Marketing Strategy at Apple Inc - Essay Example

? Marketing Strategy Report: Apple Inc. BY YOU YOUR SCHOOL INFO HERE HERE EXECUTIVE SUMMARY Apple, until had experienced considerable brand loyalty from several target segments associated with the iPhone and its many upgraded versions. However, recent lack of focus on innovation in product development has eroded some of the firm’s competitive advantages as the iPhone is no longer competitively unique and thus is unable to effectively differentiate. A recent survey utilising a very large sample of smartphone users indicated significant dissatisfaction with Apple’s innovative competency. This depletes brand loyalty and also complicates the process of establishing a high pricing structure that cannot be justified by only small-scale product modifications. To combat this growing consumer discontent with Apple’s iPhone, it is recommended that Apple redesign its promotional strategies to include lifestyle-relevant celebrity endorsers, change its current pricing structure, and emphasise more on the tangible product benefits as part of the marketing mix to regain competitive advantages and revenue growth. Apple must first, however, identify the psychological and sociological characteristics of its primary profitable market segment, the Achiever group, to accomplish gains in restoring the brand’s reputation. TABLE OF CONTENTS 1.0 Introduction................................................................................................................ 2.0 Situational analysis..................................................................................................... 2.1 PEST analysis................................................................................................. 2.2 SWOT analysis............................................................................................... 3.0 Differential advantage................................................................................................. 4.0 Segmentation, targeting and positioning..................................................................... 5.0 Recommendations for improving market position...................................................... 5.1 Marketing objectives and goals....................................................................... 5.2 Marketing strategies and programmes............................................................. 6.0 Conclusion.................................................................................................................... References 1.0 Introduction Research in Motion (RIM), now appropriately renamed as Blackberry, had dominated the mobile phone market between 2000 and 2005, being an innovator and pioneer in a product category that was in its technological infancy and introductory period along the product life cycle. With the release of RIM’s Blackberry 957, one of the world’s first smartphones, Research in Motion was able to define the product category and gain first mover advantages, something achievable through technology leadership and the ability to corner the market in a specific product category (Agarwal and Gort 2001). Up until 2006, when Research in Motion launched its Blackberry Pearl 8100 (the first smartphone with camera capabilities and other functional features found on today’s smartphones), RIM was considered to be the foremost expert in mobile telephony virtually untouchable by potential new market entrants for its technological leadership. However, Apple Inc. developed its first version of the Apple iPhone, a revolutionary mobile telephone technology that encompassed multi-functional features and benefits ranging from streaming video capabilities to Internet Wi-Fi connectivity capacity. The innovative features included in the first and subsequent versions of the Apple iPhone quickly seized market share from the previous market leader, Research in Motion, rapidly building market segment loyalty for Apple. Subsequent versions of the iPhone were released yearly following 2007, which now include the Apple iPhone 5 that was just recently released in September 2012. Each version was upgraded with new features and benefits, such as larger touch-sensitive screens and lighter-weight construction found in the latest version of the mobile technology. Examination of the Apple marketing strategy for its mobile telephones indicated a significant problem in securing the longevity of Apple’s industry presence in this sector. Apple is only making small-scale changes to design and functionality with each new version of the iPhone, no longer sustaining an innovation approach to new product launch that had been the cornerstone of revenue growth for Apple with the release of its first version of the iPhone. For instance, with the release of the iPhone 4S in October 2011, the only enhancements included better pixilation capabilities for video with addition of a more enhanced voice recognition system (Goldman 2011). A 2011 survey targeted 1,300 consumers that had purchased an iPhone 4S indicated that a whopping 47 percent of these respondents were disappointed in this new iPhone evolution (Epstein 2011). This same survey revealed that 29 percent of respondents felt the 4G speed enhancements were insufficient, whilst another 21 percent were generally disappointed in the overall design of the new iPhone version (Epstein 2011). As such, the problem with Apple is that the business is losing its once well-established brand loyalty with many consumer markets for failing to provide legitimate innovations with each new iPhone version, only making small-scale enhancements that are failing to make certain target markets sustain or improve loyalty to the brand. Clare (2011) indicates that Apple brand loyalty will be sustainable over the long-term despite only small modifications. However, the results of consumer satisfaction surveys regarding the iPhone upgraded devices would point toward an erosion of market loyalty, suggesting that Apple should be considering how to regain first mover advantages in product development and promotional strategies. Apple cannot sustain its current level of market loyalty unless radically improving the Apple iPhone 6; the next in the smartphone series for the firm. 2.0 Situational analysis This section describes the internal competencies and failures of Apple with a subsequent evaluation of external market conditions that drive Apple’s current smartphone marketing strategies. Utilising the PEST analysis framework and the SWOT analysis model, potential success or failure dynamics of Apple’s current mobile technology strategies can be identified. 2.1 PEST analysis Political forces are not necessarily relevant to the iPhone as the majority of markets in which Apple launches and promotes the iPhone have stable governments. Primary markets including European developed nations, the United States and Canada, Japan and China provide ample opportunities for business development and foreign direct investment support for market entrants such as Apple. Over 200 patent applications in many countries have been completed by Apple related to the technologies underpinning the iPhone product (Ishimaru 2007). Apple actively complies with intellectual property legislation unique to each operating territory both domestic and international. In countries such as China where counterfeiting is a common practice, Apple gains considerable support from Chinese government to combat these activities and support the trademark, patent and copyright protections of the business’ products. In virtually all respects, political situations are favourable for Apple in marketing its mobile phone technologies. Economic forces, however, are of considerable concern for Apple Inc. Europe provides ample revenues to Apple with a market that actively consumes the iPhone and its many upgraded versions. However, the European economy continues to slide toward recession, with a variety of austerity packages being developed in an effort toward national cost reductions, streamlining of government services, and forced reductions of national interest rates to stave off economic crises. For instance, in the UK, inflation rates have been quite high for the last two fiscal quarters, at a stable 3.3 percent (BBC News 2013). In Russia, another sales environment for the iPhone, inflation rates are a massive 7.3 percent, whilst in Spain inflation rates are 2.43 percent (inflation.eu 2013). Rising inflation rates impact the consumer price index respectively, forcing prices higher on a variety of consumer goods. In many nations that have provided ample profitability for Apple on the sale of iPhones, higher-than-international averages on inflation growth deplete the ability of consumers to purchase many higher-priced technology products. Apple maintains a premium pricing strategy that is built on the historical brand loyalty that the brand maintains, thus making iPhone products generally between ?100 and ?150 higher than competitors such as Samsung, Blackberry and Nokia. The economic environment, as it relates to inflation growth in major revenue-producing operating regions internationally, is becoming much less favourable for sustaining this high pricing model with growing prevalence of price-sensitive international buyers. The social condition is also relevant to Apple’s marketing strategy, and Apple has been historically adept at using marketing communications that are aligned with consumer lifestyle and enduring values/beliefs. The entire premise of Apple’s branding strategies is to focus on emotions and behavioural characteristics of buyers. Apple established a brand personality that encompasses not only its mobile phone products, but a homogenous personality for all of its brands. This personality is referred to in the industry as “power-to-the-people, liberty regained, imagination, passion and social aspirations” (Robinson 2008, p.2). Thus, Apple maintains a relationship marketing ideology that is supported through direct social interactivity between brand leadership and desired consumer segments. Known as movement marketing, Apple has stopped telling consumers about what it actually produces and, instead, reinforcing its internal values and beliefs (Goodson 2011). Making effective use of social media to engage consumers along with well-publicized media campaigns featuring executive leadership at the firm creates not only transparency, but improves the social relationship between Apple and its most profitable target markets. The technological environment is also favourable for Apple, as the business maintains ample capital and cash resources that provide the capability to incorporate new supporting and manufacturing technologies to ensure rapid launch of new iPhone versions in many international markets. In general, there are few risks associated with technology that cannot be overcome by Apple with financial investment and adequate supply network methodologies. 2.2 SWOT Analysis Strengths Strong pre-existing brand loyalty associated with Apple product quality Strong credit and capital position Well-developed, decentralised research and development teams and structure Vastness of intellectual property protections creates barriers to new market entry Weaknesses Lack of contingency plan development by internal management teams in the event of brand loyalty erosion. Lack of emphasis on building on brand equity established through historical branding successes Over-confidence that the firm can outperform rival competitors in promotion and innovation Geographically-dispersed supply network preventing better cost controls Opportunities Capitalising on recent negative press associated with Samsung and intellectual property infringements Celebrity endorsements relevant to target market characteristics and lifestyles Positioning as associated with brand rather than the parent umbrella brand Threats Most consumers drawn to Apple consider themselves technologically sophisticated (Rubicon Consulting 2008), thus making them more analytical about the viability of innovation versus simple upgrades of new iPhone models. Rising costs along the international supply network Price-sensitive buyers due to unstable economic conditions internationally 3.0 Differential advantage This is the key problem with Apple’s iPhone launches: there are no innovative features and functionalities on the new versions of the iPhone that are not already replicated by competitors. Voice recognition software was included in the 2011 version of the phone, however Samsung was quick to respond with a similar voice-activation technology in the Samsung Galaxy SII had already been on the market since February (News Den 2011). As such, Apple no longer maintained its first mover advantages as a pioneer in this product category and the business does not appear to be concerned about lack of innovative competitive advantages for the iPhone, instead relying on brand reputation with target consumers to attempt outperformance of competitors in this dynamic industry. 4.0 Segmentation, targeting and positioning As identified, Apple is positioned on the market based on quality under a premiumisation strategy to justify a higher pricing model for the iPhone. However, Apple maintains a weakness in identifying which markets will be most likely to demand each new version of the iPhone and how to effectively target these consumers. Apple takes a rather mass market-focused strategy in targeting using viral publicity as a means of promoting each new product version and reinforcing that the business has improved upon various consumer-perceived product deficiencies and glitches at the time of each new version release (Hood 2009). Apple does not appear to be identifying the most viable and profitable market segments and then creating lifestyle-centric advertising and integrated marketing messages to gain their favour or improve their current loyalty to the brand personality. 5.0 Recommendations for improving market position Since deficiencies in marketing strategy have been identified for Apple in areas of segmenting and targeting, in maintaining over-reliance on historical brand loyalties, and lack of focus on innovation development for the iPhone, a series of recommendations for improving market position can be identified. 5.1 Marketing objectives and goals Apple must devote more capital and labour investment into the research and development process in order to regain its previous reputation (between 2007 and 2009) as a pioneer in mobile phone technology. Apple boasted total revenues in 2012 at 156.5 billion USD, sustaining a total asset portfolio valuated at 176 billion USD (Apple Inc. 2012). Apple maintains the highest credit rating available to a firm as provided by Moody’s, giving the business ample opportunity to raise capital required to improve its research and development processes and ideologies. It is the foundational reputation that was built for Apple in 2007 with the release of the first, legitimately innovative iPhone version that made Apple quickly seize market share from Research in Motion. However, as identified by Epstein (2011), a very large volume of iPhone holders (nearly 50 percent) have reported significant discontent with Apple’s upgrades to its product. Since the business has, however, found success in using viral marketing and social media to engage with consumers, it is recommended that Apple stay with this promotional focus, but targeting the content of these messages to the technologically-sophisticated markets that currently have a dedicated brand following for the iPhone. Fortunately for Apple, it is the values of its primary profitable market segments that keep drawing consumers to repurchase Apple products. According to Schiffman and Kanuk (2010) values are “enduring beliefs” that are psychologically or sociologically justified. Markets that believe in the quality and integrity of Apple as a brand able to provide superior benefits related to their own lifestyle needs are likely to sustain these values over the long-term. Apple should be conducting market research for those markets identified through psychographic segmentation that maintain the same brand values, such as liberty regained and power-to-the-people beliefs described by Robinson (2008) and then further create appropriate lifestyle-centric messages in social media that will be accepted by these markets. Since the majority of the most loyal markets are technologically-savvy, messages should be aligned with technical research and development prowess with a supplemental series of integrated communications that illustrate lifestyle compatibility between the Apple iPhone brand and consumer characteristics both social and psychological. Apple cannot risk further degradation of its brand personality as an innovator by simply making small-scale upgrades and then justifying a very high price for these minor modifications, especially when the switching costs for consumers to defect to such brands as Samsung and Nokia are very low. Zhang and Chan (2009) indicate that when a brand is able to provide consumers with ample perceptions that the brand or product can improve their social or professional status, they are likely to be more loyal to the product or brand. Apple leadership should be linking how the product can effectively serve the lifestyle dimensions of consumers identified through real-time market research in order to restore faith in the business’ ability to be legitimate product innovators equipped to satisfy the technologically-savvy consumer who provides more technical scrutinisation of the brand. Hence, regaining loyalty should be the primary objective of a new marketing strategy. 5.2 Marketing strategies and programmes The emphasis in the new marketing campaign must be on product. Emphasizing how the firm is currently making radical changes to the iPhone as well as the technical competency of Apple R&D teams should be the focus of a new style of communications to effectively promote the next iPhone version launch. Since Apple has historically gained revenue growth associated with the tangible innovative features of previous iPhone launches, it would be short-sighted for Apple to deny using product as a primary selling strategy that not only restores brand confidence with dedicated markets (or once-dedicated markets), but also positions the business as a technology innovator in a dynamic competitive market where features and benefits are easily replicated by rivals with adequate cash and credit availability. Apple should be using internal executives as the medium by which such technological improvements are expressed and justified, using social media to give consumers a transparent look into the internal competencies of the company. Since the business intends to maintain its premiumisation strategy based on quality, product must be the primary element of the marketing mix that maintains communications focus. Pricing is yet another concern for Apple, especially due to the rising inflation rates and government-imposed austerity packages that are impacting multiple markets associated with disposable income available for technological purchases. With such a high volume of dissatisfied consumers, if the business launches another version with no un-replicable features and benefits, it is likely that consumers will begin questioning the high pricing model founded on historical brand presence in the industry. Apple should consider temporary pricing discounts as a means of gaining new attention from the price-sensitive markets, thereby illustrating a new flexibility that is aligned with changing consumer economics in many sales territories both domestic and international. The VALS 2 diagram that assists in psychographic segmentation describes a market referred to as Achievers, those with high resources, an egocentric view of consumption, and often select products that will conspicuously justify their social status (Beatty, Homer and Kahle 1988). This market also favours products that are considered prestigious and is known to be risk averse (Beatty et al. 1988). The Achiever market will be concerned with pricing if the product is not perceived to be aligned with prestige and innovation whilst also providing value to their egocentric lifestyles associated with higher available financial resources. The Achiever is representative of approximately 50 percent of Apple’s current market with viability for sustaining brand loyalty. Only when Apple is able to launch a wholly innovative product, and not just an upgraded version, lowering pricing to satisfy consumers in this segment would be practical to avoid loss of brand dedication. Furthermore, as indicated, promotion for the Apple iPhone needs redevelopment. Though social media and viral marketing have been historical successes, gaining attention from the highly profitable Achiever market might be better achieved by utilising endorsements from famous celebrities that maintain the same characteristics and lifestyle dynamics of the high resource Achiever market. The Achiever often makes repurchase decisions based on social sentiment from important reference groups and Apple, as identified by Robinson (2008), attempts to build relationships with consumers through the concept of social aspiration. Pornpitakpan (2003) indicates that consumers can be drawn to the brand when celebrity endorsers considered attractive, credible and maintain appropriate expertise are utilised in advertisement. Apple had done this successfully using Steve Jobs, the former CEO, as a spokesperson in a variety of press releases and social media promotions. Now that Jobs is no longer a relevant celebrity force, gaining or improving loyalty with the highly profitable Achiever market could be better served using recruited endorsers sharing the same values as Jobs with lifestyle-relevant characteristics to this market. 6.0 Conclusion Apple’s main weaknesses, including lack of innovative focus associated with the iPhone product, over-reliance on previous brand loyalties not necessarily sustainable over the long-term, and continuance of a premium pricing model that is not justified by small scale improvements in product drive a need for a new marketing strategy. The recommendations provided for using celebrity endorsers sharing lifestyle values of important target consumers, focusing on tangible benefits of the product in the marketing mix, and temporarily lowering pricing on the iPhone product until a wholly-innovative version can be developed and launched, will give Apple a better positioning in the industry and regain lost loyalties from unsatisfied consumer segments. References Agarwal, R. and Gort, M. (2001). First-mover advantage and the speed of competitive entry, Journal of Law and Economics, 44(April), pp.161-177. Apple Inc. (2012). Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: Form 10-K. [online] Available at: http://www.sec.gov/Archives/edgar/data/320193/000119312512444068/d411355d10k.htm (accessed 17 April 2013). BBC News. (2013). Economy tracker: inflation. [online] Available at: http://www.bbc.co.uk/news/10612209 (accessed 17 April 2013). Beatty, S., Homer, P. and Kahle, L. (1988). 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