APPLE’S CASE STUDY

1. CORE SERVICE
2. CHARACTER
3. PERSONALITY
4. IMAGES
5. INTRINSIC,FUNCTIONAL CHARACTERISTICS OF THE PRODUCT
6. EXTERINSIC, NAME PACKAGING ,PRICE
7. CONSUMERS FEELING AND PERCEPTIONS ABOUT A PRODUCT
8. PRODUCT FORM
9. FEATURES
10. PERFORMANCE /RELIABILITY
11. CONFORMANCE
12. DURABILITY/REPARABILITY
13. STYLE/DESIGN
Apple’s premium pricing strategy and product differentiation

Apple’s strategy

On low-end devices, Apple CEO Tim Cook told Bloomberg Businessweek in an interview last year, “We
never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a
great experience, and we figured out a way to do it at a lower cost.”

Cook’s thoughts echoed those of his predecessor, Steve Jobs, whose strategy for Apple had four pillars:

1.     Offer a small number of products.

2.     Focus on the high end
3.     Give priority to profits over market share
4.     Create a halo effect that makes people starve for new Apple products

Differentiation

Apple attempts to increase market demand for its products through differentiation, which entails making its
products unique and attractive to consumers. The company’s products have always been designed to be
ahead of the curve compared to its peers. Despite high competition, Apple has succeeded in creating demand
for its products, giving the company power over prices through product differentiation, innovative
advertising, ensured brand loyalty, and hype around the launch of new products. By focusing on customers
willing to pay more and maintaining a premium price at the cost of unit volume, Apple also set up an
artificial entry barrier to competitors.

Apple sells its products and resells third-party products in most of its major markets directly to consumers
and SMBs through its retail and online stores and its direct sales force. The company also employs a variety
of indirect distribution channels, such as third-party cellular network carriers, wholesalers, retailers, and
value-added resellers.

Apple uses a retail strategy called “minimum advertised price” (or MAP). Minimum advertised pricing
policies prohibit resellers or dealers from advertising a manufacturer’s products below a certain minimum
price. MAP is usually enforced through marketing subsidies offered by a manufacturer to its resellers.
According to a piece in Macworld, Apple maintains the popularity of its high-priced products by only
offering retailers such as Wal-Mart or Best Buy a marginal wholesale discount. This small percentage in
savings isn’t enough of a profit margin for retailers to offer big discounts on Apple’s products, which means
customers end up paying a price close to the manufacturer suggested retail price (or MSRP). However, a
retailer could give up this small profit margin and offer products at a discount to attract more customers.
Apple prevents this scenario by offering monetary incentives to retailers to sell goods at the MAPs fixed by
the company.

This price strategy is effective insofar as it prevents retailers from competing directly with Apple’s own
stores, and it also ensures that no one reseller has an advantage over another. So Apple is able to keep its
distribution channels clean as well as make more money on its direct sales. The Macworld article further
noted that iPhones weren’t under a strict pricing model, as they sold at a lower price with wireless contract
deals, as retailers gain a commission from carriers.

Premium prices

Jobs’ vision for Apple was always to create a premier product and charge a premium price. Apple’s cheapest
products are usually priced in the mid range, but they ensure a high-quality user experience with their
features. The hardware and user interface are designed to provide a lot of value for the price, which keeps
profits high. However, a company can charge a premium price as long as it has a competitive advantage, and
analysts believe the brand is on the way to losing its “aspirational” status. With increasing competition from
Android and low-cost smartphones, as well as saturation in the developed markets, analysts feel that the
company could risk becoming a high-end niche name.

According to IDC’s mobile phone forecast in 3Q 2013, a number of trends co-exist in the global smartphone
market—but none have more of an effect on driving market growth than the steady decline in average
selling prices (or ASPs). Android has enabled a number of new manufacturers to enter the smartphone
market, supported by a variety of turnkey processing solutions. Many of these handset vendors have focused
on low-cost devices as a way to build brand awareness. In 2013, IDC expects smartphone ASPs to hit $337,
down 12.8% from the $387 recorded in 2012. This trend will continue in the years to come, and IDC expects
smartphone ASPs to gradually drop to $265 by 2017.

http://finance.yahoo.com/news/apple-premium-pricing-strategy-product-191247308.html
 Why Apple Is a Great Marketer

Apple was voted the overall winner of the 2012 CMO Survey Award for Marketing Excellence… yet
again. Apple has been selected as the winner or co-winner for five consecutive years by the sample of
top marketers. So why is Apple a great marketer?

When Apple, Inc. (then Apple Computer, Inc.) incorporated in January 1977, its investor/advisor, Mike
Markkula, assembled a 3-point marketing philosophy. Amazingly, thirty-five years later, this philosophy
remains at the core of what makes Apple so effective at creating and profiting from loyal customers.
This, in my view, is the definition of a strong marketing capability. Here are Apple’s original three
points:

1. Empathy – We will truly understand their [customer] needs better than any other company.
2. Focus – In order to do a good job of the things we decide to do, we must eliminate all of the
unimportant opportunities.
3. Impute – People DO judge a book by its cover. We may have the best product, the highest
quality, the most useful software, etc.; if we present them in a slipshod manner, they will be
perceived as slipshod; if we present them in a creative, professional manner, we will impute the
desired qualities.

Apple has used these principles to become the world’s most valuable company (measured by market
capitalization) and one of world’s most valuable brands. Here are ten strategies Apple has used to
become one of the world’s greatest marketers:

(1) Hire customer-obsessed, empathetic employees. Steve Jobs had unique and effective insights
about how people want to interact with technology. Jobs used a quote originally attributed to Henry
Ford to describe why these insights were so important: “If I had asked people what they wanted, they
would have said faster horses”—illustrating the problem that customers may be limited to thinking only
in terms of what they know, instead of what is possible. So Jobs and colleagues thought about the
customer experience more deeply than the customer could. Jobs once said, “One of the keys to Apple
is that we build products that really turn us on.”Lucky for customers, this often means products are
exactly what they want because Apple employees are so deeply entrenched in and committed to the
customer’s experience.

(2) Iterative customer involvement. This customer obsession made formal market research less
important. However, it is no secret that Apple spends an enormous amount of time observing
customers using Apple’s and other companies’ technologies. Called “participatory design” or “usability
testing,” Apple integrates customer experience into its design and development process to understand
their “pain points” and “opportunities.”Of course, Jobs himself was often the most important customer,
but this did not get in the way of more systematic participation from customers throughout the process

(3) Protect against scope creep and feature bloat. According to stereotypes, engineers only want
to work on projects that are innovative, intellectually challenging and cool, while business people only
want to work on projects that make money. Anyone who has worked in a tech environment can attest
to the fact that this leads to a natural tension between the two groups. Compromises result in scope
creep, feature bloat, and confusing, overburdened, unfocused products. There were mp3 players
before the iPod and smart phones before the iPhone, but Apple’s innovation was to distill those
products down to their fundamental purposes (e.g., 1000 songs in your pocket) and then design them
to be simple and interesting to use. As Jobs noted, “We make progress by eliminating things.”

(4) Build compatible experiences. Customers want a streamlined, intuitive way to make their
computing and entertainment devices work as a system. Apple understood this and conceived of its
array of products as offering the customer first a “digital hub” and then an “entertainment hub.” In
both cases, hardware and software were designed for customer compatibility within the system. This of
course meant some incompatibilities with other companies’ offerings. However, the joint benefits of
having combinations of the Mac, iPod, iPhone, iPad, and of course, iTunes, were of great value to
customers.
(5) Enable customer discovery and differentiation through Apple Stores. A retail presence gave
Apple another forum to flex its design prowess. Customers come into the stores to experience firsthand
the aesthetics and ease of use of Apple products. They also get to see the larger “solution” that the
array of interconnected products offers. Carefully recruited and trained sales associates are encouraged
to take customers on a “ride” which former head of Apple Stores, Ron Johnson, describes as
“something short, fun, and something you want to talk about.” Finally, the stores provide a place
where customers can go for support (the Genius Bars), creating yet another touch point to delight the
customer. The result: the highest retail sales per square foot among U.S. retailers.

(6) Build a moat. Apple has done this in three ways. First, Apple’s unique products are communicated
to customers through novel and provocative advertising. The 1984 Super Bowl ad introducing the
Macintosh is a perfect example. Apple vividly contrasted its independent philosophy and status with the
tired and unimaginative computer industry establishment (specifically, IBM). Apple built on this theme
of independence in 1997 with its “Think Different” ad campaign which lauded “rebels” and “the crazy
ones” as the source of great ideas and inventions. The target market was not big business, but rather
artistic and design-oriented fringe business sectors and the educational sector. The heavily advertised
iPod with the silhouettes of people dancing to the beat of their own drummer kept this brand image
alive and well. Finally, Steve Jobs contributed to this renegade, non-conformist image through press
accounts of his demanding aesthetic.

Second, although Apple’s product development utilizes multiple branded partners, it broke with
industry norms and turned down attractive financial incentives to keep customers focused on the Apple
brand and not its component providers. Since the mid-2000s, Apple has brought on new suppliers such
as Intel, Microsoft, and ATI to provide hardware and software solutions for many of its products.
However, it has turned down co-marketing efforts (such as Intel stickers on its machines) that every
other major competitor participates in with those same suppliers.

Third and related, Apple’s decision to exclude other companies’ brands from Apple Stores has
contributed to its brand moat.

 (7) Devise a business model that creates ongoing customer value. Generating customer value
means building a business model that ensures this value is created repeatedly. Hiring customer-
obsessed employees and opening retail stores are a big part of creating value for Apple customers.
However, iTunes should also be viewed as an integral part of the business model. While iTunes itself is
not a big money maker for Apple, the iTunes desktop software and the iTunes Music Store make
Apple’s hardware even more valuable. As Yoffie and Kim put it, “Jobs had created a razor-and-blade
business, only in reverse: Here the variable element served as a loss leader for a profit-driving durable
good.” From the customer’s point-of-view, this bundle of device and content provides enormous value
that promotes loyalty and cross-category spending.

 (8) Cannibalize when necessary. Good marketing requires a willingness to cannibalize your
offerings if you have a superior option to bring to market. Apple has done this at this least twice. First,
Apple dropped its most popular iPod, the Mini, when it introduced the Nano. Second, although offering
unique features, the iPhone is a potential threat to independent iPod sales because both play music.
Many organizations might have been afraid to build a product that would detract from its most popular
product. Apple understood that if it wasn’t the one to do it, another company would

(9) Don’t try to be all things to all customers. Many companies fail by being unwilling to make
tough decisions about which customers to seek and products to offer. Apple, on the other hand, made
these tough decisions and adopted a strategy that focused on a limited number of product lines and
limited offerings within each line. Jobs brought this strategy to Apple when he returned in 1997 at
which point he slashed Apple’s 15 product lines to just four. This strategy holds today. A few years
ago, then COO Tim Cook described Apple’s philosophy as, “One traditional management philosophy
that’s taught in many business schools is diversification. Well, that’s not us.” With a laser-like focus,
Apple makes a few big bets that deliver customer value and stand out in the crowd. The result is that
customers know what to expect from Apple and they usually get it.

(10) Create an ecosystem that makes offerings valuable. The introduction of the iPhone was
coupled with building an online App Store. However, the App Store only works if there are companies
willing to develop for the platform and integrate iOS apps into their strategies going forward. Apple
created development tools that promote a simple, consistent experience for developers on the iOS
platform. This helps to speed up app development and deepen user engagement, a win-win-win for
developers, customers and, of course, Apple. With over 500,000 apps available and over 24 billion
apps downloaded to date, apps have not only helped increase switching costs for iPhone and iPad
users, but have also proved to be a lucrative revenue stream.

After five CMO Survey Awards for Marketing Excellence, Apple has shown that it is not only an
outstanding technology company but also an outstanding marketer. Apple’s marketing strategy is a
unique blend of traditional and nontraditional elements. However, at the core, Apple has figured out
how to attract and retain customers, to generate an enormous amount of word of mouth and brand
appeal, and to build a business model, channel structure, and moat that give it a powerful competitive
advantage. Votes for the next award will occur during the February-2013 CMO Survey. Can anyone
take the crown from Apple?

References

1. http://money.cnn.com/2008/02/29/news/companies/amac_apple.fortune/index.htm
2. Thomke, Stefan and Barbara Feinberg (2010), “Design Thinking and Innovation at Apple,”
Harvard Business School case 9-609-066.
3. Wathieu, Luc (2010), “Apple Stores,” Harvard Business School case 9-502-063.
4. Yoffie, David B. and Renee Kim (2011) “Apple in 2010,” Harvard Business School case 9-710-
467