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Jorge Gonzalez

Nathan Ong
Merveille Kazimoto
Kelsey Pearson
Grant Richman
Apple Case Midterm
Introduction
Apple Inc., a manufacturer and designer of hardware devices, software, online-services
and third-party digital content, has seen incredible growth since its inception in 1976. The
company acquired its reputation under the leadership of its founder and CEO, Steve Jobs, who
had a revolutionary vision to create products known for quality, design, and most importantly,
innovation. Jobs led the company through the release of a series of breakthrough products such
as the Mac, iPod, iPhone, and the iPad, all of which were game-changers within their respective
industries. Apples products were known for the simple, minimalistic design of their hardware
and software, with a focus on a uniquely practical user interface. Apple began to gain significant
momentum in the marketplace with the introduction of the highly successful iPod in 2001. By
2007-08, Apple had achieved a leading position in the market of digital music players, selling
over 100 million iPods and netting over five billion downloads from its iTunes music store. The
following year, Apple introduced the revolutionary iPhone. With its unique touch-based interface
and ability to host an unlimited number of third-party apps, the iPhone fundamentally changed
the mobile platform. It was wildly successful, immediately becoming Apples number-one
revenue generator. Soon after, Apple released the best browsing experience yet in the iPad, a
tablet based on the same multi-touch interface seen on the iPhone. However, with the passing
of Steve Jobs in 2011 as well as growing competition from Amazon, Google, Microsoft, and
notably Samsung (the new leader in market share for smartphones), Apple must find a way to
sustain its competitive advantage.

Financial Analysis
Net Sales Analysis:
Apples revenue structure has shifted from 2008-2012. In 2008, revenues from Mac and
iPod products were the highest at 38.29% and 24.41%, respectively.
By 2012, revenues from iPhone and Services and iPad and Related Products were
the highest at 51.42 percent and 20.71 percent, respectively. At the same time revenues
from Mac and iPod sales were at an all time low.
As the dominant product in Apples portfolio (generating the most revenue), sales of the
iPhone have a major effect on the companys net sales.
o This segment would be considered a Red Ocean, with a high amount of competition
within the segment and many substitute products available to consumers.

Net Sales Analysis by Product between 2008 and 2012


Mac net sales increased by over 162%
iPod net sales decreased by 61.35%
iPhone net sales increased by 1,194%
iPad net sales skyrocketed within 2 years by 654%
Marketing Strategy
Apples marketing strategy is built upon the companys emphasis on innovation,
minimalist design of hardware and software, and more recently, luxury and style.

STP of Apple: Marketing Strategy/ USP


Apple is positioned as a premium brand that demands a high price but provides
customers with an easy-to-use, high-quality, and beautifully designed product. The company is
targeting a less price-sensitive customer that is more concerned with owning the best product.
Apple prides itself most of all in changing the world by creating the most innovative, game-
changing products that were also thoughtfully designed and optimized for their intended
functions.

5Cs of Apple:
Customers: Apples products appeal to a variety of groups with different demographics.
Overall, its products are catered toward middle/upper-class customers who are youthful, tech-
savvy and have a higher willingness-to-pay for premium products. Apple devices such as the
iPad are further being integrated into the business community due to their ubiquity and
familiarity with workers, who are often consumers as well. The iPads unique app-based
platform allows companies to develop their own apps that cater specifically to functions that they
need performed.

Competition: Samsung, Microsoft, Google, Amazon, Blackberry, and Nokia have attempted to
take market share away from Apple:
DellHardware
GoogleTechnology
Microsoft operating systems
Samsungmobile phones

*in ranking order High Quality Low Quality

High Price 1. Apple 1. Palm


2. Google
3. Blackberry
4. Microsoft
5. Samsung

Low Price 1. Dell 3. Nokia


2. HP
Collaborators:
Microsoft- collaborated to make Microsoft Office application compatible with Apple
Products
LG- LCD Panels for iPhones
Samsung- Chips used in the iPhone.
TSMC- DRAM & Flash Memory
Music Companies- Partnered with music label companies and artists to release and sell
on iTunes
Foxconn- Competitive pricing is enabled by the low production costs from outsourcing to
FoxConn in China.

Company:
Strengths Weaknesses
-Leading innovator in the market -High price for products compared to other top
-Leaders in research and development companies
-Strong brand awareness, -Doesnt work well with all other (non-Apple)
representation, and reputation additional applications
-Strong customer loyalty -Many changes in management, clash of different
-Excellent marketing and advertising CEOs and company cultural norms
strategies -Main supplier issues
-Positioned in an accelerating growth -Steve Jobs was the leading innovator for Apple
market
-California based company, an American
product

Opportunities Threats
-Continued growth and market interest in -Economic instabilities
the tablet and iPhone appliances -Other companies are catching up to Apples
-No restrictions in market innovation innovations
-Ability to target market segments -The start-up of foreign companies that are
desires for innovation coming out with lower market prices
- Expansion to more international -Product differentiation is decreasing with the
countries increase of new product releases by competitors
-Increase of government restrictions

Context: More so than at any time in the past several years, Apple has had to deal with
competition that has begun to close the gap of differentiation that Apple had created through its
products. Continuing legal action between Apple and competitors has the potential to cost the
losing side a significant dollar loss. In the international market (particularly Asia), Apple deals
with entrenched loyalty to local brands offering similar products. Additionally, tariffs make
already-expensive Apple products even less viable to consumers in developing markets like
Brazil. The existing Apple products have come to a near plateau in developed markets, so
Apple must rely on continued innovation, new products, and new markets in order to continue
expansion.
4Ps of Apple:

Products: Mix of innovative products: iPod, iPhone, iPad, and Mac. Apple also utilizes an
operating system that can be used across all Apple products.

Price: The high prices of its products and services reinforce the companys premium brand
image. Apple sets the price of each product in its respective industry.

Place: Convenience of online-shopping at apple.com. Apple products can also be purchased at


third-party retail stores and Apple stores. The shopping experience at Apple stores is
differentiated with remarkable customer service, the Genius Bar for product troubleshooting,
and hands-on display of the companys entire product line.

Promotion:
Products have generally sold themselves
Traditional advertisements (TV, print, billboards, iPod people)
Word-of-mouth
Cult of Apple: Loyal customers who buy all Apple products upon release
Keynotes: Press conferences and events where Apple announces/unveils new products,
product redesigns and upgrades. Keynotes generate buzz over products, which gives
Apple free advertising until the products official release dates.

Key Takeaway: The key aspects of Apples marketing strategy consist of innovation, design,
and excellent customer service. Apple has developed itself around the success of these key
marketing strategies. In order to maintain this success, Apple needs to continue to invest in
research and development so it could continue being the leading innovator in the market
segments.

Individual Product Branding/Launch Strategy

iPod Launch Strategy


Product Role: Silver Bullet

Strategy: Create a revolutionary product in the form of an incredibly portable digital music player
based on the MP3 music format with a simple user-interface.

Target Segment: The target segment for the iPod was tech-savvy young people who prioritized
listening to music on the go. The product also had a psychographic segment of individuals with
a passion for music and style, and it made a statement of youthfulness with its edgy, compact
design
Implementation: Apple used strong marketing and advertising strategies to promote the iPod.
This involved creating the iPod People campaign to iconize the product. The release of the
iTunes store in 2003 further complemented the iPod. iTunes was an easy way to download and
own songs for only 99 cents.

Performance: Within the first six years, over 100 million iPods were sold, with a profit margin as
high as 47.4%. By 2010, there had been over 10 billion iTunes downloads.

Takeaway: The iPod was a key innovation that single-handedly boosted Apples profit margin
and turned its downward trajectory toward an upward trend of success. Furthermore, it was the
precursor to other innovations such as the iPod Touch, iPhone and the iPad.

iPhone Launch Strategy


Product Role: Expanded Apple into the mobile phone market, revolutionized the concept of the
smartphone.

Strategy: Introduce a new product into the mobile phone market with revolutionary touch-based
interface and app-based platform.

Target Segment: The iPhone targets the younger population that ranges from 18-35 years of
age who are image-conscious, social, tech-savvy, and educated. Many of these individuals
primarily use their phones to socialize, for school, and for work.

Implementation: To bring Apples new product into the cellular device market, the company
partnered with AT&T. The new product, the iPhone, had a unique touch-based interface and a
revolutionary operating system that delivered nearly all of a computers functions in a package
that also housed a phone and an iPod.

Performance: In 2010, with the release of the iPhone 4, Apple had captured 17.4% of the
smartphone market, with an 82% sales growth since 2008. The iPhone is currently the number-
one revenue generator for the company, responsible for over 50% of Apples revenues in 2014.

Takeaway: The iPhone successfully dominated the smartphone market and revolutionized the
expectations for future smartphone products for both Apple and its competitors.

iPad Launch Strategy


Product Role: Bridge gaps between iPhone and MacBook, Third category device

Strategy: To bridge the gap between the iPhone and MacBook laptops by introducing a new
product optimized to browse the web, read publications, utilize apps, and watch videos.

Target Segment: While still maintaining functional appeal to all Apple customers, the iPad
helped open up Apples target segments to include education and entertainment for young
children, college students, and companies.
Implementation: The iPad introduced a new browsing experience of the web. Unlike the iPhone,
the entire web page could be viewed via a high-quality 9.7-inch screen. Unlike the Mac
computer, the functions are performed via the multi-touch functionality first introduced on the
iPhone.

Performance: Prices for the iPad ranged from $499 to $829, which were lower than consumer
expectations. However, there was a fear that the iPad would cannibalize the market for other
Apple products, including the iPhone, iPod, and Mac notebooks, by around 10 percent.

Takeaway: Apple had a monopoly until products from other companies emerged. However,
Apple had a patent competitive advantage, by establishing itself as the first truly major player in
the tablet market.

iPad Launch Strategy vs. iPod/iPhone Launch Strategy


Unlike the iPod and iPhone, which held clear roles within the Apple product portfolio, the iPad
entered the market in an awkward position between the iPhone and MacBook laptops.
Consumers automatically questioned the need for such a niche product. Steve Jobs needed to
convince customers that not only did they need the iPhone and a Mac, but also the iPad. The
iPod and iPhone already held very practical uses that the consumers could derive themselves,
but the need for the iPad needed to be explained, which is why Jobs constantly mentioned in his
keynotes that the iPad was a better browsing platform out of the three devices. Furthermore,
Jobs promoted the launch of exclusive iPad-only apps that would showcase its usability in
different fields.

Timeline of Product Roles from 2001-2010


2001-2003
The iPod helped Apple revolutionize its future products and create a competitive edge in the
market place. With the introduction if the iPod came a wave of new costumers who werent
already Apple Mac owners. The iPod capitalized even more of the music device product market
when the iTunes store was introduced in 2003. Lastly, the iPod turned Apple into a recognizable
brand, and ended up creating a high-level of brand loyalty.

High relative market share


iPod High growth rate
Low relative market share
Mac Low growth rate
2007
The introduction of the iPhone increased Apples popularity. After the iPhone release, iPod
sales dropped because the iPhone was a single device that served all of a customers needs,
and absorbed every function that the iPod already performed. Because of this, the iPhone
ended up taking away from iPod sales. In fact, the iPod showed a steep decline from a peak of
55 million units worldwide in 2008 to only 14 million units sold in 2014. That same year, Apple
sold more than 10 times as many iPhones.

High relative market share


iPhone High growth rate

Medium relative market share


iPod High growth rate

Medium relative market share


Macs Medium growth rate

2010
In 2010, the iPad was introduced as Apples next game-changing product. The iPad introduced
a new market, a third device for Apple consumers to own in addition to their iPhones and
MacBooks. Apple convinced consumers that they need the iPad because it offered the best
browsing experience, better than the iPhone and more portable than a laptop. The iPad was
wildly successful, occupying 68% of the tablet computer market.

High relative market share


iPhone High growth rate

High relative market share


iPad High growth rate

Medium relative market share


Macs Medium growth rate

Low relative market share


iPod Low growth rate

Key Takeaway:
Market segments are not stagnant, and they change with the varied changes in customer needs
and desires. Not only do customer preferences change, but also there are drastic changes and
advances in technology that Apple has to keep up with. Because of these variations and
changes, it is inevitable that there would be preference changes with Apple products as well.

Apple Watch

Consumer Market Analysis


Segmentation: Apple focused on the young to medium age-range (16-40 years old) in its
segmentation for the Apple Watch. With a price ranging from $499 to $17,000, Apple is also
aiming for a medium to high-income consumer demographic.

Targeting: The typical profile for an Apple Watch owner is a tech-savvy, health-conscious, and
stylish individual, particularly one with an existing suite of Apple products at home. In fact, the
Apple Watch was designed to work in conjunction with the iPhone.

Positioning:
Analyzing the competitors: The category of uber smart watches is fairly new, with electronic
companies launching devices in 2014 and many of which catering to work with Android
software.

Taking the perceptual map of competitors in the market and their market analysis as
seen above, it can be seen that companies like Motorola and LG have a fairly strong hold on
consumers minds due to their vast extent of features and aesthetic looks that resemble a
normal watch. However the extent of simplicity of use and accessibility of vast Apple
accessories and design places it slightly above the scale in the segment.
The greatest advantage of the Apple Watch is the wide range of options for
personalization, as well as its seamless integration with other Apple products. However, the
significant difference in price range between the Apple Watch and its competitors may not
compel customers to buy it.
4Ps of the Apple Watch
Product Price Promotion Place
- strong integration with a - $499 to $17000 - international scale by - Apple store
healthy lifestyle by keeping - cutting edge, high Tim Cook - general retailers
track of the users quality, and high - uses social media - online market
progress, monitoring their value product - detailed video on
fitness, and providing goals Youtube shows
(Apple, 2015) specification of the
- watch comes in three watch
collections and features - internet advertising
two case sizes - word of mouth to appeal
- vast variety of straps to the younger market
- embracing individuality

Apple Pay
Apple Pay is a mobile payment and digital wallet service by Apple that allows users to
make payments using the iPhone 6, iPhone 6 Plus, Apple Watch-compatible devices (iPhone 5
and later models), iPad Air 2, and iPad Mini 3.
Apple Pay becomes another brand that consumers will think of when they purchase,
similar to a PayPal experience today. While the consumer has to indicate which account he/she
is using to buy, the overriding wallet account is always Apple Pay. This allows Apple to accrue
customer loyalty and grow their perceptions of security protection.
Different banks and credit cards offered promotions to entice users to the cool factor of
Apple Pay. Wells Fargo, for example, offered $10 to its debit card customers and $20 to its
credit card customers who made a purchase with Apple Pay up until January 1, 2015. Visa
offered a promotion to its clients for sharing their first Apple Pay purchase on Twitter, Facebook,
or Instagram, which entered them into daily contest for a $500 Visa gift card. MasterCard
teamed up with Gwen Stefani to promote Apple Pay, providing customers with rewards like
private performances and unique experiences. Chase offered a limited time incentive to entice
its users to sign up for Apple Pay, providing a free David Guetta album to users who added a
Chase Visa card to Apple Pay between certain dates.
Though in its early days, Apple Pay has already started facing competition in the mobile
payments industry, particularly the Merchant Customer Exchange (MCX) which is forging a
competing system known as CurrentC. Several members of CurrentC, big names such as Best
Buy and Walmart, have initially rejected Apple Pay as a result of exclusivity deals. CVS
Pharmacy and Rite-Aid subsequently disabled all NFC payment systems in favor of CurrentC as
well. In addition to this, getting retailers equipped to actually accept Apple Pay transactions is
another major challenge that Apple has to deal with.
Leadership
Jobs vs. Sculleys Strategies

Jobs Strategies
Strategy: Steve Jobs was obsessed with producing high-quality products and revolutionary
design. In creating his products, Jobs emphasized technical elegance, industrial design and
ease of use; user-friendly functionality. Jobs hired British designer Jonathan Ive, who became
the head of Apples in-house Industrial Design group and was chiefly responsible for the
beautiful design of the companys products. Jobs vocally and ideologically opposed the group-
think mentality, once saying that its better to be a pirate than join the navy. Steve Jobs
mentality established a company culture among employees focused on changing the world.
Furthermore, Jobs focused on pushing the company to innovate, also famously saying that
innovation distinguishes between a leader and a follower. His strong drive towards innovation
is what has ultimately differentiated Apple most from its competitors.
Along with an emphasis on innovation, Jobs further restructured Apple by outsourcing
manufacturing to Taiwan and scaling down the distribution system by ending relationships with
smaller outlets. He increased direct Apple sales by launching a new website to increase direct
sales of Apple products and creating unique retail stores, as well as a build-to-order
manufacturing strategy.

Rationale: Jobs was focused on differentiating Apple by emphasizing design and user-interface.
He began with designing the Macintosh to be the best personal computer, something that was
easy to use and appealed to the everyday consumer. The theme of ease-of-use for the
everyday consumer continued on with the iPod, iPhone, and iPad. Jobs wanted to eradicate any
trace of groupthink because he felt that it was counterproductive to the companys drive to
innovate and think different.

Results:
Under Jobs leadership, several revolutionary products were brought to market:
The iPod/iTunes revolutionized how people listened to and purchased music
The iPhone basically created the mobile platform (apps etc.) and invented the idea of the
smartphone.
The iPad revolutionized how people browsed the web
Because of Jobs emphasis on creativity and innovation, not only did Apple actually innovate
more than any of its competitors, but it also spent the least on R&D (2.24% of revenues in 2011,
which equals $2.4 billion) in comparison to its competitors (Microsoft: 12.93% of 2011 revenues,
totaling $9.0 billion) (Google: 13.62% of revenues totaling $5.1 billion). Apple became the most
valuable public company of all time, reaching a peak market cap of $700 billion in February
2015.

Sculleys Strategies
Strategy: Sculley redesigned Apples business strategy under Jobs by attempting to reduce
costs. Products were no longer high-priced because Sculley transitioned Apple into producing a
low-cost product with a mass-market appeal in order to directly compete with IBM.
Rationale: Sculley believed that high cost of products prevented future growth for a company.
Lower prices would open up a new target segment that was more price-sensitive but still wanted
to experience Apples innovations and style. In other words, Sculley rationalized that
affordability was more important to customers.

Results: Sculleys strategy was a blatant failure that resulted in dismal sales and declining net
income. The brand image and mystique of Apple had nearly disappeared. With the face/brains,
of Apple gone, Microsoft leapt ahead with its GUI based operating system.

Is Apple the same without Jobs?


Apple will never be the same without Steve Jobs, its chief visionary and innovator. Jobs was
a leader and personality that defined Apples culture of innovation and thinking differently, one
who had the vision to create products that would change the world. Ultimately, this is what
would set Apple apart from its competitors, which began competing with Apple by creating their
own versions of Apples revolutionary products. Under the leadership of Tim Cook, the
companys new CEO, Apple has seen continued success, and in the eyes of consumers, it still
has the same mystical, revolutionary brand image that Jobs had left behind. The question of
whether Apple will still be able to be revolutionary, however, is a difficult one to answer.
In the years since Jobs passing, Apple has continued to grow in both sales and profitability,
becoming the highest-valued company on Earth and reaching revenues that it had never seen
before. Much of this continued success can be attributed to Jobs pride and joy, the iPhone. The
legacy that Jobs left behind in the form of the revolutionary products that he spearheaded will
continue to maintain Apples financial success in the near future. Furthermore, Apple still has
Jony Ive, the companys Chief Design Officer. Ive has been responsible for much of the
beautiful design of Apples products, a key focus in Apples product strategy. As long as Ive
remains with Apple, beautiful design will continue to be a major aspect of the companys USP.
For this reason, we would still buy Apple stock right now, betting on the continued growth of the
companys already-successful product portfolio.

Future Plans for Apple


Future Business Options for Apple

Management Strategy
Problem/Question:
How show Apple respond to the constant pressure of advancing competitors?
Where is Apples future growth going to come from?
Mission:
Apples main mission is to maintain a competitive edge in the market.
Objective:
Apples goal is to improve the positioning of its computer and cellular devices, become
the leading competitive brand for those devices, and continue to be the leading brand for
music devices
Company Problems/Issues:
The market segment that Apple is competing in is growing exponentially, so Apple must
be sure to keep up with the changing technology market
There has been an increase in the number of competitors, and these competitors have
closed the distance between their products and Apples
There is a tandem management and perception issue associated with the loss of Steve
Jobs as a visionary and as a figurehead

Business Strategy Options


Option One: Pause
Stop and take time to reposition management without the need for Steve Jobs
leadership and power ideas

Pros Cons

Encourages Apple employees to Removes the Steve Jobs iconology


innovate which will help break Apples of the Apple brand, Apple relies
reliance on Jobs for the next big heavily on its unique brand position
thing Does little to address current threats
Will show that Apple is more than just posed by rising competitors
Jobs, and that Apple can still be a
leading competitive company without
his help

Option Two: Product Expansion Up, not Out


Increase vertical growth of innovation instead of expanding outward and stretching its
resources too thin
Instead of creating more innovations and products, Apple could focus on upgrading their
pre-existing systems.
Refurbishing older products
Building innovation based on already-existing products
Instead of tailoring the products for personal/individual use, Apple could expand to help
businesses, organizations, or educational uses (Similar to Google and Microsoft)
Outsource more services
Pros Cons

Will lower the costs of research and Loses the innovation of new
development products, USP
Will have better and faster operating Loses brand positioning
systems within current product lines Doesnt follow Steve Jobs
Breaks up some responsibilities like revolutionary image of the company
marketing development Breaks one of the core value ideas by
keeping sources internal
Focuses predominantly on market
maintenance and turns away from
growth, a purely defensive strategy
Option Three: Innovation
Diversification growth strategy
Continue finding the next big thing
Continue to make revolutionary improvements to current product lines.
Capitalized on Apples strength of innovation and diversify into other markets
Pros Cons

Apple does the best (in terms of profit) High research and development costs
when it comes out with new products High marketing costs
and continues to innovate Risk of failure would have a greater
Continue being known as a leading impact on company image
innovator Greater frequency of failure
Already have strong brand
representation
Ride off customer loyalty
Continue using companies strong
R&D and marketing skills
Will have possible long term benefits

Recommended Strategy
The recommended strategy for Apple to take in order to maintain its growth in the future is to
continue to focus on innovation. There exists an assumption among many consumers that
Apples ability to innovate died with Steve Jobs. It is imperative for Apple to disprove this
assumption and maintain its brand image as a company that, more than anything, innovates
and creates revolutionary products. Innovation has defined Apple through the years and has
been the main differentiating function for the company. In order for Apple to continue to wow
consumers with game-changing products, the company must take advantage of its immense
amount of assets and continue to invest in R&D, and, most importantly, in new thinkers who
could take the company in new directions.

Is Apples advantage in the iPhone and iPad categories sustainable in the near future?
Apples advantages in the iPhone and iPad categories are very sustainable in the near future.
Apple essentially had the first-mover advantage when bringing both of these products to market;
before the iPhone and iPad, there were no remotely comparable smartphones or tablets. Both
were revolutionary products that defined their respective segments and have a very loyal
customer base (the Cult of Apple), especially the iPhone.
Importantly, Apple has a consistent, uniform multi-touch user interface and operating system
that is seen in both the iPhone and iPad. Customers who are familiar with this interface (many
of whom have been using Apples mobile operating system through several generations of
Apple products) will be more inclined to stick with it, rather than making the big switch to
Android, for example.
Furthermore, Apple also designed a very seamless integration of different functions across
devices. It is easier to have a family of Apple products that communicate with each other. For
example, the same documents, photos, and music could be easily accessed from any device
through iCloud. In a sense, Apple has created a structure of interdependency between its
devices, locking customers in. According to USA Today households that own an Apple product
own an average of three. Overall, there are 1.6 Apple devices per household. Since 2007,
iPhone sales have seen a strong rise, from 1.4 million units sold globally in 2007 to nearly 170
million units worldwide in 2014. The first and second quarters of 2015 have already seen sales
of 135 million units worldwide. (See exhibit below) The upward trend of sales shows that 2015
might see the highest iPhone unit sales to date.The iPhones market share in the urban Chinese
market has seen a significant spike from November 2014s 18.1% to 27.6% in February 2015,
thanks in part to growth in China Mobiles 4G network. The iPhones proven success in China is
notable because China is a growing, large-volume market. Beyond individual consumers, Apple
is cementing the iPads foothold in the corporate community