Advanced Marketing Strategy of Apple - Case Study Example

Advanced Marketing Strategy: Case Study on Apple a) How successful do you think the organisation is in terms of ensuring that factors in its external environment and the various actors with which it relates to are accommodated within its marketing strategies? Apple’s leadership in innovative technology and its dominance as chief global distributor of music highlights its ability to utilise creativity in marketing to achieve dominance in a tough music market. Moreover, it is submitted that a significant element of Apple’s success particularly with the iPhone and iPod is as a result of its blue ocean and decision oriented approach to marketing, particularly in relation to its share of the music market (Hollensen, 2007:115). The new digital business model has produced significant downturns in CD sales and the global recorded music market is in steep decline and the empirical data demonstrates a continued trend in falling physical CD sales in significant major markets (Kusek, 2008). In contrast, the new digital business model has fuelled a sharp increase in digital sales, which whilst offsetting part of the decline in the physical CD sale market, has not managed to entirely redress the balance in stabilising sales (Enders Analysis Report, 2007). From a market analysis perspective, it is evident that the recorded music sales are in steep decline and rising digital sales are offsetting in part the physical market decline, which could potentially offset part of the physical market by the end of this year, with analysts estimating the figure to be around $23 billion (Enders Analysis Report, 2008). However, this is in stark contrast to the peak of $45 billion in 1997 and leading analysts Enders Analysis posit a negative forecast for global recorded music sales figure of 4.4% for the period of 2006-2012 (Enders Analysis Report, 2008). Moreover, it is submitted that that the contemporary marketplace, the evolution of the internet business model has forced the music business in particular to rethink corporate marketing strategy and this is further highlighted by the proliferation of the multi-channel retailing paradigm as required retailers to “innovate” in order to maintain position in the marketplace (Levy & Weitz, 2008; Kusek, 2008; Gordon; 2008). As such, it is submitted that blue ocean strategy has arguably been essential to Apple’s marketing orientation in providing the foundation of dynamism in line with Schumpeter’s theory that the evolution and sustainability of a successful business model is not dependant on how capitalism administers existing models, but rather with how it destroys them through creativity to survive long term growth (Metcalfe, J.S. 1998; Levy & Weitz, 2008). The digital era fuelled novel business opportunities and the continuous evolution of online business channels has made multi-channel retailing a reality, with the customer now placed at the forefront of business strategy. Additionally, this new internet business model has distinctly altered the way that companies view strategy, with a distinct shift from product focused strategy to customer relationship management, which is highlighted by the consumer driven digital download market (Kusek, 2008). This in turn highlights the need for considering innovative strategy as part of long term planning to withstand the pressures of a continually evolving business model in the digital marketplace. Indeed, leading creative economist Joseph Schumpeter extrapolated the “creative destruction” metaphor as the crux of his model of capitalism (Schumpeter, 1942). Essentially, Schumpeter’s argument suggests that innovation is the crux of continued growth and economic efficiency on the basis that synchronisation between internal innovation and effective cross functional activities within an organisation facilitates an organisation’s ability to lead the marketplace and implement competitive pricing strategy. Moreover, Schumpter’s proposition correlates to Utterback’s argument of dynamic efficiency (1996); which is required in the contemporary marketplace where the customer is increasingly powerful in dictating market trends. If we consider this in context of Apple’s decision orientated approach to marketing, it is submitted that Apple’s continuous diversification and horizontal integration of effective supply chain management has cemented its position as a central digital player and thereby enhances brand value: “Competitive advantages such as brand recognition can last a long time and may take a few years to deteriorate” (Hitt, Black., & Porter, 2005). Furthermore, the use of pre-existing technical knowledge and blue marketing strategy has been instrumental in the success of the innovative iPhone and iPods, which is further evidenced by their sales figures (Weiss, 2008:233). To this end, Chan Kim & Mauborgne argued that blue ocean strategy is vital in the contemporary business paradigm by not competing in the existing market space and create an uncontested market space. Furthermore, the essence of the blue ocean strategy is that focus on competition is incorrect and it is necessary to create a new demand and that as such, the company’s systemic approach will be underpinned by differentiation and low cost (Chan Kim & Mauborgne, 2005). Additionally Chan Kim & Mauborgne highlight the need to create new markets in marketing strategy as opposed to focusing on competition (Chan Kim & Mauborgne, 2005). Indeed, Apple’s blue marketing approach has made it a key player in the contemporary music market. If we contextually consider the macroeconomic environment particularly the central gatekeepers and obstacles to traditional music publishing, it is evident that the dissemination of information enables peer to peer file sharing and the “digital format allows consumers to cherry-pick” the tracks they really want, instead of forcing them to buy whole albums, and to combine these songs into playlists” (Enders Analysis Report, 2008). Moreover, the proliferation of fixed line mobile commerce has further fuelled the growth of digital music and legitimate downloading formats into the mainstream (Enders Analysis Report, 2008). As such, these “software, hardware and communications technologies of the Internet age are at the root of both the industry’s ills and of its hopes” (Enders Analysis Report, 2008). Indeed, a prime example is the initial focus of the music industry on legal action against P2P file sharing and refusal to licence to own schemes as opposed to re-evaluating the traditional business format. It is arguably this failure to address the challenges of the digitisation of the music industry that has contributed to the current problems facing traditional income streams in publishing (Gordon, 2008). This further supports Apple’s business strategy of moving away from the traditional CD sales market particularly as coupled with physical market decline, retailed CD prices have seen a sharp downturn, further compounded by the bankruptcies of Tower, Wherehouse Music Inc, Musicland and Zavvi, which “reducing the footfall that spurs CD sales and lucrative back-catalogue sales in particular” (Enders Analysis Report, 2008). In contrast, by analogy Apple’s application of the Blue Ocean Strategy through iTunes in conjunction with the iPod is a prime example of the need to consider novel income streams outside the traditional publishing format (Chan-Kim & Mauborgne, 2005). This further supports Chan-Kim & Mauborgne’s arguments that Apple ignored the “red ocean” by capitalising “on the desire of every music lover to download just the tunes they want in the instant way they want them” (Chan-Kim & Mauborgne, 2005). To this end, Apple’s success further exemplifies its understanding of the interrelationship between the blue ocean marketing approach and behavioural marketing. For example, sales figures demonstrate that Apple has sold in excess of 110 million iPods between 2001 and 2007. Appurtenant to this was the iTunes music revolution in the legal download market. In highlighting Apple’s blue ocean marketing approach to macroeconomic factors, Martin opines that in “deconstructing the iPod’s growth, we can see how the capability to change habits, not product superiority or pricing, creates the foundations of success” (2008:70). Accordingly, the success of Apple’s iPod and the iTunes are prime examples of the blue ocean approach and the success is testament to increased digital consumption of music. b) How successful does the organisation seem to be in ensuring cross functional responsibility for marketing operations within its own sub-units or departments? As highlighted above, a central element of Apple’s success in both the multimedia and particularly the music industry has been the successful interaction of blue ocean strategy and understanding of consumer behaviour. This again correlates to Apple’s approach in implementing innovation strategy as part of long term planning. A fundamental part of this is the synchronisation of internal innovation strategy and optimum cross functional responsibility for marketing operations within its departments. This is further evidenced if we consider the operations management marketing and multi-retail strategy of Apple in relation to the iPhone. When the Apple iPhone entered the market, Trebilcock highlights the fact that the product was selling approximately 270,000 units at the rate of 150 per minute in within the first thirty hours of release. Moreover, the sales for the iPhone rapidly reached the one million mark, outdoing expectations and going beyond the sales rate of the original iPod on release. At this point, Apple decided to reduce the iPhone’s price, triggering double sales figures (Trebilcock, 2007). Moreover, in 2007, Apple finished the year in its fiscal fourth quarter with record revenue and profits (Trebilcock, 2007), which further highlights the effective cross functional synchronisation of internal marketing strategy and pricing policy at Apple. Indeed, it has been submitted that a central element of this success is the understanding of the global supply chain in the creation of a new market in line with the blue ocean approach and effective cross functional capabilities within the internal organisational framework (Chan Kim & Mauborgne, 2005). Furthermore, in the AMR Research annual supply chain top 25 report for 2007, Apple’s supply chain strategy with the iPhone was highly praised(AMR Research, 2007 available at www.amrresearch.com/supplychaintop25). From practical perspective, prior to sales of iPhone, it was considered an innovative victory of design and functionality and brand value (Trebilcock, 2007). As with other products such as Xbox, PlayStation3 and Wii, analysts expected shortages when phones went onto sale but this didn’t happen and it has been argued that this pertains to the triumph of the supply chain management as emphasised by Michael Levi, director of operations and solutions strategy at i2 Technologies (quoted in Trebilcock, 2007). In fact, Levi goes further and asserts that the importance of getting the supply chain right as evidenced by Apple is vital in introducing innovative products to the market place: “A killer product is only successful if it gets to the right customer at the right price at the right time” (Levi in Trebilcock, 2007). Moreover, Levi observes that “Apple’s supply chain technology is really the silent contributor to the company’s success in executing the product innovation” (Trebilcock, 2007); which again reinforces the successful integration of cross functional responsibilities for marketing within the internal organisational framework at Apple. To this end, Kim and Mauborgne indicate that “the strategic move, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and sustained high performance. A strategic move is the set of managerial actions and decisions involved in making a major market creating business offering”(Chan-Kim & Mauborgne, 2005). The cornerstone of the blue ocean strategy is value innovation which occurs “only when companies align innovation with utility, price and cost positions” (Chan-Kim & Mauborgne, 2005). To this end, effective blue ocean strategy requires companies to orient the whole system towards achieving a “leap” in value for both buyers and themselves (Chan-Kim & Mauborgne, 2005). Kim and Mauborgne explain how to create an uncontested market-space where competition is irrelevant (Chan-Kim & Mauborgne, 2005): “blue ocean strategy is about creating and capturing uncontested market space, thereby making the competition irrelevant. Blue ocean strategy is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players” (Chan-Kim & Mauborgne, 2005). As such, they highlight the need to reshape corporate strategy to adopt the blue ocean ethos. Breillat’s analysis of Apple’s success in innovation further highlights the interrelationship between cross functional responsibilities for marketing as being instrumental in the company’s success as a leader in innovation in new media markets (2009 at www.pragmaticmarketing.com). For example, Breillat highlights the point that “when what you teach and develop every day has the title “Innovation” attached to it, you reach a point where you tire of hearing about Apple” (2009 at www.pragmaticmarketing.com). However, Breillat’s analysis of Apple provides a valuable insight into the importance of synchronizing a company’s marketing approach to product development at internal level. For example, Apple’s blue ocean decision oriented marketing approach is geared towards creating new markets to maintain its position as leader. It is precisely this approach to marketing that informs innovation in product development at internal level as product development at Apple focuses on the behavioral aspect of the consumer and the creation of “habits” in product development as extrapolated by Martin (2008). A prime example of this is evident by Breillat’s examination of senior engineer manager at Apple’s discussion of Apple’s approach to design (2009 at www.pragmaticmarketing.com). Breillat highlights what is arguably the crux of Apple’s success in ensuring consistency through cross functional responsibility for marketing operations is the company’s mantra that “Apple thinks good design is a present” (2009 at www.pragmaticmarketing.com). As such, Apple’s approach to marketing is to ensure that its products create anticipation amongst consumers. For example, Breillat extrapolates that “no other mass consumer products company puts as much attention to detail into the fit and finish of the box – let alone the out of box experience” (2009, at www.pragmaticmarketing.com). Therefore, an important aspect of cross functioning with the marketing approach of Apple is the design team’s approach to this. For example, Apple’s investment into research and design is phenomenal and it follows specified criteria in design, which is line with Apple’s brand philosophy in marketing. During this process, the design engineer at Apple, Loop indicates that Apple will narrow all the concepts being worked on to a final concept that they feel represents the best work. This novel approach is geared towards Apple’s priority attributed to creativity in innovation and as such, Breillat highlights the point that this “also means they inherently plan to throw away 90% of the work they do. I don’t know many organizations for which this would be an acceptable ratio. Your CFO would probably declare, “All I see is money going down the drain.” This is a major reason why I say you can’t innovate like Apple” (Breillat, 2009 at www.pragmaticmarketing.com). In further highlighting the cohesion between cross functioning responsibility for marketing operations within the company, Breillat provides an insight into the operational process with regard to product development as follows: 1) Apple operations include weekly paired design meetings between engineers and designers; 2) Apple encourages regular brainstorming meetings with “absolutely no rules”; 3) Regular production meetings to structure the brainstorm meetings; and 4) Pony meetings every two weeks with clients to educate their perception of the final product and their preferences (Breillat, 2009 at www.pragmaticmarketing.com). c) What Future Market Driven Strategies are recommended to the management team at Apple? The above analysis of Apple’s marketing orientation has highlighted its propensity to synchronise innovation in product design with consumer behaviour to create new blue oceans for their products. Moreover, Apple’s brand strategy mantra of innovation in marketing and regular discourse with clients has informed its approach to product design with successful cross functional implementation of its decision oriented marketing approach at internal organisational level. Nevertheless, the combination of the current economic downturn and continuous challenges facing various aspects of the media industry necessitate continuous marketing strategy development going forward. For example, particularly with regard to the music market, Apple should look towards successfully exploiting opportunities in music outside the traditional music distribution model and continue creating new opportunities in the marketplace to sustain longevity. For example, whilst the immediate short term impact of iTunes has undoubtedly been a success, “the industry has pinned its hopes for top line recovery on sales of digital downloads” (Enders Analysis Report, 2008). However, the reality is that digital sales per se “cannot replicate library renewal and building that sustained the music industry’s top line surge throughout the 1990s and 1990s after the CD was introduced” (Enders Analysis Report, 2008). Moreover, Enders Analysis highlights how the back catalogue for “long tail” sales of digitised masters have so far largely failed to materialise as a major driver for demand of digital music (Enders Analysis Report, 2008). As such, whilst the success of the iPod and iTunes demonstrates exploitation and creation of a new blue ocean in marketing terms, its current dominance highlights the “limiting factor to the development of the market for digital downloads” (Enders Analysis Report, 2008) which in turn should shape business strategy formulation outside the parameters of an obvious entry point within the contemporary framework of the business in new product development at Apple. This is further supported by Enders Analysis’ projections, citing the following key reasons for the inherent limitation of the digital download market: 1) Sales of iPods inherently motivate iTunes sales, which is evidenced by Apple’s pricing model and therefore squeezes out other competitors by the digital rights management applied by Apple (Enders Analysis Report, 2008); 2) Without significant competitors in the market, digital downloads sales may effectively mature in the by 2012, “running their course with the sales curve of iPods and similar devices” (Enders Analysis Report, 2008) 3) Failure to challenge and alter Apple’s iTunes set pricing model, will result in the lack of necessary stimulus for “long tail” sales through pricing initiatives, which in turn will arguably place a ceiling on the profitability of the legal download market (Enders Analysis Report, 2008). This is further compounded by the lack of sufficient evidence to indicate that mobile music commerce will address the shortfall, which further highlighted the need for Apple to adopt a lateral approach to developing its future product innovation and marketing operations within the contemporary framework. This will aid the company’s growth and development towards a self-sustaining business. Moreover, as highlighted above, the essential basis of the company’s strategy is the exploitation of new music trends and potential creation of new markets to create multiple income streams within the multimedia market. The development of the Internet business model has clearly fragmented the market with the creation of multiple market spaces and distribution channels in music, film and television. The central threats posed are by the file sharing networks and precedence of Apple’s business structure in digital downloads in particular remains affected by this. Nevertheless, the changing dynamic and creation of new market spaces turn opens up entry points into a traditionally monopolistic market offline and the key to exploitation is in understanding the market. Moreover, it is important to understand the key theories underpinning blue ocean strategy, which has been spearheaded by the works of Chan Kim & Mauborgne (2005). The multiple retail channel model in the digital era has created new societal trends and business opportunities through the multimedia business model. Additionally, this new internet business model has distinctly altered the way that companies view strategy, with a distinct shift from product focused strategy to customer relationship management (CRM). To this end, Chan Kim & Mauborgne argued that blue ocean strategy is vital in the contemporary business paradigm by not competing in the existing market space and create an uncontested market space, which is imperative to Apple’s future development and sustenance of position as market leader. Furthermore, the essence of the blue ocean strategy is that focus on competition is incorrect and it is necessary to create a new demand and that as such, the company’s systemic approach should be underpinned by differentiation and low cost (Chan Kim & Mauborgne, 2005). Indeed, Chan-Kim & Mauborgne comment that “of course competition matters. But by focusing on competition… have ignored far more lucrative aspects of strategy: One is to find and develop markets where there is little or no competition – blue oceans and to protect blue oceans” (Chan Kim & Mauborgne, 2005). Additionally, in Murphy’s (2007) review of case studies undertaken by Chan Kim & Mauborgne highlights the need to create new markets in marketing strategy as opposed to focusing on competition (Murphy, 2007). Chan-Kim and Mauborgne further extrapolate that the business world consists of two distinct “spaces”, namely: 1) Red oceans; and 2) Blue oceans (Chan-Kim & Mauborgne, 2005) The red oceans symbolise all the industries and competitive rules and the blue oceans highlight the industries not in existence and unknown market space, not influenced by competitor activity (Chan-Kim & Mauborgne, 2005). Additionally, under the blue ocean “space” consumer demand is created rather than fought over. There is ample opportunity for growth. In one way, companies can create new industries or create a new market from within a red ocean, which changes the parameters of existing industry (Chan-Kim & Mauborgne, 2005). To this end, Chan Kim & Mauborgne (2005) posit that significant cost savings are made from eliminating and reducing the factors an industry competes in (Chan Kim & Mauborgne, 2005). Moreover, buyer value is lifted by raising and creating elements the industry has never offered, increasing customer retention rates. Indeed, leading independent marketing consultant Morris comments that “of great interest is…. assertion that the innovations which enable these companies to succeed with a blue ocean strategy did not depend upon a new technology. Rather, each company pursued a strategy which enabled it to free itself from industry boundaries” (In Chan Kim & Mauborgne, 2005). As such, it is submitted that blue ocean strategy is arguably essential Apple in providing the foundation of dynamism in line with Schumpeter’s theory that the evolution and sustainability of a successful business model is not dependant on how capitalism administers existing models, but rather with how it destroys them through creativity to survive long term growth (Metcalfe, J.S. 1998; Levy & Weitz, 2008). Therefore, to this end, Chan-Kim and Mauborgne argue that blue ocean strategy is effectively a microcosm for an “engine of growth” and that red oceans are shrinking at a prolific rate (2005), which further presses the need for a shift in corporate strategy. Indeed, slowly through the internet business mode, the niche markets have begun to disappear, with little evidence of increased demand and Chan-Kim and Mauborgne highlight the reality that “the United Nations statistics even point to declining populations” (Chan Kim & Mauborgne, 2005). Accordingly, the result of this is that increasingly supply is overtaking demand, which again asserts the relevance of blue ocean marketing strategy as part of Apple’s continued growth in the constantly evolving consumer market Bibliography Breillat, A. You Can’t Innovate Like Apple. Retrieved from www.pragmaticmarketing.com/publications/magazine/6/4/you_cant_innovate_like_apple accessed October 2009. W Chan Kim & Mauborgne, R. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. 1st Edition Harvard Business School Press, 2005 Steve Gordon. The Future of the Music Business: Music Pro Guides, 2008 Hitt, M., Black, S., & Porter, L. Management. 2nd Revised Edition Prentice Hall, 2005 Hollensen, S. Global Marketing: a decision oriented approach. Pearson, 2007 Kuesk, D. The Future of Music: Manifesto for the Digital Music Revolution. Berklee Press, 2008. Lee, P. M. 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Harvard Business School Press, 1996 Website Sources AMR RESEARCH SUPPLY CHAIN TOP 25 at www.amrresearch.com/supplychaintop25 accessed October 2009. www.pragmaticmarketing.com Reports Enders Analysis: Recorded Music and Music Publishing Report 2008 at www.endersanalysis.com Department for Culture, Media and Sport Creative Industries: “Banking on a Hit: The Funding Dilemma for Britain’s Music Businesses”. Available at www.culture.gov.uk/images/publications/bankningonhitexec.pdf Read More