Apple Inc., 2008 Case Study

Executive Overview Apple has been established for over 30 years since Steve Jobs and Steve Wozniak founded Apple Computer in 1976. During Steven Jobs’s tenure as CEO, Apple’s mission was to bring an easy-to-use computer to market. However, Apple was not performing as good as Jobs projected, so he resigned in 1985. In the following 12 years, Apple experienced three different CEO’s and still could not be brought back to life. Under John Sculley, Apple worked to drive down costs by switching much of its manufacturing to subcontractors. But these efforts were not enough to sustain Apple’s profitability. During the Michael Spindler years, international growth became a key objective for Apple. Yet despite Spindler’s efforts, Apple lost momentum. Soon after Gilbert Amelio replaced Spindler as CEO, he proclaimed that Apple would return to its premium-price differentiation strategy. Despite some austerity moves, Apple lost its competitiveness and could not regain its share in the market. In 1997, Steve Jobs came back again as the CEO of Apple. This time he had a new game plan, and Apple started to focus on the digital lifestyle for consumers. Internally, Jobs worked to streamline operations and to reinvigorate innovation. This proved to be Apple’s most successful business strategy to date because a once ineffective company now has ruled the computer world. In order to understand this situation, Apples competitive advantages and industry forces must be analyzed. Competitive Advantages Apple has been in business since 1976, and has built quite a few competitive advantages along the way. Obviously, innovation has been at the forefront of Apple’s ability to compete in the world market. Other than that advantage, brand loyalty, product differentiation, superior quality, and retail strategy are also its advantages when competing with other brands. Innovation Steve Jobs and Steve Wozniak sparked the PC revolution, making the world of computers on Apple’s head. The Apple II launched in 1978 drove the PC industry to $1 billion in annual sales in less than three years. Even if initially regarded as a toy by many other businesses, Apple soon revealed itself as a feasible substitute to the traditional mainframe. It continued to demonstrate its ingenuity. For example, it was the first to introduce a computer with color, a graphical interface, and many other firsts. These inventions defined Apple and its business strategies. On the basis of its all bundled package of hardware and software, Apple became synonymous with usability. Brand Loyalty In 1998, Jobs recognized that customers really wanted a Macintosh. Apples brand commitment is strong. Since 1970s, Apple user communities have been founded to connect together with enthusiasms. One of the main reasons to this is Apples ease of use. Adding extra hardware and software to a Mac is almost as easy as plugging speakers into a stereo system. Due to this advantage, Apple forms a strong relationship with its consumers, especially within the education and desktop publishing industries, which accounted for 60% and 80% of its market position respectively during the Spindler years. Product Differentiation Apple’s system continues to be one of the advantages because its closed operating system is not subject to the computer viruses and hacking that often destroy the Microsoft Windows operating system. In marketing its Mac products, Apple stressed characteristics that differentiated them form other PCs while also highlighted their interoperability with other machines. Apple trumpeted the Mac as an â€Å"Everything-ready† device that worked well with other devices. The feature of the closed system while incorporating well with other devices makes Apple more unique than other PCs. Superior Quality Apple’s high-quality bundled software distinguished the Macintosh line, such as iLife suite and iWork. In 2001, Apple introduced MAC OS X, offering a steadier environment than previous Mac platforms. In addition, Apple always urged its users to upgrade OS X every 12 to 18 months, with the aim of always providing a stable operating system to its users. Retail Strategy After Jobs returned to Apple, he revamped Apple’s distribution system, removing relationships with many smaller outlets and extending its presence in national chains. In 1997, Apple also started a website to sell its products directly to customers. Its retail strategy was regarded as a huge success. More importantly, people who visited the stores for iPod products usually checked the Mac too. This â€Å"halo effect† greatly benefited Apple’s Mac business. Porter’s Five Forces Analysis of Apple Current Competition Apple’s current rivalry is very competitive and intense. The PC industry has quite low switching costs, so the current competition is pretty high. Apple confronts tough competition from IBM, Dell, HP, and etc. Threat of Substitute Products The more differentiation of the product, the less likely the change to a substitute will happen. Apple’s operating system differentiation can always require higher pricing. However, owing to technology improvement, the â€Å"digital convergence† of PC and CE (consumer electronics) products has become more substantial in the PC market. Many different alternative devices have started to replace PCs. Therefore, this threat is becoming higher to Apple. Threat of New Entrants This threat is low since the existing companies have established powerful brand awareness. The computer industry is very saturated and new entrants would be reluctant to enter this industry. Bargaining Power of Suppliers There are two types of suppliers: microprocessors and operating systems with few sources as well as memory chips, disk drives, and keyboards with many sources. The bargaining power of the former one is high since there are mainly two sources: Intel and Microsoft. The bargaining power of the latter one is low since numerous suppliers exist in this industry. Bargaining Power of Customers As mentioned earlier, the switching costs are low. Such situation places the customers in a strong position that only companies with high product differentiation could increase the switching costs. Since product differentiation is one of Apple’s advantages to compete in this market, the bargaining power of buyers is not high to Apple. Conclusion Generally speaking, the PC industry is an intensely competitive segment. With technology undergoing paradigm changes, it could make life hard for Apple to deal with these shifts. These dynamics does not seem advantageous for Apple but simultaneously Apple has been able to maintain its technological brain and designer approach to walk away from this difficult position. Actually, Apple could transform some of these problematic features into opportunities. We all know that a key factor in bringing people into the stores is the popularity of the iPod. Most of the time, the purpose of People coming to the stores is not for Mac. No matter what brings customers to Apple stores, Apple should take advantage of this chance. This halo effect needs to be capitalized to the maximum extent. In addition, although some people complain Apple’s closed operating system, it is still seen as a secure, safe, and reliable system. Apple should try to make its system less closed, incorporating more other devices. Thus, people can use Apple more easily without too much restriction.