Marketing Management - II

POST GRADUATE PROGRAM IN MANAGEMENT

Problem Statement
Going forward, Ron Johnson must decide on the following factors regarding the future of their
retail store expansion – identifying ideal target geographies, selecting and curating innovative
store features to design a unique store experience, and understanding the stores’ impact over time
and across channels of distribution.

Situation Analysis

Apple’s core competency was innovation and the high level of services they provided to their
customers. As testament to their emphasis on innovation, the expenditure on R&D increased
from 6% in 1981 to 8% of net sales in 2001 but contrary to expectations, market share decreased
from 15% in 1980 to 3% in 2001. This was due to the fact that industry was competing not on
innovation, but on factors like price, logistics, and supply chain efficiencies. The condition of the
PC was such that it was being treated like a commodity by both sellers and consumers.

The Mac tried to take a more sophisticated approach in this scenario, and introduce features and
digital products that focused on user-friendliness and lifestyle compatibility. It was seen that Mac
users were more adaptable to the new digital environment. However, potential buyers thought
that Apple products were not compatible with other PC products which is probably why 2/3rds
of people who were buying PCs do not consider Apple as an option. In response to this general
confusion regarding the features and usability of a Mac, they introduced the slogan “Everything
is easier on a Mac” in order to make more people drop their apprehensions and .

Huge amounts of investments were also made in Apple Stores to develop the notion of “Shop
different” amongst the consumers. Stores were intricately designed and proper training was
given to employees keeping the goal of impeccable consumer experience in mind. The
investment of $84 mn. to start up the retail project can create a problem if the projected sales
 target of $6235 mn. is not achieved since the company is at a loss of $25 mn. with sales of $5363
mn. in the year 2001. There is no metric of evaluation of success of stores to back up this
investment rationally.

VRIO analysis

Resources Value Rare Imitation Organization Competitive

advantage

Brand awareness Yes, 40% of the sales in Dec 2001 Yes, Apple Stores is a Difficult to Apple Stores utilized Sustainable
were to new customers substantiating leading brand in the imitate. its brand image in Competitive
the high brand awareness. industry launching new advantage
products.

Design of stores Yes, stores promoted notion of “Shop Yes Imitable Competent to Competitive
different” manage the stores advantage

Ability to attract Yes, well trained employees help the No Difficult to Highly efficient Sustainable
talent company grow imitate due to hiring competitive advantage
sense of
community

Customer base Yes, a sense of community was Yes, high Brand Difficult to Stores worked to Sustainable
developed loyalty among imitate enhance the sense of competitive advantage
customers community

Recommendations
We make the following recommendations based on the parameters defined in the problem
statement:
1. Store Features: Apple stores were designed to enrich people’s users lives and be a
representation of what the brand was; user-friendliness, lifestyle, and educational demonstrations
of what Apple had to offer. In order to maximize on this selling point, they can focus on setting
up more luxurious store ambience through decorations and customer service (like offering a
wider variety of refreshments of coffee etc.)

2. Location: In order to penetrate into new markets, it would be essential for Apple to open up
their stores in new locations. As one of the key points of the store is to give a demonstration and
educational experience to users, it will be key to attracting and informing customers in regions
where they are not traditionally strong. In order to retain their share in traditionally strong
regions, they can open the stores over there with a lower density, as the returns per dollar spent
would be lower due to an already high awareness of the brand.

3. Impact Analytics: In order to understand the impact of store design and modifications on
consumer behavior, evaluation of new stores is the best option. A sample of new stores in coastal
areas, major cities and not popular regions should be extensively studied to gather data on
Purchase decision, Mac History, Outlet choice and Usage of digital devices.

Furthermore, it would be useful to start introducing short consumer surveys on the direct online
selling option as well in order to understand how the customer had interacted with the stores
previously, whether it helped them in making their purchase decisions, and why they preferred
buying online as opposed to in-store. This traceability would help determine store impact on
topline revenues.

Apple is and should continue to be a pioneer in technology to overcome the problems currently
faced by the company. This would not only help them expand in the right location but also help
them develop elements in product offerings which are different from the competitors that will be
appealing to the majority of the customers.