The Apple-Beats Deal - Things You Should Know - Case Study Example

Beats By Dre Table of Contents Executive summary 3 Introduction 4 Five porter force analysis 4 Porter five force analysis of the headphone market 5 Marketing mix approach at beats 7 The Ansoff growth matrix and the strategy of beats 8 Conclusion 9 References 10 Executive summary The headphone industry in the United States is an emerging niche that has witnessed the entrance of new entrants with influence and significant following. Significantly, the headphone industry has no dominant player based on the market share controlled by the companies operating in the sector. Based on a report released in 2014 by IBIS world market research, the headphone industry has annual revenue of $2 billion and a growth potential of 8.4% annually. The industry employees more than 20,000 people though most of the businesses are small scale with insignificant influence beyond their states. Due to the entry of new players into the market, the level of competition is believed to be on the rise, as manufacturers adopt more aggressive and market cantered marketing approaches to reach out to new customers (Breen, 2014). Beats by Dre is a headphone manufacturing line in the united states that has gained significant prominence due to the promotion and celebrity endorsements that it has acquired in the past. The company own the consumer can access significant patent for audio technologies and some of the music from online music stores. However, as a strategy to reach out to new customers and increase influence in the market, the company has collaborated with a number of companies including HTC and Chrysler (Doyle 2011). In 2014, Apple Inc. acquired the company through a cash and stock deal worth more than $3 billion, one of the largest company acquisitions ever witnessed in the headphone industry. In this report, beats by Dre will be discussed in light of its competitive market strategies and how it performed in the face of emerging small businesses. Porter five force analyses and Ansoff growth matrix will be used to evaluate the performance and prospects for the company (Johnston, 2012). Introduction The headphone industry has emerged as one of the most attractive sectors in 2014 due to the emerging interests from music producers, mobile phone companies among others. Though the industry is still emerging from low market recognition, the reputation it has gained in the market demonstrates its great potential and future prospects. A number of small companies have entered the market and they continue to rise above the stiff competition (Akoth, 2014). One such company is beats by Dre, a headphone company that was founded in 2006 by Dry Dre, an American musician. Through a well-coordinated market campaign and market sensitization programs, the company acquired dominance and respect in the industry. This attracted major multinationals such as HTC, Chrysler and even Apple who were sourcing for an external avenue to market their online music stores. The acquisition of the company by apple in 2014 marked the beginning of a new era in an industry that went unrecognized for a very long time (Reisinger, 2014). Five porter force analysis Five porter forces are a market analysis tool that was developed by Michael Porter to enable companies evaluates industries as a way of determining its viability, competitiveness and the barriers available. With five-porter force analysis tool, the profitability of an industry is determined through the performance of the companies within and how the available competitive forces affect the level of capital. Through this framework, important forces in the market that determines the level of competition and profits by the industry players is analysed (Breen, 2014). According to porter, these forces constitute the microenvironment and close to the business to an extent that they influence the relationship of an organization with its customers. In the even that any of the five forces change, porter argues that a business must reassess itself and make a determination on whether to introduce new products or enhance the marketing approach. Five porter forces evaluates the threats faced by a company, the bargaining power enjoyed by the businesses, the level of rivalry in the business, the bargaining power of the suppliers and the threat presented by substitute products in the market (McCorvey, 2014). Threat of new entrants indicates the barriers available in the industry that prevents new businesses and market players from entering and starting operations. Industries, which are profitable with minimal barriers to entry, experience intense competition and rivalry, which affects the product prices. The bargaining power of the suppliers is indicative of the prices of the raw materials in the market as industries with strong supplier bargaining power acquire the raw materials at considerably higher prices. An industry that faces strong threat from existing substitute products faces challenges as far as price stability and market performance is concerned. Consumers have alternative options to choose from and this enhance their overall bargaining power in the market. High bargaining power of the customers lowers the price of the products and this negatively affects the profitability of the industry (Kevin Tampone, 2013). Porter five force analysis of the headphone market Competitive rivalry is creeping into major industries across the globe due to the strong entrepreneurial wind blowing across the world, a situation that has not spared beats. The headphone industry is currently facing stiff and strong competitive rivalry due to the emergence of new entrants and the market strength enjoyed by industry pioneers. The war witnessed in the industry arises from the strong brand competition that companies are engaging in currently (Frakes, 2013). Most of the industry players have developed strong brands and they continue to work towards ensuring that their brands dominate the market through strategic marketing approaches. Sony, for example, is a strong market player with market capitalization and financial muscle, which has enabled the company to stifle the performance of other new entrants into the industry. The company produces sleek, affordable and high taste products to meet the needs of the young and old market alike, a situation that has left most of the industry players struggling to establish a formidable footing and force in the market (Greenburg, 2014). There are few barriers in the industry and this has significantly increased the threats of new entrants who introduce new and affordable products developed for specific groups in the market. For example, the entre of beats into the market has upset the equilibrium in the industry, led to tough competition, and marketing strategy. The free entry into the industry allowed beats to make significant inroads and influence the attitude of the consumers and the overall perception of the buyer. For some time, industry pioneers such as Sony were left to watch from a distance as a small but innovative company dominated the market due to its strong marketing strategies. Beats reached out to music lovers using famous American musicians such as beats cofounder Dr Dre (Frakes, 2013). Technology in the communication and entertainment industry has also led to the introduction of new substitutes into the market. Today, most consumers have shifted their focus from the use of headphones to indoor speakers connected to other devices such as laptops and desktops, a situation that has significantly affected the dominance of the industry players like Sony. Speakers offer high quality and safe sound and they are cheap compared to high quality headphones marketed by both beats and Sony. This explains the high consumer shift from the traditional headphones to the use of speaker as an alternative and cheap substitute to the products marketed by headphone manufacturers (Richter, 2014). The bargaining power of suppliers in this industry is limited due to the numerous players in the industry of electronic parts and silicon based motherboards. Currently, the industry has suppliers from different companies in the United States and this places significant pressure on the suppliers to reduce their prices in order to remain competitive and profitable. This high supplier competition has also placed the industry players at a position to bargain for low prices while maintaining the quality of the raw materials acquired (Grierson & Kimpel, 2009). The bargaining power of the consumers is relatively high due to the presence of substitute products and a number of industry players who offer cheap alternatives. Customers are at liberty in the market to move from one manufacturer to the other as long as they are comfortable with the prices of the products. If beats increase the price of their headphones, most of the customers will makes orders for the alternatives offered by Sony, a situation that will affect the profitability of beats. In case price increase is uniform in the entire industry, the performance of substitute products such as speakers will considerably increase. This demonstrate that the consumers have the power to determine the lowest and highest prices of the products in the market irrespective of the tough competition among the industry players (Richardson & Evans, 2007). Marketing mix approach at beats The success of beats by Dre in a highly competitive market with a number of substitute products is the great marketing mix adopted under the leadership of the current CEO. The company has adopted a strong marketing mix, which has embraced the role of customers in its success and has embraced the use of various marketing approaches to enter new markets and maintain the existing market influence (Wood, 2014). First, the company has developed a unique product that meets the varied needs and tastes of the consumers in the country and beyond. This product allows users to enjoy a full experience of music that are professionally recorded in studios associated with the company among others in the country. Product design at beats has not been done blindly, instead developing products, which focus on the tastes of specific consumers in the market such as the youths and music producers and deejays. The generation X and Y are considered to be trendy and love music presented through well-designed products such as those marketed by the beat. As a result, the company has produced and marketed a number of products such as headphones, earphones and speakers designed to meet the needs of the consumers (Richardson & Evans, 2007). The second marketing mix that the company has exploited to reach out to the market and make significant progress and growth is the product price. The price of the products ranges from $199-$699 in the United States, the type of product affects this, and the quantity ordered at any specific time. The pricing strategy adopted by beats is similar to the one adopted by Apple where a product is launched and the price established before the competitors can introduce a replicate (Grierson & Kimpel, 2009). The company manufactures its product in the United States and distributes to different parts of the country and the world to ensure that all consumers can access and enjoy their uniqueness. To reach out to different parts of the globe, the company has established a number of outlets in different countries including Philippines, Europe and Africa. The acquisition of the company by apple in 2014 marked the entry of new products streaming from apple music online stores and other music stores owned by the company (Wood, 2014). This acquisition pushed the reputation of the company and increased its market presence, a situation that analysts have attributed to its performance. Promotion remains one of the best strategies adopted by beats to reach out to new customers and establish its reputation and control in the market. For example, the company uses celebrities to endorse its products such as Serena Williams among other celebrities, an approach that has enhanced its performance and market presence (Richardson & Evans, 2007). The Ansoff growth matrix and the strategy of beats Ansoff matrix is a marketing strategy that was adopted by a Russian mathematician to assist managers and business owners to improve the performance and growth of their businesses. Under the Ansoff matrix, a business has four strategies that can be adopted to improve its market presence and growth potential. These include market penetration, product development, market development and diversification into other products based on the emerging niche of the industry. Ansoff matrix has embraced market penetration strategy through its regional and international representatives that have enabled its products to reach consumers from different parts of the globe. The company has also diversified and entered the speaker manufacturing as a way of reducing the power of the substitute products (Subramanian, 2014). Conclusion The headphone industry is emerging as one of the unique industries in the 21st century if the attention it attracts is anything to go by. The focus and attraction that apple acquisition of beats gained demonstrated the maturity of the sector and top-notch competition that rules in the industry. In this report, an evaluation of the industry with emphasis on beats has been conducted to demonstrate how the company’s succeeded in a highly competitive market. References Akoth, D 2014, The apple-beats deal: 7 things you should know, Time.Com, p. 1. Breen, C 2014, Apple and beats: whats the deal?’ Macworld, 31, 9, pp. 82-83. Doyle, C 2011, Ansoff matrix directional matrix, Oxford: oxford university press. Frakes, D 2013, Find the perfect headphones, Macworld, 30, 3, pp. 70-71. Greenburg, Z 2014, resolving 50 cents headphone dilemma, Forbes.Com, p. 16. Grierson, D, & Kimpel, D 2009, It all begins with the music: developing successful artists and careers for the new music business, Boston, MA: Course Technology. Johnston, L 2012, Headphones headed for another strong year, TWICE, 27, 25, pp. 4-58. Kevin Tampone, k 2013, Headphones company wins more industry notice; Aftershocks CEO is small business exec of year, Post-Standard, The (Syracuse, NY), 24. McCorvey, J 2014, Why apple needs beats, Fast Company, 188, pp. 23-26. Reisinger, D 2014, 10 Reasons why an apple buyout of beats electronics makes sense, Eweek, p. 2. Richardson, M, & Evans, C., 2007, Strategy in action applying ansoffs matrix, manager: British Journal of Administrative Management, 59, pp. i-iii. Richter, S 2014, headphones, twice: This Week in Consumer Electronics, p. 3. Subramanian, C 2014, A beats acquisition could be big for apple hearable, Fortune.Com, p. 1. Wood, M., 2014, Beats hopes to serve up music in a novel way, The New York Times. Available at http://www.nytimes.com/2014/03/13/technology/personaltech/beats-hopes-to-serve-up-new-sounds-in-a-novel-way.html?_r=0 Read More