Business Report for Apple Inc - Essay Example

Business Plan for Apple, INC Introduction: The following is a Business Report for Apple Inc, which proposes that the Company pursue an active marketing strategy to sell its product the iphone in India, which is a large and upcoming consumer market. This Business Plan proposes that Apple Inc capitalizes on the success of its iphone and proposes a marketing plan to improve sales of its phones in India. The iphone is one of the most important recent developments in the electronic world because it is a combination of a phone, ipod and an Internet device. This is a landmark development in the electronic world because it allows for the performance of several functions all at once. Apple has already launched its iphone in India using a marketing strategy wherein it launched its phones in eight Indian cities at midnight of August 22, 2008. As pointed out in an article printed from Wharton, Apple’s strategy in India was different from its launch strategy in the United States, where the company followed a different strategy. As articulated by Professor Peter Fader of Wharton: “Here in the U.S., Apple basically wanted to bust the market open all at once. So, they had all these people lined up all around the block, and when they flipped the switch -- boom! -- the market existed. In India, its almost like they are doing a test market.” (www.knowledge.wharton.upenn.edu). The launch was a small scale one and was carried out without much fanfare. This report will address various other marketing aspects of Apple’s strategy in India and recommend measures that could be taken in this regard. Contextual background: The development of the iphone is a relatively recent development in the electronics industry, which relies upon 3G networks in order to operate efficiently. The 3G generation of mobile networks is expected to complete the worldwide process of global communication (Lindemann et al, 2003). Mobile communication systems, if effectively provisioned and utilized, could provide a means to include a range of new services with different quality of service requirements, so that radio resources can offer a high capacity level of service over a planned coverage area. In a 3G scenario, RRM functions will play a pivotal role because they influence system efficiency and the operator infrastructure cost. In providing an optimum level of quality of service, two major aspects would be important, i.e., the network planning in terms of features such as the number of cell sites and their design and location, as well as the radio resource allocation or the manner in which the resources are dynamically managed in order to accommodate the demands of users moving around the network. RRM strategies are especially important because they can be implemented in different ways and impact on overall system efficiency as well as operator infrastructure cost; therefore they will play an important role in a 3G scenario (Sallent et al, 2003). One of the important issues that arises in the context of 3G networks is charging and pricing for network operations of these 3G networks. Differentiation in pricing in Internet services is important because the target sought to be achieved is optimal usage and the prevention of system overload (Lindemann et al, 2003). Flat rate pricing is most common because it entails the least amount of overhead and improving the quality of service in these networks would entail a reduction in congestion as an integral part of this service. The marketing appraisal included in this report targets India as the country where Apple’s iphones are to be marketed utilizing the available 3G networks; hence allocation of bandwidth and pricing aspects will also be quite important and must be taken into consideration. The Indian market: Environmental Analysis: The Indian market is one of the largest consumer markets with an economy that is thriving and demonstrates significant levels of economic growth. Although the country has generally been perceived as one with a very large percentage of people living in abject poverty, there is also a sizable middle class that is emerging with disposable income, after the political policy changed to one of economic liberalisation in the early 1990s. One of the significant factors that needs to be considered in the political scenario is the emergence of a radical Hindu party, the BJP, which denotes a greater importance being accorded to Hindu cultural elements. This is an important aspect that needs to be taken into account in marketing products in India because a lack of cultural sensitivity would not produce good results. As a recent McKinsey Report points out, in 1985, more than 90% of Indians lived on less than a dollar a day, but in the next generation, the report estimates that the country will be characterized by upwardly mobile middle class households and within a period of two decades, it could well outstrip Germany as the largest consumer market (Farrell and Beinhocker, 2007). This report also point out that after India introduced its liberalisation policies in the 1990s, economic growth jumped dramatically to about 7%. Despite some initial slowdown in the early 2000s, economic growth has picked up since 2002 and the Indian economy is now surpassed only by China. The report projects the existing middle class at about 50 million people, projected to increase to 583 million people by the year 2025, thereby representing 41% of the population. Another sizable market sector is the Non resident Indians, or those Indians who have settled in other countries and are pumping their monies back into their home country. As the report points out, salaries are on the rise and more Indians are choosing to purchase items over and above necessities, such as branded items (Farrell and Beinhocker, 2007). This report is also significant in the context of mobile phones, because it shows that more people are getting connected through the mobile network. India has virtually no mobile phones before its program of economic reforms was initiated, but in recent times, the market for mobile phones has exploded and is expected to reach 211 million subscribers by the end of 2007, with the growth rate of this market exceeding that of China. As the McKinsey report points out, the overall spending on communications is expected to jump by 13.4% every year over the next two decades, therefore there appears to be an excellent market available for marketing of mobile phones in India. One of the major barriers to entry that Apple might face in India is the higher price of its product. As pointed out earlier, the charging and pricing for network operation of 3G networks is very important to ensure quality of service, but in a country like India, this could result in a pricing of the product at a higher cost which would not suit the local pocket (Lindemann et al, 2003) because the average Indian middle class income is between $1,969-$4,376 per year (Farrell and Beinhocker, 2007). The price of the 8GB version of the iphone in India is $710 while the 16GB phone is priced at $825 (www.knowledge.wharton.upenn.edu), a price that would be somewhat stiff for the Indian consumer market. As opposed to this, the prices in the United States are $199 and $299 respectively. The reason for the lower prices in the United States as compared to India came about because the handsets were not subsidized in India as they were in the United States. AT&T in the United States requires customers to sign up to a “lock-in period” and since there are more customers, the APRU (Average Revenue Per User) amounts to a much larger sum of about $50 plus. In India on the other hand, the APRU amounts to $8.16 for Airtel and $7.99 for Vodafone. Moreover, the contractual lock in periods are such that they can be used in the United States only with a specific carrier; this further ensures that the carriers are able to recover their costs. In India however, customers are not required to just use a specific carrier; they use pre-paid cards as a result of which they can easily switch carriers (www.knowledge.wharton.upenn.edu). All of these factors contribute to the increased price of the iphone in India as compared to the USA. Yet another barrier in the Indian market would be Government regulations, because the Indian business environment is mired in bureaucracy and it is difficult for new entrants into the market to deal with Government officials to secure necessary licenses. The infrastructure of the country also needs to be developed further, because it is an impediment in the supply chain and does not facilitate fast and efficient transmission of products. These barriers would also apply in the context of marketing of the iphone in India, hence any marketing plan that is devised must take these factors into account. Apple introduced its iphone in India and 20 other countries on August 22, 2008. (www.knowledge.wharton.upenn.edu). The company carried out a midnight launch across eight cities in India The entry level strategy for the iphone in India is to target the metropolitan cities of Mumbai, Delhi, Calcutta, Bangalore and Chennai, where there is a larger concentration of middle class people who might have the means to purchase the iphone. According to the McKinsey report mentioned earlier, the higher middle class income groups earn between $4376 and $10,941 per year but most of them are likely to be concentrated in the urban rather than the rural areas. Apple’s promotional strategy thus far appears to have been a “skim strategy” as opposed to a “penetration strategy” that Apple used when it launched its iphone in the United States. As Peter Fader, Professor at Wharton points out, Apple’s strategy in India has allowed the Company to test the market and learn all of its ins and outs in a cheaper way with a much lower element of risk (www.knowledge.wharton.upenn.edu). Using a skim strategy allows a Company to test the waters and determine what kind of a market exists, so that if it should become necessary, the marketing strategy can be changed midway. If necessary, prices can be adjusted downwards, or the marketing message can be changed and the Company can then reach out to a much larger market . Apple’s existing marketing strategy thus needs to be strengthened through reaching out to a much large market. While the initial skim strategy would have been useful in identifying the drawbacks and shortfalls in the present marketing strategy, this can form the basis to devise a more effective and meaningful strategy that addresses the weaknesses which have been identified as above, for instance (a) high price (b) non subsidized handsets (c) availability of prepaid cards (d) no lock in period (e) government bureaucracy (f) lack of infrastructure and most important (g) lack of a 3G network. Competitive analysis: In India, Apple has released its phone through two major carriers, Airtel and Vodafone. These two carriers are the major competitors to each other, however some customers in India are also ordering iphones on ebay from sellers in the US and other countries where iphones are available at lower prices because handsets are subsidized through the use of lock in contracts or through mandating the use of just one particular carrier, to ensure that there is an adequate level of business generated to justify the subsidizing of handsets. On an overall basis however, Apple has managed to rope in two of the major carriers in India to offer the services on the iphone and this could prove to be quite profitable fort the Company in the long run because competition between the two companies would mean that they would take necessary measures to sell an adequate number of iphones to sustain profits. Where the iphone is concerned, Apple has a significant advantage – an innovative product, i.e, the First Mover advantage (Moore, 1999). When a Company is the first entrant into a market, it is able to corner a substantial share of it because consumers come to associate the product with the first Company that entered the market. Since there are no other companies in the market when the First mover enters, it also ensures that sales is focused on one company. Strategic Analysis: Porter (1985) has identified three different kinds of strategies (a) Cost leadership strategy, which is a no-frills strategy (b) Differentiation, which is the creation of uniquely desirable products and services and (c) focus strategy, or offering a specialized service in a niche market. The first strategy keeps costs down to a minimum and passes on the savings to the customers. This is a cost leadership strategy, wherein profits are increased through the reduction in costs, while industry average prices are charged. This enables a Company to gain a cost advantage in comparison to its competitors. The strategy of differentiation involves making a particular Company’s products or services different from those of its competitors and thereby more attractive. The final strategy, i.e., the focus strategy, concentrates on certain niche markets and by understanding the dynamics of the market and the needs of the customers operating within that market, develops a marketing strategy that is appropriate to fulfil those needs. Where Apple’s marketing of the iphone in India is concerned, the cost leadership strategy would appear to be the most effective and desirable one to use. As indicated earlier, one of the most significant drawbacks that Apple is facing in marketing its iphone in India is the high price due to lack of subsidization of handsets. Since the primary market to be tapped in India is the middle class one where consumers cannot afford prices if they are very high, the ability to offer the product at a lower price would provide the Company with a significant competitive advantage. The core competencies that Apple enjoys are (a) an innovative product that is a powerful communication tool (b) global marketing and promotional strategy that has been devised in the United States but would be available to be used in India and other countries as well. In a globalized environment, it is possible to apply one promotional strategy uniformly across various countries with some minor modifications to incorporate cultural elements. The innovative nature of the product is the most significant advantage the Company has, because it offers three different media all in one unit at a competitive price, thus offering a very attractive and useful product. It must be borne in mind however, that there is a significant limitation in the Indian market, i.e, the lack of availability of 3G networks. Hence, any strategy to actively promote the iphone on a large scale within the Indian market would require the Company to make some initial, heavy investments in infrastructure development, perhaps in coordination with the Indian Government to the extent of obtaining licenses and permission as may be required. Conclusions: On the basis of the above, it is recommended that Apple use the results of its test marketing run in India thus far and the lessons it has learnt as a basis to devise a new marketing strategy. At the outset, the most important aspect to be taken care of is the development of a 3G network by working with some of the 3G providers in other countries and negotiating an agreement for extension of the services to India as well. In the event that licenses need to be procured from the Government of India, steps need to be taken to ensure that this is done. Secondly, in order to enhance and promote the sales of the product, a cost leadership strategy needs to be devised, wherein efforts must be made to drive down the costs of the product as much as possible. It appears quite likely that Apple will find the initial costs to be quite substantial, until the 3G network is developed. However, it may be to the benefit of the Company to devise a strategy that would offer the product at a lower cost at first, even if it is a losing proposition. Driving down the cost of the product would ensure that more consumers would come forward to buy the product which itself would ensure that the Company is in a position to later recover its initial losses through a price increase, because customers would have had an opportunity to sap le the superiority of the product and pass on the message about the value of the product to other potential customers by word of mouth. Lastly, it would also be important to ensure that promotional strategies take cultural sensitivities into account in the promotion of the product. Since most consumers in India are fond of Bollywood films, it would be well worth the expenses that may be involved for the Company to enlist the services of some of the well known Bollywood starts to promote the advantages of the iphone and to encourage customers to purchase the product. The Company already enjoys the First Mover Advantage for this product and in the absence of competitors, consumers would flock to Apple’s iphone, so it should be able to corner a substantial share of the market before its competitors enter the market. References: Farrell, Diana and Beinhocker, Eric, 2007. “Next big spenders: India’s middle class”, Business Week, May 19, 2007; Retrieved April 19, 2010 from: http://www.mckinsey.com/mgi/mginews/bigspenders.asp Linedmann, Christoph, Lohmann, Marco and Thummler, Axel, 2003. "A unified approach for improving QoS and Provider Revenue in 3G Mobile networks", Mobile Networks and Applications, 8:209-221. Moore, Jeff, 1999. “The Book on First Mover Advantage”, Click Z, Retrieved April 19, 2010 from: http://www.clickz.com/817841 Porter, Michael, 1985. “Competitive advantage: Creating and sustaining superior performance”, Sallent, Oriol, Perez-Romero, Jordi, Agusti, Ramon and Casadevall, Ferran, 2003. "Provisioning wireless networks for better QoS:RRM strategies for 3G W-CDMA", IEEE Communications Magazine. Read More