Differentiation Strategy in Apple Inc - Case Study Example

Differentiation Strategy: Apple Inc. Introduction Apple Inc. (hereafter referred to as Apple) was founded on April 1976. The company, headquartered in California, United States, has grown by leaps and bounds and has become a well-known brand all over the world. Apple is in the business of designing, manufacturing and marketing personal computers, mobile handsets, and portable music players. In addition to this the American multinational corporation markets a vast array of related software and services. The company’s market offerings also include networking solutions and third-party digital content (Apple, 2013). Some of Apple’s immensely popular products and services include the iPhone, iPad, Mac, iPod, Apple TV, iOS and iCloud. The massive geographic reach of the company can be gauged from the fact that it had 390 brick-and-mortar stores in 2012. These stores are located in different countries spread all over the world. In 2012, the company generated 39 percent of its sales in its home market while the rest of the 61 percent was generated from international operations (Apple, 2013). Competition Apple operates in a highly competitive market. It faces stiff competition from numerous national and International companies including Dell, Samsung, HTC, and Google. While Apple operates in diverse businesses, each of these markets witness rapid technological changes. The product life cycle in these industries is pretty small and therefore all players are continuously on the lookout to introduce new products. Companies either resort to aggressive pricing strategies or evolve new products with novel designs. Competitive Strategy Keeping in view the competitive landscape, Apple can adopt one of the three generic strategies put forth by Michael Porter; cost leadership, differentiation or focus (Ormanidhi & Omer, 2008). Porter also stated that a company should follow a distinct strategy otherwise it would reach a state of being ‘stuck in the middle’. A firm may however, in rare conditions, follow a combination of product differentiation and cost leadership (Parnell, 2006). Since Apple operates on a global scale, the competitive strategy of focus as applicable to narrow markets is not applicable. One possible option for Apple is to become a cost leader and compete on the plank of price. Alternatively, the company can compete on the plank of differentiation and attain competitive advantage. In reality, Apple’s products are meant for customers who have high incomes. The company has adopted the strategy of differentiation and therefore charges a premium price for its products. Apple strives to provide its customers the ‘best user experience’. In order to achieve this objective, the behemoth invests heavily in research and development and manufactures superior, innovative products (Apple, 2013). Over the years, Apple has developed an inimitable capability to manufacture its own operating systems, hardware as well as application software. This core competence enables Apple to provide its customers new products and services that are easy to use (Kasler, 2002). Moreover there is seamless integration between these products which adds to customer convenience. The company’s highly differentiated, diverse product portfolio appeals to numerous retail and business customers. It is noteworthy to mention that none of Apple’s customers accounts for more than one-tenth of the company’s sales (Apple, 2013). This suggests that Apple is at an extremely strong position and that its buyer’s bargaining power is weak. Apple has managed to create an enviable reputation of manufacturing and marketing distinctive consumer electronics that have an aesthetic design. This aspect of differentiation has enabled Apple stand apart from its competitors. Chafkin (2013) states that “Apple is different, Apple has always been different.” The company has been able to create a competitive advantage on the strength of its unique product differentiation strategy and closely integrated products (Nair and Leng, 2012). Product Differentiation Apple has been instrumental in transforming the consumer electronics market in the United States (Gupta and Prinzinger, 2013). Apple has designed new products keeping in mind the needs of the end. The company has launched numerous innovative products and services and differentiated them from rival brands. iPhone One of the best examples of Apple’s adoption of the strategy of product differentiation is the widely admired iPhone (Gartenberg, 2008). The smartphone has numerous features and combines a phone, music player, and an internet device. The iPhone runs on Apple’s iOS Multi-Touch operating system. The iPhone is an epitome of innovation (Mickalowski et al, 2008). Many of Apple’s competitors have attempted to replicate the iPhone but in vain. Apple has differentiated iPhone’s hardware as well as the software which has enabled this smartphone achieve leadership position in the market. iPad The iPad and iPad mini are the multi-purpose tablets from Apple’s product repertoire. The gadget has an integrated photo and video camera as well as a photo library app. The iPad is compatible with Mac computers, Windows PCs and Apple’s iCloud services. Apple is relentless in its pursuit of new, differentiated products. Earlier this year, the company announced that it would soon unveil the iPad Air, its fifth generation iPad. The launch of iPad mini with Retina display is also on the anvil. The iPad, akin to most of Apple’s other products, has been accepted by the consumers with open arms (Marketing Weekly News, 2012) Mac The Mac is Apple’s line of desktop computers. These sleek products include the iMac, Mac Pro and Mac Mini. The Mac computers, made from strong, beautiful materials like aluminum and glass, are equipped with Intel microprocessors and operate on the OS X operating system (Kasler, 2002). Loaded with a plethora of features that were generally not found in other brands of personal computers, the Mac got the tag of being a ‘better computer’. Riding on the Mac brand, Apple has managed to carve out a niche for itself in the personal computer industry. iPod The world remembers Sony because it invented the walkman. The same world loves Apple because it invented the iPod. Music buffs hanker after the iPods; Apple’s innovative line of portable digital music and media players (Sherr et al, 2013). iCloud Keeping in line with emerging trends, Apple has introduced its cloud service called the iCloud. The iCloud can store, among others, music, photos, calendars and documents (Vascellaro, 2012). iTunes Apple has continuously diversified into related products and services to satisfy the needs of its customers in a superior manner. The iTunes Store has enabled the company enlarge the podium for delivery of third-party digital content (Allen and Marilyn, 2006). The company’s App Store and iBooks Store that are part of the iTunes Store, enables users to download various applications with the company’s gadgets or any devices that operate on the iOS (Apple, 2013). Stores Strategy Apple believes in the philosophy that a robust distribution channel is critical for the sale of its innovative, technologically advanced and differentiated products and services (Gupta and Prinzinger, 2013). It is for this reason that the company is expanding its own brick and mortar stores as well as the third-party distribution network of wholesalers, retailers and value-added resellers. In 2013, Apple generated close to 70 percent of its net sales with the help of indirect distribution channels (Apple, 2013). Apple’s retail stores are characteristically located at high-traffic locations. The company attempts to open stores in up-scale shopping malls so as to attract its target market. These Apple stores employ knowledgeable and courteous staff which is well informed and trained to give advice to customers regarding all products and services. Apple recognizes the power of e-commerce and therefore sells its merchandise on its own online store. This helps users access Apple’s products and services on the click of a mouse and at the same time helps it reach a large set of customers more effectively. Apple’s untiring efforts at delighting customers by offering differentiated products convinced the Fortune magazine to name Apple as the most admired company in the United States. Apple won the coveted award for three consecutive years from 2008 through 2010 (Sahoo, 2012). Advertising Strategy Manufacturing a unique product and placing it at the retailers shop is just half the job done. It is essential to make the customer aware of the product. Apple has accomplished this task pretty well. It indulged in massive advertising that played a huge role in spreading awareness and creating preference for the brand. The ‘Get a Mac’ campaign engaged the customers and helped Apple gain substantial market share (Sahoo, 2012). Apple has, from time to time, rolled out memorable advertisements including the 1984 ‘Super Bowl’ commercial, the ‘Think Different’ campaign of the 1990s and the ‘iPod people’ of the 2000s. A combination of persuasive advertising and differentiated product is a sure recipe of success (Nils-Henrik & Stevik , 1998). Apple also has a unique ability to create hype about its new product launches (Seitz, 2013). All the generations of the iPhone, including the iPhone 5C and iPhone 5S have been unveiled with much fanfare. The craze about the company’s gadgets can be gauged from the fact that large serpentine queues of fans are generally seen outside Apple stores when its products are launched. Advantages of Apple’s Differentiation Strategy Apple’s differentiation strategy has enabled it to gain a strong foothold in the market. The company has been able to generate a loyal customer base. These customers believe that Apple products are not only reliable, but are also unique and user friendly. Apple has gained advantage in the market as it has been able to delineate its products uniqueness and has thus enhanced customer’s perceived value. This strategy of differentiation has enabled Apple to avoid price wars with competitors. If Apple’s products had not been exclusive, the company would have had to cut prices to generate more demand. Since its products are distinct, Apple is able to adopt the price skimming strategy which increases its revenue as well as profits. Like many other companies, Apple too outsources work to China to get the cost advantage. However Apple does not pass on this cost advantage to the consumers (Schiff et al, 2009). If Apple had strived to become the cost leader, it would have had to pass on this benefit to the consumers by way of lowering the prices of its products and services. Disadvantages of Apple’s Differentiation Strategy One of the main disadvantages of Apple’s differentiation strategy is that it has cold shouldered the budget-conscious buyers. While it can be said that the budget-conscious people are not the target market of Apple, this strategy of having only the upper sections of the society as the target market is a risky proposition especially during tough economic conditions. Designing and manufacturing differentiated products requires large amount of investments in R&D. In 2013 Apple spent $4.5 billion on R&D, up from $2.4 billion in 2011 (Apple, 2013). While spending such huge amounts is not a bad idea, the risk is that customers may not find the new innovation attractive. They may not like the new product, which in turn, may render the R&D expenditure and effort as waste. Another limitation of Apple’s differentiation strategy is that the distinct features of its products and services can easily be copied by its competitors. Apple’s rivals have the requisite wherewithal in terms of human, financial and infrastructural resources to replicate any product, process or service. Designing and manufacturing an innovative product may be costly for Apple; however the bigger disadvantage is that the competing firms can also benefit from it. At the end of the day, there will be no differentiation as all competing brands will have the same features. Way Forward For Apple Continue Differentiation Strategy Apple has successfully pursued the "Think Different" philosophy till now (Jinjin, 2013). The company should continue to tread this path as innovation now runs in its blood stream. Deviating from this time-tested strategy will not make business sense especially when Apple as a brand stands for innovation Down Market Stretch Apple would do well to target the middle income group by introducing products at different price points. There is a huge set of customers aspiring to buy Apple products but is unable to do so because of the high prices. The newly launched iPhone 5C is relatively cheaper than the other versions of the iPhone. This has provided an opportunity to the ‘aspirers’ to buy an Apple product (Sebastian, 2013). If Apple can bring out lower-priced version of its other popular products and services, it will have a much larger market to aim at. At this juncture, the market is expecting another smashing hit in the form of an iPhone 6 though (Brunner, 2013). Persuasive Advertising Apple should resort to large scale advertising that builds a brand preference for its products. In addition to the conventional media, Apple should capitalize on the power of social media like Facebook and Twitter. A positive word-of-mouth (WOM) acts as wonders for a company. The present day digital social media is providing an ideal platform for companies to cash in on positive consumer feedback and opinions (Tan, 2012). Conclusion Apple markets numerous products and services across the globe. The U.S. based behemoth satisfies the needs of the target market in a superior manner by investing heavily in research and development and thereby designing and manufacturing technologically advanced and innovative products. Apple has successfully pursued the strategy of differentiation which is evident from its immensely successful products like the iPhone, iPad and iPod. The company has been able to capture a huge market share and has avoided price wars with rivals because of its differentiation strategy. However Apple’s target market has been restricted to the upper sections of the society as its products command a high price. It is recommended that Apple continues to follow the strategy of differentiation as the brand epitomizes innovation. At the same time, the company should go in for a down-market stretch, introduce variants at lower price points so that it can attract a larger set of customers. References Allen, R.S. & Helms, M.M, (2006) ‘Linking strategic practices and organizational performance to Porters generic strategies’, Business Process Management Journal, vol. 12, no. 4, pp. 433. Apple Inc. (2013). [Online]. Available from: http://www.apple.com [Accessed: 28 December 2013] Brunner, G, (2013) ‘Will Apple abandon the iPhone 5S in favor of an iPhone 6 and iPhone Mini? ExtremeTech.com, pp. n/a. 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