Apple iPod as Innovation in the Music Industry - Essay Example

Innovation – Apple iPod] INTRODUCTION This report aims to discuss the dynamics of innovation in the music industry, with respect to the popular product iPod, which is the creation of the Apple company. Written by the innovation consultant of the organization, the analysis revolves around the theoretical concepts of innovation, analysis of the market in the industry, as well as the critical analysis of the innovation. The music industry is one of the fastest growing industries in the world. Owing to the growth in the population of the youth, the preferences for a lifestyle filled with music or the increasing passion for music has seen acceleration. (Albury, 2005) From the singers to the composers, from the lyricists to the manufacturers of the devices which are used for playing music – they all are the key players in the music industry. The player that has been chosen for this report is the manufacturer of the music playing device. Apple introduced the revolutionary portable media player, called iPod on 23rd October 2001. (Breen, 2003) And this has been a major contribution to the world of innovation, since it radically altered the way music was being listened to. Apple is the best company to be studied for when it comes to innovation and its related concepts, since it was declared "Worlds Number One Innovative Company" according to BusinessWeek. Innovation is to produce something new, whether it is an idea, a method or a device. Innovation opens the horizon for new dimensions to be explored and also fulfill some market niche which was unexplored and touched upon before the innovation. (Tushman, 2004) Moreover, the definition of innovation does not end there. Its scope is pretty vast. Innovation is not just about introducing a new thing; it is also about improving something old by adding an element of freshness and newness to it. Innovation is all about creativity. (Tidd, 2006) THEORETICAL CONCEPTS REGARDING INNOVATION Innovation can happen in any field but mostly it is important in the field of business because that is where competition is intense and companies are fighting to gain the attention of the firm and they need to get a competitive edge somehow to come to notice. Innovation gives them that. Innovation requires creativity, and for a product to be successful ultimately, we need to make sure that it is functioning properly and is fitting the purpose for which it was created. (Tumi, 2002) Therefore, doing trial and error and continuously experimenting with your imagination is the preparation for an innovative product. For this purpose, companies open Research and Development Departments where they can experiment all they want to before finally giving a product to the end user.        Models of Innovation Innovation is a concept which has been studied by managers and analysts time and again because of the importance that it holds within itself. This vitality was gained because it has the power to actually help and successfully let them get a competitive edge over there fiercest competitors in the marketplace. (Ward, 2002) The models of innovation have been designed keeping in view that innovation takes the shape of only one model and the organization can actually be focused as to which model they are a part of and what are the elements of the model that they are part of. Such information and knowledge is pretty essential so as to rightly implement the innovation and creativity inside the heads of the Research and Development Department.  The two important and prominent models of innovation are:         Adoption Model This model emphasizes on the fact that the organization needs to actually adopt innovation from its surroundings without the need for a personal research and development department. This model is a very idealistic model and is purely based on theory. Basically, the adoption model needs creativity and out of the box thinking which should stem from outside of the organization so that it can effectively be adopted by the organization.(Pavitt, 2005) Our environment is very complex and therefore innovation is a continuous part of this general environment. It possesses excellent thinkers, people with vivid imaginations that ultimately lead to a successful product and creative people who know where to use their creative side. This innovation might not always be present in an organization but it is a duty of the organization to learn from others and adopt what they feel they could. Innovation through adoption also gives pretty successful results. The model tells the company various processes and ways in which it can practice this innovation. The model is a very useful guide in this adoption. Diffusion Model The diffusion model is a model where the company is one of the first to pioneer and come up with the innovation and then spread it to other firms and places so that it can be adopted by others. This model has its own branches, ways, methodologies, practices, processes and variants. The model is a winner because it is practical and is based on empirical research. This research has been conducted various times and proves that the diffusion model is a better model of innovation and gives a solid proof of the company taking on the position of the market leader. This position is granted to the company because of its innovative products by the customer and because the customers felt loyal to the product and felt greatly impressed the innovation brought about by the company. The diffusion model makes a leader and therefore, requires greater hard work, attention and perseverance. (Rogers, 2003) Types of Innovation Disruptive Innovation A disruptive innovation deals with such an innovation where the product is able to overturn all existing products in that same product category. Moreover, disruptive innovation is of two types: lower-end and new-market disruptive innovations. These innovations bring revolution in the marketplace by thoroughly revitalizing the market with its performance, innovation, creativity, idea and thought. (Nutley, 2000) Radical innovation Radical innovation is the result of an incremental change that is brought about by the company in one of its products. Through bringing these incremental changes, there comes a radical shift in the way innovation is brought about ultimately in the product. This deals with innovators experimenting for a very long time with a single idea and then they just bring radical shifts into territories which are new and unexplored. The old approach which is taken with the product grows boring suddenly and then there is the input of the knowledge and perspective of different people, who help in bringing this innovation. And with time the difference between the old and new approach becomes wide and noticeable, leading to a radical and visible innovation. This is the result of the core competencies of the company. If the company uses its core competencies well, it can definitely bring radical innovation. (Lyytinen, 2003) Classifications of Innovation Innovations can be made on a variety of processes, products and ideas. Innovation can take place in every field; therefore there are many different types and classifications of innovation. Strategy Innovation One of the first classifications in innovation is when innovation takes place in the strategy of the firm. Strategy is how an organization plans itself overall so as to have a strategic fit with the environment, to fully use its strengths, overcome its weaknesses, exploit its opportunities and negate its threats. (Ward, 2002) Business Innovation Business innovation takes place when the management tries to bring innovation in the way the business is done or new changes are brought about in the way the business activities are carried out. A business activity is any activity that directly or indirectly affects the profitability of the company or in the earning of profits for the company. Product Innovation Product innovation takes place when a company launches a product, after bringing an innovation in it. It can be a completely new product or an alteration of the old one with some good new changes. Apples iPod is a result of the product innovation, since it came up with a portable device which could play media with an interface that was user-friendly, and was not unattractive like other existing players in terms of visual appeal or size. (Gregory, 2004) Technology Innovation Technology is that part of a companys infrastructure which aims to help them in the process of production and manufacturing whatever products they are producing. Use of the new technology gave Apple the impetus to produce something new, like iPod. Technology innovation plays a big hand in giving such companies a competitive edge over others.  Process Innovation Process innovation involves the usage of an entirely different means to accomplish a business activity. Marketing Innovation   Marketing innovation is brought about when there is a change in the way you market your product and then through that, differentiate it from your competitors. Apple iPods success quite a lot goes to its marketing department, since it focused on giving more value and more style to its customer, when other manufacturers of portable media players wanted to create cheaper devices to sell. The exterior design kept consistent over time, the name of the device [iPod] which has almost become synonymous with an mp3 player, and the advertisements showing a lot of people dancing on a colored background – it all worked wonders for the iPod brand. (Katz, 2004) ANALYSIS OF THE MARKET IN THE INDUSTRY Target Market Demographically, the core target market for iPod is teenagers and young adults mainly people who are between 12 and 25 years of age. However, iPod is also very popular among younger children of ages 7 to 12 and older people of ages 25 and above. (Gregory, 2004). Basically, the target audience of iPod is anyone who is tech-savvy and has a passion for music, videos, movies, literature etc. The target audience includes both males and females and it caters to high and middle socio-economic classes. (Breen, 2003). Product Market Growth Apple iPod is a relatively new product which has been a hit ever since it has been launched. It is still in a growth phase with rapidly increasing demand and subsequently increasing sales all around the globe as the people become more aware and the resistance towards innovation and technology diminishes. (Breen, 2003). However, as the market matures, competition is increasing and the threat of new entrants and substitutes due to new technology is growing. (Bessant, Tidd, 2007). Market Analysis: Porter’s Five Forces Model 1. Competitors Competitors are all the company’s providing similar products to similar target markets at any given time. (Porter, 1990). IPod is a very popular product with a market share of 73.8 percent, however, there are many competitors in the mp3 market that share the rest of the 27 percent of the market share. (Breen, 2003). Mp3 players by many companies including Cowon, Creative, Samsung, Sony, and Phillips etc. are available in the market. Microsoft has also launched its competitor Zune not very long ago. Since people perceive iPod differently than regular mp3 players and its brand equity is very high, it enjoys a partially monopolistic position in the market. (Bessant, Tidd, 2007). With its design being continuously innovated, Apple iPod doesn’t let go of its market share. Hence, currently, it does not face many threats from its competitors. With its huge brand equity, consistent quality, continuous and frequent innovation, appealing and stylish design, and very strong brand associations, iPod is there to stay. (Breen, 2003). However, with the technological innovations on the rise, it cannot be surely stated if this market share is going to be persistent or not. (Katz, 2004) 2. Bargaining Power of Suppliers The bargaining power of suppliers is also known as the input market. It is the ability of the suppliers to affect the decisions and operations of a company in any way. It includes labor, raw-materials, components (like batteries etc.) and services (like technological expertise) etc. (Porter, 1980). When it comes to iPod, its suppliers have the power of affecting its costs and hence its pricing strategies especially because Apple has a cost-based approach towards its pricing strategy with approximately 65% profit over cost. The labor market and the service providers (like experts) can also affect the company through labor unions, minimum wage-rates, etc. (Bessant, Tidd, 2007). 3. Bargaining Power of Buyers The bargaining power of buyers or customers is also known as the output market. It is the ability of the customers to affect the company’s decisions and operations in any way. It is mainly related to the price of the product relative to its quality and brand image. (Porter, 1980). Although the customers of iPod can pose a threat towards the company by being inclined towards buying the products of other competitors, however, the consistency of the company in innovation and style has been increasing the customer loyalty towards the product. Customers don’t find the substitutes very compelling and hence, they stick to iPod. (Breen, 2003). This brand loyalty makes Apple a market leader and a very powerful competitor in the mp3 market which is very difficult to be taken down. 4. Threat of New Entrants New entrant in the market is any company that introduces a similar product targeting a similar market. Powerful new entrants can pose great threats towards any product no matter how powerful it may currently be in the market. (Porter, 1980). Apple iPod, being the market leader with a market share of around 74%, does not face many threats by small market entrants, however, large market players like Microsoft (with the launch of its mp3 player Zune in late 2009) with latest technology may pose threats towards the company. (Katz, 2004). However, continuous and frequent innovation, that Apple has always been doing, can save Apple from being robbed of its market share. (Zotto, Kranenburg, 2008). 5. Threat of Substitutes Substitutes are the products that are different from a particular product; however they perform a similar function catering to similar needs of a similar target audience. (Porter, 1980). Since iPod belongs to the electronics industry, the substitutes may evolve quickly in the market and would eat up its market share in no time, especially in these times when people tend to go crazy after any new technology that may arise in the market. For this reason, Apple needs to keep its eyes open for any emerging technological innovation and to keep integrating all sorts of such advancements in iPod to avoid any such situation. (Gregory, 2004). IDENTIFICATION OF ONE INNOVATION AND ITS CRITICAL ANALYSIS SWOT ANALYSIS Strengths Apple has ample finances to support operations for iPod and to carry out continuous research and development to keep the product updated with the latest technological innovations. (Bessant, Tidd, 2007). It is a product that has a very diverse set of target market including people of almost all ages, both male and female, and people belonging to both high and middle socio-economic classes. (Katz, 2004). It has a very strong brand image and an extremely brand loyal customer base. The perceived-quality is very high and iPod has been able to reserve a large space in its target audience’s minds. (Zotto, Kranenburg, 2008). IPod has been so popular in the market that although it is just another mp3 player with better quality and technology, it is perceived to be a product different than mp3 players so much so that many people think iPod and mp3 players are two different things. (Gregory, 2004). Advanced technology and innovation that is continuously updated in the product, never disappoints its customers and they always find something new and stylish in it. (Breen, 2003). Both Apple and iPod’s image as stylish, cool, trendy and modern creates some very strong brand associations with its customers. (Bessant, Tidd, 2007). Weaknesses IPod, being a brand, has a very narrow product-line, catering to diverse needs of the customers but only under a certain umbrella that cannot be easily expanded into any other related market. It needs to diversify itself before existing competitors or new entrants come up with more diversified products and take over the market. (Franklin, 2003). Apple charges its customers a high premium price for its products. It may become a weakness for the company as recession prevails and inflation grows and people cannot afford such premium products and, despite their brand loyalty, switch to cheaper competitors or substitutes. (Zotto, Kranenburg, 2008). Another weakness may be Apple’s weak market promotions. Apple doesn’t spend much in advertising its products and although the customers know about the product, they are never too aware of the products specifications and distinctive and differentiating characteristics. (Christensen, 1997). Opportunities Apple has an opportunity to capitalize on its financial resources creating awareness about its products amongst masses and coming up with newer technological innovations through R&D. (Gregory, 2004). In the world of electronics and other durables, good-will and brand image can work wonders since people tend to trust such brands more and are even willing to pay a higher price for the products they perceive as better than others. Hence, Apple can capitalize on its good-will and brand loyalty of iPod’s customers. (Bessant, Tidd, 2007). There is a rapidly growing market for products like iPod and people are increasingly becoming aware and well-verse with technological products. (Gregory, 2004). IPod can also diversify into many other related markets joining hands with other brands like it has been doing in the past (like Nike+iPod). (Zotto, Kranenburg, 2008). Threats As the market for mp3 players grows, many new entrants continue to enter the market as well which include both large and small market players. Up till now, no competitor has been a major threat to iPod, courtesy Apple’s and iPod’s huge brand identities, but in the rapidly changing world of technology, it is difficult to predict the future. (Franklin, 2003). Product saturation in the market may also be a threat to the brand. People may become tired of the brand regardless of the updated technology and innovation, resulting in brand fatigue. (Franklin, 2003). Imitators may also pose a danger of decreasing market share as with increasing inflation and prevailing recession, many people can no longer afford premium luxury products. (Christensen, 1997). Another major threat may be the tightening of anti-piracy laws in many parts of the world, which makes music, movies, etc. much more expensive and many customers would not be able to afford them. Hence, iPod and such products would not be of much use to them. This may result in decreased sales. (Christensen, 1997). Electronics and more importantly technological products usually have very small product life cycles. Through its continuous improvement strategy, Apple has been able to keep up with prolonging iPod’s life cycle. However, this may not work for very long. (Zotto, Kranenburg, 2008). PESTEL ANALYSIS Political Factors Political factors include global, regional, local and national factors that may affect a company’s decisions and operations. They may include sub-factors like policies of different political parties ruling the country or state, taxation and tariff policies, globalizations, etc. (Porter, 1980). When it comes to Apple iPod, globalization is the factor that has contributed largely to the product’s success. It is popular not only in America, but also in many other parts of the world and with regions coming increasingly closer due to globalization, brand awareness of iPod has increased worldwide resulting in huge sales across the globe. (Katz, 2004). However, taxation and tariff policies have played a major role in iPod being much expensive than its price before taxes and with increasing tax rates, iPod might get out of reach of many of its potential customers. (Bessant, Tidd, 2007). Economic Factors Economic factors include factors like inflation, interest rates, per capita income, foreign exchange rates, employment rate and opportunities, labor and other business costs, etc. that may impact a company’s sales and operations directly or indirectly. (Porter, 1980). Taking iPod into consideration, being a luxury product, it is hugely affected by the economic conditions in a society. For example, as recession hit the world, iPod’s sales dropped a few many percentiles. (Gregory, 2004). Moreover, the rate of inflation, employment and per capita income are some major determinants of an individual’s ability to buy, especially when it comes to luxury items that people can manage to do without. (Franklin, 2003). Socio-Cultural Factors These are the factors in a society that pertain to people, their habits, their lifestyles, etc. including demographic factors (like age brackets, genders, urban-rural divisions etc.), values, attitudes and lifestyles of the population, availability and penetration of media, level of education in the society, income distribution, trends in a society, etc. (Bessant, Tidd, 2007). In terms of iPod, the socio-cultural factors are extremely favorable across the globe. People are becoming more aware of what is going on around them and they have more refined thought processes and choices. They are increasingly inclined towards new technology and innovative products. There is a fresh urge to look stylish, trendy and cool. Hence, they are more receptive towards products like iPod ad that is a great opportunity for Apple to capitalize on. (Gregory, 2004). Technological Factors Technological factors include advancement of breakthrough technology and innovation, R&D, emergence of new materials, products and processes, etc. IPod being a breakthrough product in itself, revolutionizing the market, it can capitalize on these technological factors above all. (Katz, 2004). Through its continuous innovation, it continues to awe people across the globe and keeps its market leadership intact. (Breen, 2003). However, it has to keep working harder and harder to keep itself updated with the latest technological innovations to avoid obsolescence or being sidelined by competitors or substitutes. (Franklin, 2003) Environmental Factors These include factors like global warming, pollution, depletions of natural resources, recycling products, green technology, conservation of energy etc. With the increasing about saving and conserving the environment, across the globe, people are becoming more and more concerned about issues like global warming, depletion of natural resources and pollution etc. (Katz, 2004). Apple, being a large global corporation should invest in CSR activities and should incorporate use of green technology and recyclable components etc. fostering environment friendly systems and processes. (Gregory, 2004). It will also help Apple in enhancing its brand equity and attracting a bigger share of market since people are becoming aware and they appreciate and support such motives of saving the planet earth. Legal Factors Legal factors include laws and legislations in a country which can affect a company directly or indirectly. There may be many different laws and legislations that may affect Apple and iPod in different parts of the world, however anti-piracy laws are increasingly affecting the sales of iPod around the world. (Gregory, 2004). As more and more countries are becoming stricter and more rigid regarding piracy, music, movies and other multimedia becomes more expensive. Hence it gets out of reach of many people who could afford an iPod but cannot invest in buying such luxury stuff constantly. Thus, they find iPods of no use and are not inclined to buy them anymore. (Christensen, 1997). CONCLUSION In conclusion, it can be said that the Apple iPod has become a quintessential product when it comes to leading creativity and innovation. The structure and the company culture of the Apple company helped its employees to gather up that creativity for the launch of the iPod. And that is exactly what a company wants. A company always tries to build a long and lasting relationship with the customer so as to ensure loyal customer who spread positive word about the company through word of mouth. But in these changing times, it is not easy to capture the attention of the consumer whose mind is always in a war of brands, where they cannot decide which one to go for. Therefore, it is vital for todays corporate world to innovate. (Gratton, 2007) Moreover, since Apple has become the top of the mind brand in the media player industry, it should not lose that edge and keep on practicing the business model which took the world by storm – the model of innovation. This it can do by employing the metrics on the product, process and business model innovations. Metrics will help the company in finding the response as to the level of innovation being adhered to at that point in time, and if the performance with respect to innovation does not meet the criteria of the standards set, then the proper efforts can be deployed in that area. The Apple iPod has experienced an exponential growth in sales, and given a brand to the music industry, like no other! Hence, this states the positivity of the innovation business model. REFERENCES Book 1. Albury, D (2005) Fostering innovation in public services, Public Money & Management, Jan 2005, pp 51-56 2. Bessant, J and Tidd, J (2007) Innovation and Entrepreneurship, Wiley 3. Bijker, W and Law, J (eds) (1992) Shaping Technology/Building Society: studies in sociotechnical change, MIT Press 4. Breen, C. (2003) Secrets of the iPod, TechTV 5. Brown, JS and Duguid, P (2000) The Social Life of Information, Harvard Business School Press 6. Carr, N (2004) Does IT Matter? , Harvard Business School Press 7. 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