Apple company is a multinational corporation that creates consumer electronics, computer software, and commercial servers, which established in Cupertion, California on April 1,1976 by Steve Jobs and Steve Wozniak (www.apple.com). This company is famous for its remarkable product sales, unique corporate culture and product character. According to Apple financial statements, in 2008, the sales of Apple is up to 32.5 billion dollars and the total pure profit is 4.8 billion dollars(ibid). In addition, in 2010, Apple continued to be at the top of the world's 50 most innovative companies in six years(ibid).
This firm creates multiple famous electronic products, such as, Macintosh computer, iPod, iPone and iPad, Particularly, the invention of iPhone attracted people's attention and created huge sales which increased rapidly from 1.3million units in 2007 to about 25 million units in 2010(ibid). Furthermore, it is has been sold in 91 countries in the world(ibid) , which contributed to the expansion of Apple brand significantly. Particularly, in America, iPhone accounts for 23% of the US intelligent phone market in 2009(ibid). Since the success of Apple product, Apple's unique marketing strategy attracted the attention of various companies.
Distribution channels are the key elements of market (Kotler, 1980), which consist of intermediaries or middlemen who serve for the exchange between the manufacturer and final customer, which contain indirect, direct distribution and long, short distribution chain (Keegan and Schlegelmilch, 2001). As Frazier (1999) suggests, distribution channels play a significant role in the process of market expansion, and how to organize and manage channels of distribution is the key to multinational enterprise survival.
The significance of this topic is that if Apple Inc chooses the suitable distribution channel for Apple iPhone, then its sales revenuer will reach the optional level. Thus, this essay will relate the distribution channels of iphone to the discussion of three factors that have an impact on the decisions to choose a particular distribution channel when marketing an international product, after that, this essay will analyse the development of iPhone in china rely on the PEST model. Then, it will give some recommendation for improving the distribution channels of iphone and promoting the development of iphone in china market.
According to Johansson and Thorelli (1985), products are the key foundation for firm establishment. The characteristic of product could affect the choice of distribution channels in international marketing decision. The product characteristics consist of the design, price, technology and culture. Furthermore, the product position plan is prerequisite for formulating marketing strategy (Johansson and Thorelli, 1985).
Oren, Seth, Huang and Kang (2009) point out that the most successful product must own one or more unique characteristic, which is different from other similar products, such as, unique design, idea, quality, function and follow-up service, and different characteristic could influence firm to adopt different type of distribution channels. For instance, Apple iphone characteristics are unique design, innovative idea, and high price and high-tech, which represent the position of iphone is high-end mobile phone, which promotes Apple iphone to choose more short distribution chains and direct distribution to keep the brand high position.
Furthermore, Miracle (1965) argues that due to different cultures, sociology and politics in different country, the popularity of the global product is different in different countries, which could influence the decision to choose distribution channels. A topic example is KFC, which is a simple and normal fast food company in the western country. Thus, in western countries, it adopts direct distribution and short distribution chain that could meet its satisfaction. However, when it enters Chinese market, as a result of western fast-food being scarce in china, it become the most popular fast food company in china. Thus, KFC should change the type of distribution channels to meet china market satisfaction.
The target market
According to Siguaw, Simpson and Baker (1998), the orientation of the target market could effect the distributor's market orientation. "A target market is a group of people with certain characteristics in common, characteristic that are likely to influence leisure needs and interests in predictable ways (Kotler, 1980: 34 )". Kotler(1980) argue that the target group 's leisure needs and interests could influence the choice of distribution channels.
Keegan and Schlegelmilch (2001) argue that, geographic factor, social factor and behavioural factor of target customer could influence the development of target market seriously, which influence the choice of distribution channels to some extent. Furthermore, an accurate orientation of the target market could be beneficial to brand orientation, which is beneficial to choose a accurate the channels of distribution as well (Siguaw, Sinpson and Baker,1998). For instance, as a result of iPhone's target customer group being young people who usually use Internet in their daily life, Apple iphone increase the on-line stores to meet young people satisfaction. (Oren, Seth, Huang and Kang ,2009).
Control over channel members
According to Frazier(1999), how to control the channel members in a channel relationship could effect the firm's product sales in the long term. For a multination enterprise, the behaviour and decision of channel control could influence the brand and product expansion in the foreign countries. In terms of channel control system," in market exchanges, the price mechanism may be the only component of firm's control system (Louis and Reve, 1988)", which means the main control system of firm is price setting. In other forms of exchange, Siguaw, Simpson and Barker (1998) point out that firms could use different tools which include a mix of contracts, pricing and credit programs, promotional programs, merchandising aids, training programs and inventory buy-back programs.
Through control system, the firm could control the distributor results and track of channel distribution performance outcome to some extent, which could control the product position and sales volume effectively. For example, although final price manipulation is illegal, iphone still tried to control the retail price and keep it at a stable level by controlling the profit of channel distribution and not bulk discount, which could maintain a high price to maintain product status (Oren, Seth, Huang and Kang, 2009). For instance, iphone is never at a discount through retail channels. Similarly, many products adopt this marketing strategy and get different degrees of success, such as, Intel microprocessor, Microsoft software, Tiffany's jewellery, Swarovski crystal.
Through this control system, firm set up the control construct which contain the number of components, number of elements per components, and decide how often the components are used in value chain by joint venture, franchising, acquisition and licensing (Keegan and Schlegelmilch , 2001). Due to the different firm product position, different firms adopt different control system. For iphone, iphone is only sold through Apple Store, Apple on-line Store and AT&T Store, which aim to maintain a high degree of control price and sales volume that could keep iphone position. In addition, in the world market, iphone maintain a high degree of control. A topic example is iphone 4, in 2010, Apple company just choose 6 countries to sale iphone 4, which is a part of "hungry marketing" (Oren, Seth, Huang and Kang, 2009: 84), which could attract more customer attention.
The aim of PEST analysis is to understand the variation in external environmental condition. This kind of understanding would help a company to learn how to established the suitable market strategy in a specific market. Through the analysis of china politic environment, economic environment, social culture and technological, it could help Apple iPhone to improve their distribution channel in china market.
According to Keegan and Schlegelmilch (2001) , although globalisation is increasingly stronger, the nation-state is continuing to exert a large impact. China is People's Republic country, which is different from western countries' regime. Thus, some local trade law and product restriction is different from western countries', which could protect the development of local products to some extent. For example, according to Lu, Liu, Yu and Wang (2008), china regulations restrict that wi-Fi function will not be used by mobile phone, if the mobile-phone don not adopt WAPI compatible. Apple iphone did not adopt WAPI compatible, which lead iPhone's Wi-Fi function can not be used in china, which impair the iphone characteristics that harmful for the sales volume.
Firstly, in terms of Chinese mobile phone structure, as a result that the time of iphone entering to Chinese mobile phone market is late, various famous global mobile phone brands and enormous local mobile phone brands have existed in Chinese market. Thus, it is somewhat difficult for iphone development.
Secondly, china set up a high tax for foreign product to protect local product, which add the cost of iphone. Therefore, the retail price will increase as well, which impair the strength of the iphone competition.
Thirdly, in recent years, China's grey market is very huge, which accounts for nearly 13% of all legitimate global cell phone-sales (Lu, Liu, Yu and Wang,2008), which is growing rapidly. For example, enormous smuggled iphone mobile phones whose price is much lower than legal global iphone exist in china mobile phone market, While Apple iPhone prepare to enter into the Chinese market, Chinese grey market vendors have filled in the gap with cheaper smuggled iphone.
Finally, the average income of Chinese is much lower than western country people. Due to the high price of iphone, a larger number of low class people and a part of middle class people cannot afford it.
Firstly, Chinese population is the second largest in the world, which is up to about 1.3 billion in 2009 (http://www.wpro.who.int/countries/2009/chn/ ) .It represent that the population of target market is larger, which is beneficial to iphone sale volume and development.
Secondly, with the development of globalization, increasingly Chinese could accept western lifestyle and be affected by western culture potentially. Apple iPhone brand represent a type of western lifestyle that fashion and innovation (Oren, Seth, Huang and Kang, 2009), which could attract a large number of young people attention. It is beneficial to iPhone for china market access.
On the one hand, as a high-tech product, compared with most local and global brands' products in Chinese market, apple iPhone own higher technical quality, more unique technical features and more diversified functions, which effect iPhone expansion in china market positively.
On the other hand, due to ultra-high imitation technology in China, Apple iphone design, function and market strategy usually were copied by some local mobile phone companies, such as Golden Apple, MEIZU (Oren, Seth, Huang and Kang, 2009). Although their products are difficult to beyond iPhone, it might influence the development of iPhone expansion in china market and reduce the iPhone sales volume to some extent.
Firstly, the distribution channels of Apple iPhone consist of Apple Store, Apple on-line Store and AT&T Store. Compared with others global products' distribution channel, the length of iPhone distribution channel is shorter. On the one hand, the benefit of short distribution is to maintain the high degree of controlling distribution channel, which could maintain the iphone retail product price and iphone high brand position in the long term. On the other hand, iPhone shorter distribution channel could limit the scope of the product market. In some vast market countries, shorter distribution channel cannot cover the large market, which might lead iphone to lost some customers and reduce the sale volume to some extent. Thus, Apple iPhone should aware of the geographical factor and adopt the suitable market strategy in the specific market. For example, due to the vast mobile phone market of china, iPhone should increase the numbers of distribution channels to meet the demand of market.
Secondly, " hungry marketing" cannot be adopted in any country. " Hungry marketing" means that commodity providers lower the yield to control the relationship between supply and demand to maintain the high price and profit of products (Oren, Seth, Huang and Kang, 2009), which is usually successful in some western countries by Apple iPhone. However, this measurement is not effective in Chinese market. Due to a large number of smuggled iphone existing in Chinese market (Lu, Liu, Yu and Wang, 2008), iPhone's " hungry marketing" just expend the market of smuggled iphone and reduce the sale volume of legal iphone in china. Thus, iPhone should consider that whether adopt " hungry marketing" in the specific market carefully.
Thirdly, Apple should increase the e-commerce stores, e-commerce products and prefect the e-commerce system. Through the e-commerce store, Apple could provide ultra-fast product for customer and reduce the cost of distribution channels. In addition, through the sale of relative e-commerce products such as, apple software, apple games and music, Apple could not only get the profit in the long term but also attract more customers to use iPhone. The success of Apple iTunes music shop has proved that this view is right.
In conclusion, when marketing a international product, there are three factors influencing the choice of distribution channels significantly, which are the product characteristics, the target market and the control over channel members. The product characteristics include product design, price, quality, the technology and popularity extent, which represent the product brand position that influence the choice of distribution channels significantly. The target customer's leisure needs and interests, geographic factor, social factor and behavioural factor in target market influence the choice of channels of distribution.
The broad and depth extent of control over channel member influence the choice of distribution channels. Through relay on pest model to analyse the development of iPhone in Chinese conditions, there are three recommendations. Firstly, Apple iPhone should aware of the geographical factor and adopt the suitable market strategy in the specific market. Secondly, iPhone should consider that whether adopt " hungry marketing" in the specific market carefully. Thirdly, Apple should increase the e-commerce stores, e-commerce products and prefect the e-commerce system.