclusivity around it was a
good move by Apple. The aura of exclusivity built a tremendous hype and expectation over
the launch of the product. The early adopters (Fad) were ready to shell out the price which
was definitely on the higher side. Apple capitalised on this and was thus able to offer better
prices in its second version.
Reasons for changing its strategy:
-Availability of 3G bandwidth and battery life upgradation
-Revenue-sharing model was not generating profit
-Price band was on the higher side, and the early adopters were not interested
-Retail channels were a better option than single distribution channel
-Exclusivity to carriers was affecting the growth
-By launching i-phone officially in 22 markets and making it available in 70 markets including
most of the countries which had a gray market presence, Apple is trying to safe-guard its
7) Strategies for India:
The demographics of India can be a major factor for apple to succeed in India. The cost
premium attached to apple products could play a hindrance, and hence Apple would have to
devise a cost leadership strategy while maintaining the product differentiation. Apple would
need to devise a Supply chain initiative to maintain its operation. The following segments
could be targeted by Apple.
- There is a huge demand for better processing powers in Business analytics and Market
research firms in India. Apple could target these companies, by demonstrating its
technical expertise over Microsoft.
- By leveraging its expertise in the education segment K-12, Apple could enter into tie-ups
with major educational institutes in India. This would lead to mass awareness of its
products, other than the i-pod.
- Animation is another segment which is picking up in India, Apple along with its
association with Pixar could become a huge hit in India, if it plans to launch its own
animation centre of excellence, and thus promoting the brand Apple.