Strategic Analysis of Apple - Report Example

Strategic Analysis of Apple Table of Contents Table of Contents 2 Part I – External analysis 3 PEST Analysis 3 Part II – Internal analysis 6 SWOT Analysis 6 Value Chain Analysis 7 Part III – APPLE’s Issues and Challenges 8 Part IV – The Selection of Strategic Options 8 Part V – Conclusion 9 References 11 Introduction Apple Computer, Inc., commonly known as Apple Inc., is a US based multinational company involved in manufacturing and marketing of several consumer electronic products. It was founded by Steve Jobs, Steve Wozniak and Ronald Wayne in the year 1976. Apple is currently headquartered at Apple Campus, 1 Infinite Loop, Cupertino, California, U.S (Linzmayer, 2004). According to reports the company is currently at the second position in terms of revenue just after Samsung Electronics. The company is also the second largest publicly traded company in terms of market capitalization. As of 2012, the company had 394 retail stores spread throughout the world (Apple Store, 2012). The total revenue of the company for the financial year 2011-12 is $156.508 billion and the net income was $ 41.733 billion. The current employee strength of the company is around 72,800 people and has presence in many parts of the world (Golson, 2012). Some of the competitors of the company are Samsung, Nokia, LG, and Motorola among the others (NASDAQ, 2012; Gallo, 2012). This report will analyse the issues Apple is currently facing and also how the company is dealing with it. It will be divided into 5 sections; the first and second section will cover the external and internal analysis of the company. The third and fourth section will shed light on the challenges faced by the company and how they are dealing with it. Finally, the last section will conclude the project. Part I – External analysis The external analysis of a company is about analysing the external business environment of a company (Monczka, 2000). In order analyse the same, the report will use PEST analysis and Porter’s five forces analysis. PEST Analysis Political factors: - The technology businesses remain highly dependent upon the political scenario of a country. Moreover, it also needs to depend on the rules and regulations of the operating country. However, the government of USA has always encouraged products which are innovative and trendy. Moreover, the political scenario of the country is highly stable which provides an opportunity for the company to further develop its R&D infrastructure and come up with innovative products. Economical factors: - USA is considered as one of the richest nations of the world. The total GDP of the country is 15.09 trillion and the per capita income is $ 49,800 (CIA, 2013). The figures clearly reflect that the country is economically stable. Moreover, the disposable income of the US population is also high. Hence, it provides a great opportunity for Apple to get success with its high range products. Hence the economic condition of USA is extremely favourable for Apple. Social factors: - The total population of USA is 316,668,567 and the total urban population is 82%. Another positive aspect is that the rate of urbanization is 1.2 % (CIA, 2013). Hence, Apple with its high end products holds great chances of success in the US market. In addition, US population is also considered as tech-savvy which again acts as a positive factor for the company. Technological factors: - The market for mobile phones, laptop and tablets are growing at a rapid pace in USA which acts a favourable factor for Apple. In addition, information and communication infrastructure of USA is very strong which fosters research and development function of Apple. Industry Analysis (Porter’s Five Forces) Force Intensity Description Buyer’s Power High Due to the presence of a large number of established players in the market, users have the widest range of options. This increases the bargaining power of buyers. Supplier’s Power Moderate The suppliers of Apple include Intel, IBM, Motorola, Sony and Disney among others (Satariano, Burrows and King, 2012). In addition, there are several other companies which supply raw materials to Apple. However, at times established players may bargain and increase the price of raw material. Hence the bargaining power of suppliers is assessed to be moderate. Threat of Substitute Modertae Apple has a diversified business line and thus has different substitutes for different categories. For example, satellite radio, music CDs can be substitute of i-pod. In the similar way, base phones can be an alternative for its mobile division. Hence the threat of substitute is assessed to be moderate Threat of New Entrant Low The industry in which Apple operates is highly attractive, but the initial cost required to set up is extremely high. Moreover, government license is also required to start a hardware technology business. Hence the threat of new entrant is assessed to be low Existing Rivalry High With the presence of established players such as Samsung, Sony, HP, Nokia, HTC, Microsoft etc, the competition within the industry is fierce. Hence the existing rivalry is assessed to be high. Part II – Internal analysis The internal analysis of the company is about analysing the internal business environment of the company (Richter and Pahl, 2009). In this context, the internal analysis of the company will be carried out with the help of SWOT analysis and Value chain analysis. SWOT Analysis Strengths The company has a huge brand name and a large base of loyal customers (Sobhany, 2011). Good market reputation. Innovative and trendy products. Strong research and development cell. Wide range of products. Weakness The company puts more emphasis on the engineering department and gives less attention to the marketing and sales department. The company only targets higher income group. The company has a weak distribution channel. Complaints about the product accessories. Opportunities Further diversification of products. The company has the opportunity to strengthen its marketing and distribution channel. Apple has the opportunity to come up with products which are more cost effective and thus can target middle income group. Threats Availability of substitutes. The competition within the industry is fierce. The market is highly saturated. Media piracy is also another cause of concern for the company. Value Chain Analysis The value chain analysis sheds light on the activities which takes place in a business process (Schmitz, 2005). The value chain of Apple is described below. Figure 1 (Source: Porter, 2008) Inbound Logistics: - Apple acquires most of its resources from multiple sources; however some of the resources are acquired only from single sources such as Motorola, IBM. In order to increase the efficiency of supply chain the company has implemented automated receiving systems. Operation: - The operation of the company takes place in Sacramento and Cork. However, most of the operational task of the company is outsourced to third party OEM (Original Equipment manufacturer) vendors. The portable category products are mostly assembled in China, Japan and Taiwan. Outbound Logistics: - The distribution model of the company is simple. The company presently distribute their products with the help of wholesalers, resellers, cataloguers and retailers. In addition, it also has online store and company owned exclusive stores. Marketing and Sales: - In order to promote their products, the company spends large sums of money. The company mainly uses different public relation techniques to create awareness and hype about their products. After Sales Service: - Apple is also known for providing quality after sales service. In this context, the company has already launched several programs such as Apple care. Moreover, the company has also outsourced their service department to AT & T. Part III – APPLE’s Issues and Challenges Apple is best known for its hardware products such as ipad, iphone, ipod, and Mac line of computers. Apart from its hardware section, the company is also active in the field of software. Some of its well known software products include i-tune media player, Safari web browser, Mac OS x and iOS among others (Yahoo Finance, 2013). Despite of this large number of quality offerings, the company has faced several issues and challenges. One of the major challenges of the company is related to the fierce competition and low market share. From the analysis it has been uncovered that the principal reason for this problem is the pricing structure of the products. On the other hand companies such as Samsung, Nokia, HTC and even Sony are also coming up with economical products and allowing them to target customers from every section of the society. However, Apple is the only company which focuses only on the high end market to generate sales. Consequently, the market size is small and the opportunities are also limited. As a result of this, the company is also witnessing low market share. Although Apple is positioned well in the US market but on the global perspective Apple’s market share is far below its competitors. Part IV – The Selection of Strategic Options The last section has underpinned the challenges or problems, which are hindering the growth of Apple. The major problem identified is that the company is losing market share due to intense competition. Moreover, it has been also identified that the major cause of these happenings is associated with the pricing strategy of the company and lack of product variants. This section will now provide some alternative courses of action by which the issue can be sorted out. The following are possible ways by which the company can increase its market share as well as can remain competitive in the market place. The solutions for the same are presented below: - Adopting Competitive Pricing Strategy: - Apple mainly pursues premium pricing strategy (Wit and Meyer, 2010). The products of the company are priced high and thus the target market gets smaller. Hence, one of the viable options for the company is to make modification in the pricing strategy of the product. The best pricing strategy for Apple can be competitive pricing thereby making the products affordable for the customers. With good reputation, strong brand name and affordable products it is expected that the company will be able to flourish in the market and can increase the market share. However, the only problem with this strategy is that the brand image of the company may get negatively impacted. Targeting Low end Customers and Reducing Operation Cost: - It has been identified from the study that Apple only targets customers from the higher end of the market. The company neglects the opportunities provided by the middle income group. Therefore, the company can target low end customers and can increase their market size. This will also provide the company with the opportunity to increase market share and sales. However, the low end customers cannot be targeted with the existing products and prices. Hence, the company can come with more economical products. With this strategy companies such as Samsung and Nokia have witnessed colossal growths. In addition, to low end products the company should also minimize its operating cost so that the prices can be reduced. R&D Investment: - Another important area where the company can put emphasis is the R & D investment. It has been identified that Apple’s investment for R&D is comparatively less than other companies (Ogg, 2012). Therefore another solution to the prevailing challenges of the company can be increase in the R&D investment. With more investments, the company will be able to know about the requirement of the customers more precisely and can develop products accordingly. Part V – Conclusion The report was about analysing the market position of Apple and uncovering the challenges faced by the company. In order to analyse the market position of Apple, the report has analysed both internal as well as the external business environment of Apple. The study clearly suggested that the external business environment for the company is highly favourable except for the fierce competition. Hence, from the US perspective, Apple is positioned well, but when the global scenario is considered Apple has a weak position. The analyses also uncovered that the biggest challenge for the company is declining market share. In order to address this issue the study has formulated several alternative courses of action. The suggested strategies are adoption of competitive pricing strategy, targeting low end customers & reducing operation cost and allocating more budgets for the research and development activity. However, among these strategies competitive pricing may harm the brand image of the company and only increasing R&D investment will not serve the purpose. Therefore the company is recommended to pursue the strategy which involves targeting low end customers and reduce the operating cost. This will not increase the market size but will also provide the company with the opportunity to gain maximum sales and market share. References Apple Store, No Date. Mac Software. [Online] Available at: [Accessed 03 April 2013]. CIA, 2013. Country Comparison: GDP - Per Capita (PPP). [online] Available at: < https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html> [Accessed 03 April 2013]. Gallo, C., 2012. Business Secrets of Steve Jobs: Presentation Secrets and Innovation Secrets. New York: McGraw-Hill Professional. Golson, J., 2012. Apples 2012 Annual Report: More Employees, More Office Space, More Sales. [online] Available at: [Accessed 03 April 2013]. Linzmayer, O. W., 2004. Apple Confidential 2.0: The Definitive History Of The Worlds Most Colourful Company. 2nd ed. California: No Starch Press. Monczka, R. M., 2000. New Product Development: Strategies for Supplier Integration. Wisconsin: ASQ Quality Press. NASDAQ, 2012. AAPL Competitors. 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