Apple Case Group 6: Pujit Prakash Vinod Chandan Ajay
Overview• Apple´s competitive advantage• Market structurePC marketMusic playersCell phones• Does Apple have a competitive advantage in those markets?• Prospects Ipad market• Apple’s future
Situation < 1997Mission Apple• Easy to use computer to market• Industrial design• Technical eleganceScopeCustomers: Loyal (Love the Mac)Products:• Complete desktop solution• Industrial design• Technical eleganceVertical integration:• Alliances IBM• 2 joint venturesGeograpic: From small (garage) Low cost mainstream
Steve Jobs > 1997Strategy Back to core productTactics• No licensing• From 15 products 4 categories• Website (direct sales)• Pared down inventory• More spending R&D• All-in one computer• Egg shell design
What have been thesources of Apple’scompetitiveadvantage?
Stable sources of competitive advantage?Year Source competitive advantage Year Source competitive1970s Easy-to-use computers advantage 1990s Low costs1984 Ease-of-use, industrial design, technical elegance 1990s Hit product every1980s-1990s Superior software 6 to 12 months 2000s Design, plug &1980s-1990s High investment R&D play1980s-1990s Complete desktop 2000s Successful solution, hardware, marketing software, peripherals: campaigns plug and play 2000s Greenest lineup1980s-1990s Designing products of notebooks from scratch
Analysis of thestructure &profitability of thepc industry?
PC market Barriers to entry Low: Easy to make, easy to clone pc’s High: difficult to become big Supplier Buyer Rivalry power powerLow: Memory High: High: Low pricechips, disk Lenova, IBM, HP, Del & standardizeddrives, keyboar l, Acer customersds Substitutes can buy everyHigh: pc they want.Processors Low switching(Intel) & OS High & increasing: costs(Microsoft) Smart phones, mini laptops, tablets, old pc’s
Structure PC industry• Diversified and tough competition due to low barriers of entry and low switching costs• Knowledgeable customer due to transparency information• Dominant suppliers of processors and OS • Intel and Microsoft leading to high standardization, difficult to differentiate• Many substitutes available
ProfitabilityPlayers (2009) Gross margin Net income (in millions)HP 23.6% $ 7,660Dell 18.0% $ 1,433Apple 40.0% Not knownSuppliers Gross margin Net income (in millions)Intel 16.0% $ 4,369Microsoft 79.0% $ 14,569 The industry is profitable, both when looking at gross margin as well as net income. Apple has a higher gross margin of 40%, due to the higher price they ask for their PCs. However, Apple had a market share of only 4.2% (2009), whereas HP had a market share of about 20%.
Dynamics industry• The dynamics are favorable for apple Standardized market Own supplier High Love Apple WTP Fit with complementary products
Does Apple have asustainablecompetitiveadvantage in thePC market?
Does Apple have a competitive advantage in PC market? Yes, because Apple offers a differentiated product in a heterogenic market. Besides that Apple has A strong brand name, due to marketing A strong customer relationship High R&D investments A big difference between WTP & Costs (40% margin) Is this sustainable? Yes, because apart from high R&D investments the other capabilities are inimitable.
Problems of Apple in the PC industry (1988-2001)• IBM dropped prices, MAC appeared overpriced by comparison• Low R&D• Low Cost• Licensing cannibalization own productsSolution • Going back to initial strategy• Cooperation Microsoft – Microsoft Office• Cooperation Intel – CPU on which Windows OS could be installed
Did Jobs make his move from Motorola and IBM to Intel at the right time?• This shift enlarged the customer group of Apple by being able to make use of Microsoft.• However Jobs could have made this move earlier, in 1997 instead of 2006.
What is the structure ofthe Music player market?
Music player Barriers to entry High: Easy to produce - low Build up supply chain – high Image building - high Supplier Buyer Rivalry power power Medium: Hynix High: SanDisk High: Samsung Samsung Many choices Toshiba Creative M’soft Zune (2006) Low switching costs Intel Myaon Substitutes High: dependability High Mutual Smartphones (Spotify, downloads depending songs to phone) Flash memory tablets
Does Apple have acompetitiveadvantage in themusic player market?
Apple in the music player marketCompetitive advantage Value Rareness Inimitability AppropriabilityPositional advantageCustomer relationship ++ - - ++Brand name ++ + + ++Status ++ + + ++Apple stores (distribution ++ ++ ++ ++channel)CapabilitiesDesign ++ + - ++Simple user interface + - -Large storage on the ipod + + + ++Rapid product development ++ + - ++Digital hub +++ +++ +++ +++Apple’s iTunes store ++ ++ - -Nike+ ++ ++ -- +iPod accessories ++ - - ++
Apple does have a competitive advantage in the music player market?• Just as with the other products, Apple has a strong brand name, that the customers associate with status hard to imitate• Apple has a strong customer relation, due to the digital hub, iTunes and Apple stores
Apple does have a competitive advantage in the music player market?• Large storage space rareness, because Apple had contracts with suppliers and bought most of the memory available on the market• Digital hub an entire network of compatible products of one brand, hard to copy due to resource reasons (time and money)
Cell phone Barriers to entry High: Short product life cycle Contract with carriers High investment Supplier Buyer Rivalry power powerHigh: Powerful High: Nokia, Motorola, High: Choicedistribution Samsung 60% market share based oncarriers (NTT A lot of competition attractiveDoCoMo & Blackberry (RIM), Google hardware andVodafone) & user-friendlinesspowerful Substitutesnetwork carriers(Verizon & AT&T) High & increasing: “Normal” phoneAndroid LaptopOS(Google) Tablet
Does Apple have acompetitiveadvantage inthe cell phonemarket?
Apple in Cell phone marketYes competitive advantage- Strong brand name- Loyalty customers- Innovative design- High research & development investments- Easy to use OS. (no viruses)- App’s (store)Can Apple sustain its iPhone success?- Competition is rising- Short product life cycles- Technology is evolving- Substitutes (Ipad)Conclusion: It will be hard for Apple to sustainit’s success due to high rivalry and high buying power.They will have to keep differentiating themselves.
SWOT analysis of the IPAD 2Strenghts Weaknesses Brand name Customer loyalty “love apple” Idea and technology is Deliver extra imitable Add-ons App storeOpportunities Threats Your new laptop Competitors Wireless Losing Steve rechargeable Jobs
Prospects for Ipad 2• Ipad 3 – Experience your new laptop – Wireless rechargeable
Apple’s solution to the chronic problemChronic problems of the market• Technology is not sustainable• Standardization of the market• Dropped prices of components• Short product life cycleApple’s problem• How to continue Apple without Jobs?Did Jobs solve the market problem? Yes,• By being innovative• Apple differentiates itself from competitors• Jobs maintained high prices• Keeps investing in R&DJobs made himself irreplaceable
Apple’s futureDoes Apple have a sustainable advantagetoday?Yes, because of customer loyalty due to astrong brand name, digital hub.Alternative strategic options:• Customer intimacy• Product leadership• Operational excellence
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