Apple Case Group 6:Pujit

PrakashVinod

ChandanAjay

Overview• Apple´s competitive advantage• Market structure PC 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 elegance

Vertical integration: • Alliances IBM • 2 joint ventures

Geograpic: From small (garage) Low cost mainstream

Steve Jobs > 1997

Strategy 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 the

sources of Apple’s competitive advantage?

Stable sources of competitive advantage?Year Source competitive

advantage

1970s Easy-to-use computers

1984 Ease-of-use, industrial design, technical elegance

1980s-1990s Superior software

1980s-1990s High investment R&D

1980s-1990s Complete desktop solution, hardware, software, peripherals: plug and play

1980s-1990s Designing products from scratch

Year Source competitive advantage

1990s Low costs

1990s Hit product every 6 to 12 months

2000s Design, plug & play

2000s Successful marketing campaigns

2000s Greenest lineup of notebooks

Product

excelle

nce

Operational

excellence

Product excellence

Analysis of the

structure & profitability of the pc industry?

PC market

Supplier power

Rivalry

Barriers to entry

Buyer power

Substitutes

Low: Memory chips, disk drives, keyboardsHigh: Processors (Intel) & OS (Microsoft)

Low: Easy to make, easy to clone pc’sHigh: difficult to become big

High: Lenova, IBM, HP, Dell, Acer

High: Low price & standardized customers can buy every pc they want. Low switching costs

High & increasing: 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

Profitability Players (2009) Gross margin Net income (in millions)

HP 23.6% $ 7,660

Dell 18.0% $ 1,433

Apple 40.0% Not known

Suppliers Gross margin Net income (in millions)

Intel 16.0% $ 4,369

Microsoft 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

High WTP

Standardized market

Own supplier

Love Apple

Fit with complementary products

Does Apple have a sustainable

competitive advantage in the 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.

Does Apple have a competitive advantage in PC market?

• IBM dropped prices, MAC appeared overpriced by comparison

• Low R&D• Low Cost• Licensing cannibalization own products

Solution • Going back to initial strategy• Cooperation Microsoft – Microsoft Office• Cooperation Intel – CPU on which Windows OS

could be installed

Problems of Apple in the PC industry (1988-2001)

• 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.

Did Jobs make his move from Motorola and IBM to Intel at the right time?

What is the structure of the Music player market?

Music player

Supplier power

Rivalry

Barriers to entry

Buyer power

Substitutes

Medium: HynixSamsungToshibaIntelMyaonHigh: dependabilityMutual dependingFlash memory

High: Easy to produce - lowBuild up supply chain – highImage building - high

High: SanDiskSamsungCreative M’soft Zune (2006)

High:Many choicesLow switching costs

HighSmartphones (Spotify, downloads songs to phone)tablets

Does Apple have a

competitive advantage in the music player market?

Apple in the music player marketCompetitive advantage Value Rareness Inimitability AppropriabilityPositional advantage

Customer 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)

What is the structure of the cell phone market?

Cell phone

Supplier power

Rivalry

Barriers to entry

Buyer power

Substitutes

High: Powerful distribution carriers (NTT DoCoMo & Vodafone) & powerful network carriers (Verizon & AT&T)

Android OS(Google)

High: Short product life cycleContract with carriersHigh investment

High: Nokia, Motorola, Samsung 60% market shareA lot of competitionBlackberry (RIM), Google

High: Choice based on attractive hardware and user-friendliness

High & increasing: “Normal” phoneLaptopTablet

Does Apple have a

competitive advantage in the cell phone market?

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.

What are the

prospects of the Ipad?

IPAD 2

SWOT analysis of the IPAD 2

Brand nameCustomer loyalty

“love apple”Deliver extra

Add-onsApp store

Idea and technology is

imitable

Your new laptopWireless

rechargeable

CompetitorsLosing Steve

Jobs

Strenghts

Opportunities

Weaknesses

Threats

Prospects for Ipad 2

• Ipad 3

– Experience your new laptop

–Wireless rechargeable

Apple’s solution to the chronic problem

Chronic problems of the market• Technology is not sustainable• Standardization of the market• Dropped prices of components• Short product life cycle

Apple’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&D

Jobs made himself irreplaceable

Apple’s futureDoes Apple have a sustainable advantage today?Yes, because of customer loyalty due to a strong brand name, digital hub.

Alternative strategic options:• Customer intimacy• Product leadership• Operational excellence