How Apple Has Been Using The Successful Differentiation Strategy To Enjoy Market Leadership In Personal Computer And Consumer Electronics Business

Introduction

Apple has been dominating the consumer electronics and personal computer industry and undoubtedly, one may argue that the major reason behind the Apple's domination is the consistent new product development. The significance of creativity and innovation increases in an organisation like Apple, because the industries where the organisation has been operating enjoy considerably low product life cycle. In such sorts of conditions, successful product innovation and consistently adding new features is the major way to lead the industry. Apple has been doing so throughout the past. The main content of this report can be divided into three parts: through application of five forces model, SWOT analysis and PESTLE analysis, the first part aims to analyse the competitive environment of Apple. The five forces model is to evaluate suppliers bargaining power, potential new entrants, buyer bargaining power, threat of substitute product, and the rivalry among competing sellers; PESTLE analysis is a tool used to analyse macro-environment through politics, economy, society, and technology. To evaluate the internal environment of the organisation, the model that will be utilized in the report is Porter’s generic strategy model. The SWOT analysis will present the summary of the firm’s strength, weakness, opportunity and threats that will be mainly based on the environmental analysis presented first in the paper. Porter’s generic strategies will be used in order to understand what factors are contributing to the Apple’s success and how the organisation has been accruing competitive advantage. Then, based on Porter’s generic strategy, the second part is to evaluate Apple’s differentiation strategy. At last, the three parts will provide some suggestions for the implementation of Apple’s differentiation strategy.

Environmental Analyses:

The environment in which Apple has been operating is characterized by consistent changes. Due to this reason a detail environmental analysis is vital in order to understand different internal and external factors confronted to the organisation and how Apple could use its strategic management process to get positive advantages of the changes that has been taking place in the environment and could better accomplish its long-term goals and objectives (David, 2008). In this report first the external environmental factors of the firm will be evaluated using the Porter’s five forces model and PESTLE analysis framework. The internal environmental factors of the firm will be evaluated using the Porter’s value chain analysis. Based on these factors the SWOT framework will be presented that will present the summary of the internal and external factors confronted Apple. a. Porter’s Five Forces Analysis: The Porter’s five forces analysis of personal computers and consumer electronic industry has been presented in Figure 1 that could be found in Appendix 1 of the report. Detail of the five forces and their impact on Apple has been elaborated in the following: i. Power of Suppliers The power of suppliers in the personal computer and the consumer electronics industry could be termed as moderate to high. This is because they produce different component parts like main processor, chips, touch screen etc. that are their patented innovations that could not be produced by another firm. In addition, at the software front there are also major suppliers who also assume considerable power in the industry. Although, Apple has been very active as it produces its major component parts and software itself, the firm still relies on major suppliers like Intel for the processor. On the other hand, the firm has been successfully using its supply chain arrangements that have been located around the world to decrease the supplier power. Nevertheless, as a manufacturer like Apple has to bear the switching cost from supplier to another, they usually establish long-term relationship with the suppliers to safeguard its long-term interests. ii. Power of the Buyers: Most of the buyers in the consumer electronic industry are individuals, where the power of buyers could be termed as low to moderate. On the other hand, in case of personal computer there exists both consumer as well as business market, in which case the power of buyers could be termed as moderate to high. The competition in both the industries where Apple has been operating is very high because the profit margin in both these industries tends to be very high. In the consumer electronics industry, as the growth rate is considerably high, the market players are busy in price war as well as technological war that have been benefiting the buyers in the market. Nevertheless, Apple has not been active in the price war due to its successful differentiation strategy where it enjoys consistent demand for its different products in different parts of the world. iii. Threats of Substitute: The threats of substitute products tend to be very high in both personal computers and consumer electronic industry. This is because both the industries are characterized by technology where the entire market players are spending a major portion of their budgets on R&D activities that has been resulting in different innovation. Currently the Tablet PC is rolling fast over the shelves, and this could be due to the fact that the product has been designed in a manner that substitutes both Smartphone and personal computer. Apple’s latest introduction, iPad 3 has been one of the most successful in the category. As the differentiation on the basis of innovation is welcomed by the target market, and there is low switching cost, one may expect some unbelievable innovation in the industry in the years ahead. iv. Competitive Rivalry: The competitive rivalry between the existing market players tend to be very as most of the market players in both the personal computer and consumer electronics market are established global players that have established brand and operation at the global level. As there are high exit barriers in the industry, market players are busy fighting the competition and due to this reason one may experience different integration and strategic partnership between the market player to beat the competition and create better synergies. Differentiation is very high and most of the market players are spending high R&D to differentiate their offerings. As switching cost is low for the buyer, market players are striving their level best to target customers who are currently using other brands through attractive pricing, successful differentiation and market positioning. v. Barriers to Entry: Although, there are some barriers in terms of high initial investment, human capital and technological knowhow and supplier and distribution network for new market players, firms are increasingly entering the industries using the diversification strategies. As the growth rate in these industries, particularly the consumer electronics industry is very high, different organisations are entering the field through strategic partnership or satisfying the needs and wants of the niche market. Economies of scale are very important and the established market players including Apple enjoy a different cost advantage, particularly due to its global supply chain arrangements. There are also some technological barriers as most of the innovation in the market is patented products and could not be easily reproduced. Nevertheless, governments of different countries, including the US and UK governments are helping market players in overcoming different barriers. b. PESTEL Analysis: i. Political Factors: The political factors around the world are very lucrative for MNCs as the major economies of the world are pursuing the globalization whereas barriers to the international trade has been eradicated in turn offer Apple the ability to develop new markets in different region of the world. ii. Economic Factors: The economic growth in different parts of the world has been slowed down by the global economic crises and recently by the European sovereign debt crises that has been adversely affecting the disposable income and the buying power of consumers. iii. Sociological Factors: The use of technological products has been increasing as such products are now considered a mean through get associated, satisfy self actualization and esteem needs. iv. Technological Factors: The technological advancement in the industry is much higher than other industries and all the major players are spending a major portion of their revenues over the R&D efforts in turn fueling the growth of the market. v. Environmental Factors: Different governments and non-governmental organisations are very active in forming awareness regarding the environmental concerns associated with the use of personal computer and consumer electronics. Most of the market players have now installed production facilities that fulfil such requirements, however have been adding to the costs in the market. vi. Legal Factors: The legal factors confronting market players are particularly significant particularly with respect to intellectual property rights. The industry is experiencing some of the world’s largest patent and intellectual property struggles as different market players have sued each other in for violating their patents. Apple is busy these days safeguarding its patented product and due to this reason the firm has been fighting a legal war against Samsung, Google, and Microsoft for violating the intellectual property rights of the firm. c. Porter’s Value Chain Analysis: The Porter’s value chain of Apple has been presented in Appendix B of the report. The value chain of Apple comprised of two different types of activities vis-à-vis support activities and primary activities. These two factors and how they contribute to the firm’s success have been presented in detail in Appendix B of the report. d. SWOT Analysis: i. Strengths: Apple enjoys premium brand image and recognition in the market. Apple is known for its customer’s centric approach and the firm has been awarded the most customers’ caring companies for eight consecutive years. Apple is considering pioneer in innovation and its different brands including iTunes, iPod, iPhone, iPhone enjoy a first mover advantage in the market. Apple enjoys a loyal customer base not only in the US but around the world. Apple has unique distributed setup that includes all the different arrangements including company’s own stores, company’s website, distribution network, independent retailers in different parts of the world. Apple has 100,000 plus applications and programs on Apple stores that place the organisation on exceptional standings in the market. Apple combines the best integration as it has both hardware and software capabilities which no other market player in the industry enjoy. Apple has a unique organisational culture that enables the firm to foster creativity innovation and new ideas throughout the organisation. ii. Weaknesses: The organisation is concentrating only on the upmarket segment only. The competition in the industry is intensifying with the passage of time resulting in the price and technological war, which has started impacting the firm’s market share in different markets. The firm is following close technology system which has impacted the firm. On the one hand, the target market could not select the mobile operator on their own, while on the other hand, they are not able to install third party software on Apple’s products. Apple’s inability to engage in strategic partnership and integration while the rest of the market players are busy in different integration strategies in turn posing big problems to the organisation. iii. Opportunities: Apple could form strategic partnership with different firms in the industry including major suppliers of hardware that could boost its market performance. Apple could strengthen its market standings by further engaging in R&D activities where the firm could diversify into new business ventures. The firm could diversify into the corporate business market as most of the firm’s current products are for individual customers. High growth potential for the firm exists in the corporate and business segment of the market. The firm could boost its market standings through the development of products that are green and environmentally friendly. The firm could boost take exploit the business potential in the emerging markets like China, India, and Brazil etc. where high growth potential exists, however requires some customization. iv. Threats: Cut throat competition in the market resulting in the price and technological war with established market players including Dell, HP, Microsoft, Nokia etc. Due to low switching cost, the product substitution is very high and may affect the future performance of Apple. The close technology and the inability to install third party application and software may result in the switching to other brands. Low price brands and replica version of Apple’s products from China based and other organisation could harm the future of the firm. Some of the firm’s major suppliers in China, (Foxcon) and Taiwan are following the business practice that are against the corporate social responsibility drive of Apple that may harm the reputation and image of the firm in the upstream segment of the market.

Porter’s Generic Strategies:

An organisation could accomplish market leadership either through focusing on cost effectiveness or through successful differentiation efforts. The Porter’s generic strategies, which states that if the competitive advantage of the firm is wider, the firm could accomplish either the cost leadership and differentiation advantages. On the other hand, an organisation could also accomplish the mention advantage having a narrow focus in which case it could accomplish focused low cost advantage or focused differentiation advantage in the market. Taking into consideration the Porter’s generic strategies and how it leads an organisation to enjoy market leadership, one may argue that Apple has been using the broader differentiation strategies that has enabled the firm to successfully differentiate its offering in the market and enjoy market leadership in the personal computer and the consumer electronics industry. The firm, which has been guided by the visionary leadership of Steve Jobs and now his real heir, Tim Cook has an organisational culture and structure where creativity and innovation foster. The firm has spent major portions of its revenue over the R&D activities and major support has been extended to the firm’s R&D wing in the form of financial, human, physical and information resources. In turn the department has helped the firm in accomplishing the overall differentiation advantage in the market. The differentiation advantage of the firm could be judged from the fact that Apple enjoys a first mover advantage in most of the products that the firm has been currently marketing in different parts of the world. In fact the firm is the pioneer of these industries as no such concept exists before Apple. For example, there was no online music concept; however, the introduction of iTunes opens new horizons for not only for Apple but also for consumers who got the ability to download latest music. The same is true for the products including iPod, iPhone, and iPad. The company latest offering in the form of iPad 3 has been considered an unbelievable tablet PC with stunning products like breakthrough retina display, 5 MP insight came, 4G network capability, new application including life and work to ease the life of professional and busy people etc. By glancing at the new product development and innovation strategies that Apple has been following, one could argue that unquestionably the firm is leading the market due to its successful product innovation capabilities. No other firm in the industry enjoys the market standings that Apple has been enjoying and no doubt, this could be attributed to the firm’s design and innovation capabilities that have been giving the firm an edge over its rivals. Although, competitors like Samsung, HP, Google, Microsoft, Dell etc. are giving tough time to the organisation, in the years ahead the success of Apple depends on how successful the firm sustain its differentiation in the market. This is particularly a matter of concern for the firm because the competition in terms of technology and features are increasing with the passage of time as industry players are joining head to displace Apple from its existing market position.

Recommendations:

Based on the discussion in the previous two parts of the report, one may point out that the success of Apple in the years ahead depends on how successful the firm defends and sustains its differentiation in the market. This on the one hand implies that the firm should further invest in its R&D capabilities that could enhance the firm’s standings in terms of differentiation; while on the other hand, the firm should strengthen its value chain so that the differentiation advantage of the firm could be sustained for a longer period of time. In addition, strategic partnership and integration with different firms is a key in the years ahead and the competitors are following the strategy that has been enabling them to give tough time Apple. Apple could counterbalance competitor’s strategies by forming coalition and strategic partnership with other organisation in the industry. This will enhance the firm differentiation advantage as the firm will be in position to accrue different synergies that will strengthen Apple’s standing in terms of differentiation. Green technologies and corporate social responsibility is the field where Apple has been lacking concentrated efforts till date and the firm should work in this field that could give the firm a competitive edge over its rivals and could help Apple in differentiating its products in the market. This area is particularly important for the firm as the news regarding the violation of basic human rights in the firm’s major supplier’s factories has been negatively influenced the firm’s image and the competitors of the firm are capitalizing this fostering their soft image in terms of environmental and social responsibility in turn successfully differentiating their products. In addition, the team based structure is known for its efficiencies to deliver creativity and innovation and although some of the tasks that are performed at Apple are carried out through team based setup, the fact is that most of the tasks at the firm are carried out through traditional departments. In the years ahead to successfully defend its differentiation advantage in the market the firm needs some restructuring efforts where the firm should form different diverse teams comprising of cross functional specialists. Different teams should be from, and Tim Cook, the CEO of the firm should encourage inter-firm competition between the different teams that the firm will form. The firm could thus accomplish the much needed synergies through such setup that will enhance the firm’s standing in the market. This is because team is a mean through which an organisation could foster creativity and innovation, which is although the core competence of Apple however could be further safeguard through the rigorous support of cross-functional diverse teams.

Conclusion:

Apple, being a truly customer’s centric organisation has been successfully using the differentiation strategies to dominate the personal computer and consumer electronics business. The differentiation strategy has been enabling the firm to dominate the market as customers in the market are more interested in different features rather than just low price. However, as the competition in the market is intensifying with the passage of time, the success of the firm in the years ahead depends on how successful the firm sustains its differential advantage. The recommendations presented in the paper including upping the R&D support, working in the green technology field, and enhancing team based structure to foster creativity could enhance Apple’s performance in the market and could help the firm in sustaining its position in the market. Secondary Activities: The secondary activities that have added value to the firm’s deliverable include the firm’s infrastructure as the firm’s has superior leadership, organisational suture and organisational culture that consistently add value to the firm’s deliverable through the formulation of superior strategies. The human resources at the firm is playing a leading role in attracting and retaining superior talent, however some of its suppliers have been associated with following unfair business practice and child labour besides violation of basic human rights. The firm has superior R&D and the management of the firm is consistently motivating its staff to foster their creativity and innovation. The procurement department of the firm is also contributing to the development of relationship with different suppliers that have been selected from around the world. The company utilized superior technologies that connect it will its supply chain partners that are located in Taiwan, Singapore, China, Malaysia and the US. Primary activities: The primary activities at Apple is also contributing to the firm’s success that include inbound logistics where the firm’s has been using a superior supply chain arrangement that is benefiting the firm in getting superior value creation. The outbound logistics of the firm comprised of the superior online and conventional channel where the firm is reaching different parts of the world through superior outbound logistics facilities. The firm has been successful throughout its history due to the unique business model that the firm has been following that enable the firm to maintain a very low level of inventory and manufacture according to the demand. The marketing department of the firm is involved in tailoring superior marketing communication and designing appropriate marketing mix that help the company to enjoy superior market positioning in the market. The customer services of the firm have been involved in adding value to the firm through one year warranty, provision of parts and manufacturing of component that enhanced the quality of the firm’s deliverables.

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