APPLE MARKETING STRATEGIES
The Beginning
When it comes to marketing strategies, Apple Computers is a company that consistently works on being on the leading edge. When Apple first decided to engage the PC market, it aired a Super Bowl commercial directed by Ridley Scott. At the time, Scott had ju st finished directing "Blade Runner" and was considered a hot property. In the commercial, a young woman with a huge sledgehammer smashes it into i nto a massive television screen, bathing the bald-headed drones mesmerized mesmerized by the monitor in a brilliant a brilliant white light. The commercial then announced the release data of the Macintosh computer. The commercial generated widespread buzz and was actually voted "Commercial of the Decade" by Ad Age.
iPods and iTunes
Apple excels at turning brand into market shares. When the iPod was first introduced, Apple made sure that it also had its iTunes store in place. That way, in addition to marketing MP3 players, Apple also made money money from selling downloadable music. In addition, the original iTunes store sold music that could only play on iPod players, making it a proprietary marketing strategy. The strategy continued with the arrival of the iPhone and the iPad, which also use proprietary software applications.
I P HONE
Once Apple succeeded in convincing buyers that the o nly MP3 player worth having was an iPod, it set its sights on the next big thing - -- the cellphone market. In order to begin the marketing campaign, rumors began surfacing online in late 2006 that Apple was planning on looking into getting into mobile phones. To make the phone as affordable as possible, Steve Jobs worked out an exclusive arrangement with AT&T so that the cost of the phone would be underwritten by the cellphone carrier. In addition, building on the concept of the iTunes store, Apple came out with an "App Store," allowing users to download software directly onto their iPhones. Once again, the software was proprietary and only people using iPhones could use the many apps that Apple sold. In addition, Apple offered a percentage of each app sold to the app developer, thereby guaranteeing a steady supply of new apps. As always, Apple promoted the iPhone experience as totally user friendly and unobtrusive, a definite part of the Apple marketing strategy.
C USTOMER S ATISFACTION
The best marketing strategy that Apple uses is giving the customer an experience unlike any other. Apple products are aesthetically attractive and seem to have an edge that other products simply do not. In addition, when going into an Apple store for a hands on experience, the Apple staff have been specifically trained to be knowledgeable in all things Apple. This provides a customer experience created created to garner customer loyalty and to build trust. trust.
D EVELOPERS AND A P P S
On the other hand, there are those who are dissatisfied with certain Apple marketing strategies. Some developers are not pleased that apps created for the Apple App Store have to
go through Apple's rigorous approval process in order to be accepted. With the new iAd creation that Apple has initiated, even commercials have to pass Apple's muster, causing companies like Chanel to back out of the iAd advertising campaign. However, Apple's marketing strategy has always been to allow developers to profit from their creations, while retaining ultimate control in order to maintain the Apple standards.
Apple has been able to accumulate massive success and riches over the years. Many people associate this success to their relentless hard work and their ability to foresee and act on the changing marketing trends. However, if there is one single factor Apple can crown as the reason of its success then it is the simplicity. Apple and simplicity? Now that may seem like a far-fetched notion but it is tr ue. Apple, just like some other big names out there, has been able to strike a chord with its customers but over the course of years, it has also been able to significantly increase its market share in the mobile industry which is becoming an increasing competitive market. Given the current popularity and status of iPhone, it is over whelming to imagine that the phone only came out in 2007. It‘s been successful, all right. But how did Apple do it? Few companies have made as big an impact on world culture as Apple. A company once on the verge of fading into oblivion made an incredible comeback, using a combination of savvy marketing techniques and devices unlike any previously created. Whether leaking i nformation deliberately to generate buzz or creating commercials that stand the test of time, Apple can be considered an innovative marketing company. The Marketing Strategy That Took Apple To The Top
What made Steve different from other marketers, is he understood that his job as a marketer was NOT to focus on making money or sales. He understood the whole reason his products sold in the first place was, quite simply, because he built products with his customers in mind, and then offered them to his customers. He realized that his job wasn‘t to use some ―marketing strategy‖ to convince people to want his products; it was to SERVE people with his products, and that if he gave people EXACTLY what they needed, they would continue to open their wallets.
Justify Your Price We‘re in a time when pricing strategies are all o ver the place. People don‘t know what to charge, and in many cases, prefer to race to the bottom instead of pricing strategically to a market that can bear the cost.
Once more, Apple ignores the standard by not only pricing their technology more than 2x what their competitors charge, but doing so without blinking. How can they get away with it? Well, the answer is twofold: 1. They build beautiful products for an audience that loves them passionately. 2. They justify their price with features and benefits that can‘t b e matched. Since we‘ve already hit point 1, let‘s work on #2.
No other computer can match the display of a 27‖ iMac…it simply can‘t be d one.
No other software can match what iTunes brings to the table. No laptop is as thin as the Macbook Air. No software is more intuitive, no product more valuable than the Apple product. Any other smartphone looks like it was developed by rookies when compared to an iPhone 4. You simply cannot compare the two. Critics will play on the fact that the core features are the sa me, and they might be, but that‘s not the point. The point is that Apple is the Rolls Royce of the technology and design world, and their customers will gladly pay a premium because of it.
E FFECTIVE A DVERTISEMENT Apple has successful employed the same strategy here as well. In its advertisement campaign, rather than challenging peo ple‘s intellect and throwing all kinds of computing or mobile jargons at them, Apple sticks to the basic. The latest ad campaign for iPhone 4, rather than concentrating on its oh -so powerful processors simply magnifies some of its very basic functions such as improved picture quality and email experience. From presentations to advertisements, Apple marketing strategy has been in a language people can understand and that is definitely one of the biggest reasons why they are so successful in every thing they do.
Presentations If there is one area where Apple beats all other industrial giants such as Microsoft, Nokia or even Samsung hands down, it is the presentations. Each time Apples goes into producing any new product, the whole world stops and zooms in to analyze and counter-analyze the specs of the upcoming products. Despite having plenty to share, Apple chooses the simplest route and that is of addressing the general public. As far as I am concerned, Steve Jobs alone can give all tycoons a run for their money. The man, other than being a genius, speaks a language a common person right off the street can understand and that is the beauty of just about any given Apple Presentation, which is meant as much for the general public as it is meant for the media.
B RAND L OYALTY Apple Inc. was founded only a year after Microsoft, at the moment it is on the pinnacle of its popularity and success. Unlike most of its rivals, Apple especially is not known to care for the budget of a commoner. In fact, it won‘t be wrong to say that Apple, ever since it‘s foundation, has only targeted a certain brand conscious class. For that very reason, none of the products of Apple are meant to fall within the budget of a normal man but more and more people are covetous of Apple pro ducts than ever before, since it is established to represent a certain ‗class‘. Apple fever proved to be an epidemic and now it has spread far and wide. Take the example of Nokia on the other hand. It manufactures all kinds of phones, not just the ones meant to drill some major holes in your pockets (and purses). Despite being economical as well as reliable, Nokia has lost significant market share to Apple, the brand that refuses to lower its prices. More and more people are changing their loyalties in favor of a brand that comes with a promise of delivering or more importantly, enrolling them in ‗the class‘.
M AKE B EAUTIFUL P RODUCTS Apple does not only price their products much higher than the competitors but unlike others, takes a lot of effort in making its products beautiful. They take even the smallest details in to consideration and make it look so good that people are ready to pay up for it
WHY APPLE IS A GREAT MARKETER Apple was voted the overall winner of the 2012 CMO Survey Award for Marketing Excellence … yet again. Apple has been selected as the winner or co-winner for five consecutive years by the sample of top marketers. So why is Apple a great marketer? When Apple, Inc. (then Apple Computer, Inc.) incorporated in January 1977, its investor/advisor, Mike Markkula, assembled a 3-point marketing philosophy. Amazingly, thirty-five years later, this philosophy remains at the core of what makes Apple so effective at creating and profiting from loyal customers. This, in my view, is the definition of a strong marketing capability. Here are Apple‘s original three points:
1. Empathy – We will truly understand their [customer] needs better than any other company. 2. Focus – In order to do a good job of the things we decide to do, we must eliminate all of the unimportant opportunities. 3. Impute – People DO judge a book by its cover. We may have the best product, the highest quality, the most useful software, etc.; if we present them in a slipshod manner, they will be perceived as slipshod; if we present them in a creative, professional manner, we will impute the desired qualities. Apple has used these principles to become the world‘s most valuable company (measured by market capitalization) and one of world‘s most valuable brands. Here are ten strategies Apple has used to become one of the world‘s greatest marketers: (1) Hire customer-obsessed, empathetic employees . Steve Jobs had unique and effective insights about how people want to interact with technology. Jobs used a quote originally attributed to Henry Ford to describe why these insights were so i mportant: ―If I had asked people what they wanted, they would have said fast er horses‖— illustrating the problem that customers may be limited to thinking only in terms of what they know, instead of what is possible. So Jobs and colleagues thought about the customer experience more deeply than the customer could. Jobs once said, ―O ne of the keys to Apple is that we build products that really turn us on.‖Lucky for customers, this often means products are exactly what they want because Apple employees are so deeply entrenched in and committed to the customer‘s experience. (2) Iterative customer involvement. This customer obsession made formal market research less important. However, it is no secret that Apple spends an enormous amount of time observing customers using Apple‘s and other companies‘ technologies. Called ―participatory design‖ or ―usability testing,‖ Apple integrates customer experience into its design and development process to understand their ―pain points‖ and ―opportunities.‖Of course, Jobs himself was often the most important customer, but this did not get in the way of more systematic participation from customers throughout the process. (3) Protect against scope creep and feature bloat. According to stereotypes, engineers only want to work on projects that are innovative, intellectually challenging and cool, while business people only want to work on projects that make money. Anyone who has worked in a tech environment can attest to the fact that this leads to a natural tension between the two groups. Compromises result in scope creep, feature bloat, and confusing, overburdened, unfocused products. There were mp3 players before the iPod and smart phones before the iPhone, but Apple‘s innovation was to distill those products down
to their fundamental purposes (e.g., 1000 songs in your pocket) and then design them to be simple and interesting to use. As Jobs noted, ―We make progress by eliminating things.‖ (4) Build compatible experiences. Customers want a streamlined, intuitive way to make their computing and entertainment devices work as a system. Apple understood this and conceived of its array of products as offering the customer first a ―digital hub‖ and then an ―entertainment hub.‖ In both cases, hardware and software were designed for customer compatibility within the system. This of course meant some incompatibilities with other companies‘ offerings. However, the joint benefits of having combinations of the Mac, iPod, iPhone, iPad, and of course, iTunes, were of great val ue to customers. (5) Enable customer discovery and differentiation through Apple Stores. A retail presence gave Apple another forum to flex its design prowess. Customers come into the stores to experience firsthand the aesthetics and ease of use of Apple p roducts. They also get to see the larger ―solution‖ that the array of interconnected products offers. Carefully recruited and trained sales associates are encouraged to take customers on a ―ride‖ which former head of Apple Stores, Ron J ohnson, describes as ―something short, fun, and something you want to talk about.‖ Finally, the stores provide a place where customers can go for support (the Genius Bars), creating yet another touch point to delight the customer. The result: the highest retail sales per square foot among U.S. retailers. (6) Build a moat. Apple has done this in three ways. First, Apple‘s unique products are communicated to customers through novel and provocative advertising. The 1984 Super Bowl ad introducing the Macintosh is a perfect example. Apple vividly contrasted its independent philosophy and status with the tired and unimaginative computer industry establishment (specifically, IBM). Apple built on this theme of independence in 1997 with its ―Think Different‖ ad campaign which lauded ―rebels‖ and ―the crazy ones‖ as the source of great ideas and inventions. The t arget market was not big business, but rather artistic and design-oriented fringe business sectors and the educational sector. The heavily advertised iPod with the silhouettes of people dancing to the beat of their own drummer kept this brand image alive and well. Finally, Steve Jobs contributed to this renegade, non-conformist image through press accounts of his demanding aesthetic.
Second, although Apple‘s product development utilizes multiple branded partners, it broke with industry norms and turned down attractive financial incentives to keep customers focused on the Apple brand and not its component providers. Since the mid-2000s, Apple has brought on new suppliers such as Intel, Microsoft, and ATI to provide hardware and software solutions for many of its products . However, it has turned down co-marketing efforts (such as Intel stickers on its machines) that every other major competitor participates in with those same suppliers. Third and related, Apple‘s decision to exclude other companies‘ brands from Apple Store s has contributed to its brand moat. (7) Devise a business model that creates ongoing customer value. Generating customer value means building a business model that ensures this value is created repeatedly. Hiring customerobsessed employees and opening retail stores are a big part of creating value for Apple customers. However, iTunes should also be viewed as an integral part of the business model. While iTunes itself is not a big money maker for Apple, the iTunes desktop software and the iTunes Music Sto re make Apple‘s hardware even more valuable. As Yoffie and Kim put it, ―Jobs had created a razor -and-blade business, only in reverse: Here the variable element served as a loss leader for a profit-driving durable good.‖ From the customer‘s point -of-view, this bundle of device and content provides enormous value that promotes loyalty and cross-category spending. (8) Cannibalize when necessary. Good marketing requires a willingness to cannibalize your offerings if you have a superior option to bring to market. Apple has done this at this least twice. First, Apple dropped its most popular iPod, the Mini, when it introduced the Nano. Second, although offering unique features, the iPhone is a potential threat to independent iPod sales because both play music. Many organizations might have been afraid to build a product that would detract from its most popular product. Apple understood that if it wasn‘t the one to do it, another company would.
Don’t try to be all things to all customers. Many companies fail by being unwilling to make tough decisions about which customers to seek and products to offer. Apple, on the other hand, made these tough decisions and adopted a strategy that focused on a limited number of product lines and limited offerings within each line. Jobs brought this strategy to Apple when he returned in 1997 at which point he slashed Apple‘s 15 product lines to just four. This strategy holds today. A few years ago, then COO Tim Cook described Apple‘s philosophy as, ―One traditional management philosophy that‘s taught in many business schools is diversification. Well, that‘s not us.‖ With a laser -like focus, Apple makes a few big bets that deliver customer value and stand out in the crowd. The result is that customers know what to expect from Apple and they usually get it.
(10) Create an ecosystem that makes offerings valuable. The introduction of the iPhone was coupled with building an online App Store. However, the App Store only works if there are co mpanies willing to develop for the platform and integrate iOS apps into their strategies going forward. Apple created development tools that promote a simple, consistent experience for developers on the iOS platform. This helps to speed up app development and deepen user engagement, a win-win-win for developers, customers and, of course, Apple. With over 500,000 apps available and over 24 billion apps downloaded to date, apps have not only helped increase switching costs for iP hone and iPad users, but have also proved to be a lucrative revenue stream.
Apple Samsung conflict
Apple products are advertised by telling t he simplicity story. Conversely, Samsung products are marketed by insisting on the high – end technology factor. These 2 factors alone are extremely complicated. Nobody thinks about iPad or iPhone when thinking about Apple. Individuals recall the image of Steve Jobs as a hero and CEO of Apple. They also think of commercials such as ―Think different‖ and ―1984‖ and they instantly feel more special. Additionally, people think of high – quality design and attractive retail stores and innovative headquarters. Thus, the Apple brand can be characterized through a story of simplicity and individual entities. On the other hand, Samsung is based on technology and even though it‘s q uite successful, it keeps attacking and stealing Apple‘s market. Most of their ads and commercials present t he benefits of Samsung products to the detriment of Apple products. Still, the latest ads have been more emotional and moved away from Apple. Despite all these factors, Samsung is on the top of the mobile market, holding more than 50% of the market share internationally and in the United States. Samsung builds technology cheaply a nd quickly, and if the product looks like one of the competitor‘s gadget, it‘s just a coincidence. Well, it seems that the electronics giant had the same strategy during the trial, while Apple kept it simple.Apple brought high – level executives and famous names that were able to tell the iPhone story. Moreover, they got possession of internal Samsung documents and managed to play the victim in this trial. Alternatively, Samsung took advantage of Apple‘s mistakes and tried t o prove that the companies‘ paten ts are not valid. Overall, it has been a long trial and everybody is looking forward to see who will win. Apple Samsung as a Suplier.
The partnership gave Apple and Samsung insight into each other's strategies and op erations. In particular, Samsung's position as the sole supplier of iPhone processors gave it valuable data on just how big Apple thought the smartphone market was going to be. …. As for Apple, it reaped the benefit of Samsung's heavy investments in research and development, tooling equipment and production facilities. Samsung spent $21 billion (23 trillion won) on capital expenditures in 2012 alone, and plans to spend a similar amount this year.
Market Strategy Wars – Apple vs Samsung There is only a very select range of products that can successfully implement a marketing strategy that revolves around ‘low supply and high demand’, with with the goal of increasing the desirability of a product and ultimately increasing sales. One company in particular has proven particularly adept at this strategy. Apple has successfully done this time and time again for the release of a number of its products, the iPhone 5 being the most recent. It would not be at all surprising if Apple fans worldwide would be well and truly over waiting in line to get their hands on the latest (and supposedly) greatest from Apple, but that is not the case. Apple has strategically regulated the volume of iPhone 5 handsets available in the market to be well below demand, justifying bragging rights to all who have been 'lucky' enough to get one. Moving forward, Apple might need to rethink their marketing strategy, especially with the appealing features that their competitors are sporting. For instance, Samsung's Galaxy S3 has a number of advantages over the iPhone 5, including a larger screen, better resolution, and a significantly longer battery life both in standby mode as well as during talk time. Samsung has used the hype of the iPhone 5 launch to their advantage by informing potential iPhone 5 buyers of the features of their Galaxy S3 smartphone through mainstream media as well as through social media channels. Also, Samsung's presence outside Apple stores in several major cities during iPhone 5's launch week was subtle, but Samsung's message was clear and well in line with their tag line: 'It Doesn't Take a Genius' The implication of that tagline being that it really doesn't take much thought to grasp the clear advantage the Galaxy S3 has over Apple's iPhone 5. Samsung's other tag line: 'The Next Big Thing Is Already Here' is a head on attack to Apple's tag line: 'The
biggest
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After completing a class in Innovative Marketing Strategy as part of my Master of Marketing degree at the University of Sydney, I'm fascinated to see how Apple will adjust their marketing strategy for the future. It will also be very interesting to see how Samsung copes with more prominent up and coming competitors in the smart phone market, such as Nokia's new Lumina handset. I’d be very interested in hearing your thoughts on the marketing strategies that Apple and Samsung are employing. Please feel free to have your say in the comments section below.
SAMSUNG HAS A TOTALLY DIFFERENT STRATEGY FROM APPLE, AND IT'S WORKING GREAT Just a few years ago Samsung was struggling to catch up in the smartphone market. Now it makes more of them than anybody else and has Apple on the back foot, in addition to being the world's largest technology company by revenue. The heavily hyped launch of its flagship Galaxy S4 smartphone is the latest step as it tries to overtake Apple, and they've gone all out with a massive screen and impressive new features. Here are some of the core pillars of Samsung's strategy. The ultimate fast follower
Samsung is better than anybody else at learning from its competitors. "A market reader is sort of the classic fast follower," explains Barry Jaruzelski, senior partner at Booz&Co and the co-author of the Global Innovation 1000. "It doesn't mean they ignore their customers, but they're very attuned to what competitors are doing and what other people are bringing to market first and observing what seems to be gaining traction, then very rapidly coming up with their own version of that innovation." Samsung's aggression has gotten it into trouble in the past, losing a high profile case to Apple for imitating its design. But the reputation hit and the fine were a small price to pay. The company pivots and produces quickly, coming out with a variety of devices. It sees what the market responds to, pushes successes, and kills failures. And now, rather than just providing a cheaper and lesser iPhone, it's differentiated itself with larger screens, different features, successful marketing, and delivering what consumers want. The Note is a perfect example. The company found through market research that Asian-language speakers in particular wanted a device that they could hand-write on, because drawing characters is easier with a pen. The result was a combination phone/tablet ("phablet") that's been an unexpected hit. The company combines market research and unparalleled execution with, despite its reputation, a lot of innovation of its own. Samsung was second only to IBM in the number of U.S. patents filed last year, and filed 150 patents related to the new technology in the Galaxy S4.
When you've got cash, use it aggressively, or risk falling behind
Apple has a huge cash pile, but Samsung seems to be more willing and able to put their money to use. Samsung's research spend is 5.7 percent of its revenue, compared to 2.4 percent for Apple. Samsung is a diverse business with chips, displays, and other technology. This pays dividends, allowing it to compete on price and increasingly, offer features Apple hasn't gotten to. Although, many would argue that Apple chooses not to include certain features Samsung offers. When Samsung wants to get behind something, it can do so with considerable weight. That's certainly been the case for its flagship Galaxy phones. Samsung's advertising push has been absolutely massive. In the U.S., where the iPhone is still pretty dominant, last year the company increased its advertising budget five-fold, to $401 million from $78 million. T hat's $68 million ahead of Apple, and more than $200 million ahead of its nearest competitor in t he Android market. And that's only a fraction of its ad budget. This push has paid off too, with Samsung scoring many points at Apple's expense. Supply chain and distribution
Samsung is so much more than a smartphone-maker. It is a conglomerate, a manufacturer, and the world's largest chipmaker. It makes many of the components that go into its smartphones giving it a cost advantage and allowing it to be much more flexible in terms of what it produces and when. This table from JP Morgan makes it clear how much Samsung produces on its own. SEC stands for Samsung Electronics Corporation, and SDC for Samsung Display Corporation Apple, on the other hand, though it has a diverse, well-managed, and futuristic supply chain, relies on external partners, which can lead to delays and difficulties. And though Apple is trying to move away from Samsung chips, the company's smartphone competitors still have to buy them. In a way, they help finance its cost advantage. As Christopher Mims at Quartz points out, the company also has a huge advantage in distribution. The company's new Galaxy S4 will be available on 36 percent more carriers and in 55 percent more countries than the iPhone 5. Samsung's in more places than Apple with a brand new phone, as well as lower end options for the developing world.
The management lesson: You have to commit Samsung is very much a Korean company, and has been, at times, accused of being overly hierarchical and dominated by its founding family. That also provides some advantages. You can fault some things the company does, but not its ambition or commitment. When Samsung decides to get into a business, it goes hard. Within the past decade, it went from just beginning to invest in making batteries for digital devices and flash memory to being a global leader. Former P&G CEO A.G. Lafley argues that companies fail because they're hesitant to make decisions and hesitant to commit because they fear failure and want simply to play rather than win. Samsung wants to be the dominant player in the smartphone market, it has a strategy to do so, and it's using every tool it has as it attempts to succeed at it. The future
The key test of whether Samsung can move from a close-and-gaining second to becoming truly dominant is whether it can deliver products that are truly game-changing. To really start pulling customers away from iPhones in droves, it needs to differentiate itself beyond marketing and a bigger screen. It's aggressively investing in Silicon Valley with several big campuses to help it start to lead in software as it already does with hardware.
U NDERSTANDING A PPLE ' S POSITIONING : P A RT 1 - A PREMIUM BRAND AT A PREMIUM PRICE t's widely understood in strategy that a firm that is known for delivering a c ertain value may end up confusing customers (or perhaps undermining its own credibility and reputation) if it attempts to deliver alternate value. The attempt to simultaneously deliver inconsistent offerings will not serve a firm's strategic position. Many continue to criticize Apple's premium positioning and pricing.
This criticism is sourced from the press, customers, and competitors. In recent months Microsoft has unleashed a PR campaign in which they call out an "Apple tax", that is the premium paid by consumers who choose Apple's Macintosh computers. This is the first post in a series that analyzes the Apple product strategy with a specific emphasis on the Macintosh. At its most basic level, competitive strategy is deeply rooting in being different from rivals. For years Apple used the phrase 'Think Different' (video), a marketing slogan that not only shaped consumer perception but also represented the company's internal activities. Today, these internal activities remain aligned with that slogan despite Apple dropping it in 2002. The 'Think Different' mindset is firmly embedded in the company's culture and is clearly evident in Apple's approach to product and software design, integration, and ease of use. In order to understand these activities, we need to take a look at Apple's strategic positioning. A premium brand that meets a need It is widely recognized that Apple is a premium brand that demands and earns a price premium. This price premium spans the entire Apple product lineup encompassing the Macintosh, iPod, iPhone, software, and accessories. Apple's positioning is aligned with targeting a less price sensitive customer. As a result, Apple's culture and internal activities are structured to meet the needs of these customers, strategists call this needs-based positioning. Apple has thus created a culture and a set of activities to differentiate itself from rivals in order to meet the needs of their target customers.
If Apple were to attempt to compete for all customer segments, it would have to lower product prices. The danger with such an approach is that it would not only undermine and erode the company's premium brand image but it would also undermine the company's culture and internal activities. So what has Apple done in recent history to the Macintosh product line to demonstrate this premium positioning? Each new Mac revision has either maintained or been subjected to modest price increase while Apple has simultaneously improved product features. A few examples include the introduction of the unibody MacBook and MacBook Pro, larger displays on the iMac, and the replacement of the $499 Mac mini with a higher priced ($599) model. The motive is clear, protect the brand position via a tradeoff.
The strategic trade-off The criticism to reduce prices have in large part been ignored by Apple. Why hasn't Apple lowered Mac prices? In strategic terms, Apple has conducted a tradeoff. Continue to appeal to customers that have a willingness to pay (WTP) instead of appealing to a wide range of customer segments that have varying price sensitivities. A larger customer base would not only undermine the company's strategic position but it would also be misaligned with the company's internal activities. At a basic level of analysis, a price reduction will set a precedent that will not be easily reversed. More damaging however is the potential for brand erosion and customer confusion about the brand. Then there's the confusion that is likely to arise amongst Apple's employees. Should employees approach product design, features, and customer service in an effort to appeal to price sensitive customers or should employees and product teams allow their core competencies to drive product innovation and service? We saw what happened when Apple lowered the price of the first-generation iPhone a few months after it's release. There was an uproar from early adopters which caused Apple CEO Steve Jobs to offer a $100 Apple store credit to calm the storm.
Digging deeper into the strategy, the trade-off protects Apple's unique position. Competitors have two main ways to imitate an incumbent. A competitor can (1) reposition itself or (2) straddle, an approach that attempts to match the incumbent's position while maintaining its existing position. By maintaining its price premium at the expense of unit volume, Apple has created an imitation barrier that competitors cannot easily cross. PC competitors cannot realistically enter Apple's space by transforming themselves into a premium brand without alienating or pricing out existing customers. If a competitor decided to reposition or straddle it would have to compete with Apple's decades long premium brand equity. Thus, PC vendors have two transformational issues working against them, time and cost. Apple's competitors will not be able to transform their brand image overnight. Any such effort will take considerable amount of time on numerous dimensions ranging from product design to marketing. This leads to the second issue, cost. Any transformation undertaken by a competitor will cost tens or perhaps hundreds of millions of dollars in a sustained re branding and advertising campaign. In today's marketplace, a cost of this magnitude is not feasible. From a trade-off perspective, Apple has systematically analyzed what not to do; attempt to compete at lower price points. Entry barriers analysis Apple's positioning, brand image, and loyal following have created an entry barrier that PC vendors must cross in order to enter the premium computer market, a market that the Macintosh has exploited for years. Customer loyalty, advertising, lower price sensitivity of target customers (relatively inelastic demand), sunk costs, patents and innovation speak to this point. If a PC manufacturer wanted to enter Apple's market segment, it would have to overcome the barriers that Apple and the market have
constructed. Dell is attempting to enter the premium segment with a premium branded line of notebooks called the Adamo. The Adamo was officially launched in the first quarter of 2009. My expectation is that Dell's Adamo endeavor will fail for two reasons: 1. 2.
Dell is unable to offer the value proposition that Apple provides with the Mac: an integrated end-to-end approach of hardware and operating system design. Dell's core competencies are not directed towards premium buyers - Dell's product lines are geared towards businesses and price sensitive consumers.
As highlighted earlier, Apple products appeal to buyers who are less price sensitive and therefore, price elasticity is not a major concern. Dell will either have to up sell the Adamo to their current customer base and/or lure customers away from Apple. The former is not likely to be successful due to the price sensitive nature of Dell's customers and the latter won't happen in any meaningful way. Perhaps some Apple customers will switch to an Adamo but most are loyal to Apple brand, especially those who have had a long-standing relationship with the Mac and other Apple products such as the iPod and iPhone. This is a direct byproduct of the entry barriers I highlighted earlier. In my view a key component of Apple's competitive advantage is their end-to-end value proposition that drives innovation and results in a superior user experience for customers. PC vendors are at the mercy of Microsoft. Apple on the other hand can simultaneously innovate at both the software and hardware levels and bring integrated products to the market. They have proven this model with the Macintosh, the iPod, and now the iPhone. Another challenge is the expansion of the Mac user base. Most of the Macintosh growth over the past several years has been fueled by switchers and those to whom Apple refers to as 'New to Mac'. Dell will have to turn this tide while simultaneously working against the two reasons discussed above. Given these sets of circumstances, I predict that the Adamo will fail. Other PC vendors with plans to enter the premium segment should take note of the entry barriers. Apple's steps over the past several years have not only protected this positioning but have also enhanced it. This will be evident once Mac OS X Snow Leopard and the next generation of Macs hit the market.
DIFFERENTIATION
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M A C OS X
In this post I argue that Apple's differentiation approach enhances the company's competitive advantage in the market and that Apple will not license Mac OS X. It favors Apple to continue down a path that not only maintains premium positioning but also enhances it. Apple is clearly doing this at the research and development (R&D) level. The introduction of a new portable manufacturing process (the unibody MacBook and MacBook Pro) and a relatively fast-paced operating system release cycle are clearly a function of Apple's ever-evolving differentiated positioning. The upcoming Mac OS X Snow Leopard (successor to Mac OS X Leopard) and iPhone OS 3.0 will continue to push the envelope and set the groundwork for continued innovation in the years to come. Apple has never shied away from starting over. It did this with the transition to Mac OS X, the transition to Intel processors, and the re-design of their portable Macs. Each enhancement widens the differentiation gap that competitors must narrow or copy in order to compete with Apple. Windows Vista is a prime example. Apple is preventing the commoditization of their business by integrating hardware and software. PCs that run Windows or Linux are simply commodities that offer no true differentiation against a competitor's offering. Apple on the other hand has undertaken an end-to-end integrated approach to both hardware and software design. The resulting products are differentiated from competitor products in that Apple controls the entire stack that in turn results in a better user experience. The end result is the ability to price their products at a premium. An argument for why Apple will not license Mac OS X
Many have either urged Apple to license the Mac OS X operating system or questioned why it has not done so to date. Those who have adopted either or both of these stances don't understand the strategic pitfall of licensing Mac OS X. Simply put, licensing would undermine Apple's strategic competitive advantage and eradicate their advantage over rivals. Besides, why would Apple provide an opening to competitors by lowering the entry barriers they have taken so many years to build and that Apple has so fiercely protected? Furthermore, the iPhone OS and Mac OS X are moving down parallel paths with each iteration of the operating systems becoming more and more integrated and interoperable. Apple will continue to build features in both operating systems that the other can leverage. Apple licensing Mac OS X to third-party computer manufacturers will not happen in the foreseeable future. Differentiation - taking it to the next level It is widely understood that new product development entails significant costs. These costs are not only sunk but also fixed (once put into production via a product rollout). At the production side, marginal costs are the primary concern as they have a direct impact on unit contribution margin (price less variable cost). So what has Apple done with respect to Mac hardware design in an effort to enhance contribution margin? The revolutionary step was a transition to the unibody aluminum enclosure on the MacBook and MacBook Pro. When Apple announced the new manufacturing process it called out that prior generation portables used discrete components that each add size, weight, and the opportunity for failure. Although they didn't mention costs its critically important to realize that discrete components also add significant costs to each notebook. Apple redesigned the MacBook line to lower unit marginal costs while maintaining price levels. This was a strategic move because Apple didn't lower the costs of the MacBook models! The end result is that Apple has ensured itself a means to maintain or expand their margin on each notebook and this has a direct impa ct on the bottom line. Apple is known to have higher than industry average margins on their computers and the redesign of the MacBook and MacBook Pro will surely enhance profitability. If you haven't noticed, Mac portables have outsold Mac desktops for twelve consecutive quarters.
I'd like to highlight a few additional differentiation initiatives that Apple has performed over the past few years:
The release of the iLife suite of digital lifestyle applications for Mac OS X - Microsoft and third-party vendors have no answer for iLife. iLife's integration with the Mac OS X operating system, Mac OS X applications, Mobile Me speaks to Apple's differentiated and integrated approach to hardware and software Integrating an iSight camera into the design of Mac portables and the iMac desktop as well as its ability to seamlessly integrate with Mac OS X and Mac OS X applications The .Mac to Mobile Me transition - the ability to sync across Apple devices, Macs, and even Windows iPhone OS and Mac OS X integration, interoperability, and feature sharing The continued advancements with the iPod line - the iPod touch, the voice over feature in the iPod shuffle
With WWDC beginning tomorrow, we'll see continued evidence of Apple's differentiation strategy. We'll see the next iteration of the Mac operating system, when Apple demonstrates an almost feature complete Mac OS X Snow Leopard. Apple will also demonstrate and announce the latest iPhone and iPhone operating system. v
