Business Strategy of Apple - Report Example

Business Strategy: Apple Lecturer: Table of Contents Section A. Analysis 3 Porter 5 Forces 5 Factors Affecting profitability 6 SWOT Analysis 8 Strengths 8 Weaknesses 8 Opportunities 9 Threats 10 Section B Strategy formulation 10 The TOWS Matrix Analysis 10 TOWS discussion 12 Suggested Objectives of Apple in the years 2013-2016 13 Expand to emerging markets 14 Open the Closed ecosystem 14 Improve Public Image and labor rights record 15 Lower Prices 15 Section C; Management of implementation 15 Introduction to Business Strategy: Apple Section A. Analysis The SPECCTRE analysis comprises of an examination of the; the Social, political, economic, and environmental, customer, and competitor, technological and regulatory environments in regard to their perceived effect on business. Apple Inc. is arguably one of the worlds most recognized and respected technology brands and in the year 2013, it accounted for 56% of the operating profits in the industry globally (Evans, 2013). The following SPECCTRE analysis is aimed at examining the various significant factors that are influential to the business. The SPECCTR ANALYSIS Social An increase demand in for smart phones globally A positive brand image that makes apple more attractive than its competition An ethical challenge stemming from allegations of labor laws and human rights abuse Political Due to outsourcing, apples production and distribution process is affected by political relationship between the US and host countries such as China. Apple has been under political pressure for allegations of setting up dummy headquarters in Ireland to avoid paying taxes(Evans, 2013) Political factors such as war or terrorism poses a potential threat to apple’s operation given its global scope of operations. Economic Apple is the world’s most valuable company with its worth estimated about $104 billion (Badenhausen, 2013). Apple profitability is directly affected by inflation, currency and recession in the its main centers of operation’s criminally the US and EU The devaluation of US currency has resulted in company purchasing itself in foreign currency such as Euros and pounds Apple has a reserve fund estimated to amount in millions which has been set aside for innovation Competition Competition in the smartphone market is very high. In the last two years, apple has been unseated as the world’s largest smartphone distributor by Samsung. The entry to the market is difficult for new firms however these existing ones with the exception of Samsung only pose a moderate threat. Customers Majority of apple’s customers are from north America and the EU region as well as parts of Asia, given the relatively high cost of their goods, they are not very popular among developing countries in Southeast Asia and Africa for instance. Technology Apple is globally renowned for technological innovation. The ipad and iPhone are the company’s signature brands. It is credited for high quality and high end designs and it sets the trend for other mobile and smart devices manufacturers. They constantly upgrade their products which allow its customers to access and enjoy the latest technology. Porter 5 Forces The porter 5 forces are competition in the industry, potential of new entrants into industry, power of suppliers, power of customers and threat of substitute products (Porter, Argyres and McGahan, 2002, p.44). In Apple’s case, competition in the industry is a major consideration given the extent to which other firms in the smartphone, computer and tablet device markets have made inroads into its traditionally dominant market share. Until recently Apple was the leading smart phone supplier in the world; however, Samsung the South Korean electronics giant has taken over and is currently ranked above Apple in terms of profitability and device sales. There are also other smaller companies such as LG and Alcatel, which are producing similar products, and although Apple is still unequivocally a dominant force, since it is the market leader in innovation and it was the first entrant in the smartphone market which places it ahead of the competition. The threat of new entrants is relatively low in the smartphone market, this is because it takes huge amounts of capital to get started as well as goodwill which the leading firms such as Apple already have. In addition, new firms have to deal with legal hurdlers concerning patent and copyrights as was evinced by Samsung’s recent loss to Apple in a court battle over copyright infringement (Chau, 2012). The threat of substitutes is high in Apple’s case since there are many companies offering the same products and services for lower cost (Jinjin 2013, p.94). For example, one of Apple’s most important service is iTunes music stores and cloud storage, however there are emerging methods of accessing music such a peer to peer sharing and this could render iTunes redundant. However to mitigate against such eventualities Apple invests a great deal in new technology so as to upgrade its services, in addition to this they pursue a very aggressive marketing strategy to keep their customers loyal. The threat of buyer bargaining power in Apple is significantly low in comparison to other mobile firms operating on android and window platform, for one Apple has millions of loyal customers who will buy their products simply because of the brand name. In addition, they operate on an IOS platform, which cannot be integrated with products from other firms. Given the uniqueness of the platform and the firm’s differentiated products, it is difficult for clients to shift to other firms running on, say, android since they will have to adapt to completely new systems (Chau, 2012). Finally, the threat of supplier power marginal for Apple, owing to the fact that they purchase their raw material from different suppliers, no single one is likely to raise its prices since they are aware that Apple can always go to the competition. In addition, their recent launch of the A7 chip on their smartphones could potentially eliminate the need for them to source for chip from third parties such as Intel even further weakening suppliers. Factors Affecting profitability While many of Apple products are highly utilitarian, they are essentially luxuries and in harsh economic conditions such as the ones the Euro-zone is currently recovering from reduction of private expenditure on luxuries is often the first to register. As a result economic downturns are likely to reduce the market value of high products such as Apple’s and increase that of lower end ones offering similar services such as LG. However, economic growth and technological developments on the other hand works in Apple’s advantage, the latter is especially critical given that people are becoming more and more dependent on technology and technological solutions for day to day problems. As a result Apple which has made a name for itself as a leader in innovation stands to reap significant benefits as customers will look up to them for solutions. Competitive innovation is a major determinant in potential profitability for Apple, today the smartphone market is characterized with firms trying to outdo each other by producing the most technologically advanced gadgets. Therefore, when a firm introduces new technology, they stand to take over the market by “outdating” existing technology. For example when Apple launched the smart phone, traditional cell phone companies such as Nokia and Samsung were forced to follow suit since they risked being rendered irrelevant by the disruptive technology. In Apple’s case technological innovation facilitates high profitability, however it has motivated other firms such as Samsung to likewise innovate and they have also managed to make higher profits. One of the external factors facing Apple and threating its profitability is the negative publicity that has emerged from allegations of human right abuse in the Chinese firms where its components are manufactured. In the last 4 years, Apple had been working very hard to rid itself off the tag of a selfish corporate prepared to encourage over-working and underpaying staff for tens sake of profits, thorough constant audits and supervision of its factories abroad. This reputation has been attributed to the reduction in profitability as well as the firms losing its top position to Samsung. However in the long run, the publicity Apple was receiving in regard to the treatment of factory workers has been turned to other firms whose human rights has also been found wanting therefore forcing them to take remedial action and incur similar expenses as Apple. Many contemporary smart phone buyers are environmentally conscious and like to feel they are buying gadgets that have been produce with minimum environmental damage or which pose the least threat to the same. In this regard, Apple is advantaged in that it has distinguish itself as “green” company whose products are designed to be as environmentally friendly and energy efficient as possible (Apple Inc., 2014). Given that global warming and climate change are some of the most widely discoursed topics today, Apple stands to improve its profitability by leveraging on its eco-friendly tag. Its rivals on the other hand have no choice but to try and match Apple in this regard otherwise they will stand to lose their more eco-conscious clients to Apple. SWOT Analysis SWOT is one of the most important and effective techniques through which one can analyze a business in respect to its; strategic placement in the market captive advantage or generally; it is abbreviations stand for, strengths weaknesses, opportunities and threats respectively. Strengths Customer loyalty; Apple has millions of customers world over who are loyal to the brand and they are always eager to buy the latest products irrespective of the price Apple runs a closed eco system that prevents other firms’ products from being integrated with their hardware, software Apple has a full range of applications that carter for its customer’s diverse needs, and they have been interlinked to support each other (Di Muro, Kyle and Miranda 2010, p.3). Apple has one of the best financial performance records in the corporate world with cash holding totaling up to over $10 billon and no debt hence unaffected by interest rates of credit markets. Apple has a very good brand reputation which is widely associated with quality It has a many retail stores through which customers can interact with the employees and are assisted while at the same time providing valuable feedback. Apple has strong marketing and advertising teams and strategies making it to sell price products in large quantities. Weaknesses Their products general cost more than its competitors even when they possess the same specification and capabilities which has resulted in some customers shifting to other brands (Jinjin, 2013) Its incompatibility with different operating systems such as Microsoft makes it impossible for potation customers to use any of their software on other devices. The market share is decreasing as Apple loses ground to firms like Samsung and as a result they also lose some of their power to persuade customers to stick to its closed circuit ecosystem. Patent infringement issues have seen to the firm being accused of stealing technology and in some cases, it has lost cases on the same damaging its reputation and the financial situation (Min-Jeong, 2013). Apple has recently lost iconic CEO Steve Jobs and afterwards Scott Forstall and John Browett resigned from the firm, for example after Jobs death, the share price went down by 1% (Stahl and Jarzemsky, 2011). Evidently, changes in management makes the firms appear to be less solid and these impacts negatively on customer perception. Opportunities A high demand for its latest products such as the iPad min which has recorded high sales that stand to increase the firm’s market share The expected launch of the iTV which is expected to support the Apple TV sales and boost the closed ecosystem Apple also stands to benefits from the increase in the number of manufactures producing components for smart phone and they may soon not need to depend on their main rival Samsung to supply them. The tablet and smartphone market is rapidly growing and this is increasing the demand for Apple products They have won several cases where they had sued rival firms for infringing on the copyrights and this provides both financial gains and negative publicity for their competition (Netburn, 2012; Mintz, 2012). Apple’s biggest opportunity is probably the fact that they have billions in reserve for innovation purposes, which gives them a substantial financial edge. Threats Rapid technological change which puts the firm under pressure to keep releasing new products and this can have damaging financial impacts The increases in taxation in the USA which is Apple home country will negatively impact its profitability The rising cost of paying Foxconn (Apple’s main component manufacturer) workers are threating to further reduce Apple’s profitability as they keep going up with time Many small upstarts in especially in China may breach Apple’s IP rights and not get discovered soon enough which in the long run weakens Apple Pressure from Samsung to pay more for key components due to the intense competition between the two and the fact that there are no viable substitutes Android OS growth is reducing Apple’s dominance such that the latter is losing power to influence customers to remain within its restrictive system (Russell, 2011) The competition has moved to the online music market which was retrospectively the reserve of Apple with amazon and Wal-Mart music subscriptions Section B Strategy formulation The TOWS Matrix Analysis Internal strengths 1. A closed eco system that prevents external integration 2. Apple has strong marketing and advertising teams 3. It has a large number of retail stores 4. It has many loyal customers Internal weakness 1. Its incompatibility with different operating systems such as Microsoft 2. Frequents changes in management makes the firms appear to be less soli 3. Their products general cost more than its competitors 4. Their rate of innovation has lowered External Opportunities 1. Increase in the number of manufactures producing components for smart phone 2. The tablet and smartphone market is rapidly growing 3. A high demand for its latest products such as the iPad mini 4. They have won several copyright cases SO 1. Use the new manufactures to develop integrated systems cheaply 2. Leverage on the growth by aggressive marketing 3. Stock the shops with many Ipads to increase market share. 4. Use the wins to negatively portray competition justifying customer loyalty. WO 1. Manufacture more devices to satisfy in-house demand. 2. Portray the departure of the employees as an element of positive change and growth 3. Maximize on profit and market products as higher quality to justify cost. 4. Justify the reduced trend as a means of safeguarding their originality External threats 1. Android OS growth is reducing Apple’s dominance 2. The competition has moved to the online music 3. The increases in taxation in the USA reducing profitability 4. Technological change which puts the firm under pressure ST 1. Allows some components to be integrated with Android to attract android users. 2. Use the superior marketing teams to promote on sales of online music and attract new customers. 3. Capitalize on the retail store and open more to maximize sales and offset the impact of new taxes. 4. Popularize the brand instead of the product to leverage on loyalty WT 1. Make some exemptions such that some selected components are compatible to attract non Apple users. 3) Slightly reduce the cost of products so as to attract more customers and offset the impact of taxation pressure. 4) Remarket old products in new markets. i.e. India TOWS discussion The option of adjusting its products in such a way that users on the Microsoft and Android OS can access them has reappeared a few times. While conceding that Apple benefits significantly by making it impossible for its users to access other platforms in enhancing loyalty and making migration difficult there is a down side to this. In the same way Apple clients cannot try out Android, Android clients cannot try Apple either (Tsuruoka, 2013), as a result a lot of the money used in marketing goes to waste since despite offering attractive products it Apple requires the perspective clients to sacrifice all why previously enjoyed under Android. Secondly to address the demand for new products which is fuelled by constant releases by rivals, it has been suggested that Apple should try focusing more on brand marketing. This way, they can remind their customers why they chose Apple by portraying themselves as a reliable and consistent company. At the end of the day, multiple releases can potentially hurt customers given Apple’s pricey portfolio since new products phase out the previous one through reduce support and upgrades which is impractical as not many people can afford to change their smart phone every so often. Re-marketing old products is also another practical ideal which has actually been recently tested out. Even as Apple is set to release the latest version of IPhone 5 in the US and Eurozone, they reintroduced the IPhone 4 in India at lower prices since it had previously been poorly received due to the cost (Sherr, Cheng and Thoppil, 2013). Such a move could allow Apple to grow its market share significantly while at the same time breaking new territory, improving brand loyalty, and increasing product sale. Suggested Objectives of Apple in the years 2013-2016 Given the success of Apple’s products in the mainstream market that is in Europe and America, Apple future strategy should involve expanding into emerging markets such as South America, Africa and parts of Asia (Obrien, 2013). This way it can expand its market share by entering new markets before the cheaper and more versatile smartphone brands take a firm hold therein. This can be done through marketing their products at a lower price in some of the areas, for example the aforementioned case where Apple sold the IPhone 4 in India after it was outdated in the west. Considering current the increase in the number of Android clients, Apple is evidently losing its power to compel users to limit themselves to their applications and under IOS. Consequently, in the next few years the firm should work on introducing a degreed of integration between its services and those provided by other platforms as it risks suffering the same fate as Nokia when it refused to integrate in android and lost market leadership in mobile sales (Deagon, 2012). One measure that can be taken to achieve this is by opening some of the IOS services to android users, this way they will gradually familiarize themselves with the operating system and in the end will find it easier to shift to Apple. Apple needs to work on improving its public image especially in the wake of the recent Foxconn controversy where it was accused of facilitating the ill treatment of workers (Ojo, 2010). Inasmuch as it may produce premium devices, many customers will be unwilling to purchase from them if they believe their products are a result of a compromised labor situation. To achieve this Apple needs to be more vigilant to the firms that it awards manufacturing contracts; they should ensure they carry out thorough inspections and audits of the labor policies therein and actively supervise the process of manufacturing to ensure it is not compromised. One of the main reasons Apple has been overtaken by Samsung in the smartphone market is because it has consistently charged higher prices even when its products held similar features, this while not explicitly suggesting that they should reduce their prices to by a given percentage, Apple needs to come up with a way of making their devices more affordable. Compared to Samsung and Nokia’s models of mass marketing, Apple high cost pricing targeting a limited number of clients is not sustainable in the long run. This can be done by producing devices with lower specification to justify reduce pricing and targeting emerging markets as aforementioned. Furthermore, Apple can also reduce the prices of its regular devices by a reasonable margin without losing price superiority, which to a significant extent contributes to its perception and a premium manufacturer. Expand to emerging markets The SWOT analysis shows that one of the opportunities in the smart phone market is the emergence of new smartphone markets and many of these are in the developing economies in South America, Asia and Africa. Open the Closed ecosystem The SWOT and Porter 5 forces analysis show that one of the reason why Apple is having difficulties attracting Android users is the fact that they must sacrifice most of the products they were previously suing and start to learn how to use and enjoy Apple’s. The TOW matrix also shows that Apple stands to make positive market gains by reducing the level of restrictions it imposes on its products. Improve Public Image and labor rights record In the SWOT analysis, it was demonstrated that Apple’s association with unethical work practices is injurious to its business interest while its positive contribution to the environment is advantageous. Lower Prices In the Porters 5, SWOT and TOWS matrix, it was evinced that the high prices of Apple’s products discourage buyer from emerging economies and the fact that other companies have similar phones for less could hurt it in future. Section C; Management of implementation In the short run, introducing its products to emerging markets could pose a series of financial challenges for Apple and this could limit its initial profitability. For one Apple mode of operation is based on having a trademark retail shops from which promotional activities, sales and customer care are carried out. As a result, in the new markets such as Brazil and Africa, where they have not previously had any ground contact they will be forced to open up shops and this comes with a high initial cost. However, the cost of opening physical shops can be justified by the expected gains in the end when the company has taken root in the countries in question. By availing services such as customer care, and education as well a base for social corporate responsibility efforts, Apple will ultimately cultivate a positive brand image that will result in high levels of customer loyalty making it both profitable and sustainable. There is no doubt that by integrating with Android, some Apple’s user will shift to the former for a number of reasons; key among them lower prices. This will potentially reduce Apple’s market share in the short run, however this is a necessary tradeoff between losing a few customers and opening the doors to many more that are attracted to Apple’s generally perceived high quality products. This move can be strategically managed by making it after reduction of prices as suggested herein, this way, Apple users will be disinclined to leave and android uses will have an added motivation to buy Apple. As a far as public image and social corporate responsibility are concerned, Apple needs must take very decisive action given that its key selling point is its brand image. The firm has been especially criticized for its human right record under the premise that they have billions in reserve for research yet they are willing to sacrifice the lives of factory workers to increase their bottom line. This portrays the firm as a heatless corporate monster, a perception that could be very damaging; to mitigate against this, Apple needs to invest more money in manufacturing so as to pay the manufactures more and discourage them from cutting corners to increase profits. It has been alleged that the reason why Apple suppliers overwork their employees and underpay them is because the tech giant dictates very low prices; Apple once again needs to make a necessary tradeoff between reputation and higher margins (Umlas, 2012). In the end there is no doubt that the savings it stands to make by reducing production cost pale in comparison to the potential damage to the firms image. Lowering prices will have the immediate effect of lowering profits for Apple, however in the end, the firm stands to significantly improve its market potential and sell more units than it currently does at high prices. Despite the fact that it makes profits from selling fewer products at low prices, this is not a very sustainable model since it limits growth as the firm ends up selling to the same market. However, by lowering the prices, Apple will be in a better position to compete effectively with the emerging low prices smart phone companies by selling more units in a wider market. In the long run, it make business sense for Apple to increase its customer base and cover areas in countries like India and brazil where smartphone vendors have not invested heavily already. One of the main strengths Apple has is that it was the first entrant in the smartphone market in the US; evidently, this has served to boost its popularity and brand image. For this reason, it should work to replicate the “first magic” by introducing smartphones to as many parts of the world as it is practically possible. This way even when new brands are introduced therein, they will be secondary and Apple will retain a perception of authenticity among the customers. References Apple and the environment. 2014. Apple Inc . Available at: https://www.Apple.com/environment/ Badenhausen, K. 2013. Apple Dominates List Of The Worlds Most Valuable Brands. Forbes Magazine http://www.forbes.com/sites/kurtbadenhausen/2013/11/06/apple-dominates-list-of-the-worlds-most-valuable-brands/ Chang, Y.H. and WU, K., 2010. Using a TOWS Matrix in the Achievability-Effectiveness Analysis for Scooter Commuters Interchange to Public Transportation in Kaohsiung. Transportation Journal, 49(3), pp. 39-47. Chau, P. 2012. Managing for Competitive Advantages (Porters 5 forces)- Apple Inc. slideshare. Available at: http://www.slideshare.net/FreezingIcePatrickChau/managing-for-competitive-advantages-porters-5-forces-Apple-inc. Deagon, B., 2012, Apr 11. Nokia Downgrades Amid Competition Vs. Apple, Android. Investors Business Daily. Available at: http://news.investors.com/technology/041112-607354-nokia-issues-profit-warning.htm Di Muro, F., Kyle , M and Miranda, G. 2010. Strategic Planning at Apple Inc. London: Ivey Publishing. Evans, B. 2013. US politicians go after Apple for avoiding BILLIONS in taxes by setting up dummy HQ but haven Ireland says we are innocent. Dalily Mail Online . http://www.dailymail.co.uk/news/article-2328121/Apple-tax-US-politicians-Apple-avoiding-BILLIONS-taxes-setting-dummy-HQ-haven-Ireland-says-innocent.html Jinjin, T., 2013. Strategic Analysis of Apple Computer Inc. & Recommendations for the Future Direction. Management Science and Engineering, 7(2), pp. 94-103. Min-Jeong, L. (2013, Dec 11). Samsung loses patent suit against Apple; seoul court rules against south korean company in a surprise blow for samsung. Wall Street Journal. Available at: http://online.wsj.com/news/articles/SB10001424052702304477704579253071418224060 Mintz, H., 2012, Aug 06. Apple expert says Samsung infringed patents but gets relentless grilling in court. Oakland Tribune. Netburn, D. (2012, Mar 08). Samsung files new suit against Apple. Los Angeles Times. Obrien, C., 2013, Sep 12. New iPhone prices slam Apple stock; Investors fear the iPhone 5c isnt cheap enough to win buyers in emerging markets. Los Angeles Times. Ojo, B., 2010. Foxconn sizzles on Apple patronage. Electronic Engineering Times, (1586), pp. 20. Porter, M, Argyres, N and McGahan, A, M. (May, 2002) The Academy of Management Executive (1993-2005), Vol. 16, No. 2, Theme: Achieving Competitive Advantage , pp. 43-52 Russell, F.M., 2011, Apr 19. Biz Break: Apple vs. Android: For the iPad, appeal beyond fanboys. Oakland Tribune. Sherr, I., Cheng, S. And Thoppil, D.A., 2013, Jul 24. Apples Secret Weapon: the iPhone 4; Three-Year-Old Smartphone Propels Companys Sales in Price-Conscious Markets. Wall Street Journal. Stahl, G. And Jarzemsky, M., 2011, Oct 06. Apple Shares Fall 1% After Death of Founder Steve Jobs. Wall Street Journal (Online). Tsuruoka, D., 2013, Nov 12. Apple iOS Slips, Android Passes 80% Market Share: IDC. Investors Business Daily. ISSN 10612890. Read More