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IMD-Case Analysis-Apple Inc. 2008

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Harvard Business Case Analysis - Apple

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IMD-Case Analysis-Apple Inc. 2008

  1. 1. 7/9/2014 1 Case Analysis – Apple, Inc (2008) BinusBusiness School, MM Executive Batch 20 Presented by Group I Alexander Christian Dina SandriFani Jenna Widyawati Ridwan Martawidjaja Case Study AnalysisApple, Inc. (2008)
  2. 2. Table of Contents 7/9/2014 2 Apple at a Glance Competitive Analysis Product and Marketing Strategy Problem Statement Conclusion and Recommendation 1 2 3 4 5
  3. 3. Table of Contents Case Analysis – Apple, Inc (2008) 7/9/2014 3 Apple at a Glance Competitive Analysis Product and Marketing Strategy Problem Statement Conclusion and Recommendation 1 2 3 4 5
  4. 4. Apple’s Business EvolutionExperienced upturns and downturns in its journeyto become Industry’s Giant 7/9/2014 4 Case Analysis – Apple, Inc (2008) 1970s •Apr 1976: Apple Computer was founded •Vendor specialized of the Mac PC line 1980s •Dec 1980: launched IPO. Became the industry leader •1981: IBM entered the market. Apple’s competitive position changed •1982: market share dropped to be 6.2% •1983-1984: net income fell 17%; company in crises •Apr 1985: Jobs removal; replaced by Sculley 1990s •1990 shift away to low-cost producer of computers under Sculley era. Shorten the product development cycle •1991: Forged an alliance with IBM by forming a JV named Taligent. A goal is to create revolutionary OS •1993: Gross margin dropped to 34%; forced Sculley down and replaced by Spindler •1995-1996: parted the JV. Reported $69 mio loss. Splinderreplaced by Amelio. Worldwide market share dropped from 6% to 3% •Late 1996-1998: Jobs returned. First used of website to sell products 2000s •The Apple turnaround. Apple to streamline operations & reinvigorate innovation •Reenergize Apple’s image: not just a techno company but a cultural force •Fully outsourced the manufacturing •Provided retail experience. Operated 215 stores; logged >350 mio visits •Facing a downward pricing pressure to keep revenue growth •Major shift by providing multi product lines
  5. 5. Apple’s Product EvolutionFocus in technology and innovation excellence. Shift away from specialized of the Mac PC line to multiple products line up Case Analysis – Apple, Inc (2008) 7/9/2014 5
  6. 6. Apple’s Philosophy Case Analysis – Apple, Inc (2008) 7/9/2014 6 Empathy “We will truly understand our customers’ needs better than any other company” Focus “In order to do a good job of those things we decide to do we must eliminate all of the unimportant opportunities” 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 creative, professional manner, we will impute the desired qualities”
  7. 7. Apple’s Current Business Model Case Analysis – Apple, Inc (2008) 7/9/2014 7 Customer Segments Fragmented segment for each product. Tapping more into upper class segment due to its premium price Customer Relationships Self service Automated services Retail experience Personal assistance at Apple store Co-creation through Apple store Value Proposition Compatible experience with digital & entertainment hub Sleek design Easy-to-use products High-end, premium products line Endless innovation
  8. 8. Apple’s Current Business Model Case Analysis – Apple, Inc (2008) 7/9/2014 8 Key Resources Apple brand Constant innovation Intellectual/patent Customer-obsessed, empathetic employees Physical assets and facilities Key Activities R&D through customer observation Hardware & software development Managing cooperation through tight quality control Marketing Key Partners Manufacturers App store developers Telco operators Publishers Music, television, and movie industries
  9. 9. Apple’s Current Business Model Case Analysis – Apple, Inc (2008) 7/9/2014 9 Channels Owned website (Apple.com) Apple retail stores iTunes stores National & international distributors Cost structure Manufacturing cost Labor cost Marketing & advertising cost R&D cost Revenue Streams Sale of products Media sales/licensing Rental & subscription fee Purchased apps Accessories Advertising
  10. 10. Table of Contents Case Analysis – Apple, Inc (2008) 7/9/2014 10 Apple at a Glance Competitive Analysis Product and Marketing Strategy Problem Statement Conclusion and Recommendation 1 2 3 4 5
  11. 11. Problem Statements Case Analysis – Apple, Inc (2008) 7/9/2014 11 Deteriorated market share Apple’sshareoftheworldwidePCmarkethadedgeduponlyslightlyinrecentyears;remainedinthe2%to3%range 1 Strong downward pricing pressure Upshot of the pricing trends was persistently low profitability. Average selling price for a PC declined by a compound annual rate of 8% per year Consumers’ behavior evolution Complexity in handlingcustomers needs arose as they become more knowledgeable about PC 3 1.Was Apple’s recent success just another temporary “up” in its up- and-down history? 2.Had Apple finally established a sustainable strategy? 2 Exclusive, limited vs. Open platform Compete with the other players that provide unlimited offers due to its open plaftorm 4
  12. 12. Table of Contents Case Analysis – Apple, Inc (2008) 7/9/2014 12 Apple at a Glance Competitive Analysis Product and Marketing Strategy Problem Statement Conclusion and Recommendation 1 2 3 4 5
  13. 13. Competitive AnalysisDetermine Apple’s model of competition using Porter’s Five Forces Case Analysis – Apple, Inc (2008) 7/9/2014 13 Rivalry amongst sellers Threat of New Entrants Bargaining powers of customers Threat of substitute products Bargaining power of suppliers Low •Massive capital investment •Copyrights for patents and technologies made new entries difficult to adopt Very high •Multiple competitors-fierce battle •PC: HP (27%), Dell (25%), Acer(11.4%), Apple (8%) •Personal media: strong position (73%) •Smartphone: RIM (43%), Apple (24%) •Tablets: outright leader Low Suppliers compete among themselves to obtain exclusive contracts with Apple and therefore have no bargaining power Very high •Lots of substitute models throughout the phone, PC, tablet industry •Substitutes within Apple’s product range, makes not easy to choose Medium •End-user are mostly loyal •General buyers have high bargaining power
  14. 14. Competitive AnalysisApple SWOT Analysis: maintain its strength, leverage market opportunities, and minimize threats are key areas to maintain Apple’s leading position Case Analysis – Apple, Inc (2008) 7/9/2014 14 S W T Strengths •Powerful brand image associated with quality & superior design •Large loyal customer base •Innovation is a company’s DNA •Strong financial performance •World market capacity •Product diversification & differentiation Opportunities •Entry to emerging economy •Smart phones and tablet market is expanding •Robust outlook for mobile advertising market provides growth opportunity Threats •Rising popularity of Google Android platform may affect its market share •Intense competition may affect revenues and profitability •High dependency on specific suppliers may affect its operations •Substitute products are widely available in the market O Weaknesses •Decreasing market share •Incompatibility with famous apps •High cost structure due to heavy investment on R&D •Long product development cycle due to lack of lean operations management
  15. 15. Competitive AnalysisApple is perceived as a brand that provides a premium, pricy products Case Analysis – Apple, Inc (2008) 7/9/2014 15 Low quality High quality Expensive Less expensive PC market Digital music player market Less expensive Expensive High product range Low product range Head to head competition with Sony Vaio. Both are perceived as premium, expensive brand Head to head competition with SanDisk. iPod offers higher product range than SanDisk
  16. 16. Competitive AnalysisApple is perceived as a brand that provides a premium, pricy products Case Analysis – Apple, Inc (2008) 7/9/2014 16 Pricing model: Rigid Flexible pricing model High product range Low product range Online music store market Smartphones market Has a distinct market positioning compared to the other players. Control the price model 100% but successfully offers the most products iPhone has unique proposition as it is the only brand that associated with 3 imagery, i.e. style/design, features, and durability
  17. 17. Competitive AnalysisNumbers told everything: Apple grew as industry’s giant by having a double digit CA Case Analysis – Apple, Inc (2008) 7/9/2014 17 5,742 8,279 13,931 19,315 24,006 2002 2004 2005 2006 2007 Net Sales Development Year 2002-2007 46 349 1,650 2,453 4,409 2002 2004 2005 2006 2007 Operating Income Development Year 2002-2007 5-year CAGR: 149% 5-year CAGR: 149% 65 276 1,335 1,989 3,498 2002 2004 2005 2006 2007 Net Income Development Year 2002-2007 6,298 8,050 11,551 17,205 25,347 2002 2004 2005 2006 2007 Total Assets Development Year 2002-2007 5-year CAGR: 122% 5-year CAGR: 32%
  18. 18. Competitive AnalysisRapid growth in revenue, store network, and sales per store. Revenue of $6bn from 247 stores globally in 2008 Case Analysis – Apple, Inc (2008) 7/9/2014 18 1. calculated based on average number of stores for the year in order to adjust for the non-full year of revenues of stores opened during the year Source: “Inside Apple Stores, a Certain Aura Enchants the faithful,” New York Times, December 27, 2007; Oppenheimer & Co., May 21, 2008; press search; BCG analysis
  19. 19. Competitive AnalysisApple Stores network account for ~20% of total Apple sales: growing faster than overall average sales Case Analysis – Apple, Inc (2008) 7/9/2014 19 1. Online sales are only from Apple.com and are best guess estimates from 2001-2008 Source: Company annual reports; IfoAppleStore; Apple retailer (for online store sales)
  20. 20. Case Analysis – Apple, Inc (2008) 7/9/2014 20 Competitive AnalysisApple Stores revenue per sq. ft. exceptionally high. Outperforms other retailers by a factor of 4 Notes:Salesexclude non-retail revenue streams (service fees, online sales, direct marketing sales, etc.); banner level data excludes online sales prorated based on banner share of total company sales; data reflects restated (vs. reported) amounts for each year; square feet is gross (vs. selling); if only selling square feet is provided, figures are increased by a factor appropriate for the sector; Lowe's includesCanada operations; Due to an accounting change, Apple numbers are only comparable to 2005; Gamestop2005 data pro forma as if EB merger occurred first day of FY. Sources: 10Ks, company web sites, BCG analysis, Internet Retailer;
  21. 21. Competitive AnalysisOne driver of high sales per sq. ft. is high value Macs Case Analysis – Apple, Inc (2008) 7/9/2014 21 1. Apple-branded operating system and application software, third-party software, AppleCare, and Internet services; 2. Apple-branded and third- party displays, wireless connectivity and networking solutions, and other hardware accessories; 3. After removing iTunes Store sales. Includes iPod services, and Apple-branded and third-party iPod accessories; 4. And related accessories (Source: Piper Jaffray; Company reports; Press search; BCG analysis
  22. 22. Competitive AnalysisStrong price control across channels helps maintain margins (except in multi brand stores in IT malls) Case Analysis – Apple, Inc (2008) 7/9/2014 22 Source: BCG survey; BCG analysis
  23. 23. Table of Contents Case Analysis – Apple, Inc (2008) 7/9/2014 23 Apple at a Glance Competitive Analysis Product and Marketing Strategy Problem Statement Conclusion and Recommendation 1 2 3 4 5
  24. 24. Case Analysis – Apple, Inc (2008) 7/9/2014 24 Product & Marketing StrategyApple’s 4 Ps (Marketing Mix) Pricing Simplistic approach Focus in creating emotional appeal. Utilize the powers of WoM marketing Hybrid distribution channel Online store, physical outlet, exclusive carrier agreement Premium brand Target a less price sensitive customers Diversified product mix Multi product lines to be suiting up with the customer needs High price charged portrays the high quality of products
  25. 25. Product & Marketing StrategyMacBook competition model under Porter’s Five Forces Case Analysis – Apple, Inc (2008) 7/9/2014 25 Rivalry amongst sellers Threat of New Entrants Bargaining powers of customers Threat of substitute products Bargaining power of suppliers Low •High capital investment – commoditized market makes difficult to differentiate •Substantial dominance of low-cost large-scale players Very high •Multiple competitors-fierce battle •PC: HP (18.8%), Dell (14.9%), Acer(7.9%), Apple (2.6%%) •Very low switching cost Low Suppliers compete among themselves to obtain exclusive contracts with Apple and therefore have no bargaining power Medium •Huge network externalities for PCs •No Mac clone available, no competing product in the Mac market Medium •End-user are mostly loyal •High cost of switching to PC
  26. 26. Product & Marketing StrategyMacBook’s SWOT Analysis Case Analysis – Apple, Inc (2008) 7/9/2014 26 S W T Strengths •Pioneer in the personal computer industry •Self-sufficient: be able to build their own OS •Complete package of HW and SW Opportunities •Taking advantage of the Mac OS: leverage the difference over competing OS •Taking advantage of its innovation excellence to head-on Microsoft image Threats •Highly competitive industry may affect its market share •Existence of low-cost large- scale players •Substitute products are widely available in the market O Weaknesses •Inconsistency in quality and technology •High cost structure due to high R&D investment •High dependency to processor chips’ supplier
  27. 27. Product & Marketing StrategyMacBook’s Positioning and its Target Segments Case Analysis – Apple, Inc (2008) 7/9/2014 27 Students Professional & business people Teenagers and young adults Government Market Segments Positioning  High premium charges that offered a cutting-edge, tightly integrated user experience  “Everything-ready” device that worked well with other devices
  28. 28. Product & Marketing StrategyMacBook’s Marketing Mix Case Analysis – Apple, Inc (2008) 7/9/2014 28 •Multi product range to cater wider segment •Available for high-end user, mass-segment user, and low- end user •Bundled software Product •Different pricing model applied to be suiting with customer needs Pricing •Focus on strength in marketing Mac products •scientific, professional, stylish and fashionable elements respectively •Emphasizing Mac interoperability with other machines Promotion •Direct distribution channels: online store, physical outlet •Indirect distribution channels: outsourced the manufacturing of Mac products Placement
  29. 29. Product & Marketing StrategyiPod competition model under Porter’s Five Forces Case Analysis – Apple, Inc (2008) 7/9/2014 29 Rivalry amongst sellers Threat of New Entrants Bargaining powers of customers Threat of substitute products Bargaining power of suppliers Low •Significant economies of scale •Consumers are brand loyal Very high •Multiple competitors-fierce battle •Industry is stagnant or declining •Very low switching cost: creating pressure to downward the price High Availability of supplier input; competitiveness of input market High •Emerging smartphones market •Price value characteristic (not be the 2008 case but now become an issue) Medium •End-user are mostly loyal •High cost of switching to PC
  30. 30. Product & Marketing StrategyiPod’s SWOT Analysis Case Analysis – Apple, Inc (2008) 7/9/2014 30 S W T Strengths •Product design excellence •Great functionalities •Compatible with either Mac or Windows platform •Multiple product lines with different storage capacity •Presence of brand loyalist Opportunities •Leverage existing features •Additional revenue from accessory market Threats •DRM-free copies of music from the four big labels •Economic condition that lower customer purchasing power •Emerging smartphone product that replace its functionality as media player O Weaknesses •Lack of additional features like wireless music sharing capability & FM tuner •Health concern such as hearing impairmentand effect on pacemaker •Fixed pricing structure
  31. 31. Product & Marketing StrategyiPod’s Positioning and its Target Segments Case Analysis – Apple, Inc (2008) 7/9/2014 31 Youngster/ teenager Urban & professionals Music lovers Tech savvy individuals Market Segments Positioning  An icon of the Digital Age  A portable digital music player based on the MP3 compression standard
  32. 32. Product & Marketing StrategyiPod’s Marketing Mix Case Analysis – Apple, Inc (2008) 7/9/2014 32 •Wide product ranges with storage capacity and functionality •iPod shuffle, iPod nano, iPod classic, and iPod touch Product •Different pricing model applied to be suiting with customer needs •ASPs ran $50 to $100 higher than that of other MP23 players •Gross margin 30-35% •Additional revenue stream from accessories sale Pricing •Unique advertising –silhouette ads •Benefiting from mouth-to-mouth advertising •Message focus on experience and lifestyle •Utilize iTunes channel Promotion •Sale through owned web and retail stores •iTunes Music Stores •Forging deal with flash manufacturers Placement
  33. 33. Product & Marketing StrategyiTunes competition model under Porter’s Five Forces Case Analysis – Apple, Inc (2008) 7/9/2014 33 Rivalry amongst sellers Threat of New Entrants Bargaining powers of customers Threat of substitute products Bargaining power of suppliers High •Access of entrants to key input, including know-how is easy High •Multiple competitors-fierce battle •However, iTunes manage its leadership in online music store market •Monthly subscription plan allowed unlimited listening High •Competitiveness of the input market •Ability to supplier to price discriminate High •Availability of close substitution from pirate product High •Indirect power to competitive market •Availability of substitute product
  34. 34. Product & Marketing StrategyiTunes’ SWOT Analysis Case Analysis – Apple, Inc (2008) 7/9/2014 34 S W T Strengths •Apple brand •Brand loyalist •The first store that offer revolutionary way to buy music •Affordable song pricing compared to conventional music market Opportunities •Enlarge the market to reach all entertainment audiences •Open platform system that compatible to the other platform •Connect iTunes store to other social media to increase awareness Threats •Existence of other online digital entertainment and music store •Piracy entertainment product •DRM-free music copies from big labels O Weaknesses •Rigid pricing strategy •“Trojan Horse” image due to its FairPlay piracy protection •Limited main users to Apple’s product customers
  35. 35. Product & Marketing StrategyiTunes’ Positioning and its Target Segments Case Analysis – Apple, Inc (2008) 7/9/2014 35 Market Segments Positioning  Innovative online music stores with wide range of music selection  Integrated, seamless digital experience due to TV episodes and film selection offering Youngster/ teenager Urban & professionals Music lovers Entertainment seeker
  36. 36. Product & Marketing StrategyiTunes’ Marketing Mix Case Analysis – Apple, Inc (2008) 7/9/2014 36 •Wide range of digital entertainments that are easy to be downloaded Product •Fixed pricing structure •Very low gross margin •Most of the revenue goes to the music label Pricing •Offering free songs in promotion cooperating with other brands as Pepsi, Coca Cola, Gap •Automatic advertising for Apple’s product users Promotion •Owned web Placement
  37. 37. Product & Marketing StrategyiPhone competition model under Porter’s Five Forces Case Analysis – Apple, Inc (2008) 7/9/2014 37 Rivalry amongst sellers Threat of New Entrants Bargaining powers of customers Threat of substitute products Bargaining power of suppliers Medium •New entrants need to have economies of scale •High capital investment High •Multiple competitors-fierce battle •Existence of iPhone killer products rapidly appearing on the market •Competition become tougher due to Google Android dominance Low Suppliers compete among themselves to obtain exclusive contracts with Apple and therefore have no bargaining power High •Existence of iPhone killer products •Less expensive products Medium •End-user are mostly loyal •General users will have more options
  38. 38. Product & Marketing StrategyiPhone’s SWOT Analysis Case Analysis – Apple, Inc (2008) 7/9/2014 38 S W T Strengths •Apple’s strong brand image •Advanced email security •Support for the Microsoft Exchange email platform Opportunities •Entry to emerging economy •Smart phones and tablet market is expanding •Robust outlook for mobile advertising market provides growth opportunity Threats •Rising popularity of Google Android platform may affect its market share •High dependency on specific suppliers may affect its operations •Substitute products are widely available in the market O Weaknesses •Battery was non-replaceable and had a 5 hours lifetime •High cost structure due to high R&D investment •Features limitation compared to other smartphones
  39. 39. Product & Marketing StrategyiPhone’s Positioning and its Target Segments Case Analysis – Apple, Inc (2008) 7/9/2014 39 Tech savvy individuals Professional & business people Teenagers and young adults Government Market Segments Positioning  Multifunction communication device  “The internet in your pocket” that shared many qualities with smartphones
  40. 40. Product & Marketing StrategyMacBook’s Marketing Mix Case Analysis – Apple, Inc (2008) 7/9/2014 40 •Multiple premium products line up to cater wider segment •Available for high-end user, mass-segment user, and early adopter Product •Bundling offers with 2-year contract of service plan •Different pricing model applied to be suiting with customer needs Pricing •Attractive advertising both ATL & BTL campaign •Activation to community rather than ATL campaign •Digital and word of mouth marketing Promotion •Direct distribution channels: online store, physical outlet •Indirect distribution channels: outsourced the manufacturing of iPhone products Placement
  41. 41. Table of Contents Case Analysis – Apple, Inc (2008) 7/9/2014 41 Apple at a Glance Competitive Analysis Product and Marketing Strategy Problem Statement Conclusion and Recommendation 1 2 3 4 5
  42. 42. ConclusionsApple offering designed around customer experience Case Analysis – Apple, Inc (2008) 7/9/2014 42 Elements of Offering Two overarching themes Making a great product greater Simplicity Sell experience, not products Tight integration between HW & SW Own strong retail channel Outsource manufacturing facilities “Insanely great” and simple user experience Best-in-class consistency across operations It will not be just another temporary “up” in Apple’s up-and-down history
  43. 43. ConclusionOwn retail required to provide desired consumer experience. 3rdparty sales channels could not meet the desired consumer experience standards Case Analysis – Apple, Inc (2008) 7/9/2014 43 Steve Jobs wanted “total, complete control” of retail experience Source: Press search, www.ifoapplestore.com
  44. 44. ConclusionA careful design of Apple Stores management will help Apple to gain sustainable growth in the future Case Analysis – Apple, Inc (2008) 7/9/2014 44
  45. 45. ConclusionRetail data captured used to improve performance across supply chain Case Analysis – Apple, Inc (2008) 7/9/2014 45
  46. 46. Recommendation Case Analysis – Apple, Inc (2008) 7/9/2014 46 Don’t change marketing mix for the sake of gaining some market share!  Increase presence on emerging market. Retail is all about large number!   Shortened the NPD cycle time or Apple will loose sales momentum!  Keep innovating. Show what matters!

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