Apple Inc. is an American multinational corporation that designs and markets consumer electronics,
computer software, and personal computers. The company's best-known hardware products include
the Macintosh line of computers, the iPod, the iPhone and the iPad. Apple software includes the Mac OS
X operating system; the iTunes media browser; the iLife suite of multimedia and creativity software; the
iWork suite of productivity software; Aperture, a professional photography package; Final Cut Studio, a
suite of professional audio and film-industry software products; Logic Studio, a suite of music
production tools; the Safari web browser; and iOS, a mobile operating system. As of October 2010, the
company operates 317 retail stores in ten countries, and an online store where hardware and software
products are sold. As of September 2011, Apple is the largest publicly traded company in the world by
market capitalization and the largest technology company in the world by revenue and profit.
Since 1976, when the first Apple I came to the market, Apple has been widely successful at building
brand loyalty in Apple products. Apple’s products are meant to compliment each other, which
encourages consumers to purchase another product in the brand. Apple has also been smart in selling
their products through the educational network. This helps not only to hook students on to Apple
products early on, but also to build a “cool” and “hip” image. Apple is consistently coming out with new
innovations to keep their products interesting, while also keeping up with the demands of modern
technology. The bottom line: Apple delivers outstanding products consistently that receive high
consumer ratings, causing consumers to keep coming back for more.
Apple’s innovative products, incredible brand image and success story make it truly admirable. Hence,
we have chosen Apple for this project.
Apple Inc. as a name is known to have attained a cult status, especially among the tech savvy 21st
Apple sells in almost all the developed and developing countries of the world, with rapid emergence in
the third world as well. All of these countries and cultures have different demand patterns and
sensitivities. To this end, buying behavior and buying capacities also vary across nations. To this diverse
customer base, Apple provides a whole range of hi-tech personal devices, which are sold on the
philosophy of “Buy Different, Think Different”. Thus as it permeates different cultures of the world,
Apple as a brand has established a culture of its own. Some other important features, which shape
Apple’s strategies, are:
Customers are empowered due to availability of low priced products giving similar features.
The Internet and new media avenues allowing easier information exchange have enhanced
information availability. Hence the companies need to be more careful regarding their value
Rapid inter-temporal variation in consumer tastes has influenced companies to race to meet
these demands. Also, companies like Apple with sheer innovation have influenced consumer
tastes. Now they need to maintain their lead on the S-curve of consumer demand with
There is in fact noticed an unusually high amount of brand loyalty for Apple products which has
resulted in an emotional bond between its customers and the brand. The reason more and more often
cited for this is the company’s constant innovativeness.
Because of favorable brand image, high brand loyalty and repeat purchases across different customer
Richness: Moderately Rich
Increasing purchasing power and number of potential consumers in the young segment of population
Consumer behavior contingent on psychological, socio-cultural and economic variables and hence
Apple needs to constantly monitor these.
APPLE doesn't make the any of its products itself. It neither manufactures the components nor
assembles them into a finished product. The components come from a variety of suppliers and the
assembly is done by Foxconn, a Taiwanese firm, at its plant in Shenzhen, China. The “teardown” graphic
below, based on data from iSuppli, a market-research firm, shows who makes what inside the iPhone,
and how much the various bits cost. Samsung turns out to be a particularly important supplier. It
provides some of the phone's most important components: the flash memory that holds the phone's
apps, music and operating software; the working memory, or DRAM; and the applications processor
that makes the whole thing work. Together these account for 26% of the component cost of an iPhone.
This puts Samsung in the somewhat unusual position of supplying a significant proportion of one of its
main rival's products, since Samsung also makes smartphones and tablet computers of its own. Apple is
one of Samsung's largest customers, and Samsung is one of Apple's biggest suppliers.
This is actually part of Samsung's business model: acting as a supplier of components for others gives it
the scale to produce its own products more cheaply. For its part, Apple is happy to let other firms
handle component production and assembly, because that leaves it free to concentrate on its strengths:
designing elegant, easy-to-use combinations of hardware, software and services.
Another aspect of Apple supplier strategy is its control over the worldwide market for key components
has reduced Apple’s cost structure and has created significant barriers to entry for competitors. This
yields significantly higher margins and market share for Apple, among other benefits.
It turns out that Apple has secured about 60% of global touch panel capacity, with a focus on 10-inch
displays. Some have speculated that this has forced some competitors to initially focus on devices
with 7-inch screens, such as Samsung with its Galaxy Tab.
Because Apple is buying these components in such large quantities it can exercise significant leverage
over suppliers. This leverage enables Apple to negotiate favorable terms and pricing. For
instance, South Korean Fair Trade officials alleged that Apple struck a special deal with Samsung to
obtain flash chips at below market rates. This favorable pricing means that Apple has a lower cost
structure for its products relative to competing products. And all else equal, this lower cost structure
results in higher margins for Apple versus competitors.
Second, when Apple commands such a large portion of the global market for a key component it
creates enormous barriers to entry for potential competitors. Competitors can obtain the component in
limited quantities but at a higher price, therefore placing them at a cost disadvantage. Next, competitors
can launch different products — e.g., a hard drive based portable media device or a 7-inch touch screen
tablet – that may not match the preferences of consumers. Alternatively, competitors can just sit and
wait until more supply of the component is made available, which in some cases takes years.
High number of suppliers, where some of them might be industry rivals makes managing supplier
In a High Tech environment where new technologies are surfacing on a continuous basis, Apple has to
make sure that technologies are fast evaluated and production secured for strategic security.
The dependence on contract manufacturers and external suppliers for all manufacturing needs puts
Apple in a precarious position.
Apple mainly competes in the personal computer, mobile and music industries.
The personal computer market is fairly well developed with a very high concentration of mature
Personal Computers & Software:
players such as Dell, HP, Lenovo, Acer, Sony, Gateway, Samsung, Asus, Fujitsu, and Toshiba etc. As a
result, this market has become extremely commoditized with most of these players producing
practically identical products running Microsoft’s Windows operating system. This makes Microsoft
Apple’s biggest competitor in the Operating System and Software market.
Apple continues to differentiate its Macbooks through their unique design and operating system.
Switching costs for the customer have been the main deterrent in Apple’s quest to attain a more
sizeable market share, due to their higher prices and perceived incompatibility with other software.
Apple is also a big player in the music industry. Apple’s iPod is the market leader in the music player
market and competitors (like Sony, Creative, Philips and others) are struggling to offer up a product
that can match iPod’s technology and innovation. Apple’s iTunes is also the leader in the online music
and entertainment industry. With iPod and iTunes, Apple is in no danger of losing market share in the
short term and has continued to pour money into its R&D to support its long-term strategy.
Apple revolutionized the smartphone and tablet industries by introducing the iPhone in 2008 and iPad
Smartphones and Tablets:
in 2010 respectively. In this industry, Apple’s iOS faces intense competition from other mobile
operating systems like Microsoft’s Windows Mobile and Google’s Android that have formed strategic
alliances with hardware manufacturers like Motorola, HTC, Samsung and Nokia. RIM is also a
competitor in this industry with its Blackberry Smartphones and Playbook tablet. Both Apple and
Google have significant market share in the smartphone industry, while Apple’s iPad continues to be the
leader in the tablet industry.
Apple’s competitive environment is very complex. Their diverse and intricate products put them
directly in competition with almost every technology company – be it hardware manufacturers,
software firms or online portals and retailers - in many complicated ways.
Due to the presence of so many players and the pace of technological advancement, Apple faces a very
dynamic environment that requires them to be innovative and nimble.
The size, dynamism and concentration of all the markets Apple is in also make its environment very
rich in resources. The large number of possible suppliers of different products can give Apple great
market power, but their need for specialized components restricts their resourcefulness to a large
Research and Development is the most fundamental reason for Apple’s continuous competitive
Apple vs. Competitors
advantage. However, while researching upon and introducing new technologies, there is either a
persistent threat of legal action by competitors or a necessity by Apple to do the same against them.
This is because release of insider information about Apple’s new products could give its competitors a
heads-up to introduce rival products.
For instance –
Apple sued Microsoft in 1988 for perceived similarities between Microsoft Windows and Macintosh
Apple is currently taking legal action against many popular technical web sites for releasing
proprietary product research from confidential documents protected by employee non-disclosure
Apple has been fortunate so far to have not been involved in any major issues where Government
Apple vs. Government
regulations are concerned. On the contrary, the Government has charged its prime competitor Microsoft
on many antitrust regulations, which has worked to Apple’s advantage, allowing it have a better
foothold in the industry.
With increasing competition between Apple and other market players, the regulatory environment is
quite fragile. There are a large range of laws and regulations that Apple needs to be aware of, in order to
rightly penalize those who deserve it, and at the same time, defend itself from any charges. This makes
the regulatory environment somewhat complex to be in.
With new regulations being introduced and limits being set on a company’s carbon footprint, Apple
needs to be extremely careful and keep improvising to not be entangled in any legal issues with the
Government. This makes the environment quite unstable and prone to misfortunes unless proper care
In personal computer market there are a few well-established companies like Dell, HP, Sony and
Compaq. The threat from new entrant is limited as there are large economies of scale in the PC market.
Due to large economies of scales, new companies would require huge capital to compete with Apple and
other well-established companies.
In Operating system, Microsoft and Apple’s iOS are the main leaders. New entrants have to make OS,
which is one step ahead of them. Google with its Google OS and Android is currently a big threat to
Apple consuming its market share.
Another barrier that new entrants would have to face is legal barrier; mainly in the form of patents.
The main market leaders have numerous patents on computer designs as well as technology, which
make it extremely difficult for new entrants to enter the market.
In portable music market, there are a fairly large amount of competitors the entry barrier is quite low.
As the market is relatively new, there is more of a threat of new entrants in the MP3/Portable Music
market than there is in the personal computer market. The portable music websites like Amazon and
Napster have relatively small startup costs and are stealing away portion of iTunes market share
Apple is enjoying the first mover advantage in the hardware side of the market with their iPod. It has
huge following and brand image which creates an obstacle for new entrants. Due to the potentially high
growth rate of this market, it is still profitable for companies to invest the capital involved in breaking
into the market. Even though the main market leaders already have many patents protecting their
technologies, new entrants have developed pioneering technologies due to the relatively young nature
of the market.
Portable music market being relatively new poses a bigger threat of new entrants, which makes this
Complexity – Complex
environment highly complex.
As new technology is coming up everyday especially in countries like Japan, many new entrants
Dynamism – Unstable
(although small) join the industry, and many leave as well. Thus, the environment is changing very
quickly with time.
With increase in technological innovations, first mover advantages are short-lived and substitutes
emerge to compete in any new product category within no time. Apple sports a wide product line, at the
same time faces continuous threat from three distinct types of substitutes:
Music [iTunes: Napster, Rhapsody, Satellite Radio, p2p], [iPod: Walkman, CDs, audio streaming]
Video [iPad, iPod: Broadband connections, Satellite / Cable TV, video streaming, Netflix]
Computing [iMac, MacBook: PCs]
Communication Devices [iPhone: smartphones, touchscreen devices]
E-books [iPad: Amazon Kindle, Samsung Papyrus, Sony Reader]
Increasingly the popularity of Apple has opened up other channels where apple products are sold, new
Service based Indirect Substitutes:
and used. An example is E-bay that can buy Apple products and put it up on sale with special
promotions. Special offers by Mobile service providers where Apple products are sold in bundles are
Due to availability of a variety of substitutes, there is constant need of product differentiation, which
creates economic value for the customers. It can reduce environmental threats as the cost of product
differentiation acts as a barrier to entry.
Still growing at 52% y-o-y and expanding income annually by almost 70%, Apple Inc. has carved out a
base of followers-cum-customers who are very much driven by its innovativeness and brand name in
their purchasing behavior. It leads a high technology race against very powerful players in many of the
several product markets that it covers. It deals with suppliers spread the world over to streamline its
production. It controls for competition from substitutes as distant as new service offering by an
Internet based firm and as close as an imitator. This leadership has come about by efforts of the
management and the innovators I the company.
At the same time, a very important mediation is carried out by the uncertainties posed by concerns of
stability / dynamism, richness of resources and complexities in the external environment. In this
context, there are certain variables that become more important given the higher degree of uncertainty
involved and so on. As Apple Inc. tries to navigate through these rough waters, an enduring success will
depend upon how it accounts for these uncertainties and pre-emptively acts to retain its position as a