Strategic Management Analysis
Apple iPhone
Presented by Group 3
 Arya Bhatt
 Prateek Sharma
 Anjalika Kumar
 Olakunle Oougunsuyi
 Viren Panchal
 Amal Putti
Strategic Management Analysis : Apple
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Outline
• Purpose
• Strategic Issues
• External Analysis
 Environment
 Porter’s Five Forces Analysis
 Competitor analysis & Dynamics
• Internal Analysis
 VRIO Analysis
 SWOT Analysis
 Boston Consultancy Group Matrix
 Value Chain
• Recommendations for Strategy
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Purpose
Apple iPhone 3G to take #1 position in the Global
Smartphone market and provide
recommendations to maintain sustainable
competitive advantage
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Strategic Issues
• AT&T has contractual rights for the distribution and sales of iPhone
in the US leading to contractual buyer bargaining power , limiting
customer base decreasing overall profits and market share
• Apple needs to address the iPhone’s technical flaws which include
but are not limited to its 3G reception and non–user replaceable
battery.
 KEY ISSUE:
• Apple must get iPhone 3G beyond the youthful technophiles and
into the hands of mainstream users. This group of customers is great
for launching a product, but there aren’t enough of them to create
sustained growth. The biggest question about the future of the
iPhone is whether Apple can reach beyond the early adopters to
generate substantial amounts of mainstream demand for the iPhone.
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External Analysis
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Firm’s External Environment
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Technological Change
• Competitive Mobile Industry
• Competitive factors affecting the mobile industry
 Price ,Product Quality, Reliability and Innovation
 Service, Support and Corporate Reputation
 Rapidly changing technologies and standards
Apple must continue to innovate to keep in pace with
the technological changes and the consumer demands
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Demographic Trends
• Recent study conducted by comScore based on
income of consumers purchasing iPhone
• High rate of adoption among households with lower
rates of disposable income
 50 % price reduction
 Convergent device hence eliminates need for multiple
gadgets
Consumers demand for single device as they face the
economy by cutting on additional gadgets
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Household Income and Growth Percentage Statistics
50% 48%
46%
45%
40%
35%
30%
25% Growth
20%
16% 16%
15%
10%
5% 3%
0%
< 25K 25K - 50K 50K - 75K 75K - 100K >100K
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Cultural Trends
• Consumers prefer a single device to combine business
and pleasure to avoid lugging additional gadgets
• iPhone 3G combines three products in one - a
revolutionary phone, a widescreen iPod, and a
breakthrough Internet device with rich HTML email
and a desktop-class web browser
High demand for low cost Smartphones
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Economic Climate
• Global economic crisis has resulted in
 Tight credit markets
Volatile fixed income
Consumers may postpone spending
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Legal & Political Conditions
• Company relies on third-party patents
Company results could be affected if found to have
infringed intellectual property rights
Ability to offer wide variety of content at
reasonable rates can be affected
• Subject to certification and regulation by government
and standardizing bodies
Process is extensive and time consuming
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International Events
• Supply and manufacture of critical components
performed by third-party vendors outside of US.
• Approximately 43 % of the sale comes from outside
of US.
War, terrorism, public health issues, natural disasters
in these countries could create delays and
inefficiencies in Apple’s supply chain and also affect
consumer buying behavior
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Porter’s Five Force Analysis
1. Threat of Rivalry- High
• Big players with deep pockets-
Google, Nokia, Samsung , Motorola, HTC
 Product differentiation
 Marketing and branding
 Price War
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Porter’s Five Force Analysis
2. Threat of Buyers – Moderate
• Many brands to choose from
• Demand for new and updated features
• Increasing markets in developing countries
 Higher price sensitivity
 Should reduce price
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Porter’s Five Force Analysis
3. Threat of Suppliers- Low
• Hardware and 3rd party suppliers for apps
• Builds its own OS, some application
software, music player and peripherals
4. Threat of Entry- Low
• Huge capital requirements
• Strong R&D and market strategy required
• Break customer loyalty of current companies
 diverse products at lower cost to sustain
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Porter’s Five Force Analysis
5. Threat of Substitutes- Low
• Wired telephony, Satellite based
systems, WLANs, PCs, netbooks
 Convergence of
mobility, internet, apps, compact size, multi
touch screen user interface
 G concept
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Porter’s Five Force Analysis
MODERATE LOW
LOW LOW
HIGH
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Apple’s Competitor Analysis
• The Smartphone industry sees intense pressures of
increased competition, downward prices, slow and
stagnating growth and the entry of low-end models.
• Apple’s Smartphone competition comes from companies
such as RIM, Nokia, Sony Ericsson, Samsung, and many
other mobile phone manufacturers.
• Apple experiences competition in various tactical areas such
as Smartphone key features, carrier
partnership/choice, brand name recognition, distribution
channels access, customer support and pricing.
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Apple’s Competitor Analysis
Components Apple Inc RIM Ltd Nokia Samsung Sony HTC Significance
Increased
Users'
customer
Experience Very High High Moderate Low Low Low
confidence in
(Satisfaction)
product
Numerous Numerous
carriers, carriers,
different different
Decrease in
Carrier Only one ( models built models built
number of
Association/ AT&T to Few carriers to Fewer carriers Fewer carriers
potential
Choice locked) respectively respectively
customers.
work with work with
different different
carriers. carriers.
Increased
Name Brand
High High High High High Low customer
Recognition
loyalty
Mobile
Third parties,
applications carriers,
mobile
in iTunes Third parties, Third parties, Third parties, YouTube,
carries, side Limited
Content store mobile mobile mobile side loading
loading, content
Strategy (proprietary, carries, side carries, side carries, side via PC,
Amazon download.
side loading loading loading loading Amazon
music market,
via PC music market,
third parties
third parties
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Competitor Analysis (cont’d)
Components Apple Inc RIM Ltd Nokia Samsung Sony HTC Significance
affects
consumers'
phone choice
Pricing High High High Low Low Moderate since price is
the same as
some other
competitors
Touch screen, Touch screen, Touch screen,
Better mobile mobile Touch screen, mobile Touch screen, More
HSDPA, Wi-
internet, internet, HSDPA, Wi- internet, HSDPA, Wi- attractive to
Key Features Fi, GPS,
HSDPA, Wi- HSDPA, Wi- Fi, GPS, HSDPA, Wi- Fi, GPS, prospective
camera
Fi, GPS, Fi, GPS, camera Fi, GPS, camera users
camera camera camera
Access to reduction in
Distribution Moderate High Moderate High Moderate Low global market
Channels share
Customer increase in
Service/Supp High High Moderate Low Moderate Low customer
ort Quality loyalty
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Internal Analysis
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SWOT Analysis of Apple iPhone 3G
Sr. No. Strengths Weakness Opportunities Threats
Apple carries a high Unique product – Loyal customers Immense
1. brand equity and is one has no competition
of the most established diversification or
brand customization to
offer
Lot of finance for AT&T exclusivity Social Trends – Dependence on
2. development of i- in USA People becoming third party
Phone products tech savvy and suppliers
changing their
phones
Extensive customer Dependence on High potential New powerful
3. base and customers 3rd party providers software entrant – Google
Loyalty
Cultural fashion Technological International Many similar or
4. identity complications- opportunities substitute
application products
slowdown and
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freeze
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SWOT Analysis (cont’d)
Sr. No. Strengths Weakness Opportunities Threats
Powerful online Comparatively less Diversification Increasing
5. presence appealing to bargaining power of
corporate customers buyers
Originality of Threat of imitability
6. products/services (cloning and
pirating)
Significance With its highly Unfortunately, Apple Developing Nokia is a well
innovative product has had little success countries in Asia established giant in
design iPhone has implementing this combined with the the international
several strong aspect of the iPhone booming telecom Smartphone market.
features that are in foreign countries market and India and Threat of new
presented to a large China is something entrants and iPhone
and loyal user base that Apple iPhone ‘look-alikes’ is
that Apple has should be looking major.
accrued over the forward to.
years
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Boston Consulting Group
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Apple iPhone 3G’s Market share
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BCG (cont’d)
• Growing Smartphone Market
Despite challenging economic conditions, smart phones gain
significant market share worldwide over the past six months, rising
from 26% to 33%
• Smartphone Market Share
The iPhone's grabbed 28% of the US Smartphone market in per
reports in December 2008.
• Sales Growth
Apple iPhone sales have gone up by 245% in 2008- largest
percentage increase RIM - 98 % increase ; HTC- 58% increase
The leader in its business and is also generating a lot of revenue. This
makes the Apple iPhone a STAR in the BCG Matrix.
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Value Chain Analysis
VALUE CHAIN
Marketing
Design Build OS/UI Apps Distribution & Service Customer
Sales
Network
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Value Chain (cont’d)
• Technology Development:
 Rapid technological advances
 R&D department is one of the best in today’s world-
creates immense value by introducing variants to the
iPhone
• Product Design:
 Design has always been a part of Apple’s DNA
 Incredible business model and ecosystem
 The iPhone has incentives for its partners and monetization
opportunities for Apple throughout- Outside software
developers keep 70% of each sale for the products they
develop
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Value Chain (cont’d)
• Manufacturing:
 Outsourced most manufacturing - reduces operating costs
 iPhone is assembled and distributed in China - cheap
labor
• Marketing:
 Cleverly utilized the internet to build hype for the iPhone
 Internet advertising helped in the sales of the iPhone
 Marketing the iPhone directly to end-users, certain
education customers, and resellers through online and
retail stores
• Service and Distribution:
 Apple and AT&T alliance
 Best Buy needs to improve its brand and customer pull
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Recommendations
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Recommendations
• Expand the customer base in the existing US Smartphone market
Apple can adopt one of the following 3 strategic solutions
1. Open Market Service Provider Strategy
 iPhone to pair with any service provider upon end user discretion.
 AT&T has contractual rights for the distribution and sales of
iPhone in the US eliminating contractual buyer bargaining power.
 Initial cost of exiting the contract with AT&T might be
detrimental
 This increase in competition will lower the cost of service plans
for the consumer, attracting more end users to the iPhone.
 AT&T’s monopolistic control over the iPhone market- complete
control over the voice and data package costs, increases price of
owning an iPhone
 AT&T offer insufficient network connections that reduce the
quality of the iPhone.
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Recommendations (cont’d)
2. Midway Strategy
 To avoid taking the leap it can offer two options to its customers
1. They can have the choice to buy the iPhone with an AT&T subscription
which would be cheaper
2. Buy it at a higher price but with the liberty to choose a service plan
provided by any service provider.
In this way the customers can make the choice depending on their liking and
budget iPhone
3. Customization Strategy
 Consumer specific customization and hardware packaging- increase
product diversification and eliminate threat of competitive alternatives
 Removing of unnecessary or less popular apps
 stripping certain hardware features - reduce cost
 customized bundling of similar apps and selling it at a lower price-clever
implementation and marketing
 Increased sales and a larger customer base
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Recommendations (cont’d)
• Gaining access to additional distribution channels and
sales outlets in the international market (International
Presence)
 Substantial presence internationally but still has to be
introduced in many Asian countries including China, most
Arab countries and most of Africa
 Exploit international markets especially in China.
 Strike alliances with service providers
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Recommendations (cont’d)
• Cost Reduction
 Should drive down costs per unit to enable price
reductions- attract customers.
 Apple iPhone 3G is currently priced 20-30% over its
competitors
 Should exploit its R&D to innovate, create products
with similar usability but at a lower cost
 People in a deep recession might respond better to a lower
price, even if it was for a stripped-down lesser model.
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Recommendations (cont’d)
• Overcoming Technical Hitches
• R&D should come up with solutions to sustain competition.
• Problems with Apple iPhone 3G connectivity with a 3G network. The
blame game is on with AT&T.
• The switch between EDGE and 3G networks leads to broken web sessions
that can be detrimental to many business applications and annoying to all
• For some the switch between the networks leads to dropped calls
• The battery life has worsened as the new applications combined with GPS
and 3G connectivity modules suck enormous amount of power.
• Apple has to constantly innovate to appeal consumers by directing
concentrated efforts on R&D.
• Management has a huge role.
• Managers have to provide motivation and incentives to the employees and
implement an effective reward systems
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