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MARKETING -1 Aniruddha G B16128

Avinash Motamarri B16133


Deepak Mohta B16135
APPLE IPHONE Divya Saroja C B16137
Rakesh Santhapur B16157
SECTION-C (GROUP-7)

PRODUCT & IT’S COMPETITORS:

Our product is iPhone, it was first released in 2007 and in the last 9 years it has become the
largest selling phone brand in the world. However, the sales have become stagnant and the
market shares are dropping in certain regions due to newer and domestic companies like
Micromax, Oneplus which are taking advantage of the open source nature of Android to build
more value for money phones. Samsung has rejuvenated and giving tough competition in High-
end market. So, we are trying to understand the apple’s current position and develop a market
strategy which will help to regain its market position.

SITUATIONAL ANALYSIS
Market Segment:
Apple dominates the premium mobile market. The product chosen is the iPhone, Apple’s own
smartphone brand. Apple has been extremely profitable and still continues to be a trusted brand.
Apple has its own operating system, iOS which makes it distinct from its counterparts. However,
of late, Apple has lost its market share owing to the popularity of Android.

Market Factors:
Global sales of smartphones to end users totaled 349 million units in the first quarter of 2016, a
3.9 percent increase over the same period in 2015, according to Gartner, Inc. Smartphone sales
represented 78% of total mobile phone sales in the first quarter of 2016. By 2017, over a third of
the world’s population is projected to own a smartphone, an estimated total of almost 2.6
billion smartphone users in the world.

1Q16 1Q16 Market 1Q15 1Q15 Market


Company
Units Share (%) Units Share (%)

Samsung 81,186.9 23.2 81,122.8 24.1

Apple 51,629.5 14.8 60,177.2 17.9

Huawei 28,861.0 8.3 18,111.1 5.4

Oppo 16,112.6 4.6 6,585.1 2.0

Xiaomi 15,048.0 4.3 14,740.2 4.4

Others 156,413.4 44.8 155,561.4 46.3

Total 349,251.4 100.0 336,297.8 100.0

Exhibit-1: Global smartphone sales brand-wise division (thousands of units)


MARKETING -1 Aniruddha G B16128
Avinash Motamarri B16133
Deepak Mohta B16135
APPLE IPHONE Divya Saroja C B16137
Rakesh Santhapur B16157
SECTION-C (GROUP-7)

Observations:

1. Market size and growth: Mobile phone market is growing well as compared to many
other digital devices. The success can be attributed to two factors: One being the
versatility and multi-usage of smartphones. Emerging smartphones have in-built apps, in
addition to the usual calling and multi-media features. They are also more portable as
compared to PCs and tablets. Second reason is that they are affordable and user-friendly.
Share of smartphones in mobile phone market is 78% the highest growing segment. With
a revenue of $400.7bn in 2016 Q1 alone, smartphone market continues to be a very
attractive market despite slower growth.

Device Type 2015 2016 2017 2018


Traditional PCs (Desk-Based and
244 228 223 216
Notebook)
Ultramobiles (Premium) 45 57 73 90
PC Market 289 284 296 306
Ultramobiles (Basic and Utility) 195 188 188 194
Computing Devices Market 484 473 485 500
Mobile Phones 1,917 1,943 1,983 2,022
Total Devices Market 2,401 2,416 2,468 2,521

Exhibit-2: Worldwide Devices Shipments by Device Type, 2015-2018 (Millions of Units)

2. Stage in Product Life Cycle: The smartphone market is growing slowly. It registered a
7.1% increase in sales in 2016 over 2015, the first time a single-digit growth is registered.
The growth is reaching saturation worldwide with the exception of only few markets like
India where growth is on pace to reach 29 per cent in 2016 and will continue to exhibit
double-digit growth in the next two years. Another feature of Apple is that it invests a lot
in research to develop new and innovative products so that the iPhone brand competes
with the numerous players in the market. This is one way to delay the product maturity
stage in the market.

3. Seasonality: Seasonality is a characteristic of time series in which sales experience


regular and predictable changes which recur in every calendar year. In case of Apple, it is
a general trend that the iPhone sales tend to increase in the last quarter of each year
owing to the festive season. The sales again drop down by the next quarter.
MARKETING -1 Aniruddha G B16128
Avinash Motamarri B16133
Deepak Mohta B16135
APPLE IPHONE Divya Saroja C B16137
Rakesh Santhapur B16157
SECTION-C (GROUP-7)

4. Profits: Exhibits 4&5 give the brand wise break-up of profits for mobile phones and smart
phones. It is interesting that the Apple’s profits are attributed to the profit margin, i.e.,
the profit per unit is higher than other brands. Also, Apple has the monopoly in profits in
the mobile phone market.

Exhibit-3: Global revenue from smartphone sales from 2013 to 2016 (in billion U.S. dollars)

Exhibit-4: Market share for smart phones 2015


MARKETING -1 Aniruddha G B16128
Avinash Motamarri B16133
Deepak Mohta B16135
APPLE IPHONE Divya Saroja C B16137
Rakesh Santhapur B16157
SECTION-C (GROUP-7)

Exhibit-5: Profit share of smartphone companies 2015

Exhibit-6: Percentage change of sales – Apple iPhone

PESTEL ANALYSIS

Political:
Apple’s primary objective of profit maximization depends on a wide range of political factors
MARKETING -1 Aniruddha G B16128
Avinash Motamarri B16133
Deepak Mohta B16135
APPLE IPHONE Divya Saroja C B16137
Rakesh Santhapur B16157
SECTION-C (GROUP-7)

 Apple is one of a number of American technology companies that has accumulated a large
amount of cash reserve. It had $34.7 billion in the bank on June 30, 2015. This has resulted
in higher corporate taxation in the United States, where income inequality has become
a major political issue [5]
 Apple manufactures a number of its parts and products from outside the US, like Czech
Republic, Ireland, China and Korea. It is heavily dependent on lower cost manufacturing
in China. Social and political unrest in these countries could disrupt manufacturing or
increase manufacturing costs. Also, there have been also been calls to restrict Chinese
imports in the United States in an effort to boost American manufacturing
 Apple could become the target of growing nationalism and anti-Americanism in China,
which could reduce its market share
 The most recent and significant case that illustrates the potential impact of a political
factor relates to Apple’s battle with US Federal Bureau of Investigations (FBI). Specifically,
Apple’s dispute with FBI over whether it should be forced to hack an iPhone used by one
of the San Bernardino terrorists turned into a political debate dividing the public into two
camps – those who support the company and those who oppose it regarding this
particular issue [1]
 Apple had to deal with the impacts of political factors in international scale as well. A call
by Dmitry Gorotsov, a Member of Parliament in Russia to stop lawmakers in the country
“using iPhones and iPads to protect themselves from eavesdropping by foreign special
services” [2] can be referred to as an example where politics interferes with business.
Another lawmaker in Russia famous for his harsh approach towards gay propaganda has
publicly suggested Apple CEO Tim Cook to be banned from visiting the country due to the
latter’s public acknowledgement of his homosexuality [3]
 Moreover, the nature of relationship between Apple’s home country USA and other
countries may impact the company’s performance in relevant countries due to the fact
that substantial share of revenues are generated outside of the US. Specifically, in 2014,
net sales in US amounted to about $68.9 billion, whereas net sales outside of US
exceeded $113.8 billion [4]

Economic:
 Increased labor costs in China could take away the cost advantage of some Apple
products. It has to be noted that labor cost in China has more than quadrupled during the
last ten years [6] with an inevitable negative implication on Apple’s operational costs.
MARKETING -1 Aniruddha G B16128
Avinash Motamarri B16133
Deepak Mohta B16135
APPLE IPHONE Divya Saroja C B16137
Rakesh Santhapur B16157
SECTION-C (GROUP-7)

 Stagnating middle-class incomes in some developed countries, including the United


States, could shrink the potential market for higher-end consumer goods such as those
marketed by Apple.
 A strong U.S. dollar could increase exchange rates, making it more expensive for Apple
to do business in key markets like Europe and China. Apple would report revenue of $52.8
billion if there is no increase in value of dollars, but it reported acquiring revenue of $49.6
in 2015 [8,9]
 Apple's products may be viewed by some as "luxury" products and the inflation rate is
high, while income is low and unemployment rates are increased the company could risk
a severe loss in sales. Interestingly, one of many Apple’s investors, hedge fund billionaire
David Einhorn has attempted to sue the company to force payment of dividends of $137
billion [7] so that negative impact of inflation could be addressed.

Socio-Cultural:
 As the purchasing power of the common has risen in various markets across the world
the purchasing of luxury products has gone up. Possessing these items are considered as
status symbols in many societies which have also increased the sales of Apple Inc.
products
 The trend of the increasing popularity of mobile access is an opportunity for Apple to
continue providing easy-to-use mobile devices. The firm has already taken steps to exploit
this opportunity, such as through the iPhone, iPad, and Apple Watch
 Many would not consider this brand based on the social-conscious ground because it is
farming out its manufacturing operations in China, whereas the company can create some
job opportunities in the home country. It is choosing China for its low-cost labor factor.
This could limit the product’s appeal to some extent
 Apple has acquired some brands such as Embark Prime Sense and Topsy and alliances
with Sony, Motorola, Philips, and AT&T. Social background of these brands might play a
vital role in its operations

Technological Factors:
 The stakes of information technology are higher compared to other industries when it
comes to earning revenues. The companies who innovated with time, earned well and
Apple is no doubt one of them
 Competitors such as Google and Samsung have demonstrated a strong ability to duplicate
Apple’s products and services. This means that many of Apple’s signature services and
products are no longer unique
MARKETING -1 Aniruddha G B16128
Avinash Motamarri B16133
Deepak Mohta B16135
APPLE IPHONE Divya Saroja C B16137
Rakesh Santhapur B16157
SECTION-C (GROUP-7)

 In 2015, Apple reportedly spent $8.07 billion for R&D that accounted for about 3% of the
company’s net sales. These researches are conducted in order to assess the customer
mind-set considering the short product life cycle of the industry
 Apple is known for its stunning concept design. It has created some of the finest and most
attractive designs for their products that its contemporaries cannot match. But gradually
consumers are giving preferences to larger screens. Apple’s last product iPhone 6 has only
4.7” display, and iPhone 6 Plus has 5.5” screen size [10]
 The increasing number of cybercrimes makes Apple systems vulnerable and less secure
for consumers. It actually takes away the most competitive advantage which is a high
reputation for security and safety

Legal Factors:
 Apple has been a participant in various legal proceedings and claims since it began
operation
o In October 2009, Nokia Corporation sued Apple for Apple's infringement of
Nokia's patents relating to wireless technology
o Apple has been in a number of patent cases with players like HTC and Samsung
 Governments are realizing the privacy issues connected to digital technology use. As a
result, more privacy regulations are imposed on businesses like Apple. This factor is a
threat because it creates new challenges for Apple in developing products that involve
transmission of private information

Environmental factors
 From reporting the entire carbon footprint to finding ways to reduce that footprint, Apple
takes a comprehensive approach to environmental responsibility
 All products exceed 5.2 Energy Star government standard
 The biggest environmental issue Apple is facing is the disposal of used or nonworking
electronic devices. The expense of disposing of devices, particularly those containing
lithium batteries, could be high. Apple could be forced to assume that expense because
of concerns about such devices in landfills
 China’s efforts to cut greenhouse gases and limit fossil fuel use could increase electricity
rates and manufacturing costs for Apple in that country
 Apple is vulnerable to increased rates of electricity because of its dependence on data
centers and other internet infrastructure. The company has to shell out more expenses
in its manufacturing facilities
MARKETING -1 Aniruddha G B16128
Avinash Motamarri B16133
Deepak Mohta B16135
APPLE IPHONE Divya Saroja C B16137
Rakesh Santhapur B16157
SECTION-C (GROUP-7)

PORTER’S 5 FORCES

Threat of New Entry


The threat is low because of
(i) High capital requirements including high research & development cost running into
billions of dollars by larger players, due to high clock speed of the industry. [19]
(ii) Entry barriers created by patents for optimum processes, with over 2.5 lac patents
affecting the smartphones today in US. [20]
(iii) Creation of brand is hard as customer loyalty is high. [21]
(iv) The smartphone industry growth has stagnated showing maturity signs, which means
that to gain customers, the new entrants will have to take a bite out of the existing
players’ shares. [22]

Threat of substitutes
The threat is low to moderate because:
(i) This is because the substitute to a smartphone is a feature phone for communication,
tablets, laptops, an entertainment device and planning device. Since each function is
present in a smartphone and it is more convenient to carry one device for all purposes
the threat is low to moderate

Bargaining Power of Supplier


The power is low because:
(i) Apple is a major customer for many of its suppliers and hence has the upper hand in
setting the terms with them. [23]
(ii) The suppliers of Apple themselves work in highly competitive industry which makes it
relatively easier for Apple to shift suppliers (low-medium switching cost) in case its
demands are not met. [24]

Buyer Power
The buyer power is high because:
(i) There is very less differentiation of products and as customers have all the information
readily available, the switching cost to a competitor’s product is low to non-existent
evident by. [25]
(ii) Majority of the sales of iPhone happens to the retailers and telecom carriers so there
is high dependency on these distributors as they can choose which phones to support
and lead the final consumers away from Apple’s product – iPhone. [26]

Competitive Rivalry
(i) For the iPhone it has strong competition from premium Android devices such as
Samsung Galaxy S series phones, LG G series etc. Additionally, Chinese manufacturers
such as Xiaomi and OnePlus have captured a good market share for new entrants.
MARKETING -1 Aniruddha G B16128
Avinash Motamarri B16133
Deepak Mohta B16135
APPLE IPHONE Divya Saroja C B16137
Rakesh Santhapur B16157
SECTION-C (GROUP-7)

Thus there is a threat from existing players. It has lost approximately 5% points to
android till March 2016 year on year. [27]

Category Capacity
(i) Current reports indicate that the attractiveness of iPhone is high as the supply hasn’t
met up with the demand indicating that there is no tendency towards unused
capacity. [31] [32]

Impact of category factors on attractiveness

Threat of New Entry Low


Threat of substitutes Low to Moderate
Bargaining Power of Supplier Low
Bargaining Power of Buyers High
Competitive Rivalry High
Unused Capacity Low

References:
1. Thielman, S. (2016) “Apple’s battle with the FBI: who’s supporting them – and who’s
not? The Guardian, Available at:
http://www.theguardian.com/technology/2016/feb/29/apple-fbi-encryption-battle-
supporters-technology-politics
2. Russia Today (2014) Available at: http://rt.com/politics/210675-russian-parliament-
iphone-ban/
3. The Independent (2014) Available at:
http://www.independent.co.uk/news/people/news/russian-politician-says-apple-ceo-
tim-cook-should-be-banned-from-country-after-coming-out-as-gay-9829670.html
4. Annual Report (2014) Apple Inc.
5. https://ycharts.com/companies/AAPL/key_stats
6. Morris, D. (2015) “Will tech manufacturing stay in China?” Fortune, Available at:
http://fortune.com/2015/08/27/tech-manufacturing-relocation/
7. Neate, R. (2013) “David Einhorn Suing Apple Over Shareholder Cash” The Guardian,
Available at: http://www.theguardian.com/technology/2013/feb/07/david-einhorn-
apple-shareholder-cash
8. www.businessinsider.in/Apple-Just-Reported-A-Record-Quarter-But-Analysts-Only-
Wanted-To-Talk-About-The-US-Dollar-Heres-Why/articleshow/46044551.cms
9. www.fool.com/investing/general/2015/07/24/heres-how-much-the-strengthening-us-
dollar-hurt-ap.aspx
10. www.phonearena.com/news/Heres-how-screen-size-preferences-have-changed-
through-the-years-infographic_id71924
MARKETING -1 Aniruddha G B16128
Avinash Motamarri B16133
Deepak Mohta B16135
APPLE IPHONE Divya Saroja C B16137
Rakesh Santhapur B16157
SECTION-C (GROUP-7)

11. www.forbes.com
12. http://www.forbes.com/sites/chuckjones/2015/05/07/apples-iphone-continues-to-lose-
market-share-month-to-month/#3b82dc487be0
13. http://fortune.com/2016/02/14/apple-mobile-profit-2015/
14. http://www.statista.com/statistics/237505/global-revenue-from-smartphones-since-
2008/
15. http://www.gartner.com/newsroom/id/3270418
16. http://www.gartner.com/newsroom/id/3323017
17. http://www.statista.com/statistics/216459/global-market-share-of-apple-iphone/
18. http://fortune.com/2016/05/19/apple-iphone-smartphone/
19. http://www.bloomberg.com/news/articles/2015-11-30/apple-gets-more-bang-for-its-r-
d-buck
20. http://www.project-disco.org/intellectual-property/one-in-six-active-u-s-patents-
pertain-to-the-smartphone/#.V4gD22h9600
21. http://www.forbes.com/sites/kurtbadenhausen/2016/05/11/the-worlds-most-valuable-
brands/#4190df175612
22. http://www.bloomberg.com/news/articles/2016-04-26/apple-forecasts-another-sales-
decline-as-iphone-demand-cools
23. http://www.businessinsider.in/Internal-Apple-Documents-Show-How-Strict-And-
Punitive-Its-Contracts-Can-Be/articleshow/44850280.cms
24. https://techcrunch.com/2016/02/14/apple-may-ditch-samsung-for-next-iphone-chip/
25. http://fortune.com/2016/02/11/apple-iphone-ios-share/
26. http://allthingsd.com/20121003/apple-stores-get-the-glory-but-retail-partners-
shoulder-load/
27. http://www.kantarworldpanel.com/global/smartphone-os-market-share/
28. http://www.ccsinsight.com/press/company-news/2183-smartphone-sales-to-peak-in-
western-markets-in-2017-as-they-enter-new-phase-of-maturity
29. https://www.accenture.com/in-en/insight-trends-cmt-goodbye-glitzy-practical-2016
30. http://www.kantarworldpanel.com/global/smartphone-os-market-share/
31. http://www.forbes.com/sites/chuckjones/2015/09/23/apples-iphone-6s-lead-times-
could-be-indicating-good-demand/#6b71d3ee7205
32. http://www.fool.com/investing/2016/06/16/demand-for-apple-incs-iphone-se-still-
outstrips-su.aspx