Apple Unveils Its Offline Strategy - Essay Example

 Apple Unveils Its Offline Strategy Apple Computers Inc (Apple) had differentiated itself in the computer market through its creative efforts and building futuristic products. Wherever high end computing was required Apple’s products were used. They enjoyed a trusted and loyal customer base but their customer base comprised of a small percentage of the total PC market (ICMR, 2003). They introduced new products - Lisa and Macintosh (Mac), targeting the high-end and education market. After the founder Steve Jobs resigned from the company, the company went through a series of management and structural changes that resulted in heavy losses. As losses mounted Jobs was brought back as the CEO who realized that licensing Mac operating system had contracted the market by taking away the customers (Bryson et al., 2006). The strategy was changed immediately and Apple began to sell directly by phone and internet. This strategy did bring about better sales but the market was saturated and there were miscalculations on the consumer demand. Since they were performing poorly and the sales were shrinking as competition had set in, the company changed their strategy and business objectives. Having performed poorly in the traditional computer market they decided to integrate the product development strategies with the digital technologies in the consumer electronics market. Their strategy was to innovate. Based on the new direction provided under the new CEO, the company was steering towards growth and it was subsequently ranked number one as Fortune’s most admired company for innovation. Apple was no more seen “in a battle for PC market share -- instead, as the platform becoming a premium PC, capturing selective demand” (Bryson et al., 2006). The objective of the company was to position Apple products as an integrating platform for a range of household products like cameras, video recorders and music players. Apple’s strategic business units now include personal computers, software, iTunes, QuickTime, iMac, and support as per the chart below: Source: (Bryson et al., 2006). SWOT Analysis With the changed strategy the company was operating in an environment that provided several opportunities but competition and its own damaged reputation posed threat to its existence. Nevertheless, the strengths of the company saw it through the threats. The main strengths of the company were the vision of the CEO, Steve Jobs, the iPod, and the brand loyalty. Apple dominates the digital music player market and this market is expected to hit $12 billion by 2009 with Apple having a share of more than 70 percent (BusinessWeek, 2006). Apple has already been the first to use the mouse and the graphical user interface (GUI) so its success in iPod is hardly surprising. The mouse and the GUI were replicated and the market was inundated with products but iPod has created and established a niche market. Apple has been able to initiate several new-market disruptions in music and computing, including iTunes, iMovie, and GarageBand. Apple may be the second or the third in the market for digital music players but its presence in the music space has become its core strength (Boddie, 2005). Its presence in the music space is strengthened by its brand loyalty as Apple has become the world’s leading brand – replacing Google. Apple’s customers are fanatic about the products that they use and Apple enjoys immense brand loyalty. The company achieved enormous success in all of its products namely, iPod, iTunes, iPod Photo, PowerBook, Mac Mini, and iPod Mini. (iProceed, 2005). Its new MacBook Pro laptop, even though very highly priced, is struggling to meet the demand (BusinessWeek, 2006). It has been possible to achieve all this because of the vision of the CEO Steve Jobs who is also responsible for the company’s innovative strengths. He called this the "era of the Digital Lifestyle" (ICMR, 2003). He believes that even though people are surrounded by digital cameras, MP3 players, Palms, cell phones, DVD players, a PC enhances their value. He envisions that in the next era a PC would be the digital hub for all these devices although the graph below demonstrates that PC market has reached a saturation point: Source: (Bryson et al., 2006). The following chart demonstrates the hardware market share in which Apple stands nowhere near the top hardware manufacturers: Source: (Bryson et al., 2006). Despite the immense brand loyalty and the vision that the CEO has, despite Apple being the first manufacturer to offer a floppy disk drive, despite being the industry leader that remained vertically integrated offering hardware and software for all their products while other players licensed software from third parties (ICMR, 2003), Apple has just 5% of the total $75 billion home PC market (BusinessWeek, 2006). There have also been some hacker-attacks on Mac that has damaged its reputation as a virus-free alternative to windows. They had expected that the halo effect created by their iPod would boost the sales of the POC but that has not taken place. Because of its paltry share in the PC market it has not been able to make any headway in the gaming industry which is booming today (Bryson et al., 2006). Apple had aimed at selling through retail stores but these stores could not create new customers. Since they sold only Mac PCs, the only customers that the retailers could draw were the existing Mac users. The stores were aimed at expanding the existing market share (BBC News, 2001). In the process Apple has maintained very poor relations with its retailers who ought to be their partners. The market is competitive but several opportunities are available to Apple. The home PC market is huge and Apple could consider licensing its Mac software to other PC makers. Companies like Dell are trying to stamp out Mac clones and Apple’s market share could rise in double digits. Even though this could push its hardware sales down, but the company’s margins could increase because of the royalty they could get out of licensing Mac software (Business Week, 2006). Adobe Systems is considering converting its popular graphics and Web Publishing software to run at top-speed on the new Intel-based Macs. This would increase its market share. Apple has about 65 retail stores in the US. This market penetration strategy could initiate new market for their PCs (BBC News, 2001). Through their retail stores they could show case all their products and could attract first time user of the PC thereby gaining momentum in their PC sales market (Lang, 2001). Health care is a major concern for the aging population in any country. With telemedicine becoming popular, there is expected a heavy demand for home PCs. Not only the home users, there is expected a huge demand for PCs even from the health care industry because expenditure on medical IT systems is on the rise (Bryson et al., 2006). Apple should focus on this new segment of users. In addition, Apple’s software has become very popular with desktop musicians. File sharing and music downloading is gaining momentum. They can prerecord radio shows called podcasts on iTunes (Boddie, 2005). The company has received multiple requests to release new tunes that could be edited using GarageBand. This could create new market growth in desktop production. Apple has to be careful in exploring further markets or taking advantage of the opportunities as Apple’s market share is falling and the reputation is damaged. Its stock prices have started falling down. The iPod Nano has become a controversial issue as the screen can be easily scratched. This lawsuit has attracted attention of the media to the point that its stock prices have been affected. Competition exists not only in the PC sector but has also entered the iPOd segment. Rio and Eiger Labs both had MP3 players much before iPod was introduced (Boddie, 2005). Even now there are new competitors and these include Archos, Creative Labs, e.Digital, Phillips, and RCA (Bryson et al., 2006). Another threat to its existence or to its reputation is the worm fear. So far only window users were under threat of work and virus attacks but recently even Apple users have increasingly come under such threat although these may not as harmful. Nevertheless, the users may feel threatened. The functioning and growth of a company is largely shaped by the external environment that consists of the political, economical, social and technological factors or the PEST factors. The pricing has to be same all across the EU and Apple had to bring down its prices when regulators had leveled antitrust charges against the company. There was disparity in pricing in the UK and the rest of the EU for downloading single iTunes (CBR, 2008). Pan European market place should be viewed as a single market place. When Apple decided to match the prices, the case was dropped. Apple has just launched the latest iPhone, which combines a music and video player, cellphone and Web browser has been received very well in the UK. This demonstrates the highly conscious and receptive society but they want fair prices. They expect to sell 10.5 million smart phones worldwide this year (Cowan & Bathgate, 2008). The UK home-entertainment market consists of three main sectors: television, video and DVD; audio equipment; and PCs and games consoles. There has been an increased of 7.2% in sales between 2003 and 2007 (BusinessWire, 2008). Sales of desktops are declining while those of laptops are increasing. People in the UK are very receptive to new technology which is demonstrated by the fact that there was a long queue outside the flagship store in London when the iPhone was launched on July 11, 2008 (Cowan & Bathgate, 2008). People are more interested in up-to-date technology and this is the reason that sales of DVD systems, video players and desktop computers will decline (BusinessWire, 2008). Thus a SWOT analysis and the PEST analysis demonstrates that Apple is all set to make a grand breakthrough in the UK market where the people are extremely responsive to new technology but they want fair prices. The company is able to pursue its objectives and use its brand loyalty to remain as market leaders. References: BBC News (2001). Apple unveils its offline strategy. Available from: http://news.bbc.co.uk/1/hi/business/1339150.stm [accessed 10 July 2008] Boddie, J. (2005). Behind Apple's Strategy: Be Second to Market. Harvard Business School. Available from: http://hbswk.hbs.edu/archive/4970.html [accessed 10 July 2008] Bryson et a., (2006). Apple Computer Inc. Available from: http://zbryson.googlepages.com/Apple.Industry.Analysis.doc [accessed 10 July 2008] BusinessWeek (2006). Apple Computer . Available from: http://www.businessweek.com/magazine/content/06_14/b3978407.htm [accessed 10 July 2008] BusinessWire (2008). Essential Assessment of the Home Entertainment Market Available Now. http://findarticles.com/p/articles/mi_m0EIN/is_2008_June_26/ai_n27871150 [accessed 11 July 2008] CBR (2008). EU drops anti-trust case against Apple. Available from: http://www.computerbusinessreview.com/article_news.asp?guid=12AABB5A-2F98-4CAF-B3E9-3283E848A2B3 [accessed 11 July 2008] Cowan, M. & Bathgate, A. (2008). Apple's new iPhone snapped up in Asia and Europe. Available from: http://www.sciam.com/article.cfm?id=apples-new-iphone-snapped [accessed 11 July 2008] ICMR (2003). Apple Computer: Evolution of Product Line. Available from: http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy3/BSTA066.htm [accessed 10 July 2008] iProceed (2005). Apple Computer transforms its strategy. Available from: http://www.iproceed.com/blog/2005/02/apple-computer-transforms-its-strategy.html [accessed 10 July 2008] Lang, D. (2001). Apple's New Retail Strategy. Available from: http://www.cmug.org/pulpit/Retail.html [accessed 10 July 2008] Read More