523 Apple Inc. is known for its innovative ability to gain competitive advantage since 3rd Jan 1977. It was called Apple Computers Inc. and as they have started their penetration in the consumer electronics, they have removed Computers from their name. With a workforce of 46600 FT employees and 2800 temp staff all over the world and the made the sales of $65 billion in 2010. (Annual Reports, 2010)
The famous brands offered by the company to the world have been Mac computers, iPod, iPad, and now the hot selling iPhone. Apart from hardware, the company has been very successful in software with the introduction of Mac OS X operating system, and other media software’s like iTunes, iLife and now iWork along with iOS (operating system for mobile phones). (Apple Annual reports, 2010)
This report will cover their most talked about brand called iPhone, which has been termed as “Jesus Phone”, “Work like magic” or “your life in your pocket”
The hype on the internet has made this product a technological savior and the company is still adding innovative features not to mention the technical issues and challenges, which come with every product in the market. (Campbell & LaPastina, 2010)
Market Environment
There is expectation that iPhone users will be 100 million by 2013 and as in the fig the number is going to be around 450 million in 2013. (Churchill, 2009) The company is facing huge competition from Microsoft and Google from software point of view and from LG, Samsung, Sony , Blackberry are already challenging with their innovative brands. Appendix B helps to understand the market forces as well. The company has gained by the first mover advantage and their 317 stores with more than 10,000 partner stores are supporting the sales of the product. The company is highly dependent on Cingular for their success in USA but the company has made strategic partners all around the world to grow like T-Mobile, China Unicom etc. The company is targeting non corporates unlike competitors, although the company has leverage of Apple’s brand image. The company is able to secure first position in the consumer satisfaction survey done by J.D. Power and associates. (Refer Appendix C) (Tews, 2009)
Figure 1 Smartphone sales (Churchill, 2009)
The company is targeting professionals, students between the age of 18 and 35 basically. The company is conscious of its brand and so focusing on fulfilling the corporate social responsibilities as in Fig 2. (Apple Annual Reports, 2010)
The company has trained nearly 133k workers on human rights and responsibility of the managers. The company also paid $ 2.2 M in recruitment fee overcharges. (Apple Annual reports, 2010)
i) Conducting cross industry focus groups for suppliers.
ii) They have launched SEED program to teach english and other professional courses for the workers. By 2009, nearly 14800 workers joined this program, with the help of 500 iMac PC’s.
iii) The company has made strict principles regarding Human Rights (no discrimination, proper age, holiday, respect); Health and Safety of the staff (Ergonomics, cleanliness, emergency evacuation, injury prevention), Environment Safety (Air and water waste management, waste mgt), Ethics (non disclosure agreement) & Management commitment to train the staff, workers feedback.
(Apple Annual Reports, 2010)
Marketing Approach of Apple
McCarthy has presented the marketing mix (4P’s) model to help the managers device a good marketing strategy where the benefits can be exchanged between the pillars of marketing, this was later modified by Booms and Bitner in 1982 (he added 3more P’s ) to cater the requirements of the service industry. (Brassington & Pettitt, 2007; Kotler, et al, 2005) The next section will discuss 7p’s of Apple as in figure 3.
Figure 3. 7P’s of iPhone (Adapted by researcher)
1. Product:
The product would be found in more in 60million pages on internet, with the broadest screen display in all the mobile phones so there is touchscreen keypad as opposed to dialoging keypad in just 2 months after launch. The company decided to use OS X operating system with the same usage as of iPod or Mac although with lot of shortcomings like no expandable memory or replaceable battery or difficult to disable users. (O’Grady, 2007) The initial version was not with 3G network support and was later integrated. SWOT analysis of iPhone (figure 4) helps to know the strengths & opportunities of the product. The company should develop core competencies on the basis of its strength and should focus on the opportunities which might arise in due time, which the analysis of threats help to safe guard the product development and develop contingency plans. Gradual innovative methods can be adopted by the firm to convert the weakness into strength apart from best use of financial resources. (Brassington & Pettitt, 2007) The locked iPhone with one network Cingular in US and by other network in Europe is not appreciated by the consumers. Also the cost of unlocked iPhone is quite high in compared to US market, which might have caused reduced sale. The users can’t install their software’s which is another software leverage strategy of Apple, so they have to use only Apple software’s (iTunes, Mobile Me) or QuickTime players. The company is utilizing the iPod ecosystem to leverage the iPhone thereby supporting its online music revenue system. The display of PC based websites with same display made this product different from others. (O’grady, 2007)
Fig. 4 iPhone SWOT Analysis
Use of FaceTime with 2 cameras is a new innovative idea like in 3G phones, Retina display, but the new iOS is slow than expected by the compass and GPS is helpful when lost. Uses of App Store help the users to get application on their phone and Apple takes 30% of that revenue. (Marshal, 2010)
2. Price: Apple in this case adopted the “best fit segment” pricing strategy (skimming), where the early adopters were targeted who are less price sensitive and want to receive the benefits of new technology. It allows more cash flow for the company and also conveys benefit perception to other target segments. The company started off with selling the product at $599 (8GB) and $499 (4GB) and later reduced the price of 8GB to $399 and discontinued 4GB model significantly. The company wants to target the mainstream users and can’t reply on early adopters (young techno savvy, professionals) for future growth. They tried skimming and versioning strategy. (Apple Annual Reports, 2010)
1. Skimming: This is high pricing strategy but can attract risk of low sales and piracy (Kotler et al, 2005) but Apple has safeguarded itself by marketing before it actually emerged in market by enhancing its brand value under top 20. (Sliwinska et al, 2008)
2. Versioning: This strategy involves charging different prices for same products from different target segments. So the company implemented “temporal price discrimination” where it charged the prices depending on the desire of the customers to pay for the iPhone. Probably due to good profit on each unit from willing customers and they want to gain high volume sale from the larger customer base they had developed. They have structured this in different countries and adding more features. As they reduced the prices by $200 in just 60 days, after consumer complaints, they issued some $100 store credit to early buyers. (Sliwinska et al, 2008)
With the market domination of Symbian phones to 35 Million in H2 2007 and success of N95 and E series boosted the sales by $172 Million against Apple products. Microsoft, RIM has a strong hold in the N.American market, while Nokia is having a larger share in EU. The company started charging $72 to $130for 18-24 months contract in Britain and Germany; in addition they have to pay ?269 for iPhone in Britain. So the customers had paid $566 compared to $399 in USA. In France, the company tied up with Orange and charged $590 for 8GB along with a monthly package of ˆ50 to ˆ120 or they can buy iPhone over $900. (Sliwinska, 2008)
Figure5. Price Comparison (2007&2010) (www.apple.com, 2010)
But the company should understand that European market has 60% of pay-as-you-go customer that is why the company failed to meet their target of 10 Million units but sold nearly 400,000. The company has already launched iPhone3G ($99 for 8GB in USA & ?419 in UK) and iPhone4 ($199 for 16GB, $299 for 32GB in US & ?499 for 16GB, ?599 for 32GB) as shown in figure 5. The company is still adopting the vertical building strategy, as in iPod’s which is related to iTunes and help the company to control the digital music and video market. Total 73.73 Million units were sold and only 1.3 million were the original iPhones, it has been a huge success but not as anticipated. They are expecting 82 Million units by 2012 as in figure 6. (Oliver, 2009)
Figure 6 Predicted Sales (Oliver, 2009)
3. Promotion: Apple has been most aggressive in terms of promotion as seen in figure 7, some examples are:
Fig 7. Strategy of promotions (Kiprin, 2009; Apple Annual Reports, 2010))
1. The company started with 4 TV commercials during the launch to flaunt the innovative gadget (original iPhone) which can fulfill all needs of entertainment and information sharing device. The company is focusing now to advertise their Face Time feature and recently launched 4 more TV ads. in July 2010. (Chris, 2010)
2. The press releases and blogs were posted and iPhone was in 60 million web pages across web. The news created rumors and the Advertising Age’s Marketer award winner (2003) company was again ready to offer new generation product after iPod. The company made successful relations with media firms and Steve (CEO) shares new ideas with public during occasions as suggested in fig 7. (Williams, Mullin., 2008)
3. With the support of 317 stores across the world (233 in USA, 84 outside USA) which contributed around 17% of profits. The company has done strategic partnership with Starbucks to offer free iTunes Wi-Fi music at 600 locations, which can later be downloaded from computers. Even the new iPhones 5 reveal the easiness to find people around the city, location of friends and other features which reflect the social integration aspect of the device. (Apple Annual Reports, 2010)
Fig 8. Apple Online marketing (Kiprin, 2009; Apple Annual Reports, 2010)
The company is already spent $5.5 billion (increase of 33% compared to 2009) due to expansion in the retail segment. (Apple Annual Report, 2010)
1. The company uses all forms of advertising to gain attention, they appear on a regular basis on newspapers, TV, billboards etc. Like Macworld Expo (conventions to launch products), coverage of major channels like Fox, MTV and Rolling Stones, Maxim etc. In-store promotion and awareness helps in personal selling where the users can touch and test. The company site is quite impressive with promotion codes issues to consumers from time to time.
2. Cross Promotions: the channel partners like Sprint, Orange, Vodaphone etc. promote iPhone packages on their websites and from printed booklets.
3. Search Engine promotions; the company spend money on Adwords (Google marketing), Pay Per Click campaigns. The company purchases the keywords like iPhones, mp3phones etc. Banners and promotions on other sites is a regular from Apple. (Sliwinska et al, 2008)
4. The company sends email to iPod users, carrier consumers, and uses RSS feed of their promotions and events and blogs are done regularly. (Williams and Mullins, 2008)
4. Place: The company is using the locations as shown in fig 9 for selling the product.
Fig 9. Distribution locations ((Kiprin, 2009; Apple Annual Reports, 2010)
The company followed the hybrid distribution strategy and engaged the telecommunication service provider’s stores along with their online and own stores. So the customers are forced to enter into a contract for 18-24 months. The company is using two level channel for distribution of their product. (Jobber & Fahy, 2009) The company has done tie-ups with Cingular as they have a customer base of 58Million and out of which around18million are already with iPod. So it’s good strategy to benefit both companies of exclusivity in USA. Although AT &T never wanted to spend much money on advertising but they end up spending $18 billion in 2009. As seen in the figure 10, the products are assembled in China (due to cheap labor) and then supplied to warehouses and regional stores. The company is clever to use the use the touch points of established networks (Vodaphone, O2, Orange, T-Mobile etc.) (Jobber & Fahy, 2009)
5. People:
The company wants to be in direct touch with the consumers and “when they feel it, they will buy it” strategy. With only $99, 1hour/week for 1yr help the users to meet the experts at Genius bars for technical support and information, conducting over 50000 sessions / week. The sales assistant is available on appointments to find the right product for right needs at the “new gather place”. This helps the company generate word of mouth marketing and product awareness and brand building. The sales team is trained to give awareness, rather than giving a sales pitch. Also the CEO has impressive presence in front of media to market the brand. (Ireland et al, 2009)
6. Process:
Alain (2008) has given some insight about the process of Apple. He says CEO, Steve Jobs is working closely with the design and development team during the whole development process. The meeting of board management is done every month, where the marketing proposal and other problems are discussed.
10-3-1: The designers follow the pixel perfect approach where there are no fillers and 3 designs are selected out of 10 and perfected until they arrive at 1 out of total 10.
The company conducts different type of meetings:
1. Paired design: this is done 2 times a week to discuss the features and technical specs of the product.
2. Brainstorming: This involves discussion on any and every idea that comes in your mind and put in the table for discussion. There are no rules to free thinking. (Alain, 2008)
3. Production: This involves giving a proper structure to the innovative ideas and arranging deadlines for the same. (Alain, 2008)
The CEO doesn’t frown to discard a product at the last minute. and there are Pony Meetings every 2 weeks, where the client discuss the requirements with designers, so they can work according to the needs of the consumers. The sales are handled in stores (Apple and partners) by the professional team and training sessions also help with sales promotion activities.
(Alain, 2008)
7. Physical Evidence: The Company has a good packaging strategy which makes the product look attractive and stylish on the shelf. The company has Apple Care service to resolve the problems and services offered by the company, geniuses’ bars to meet the direct customers and teaching them to make better users. (William, Mullin, 2008)
DiscussionCladbun (2007) has pointed out the application development by 3rd party is not allowed is a drawback. But the company has been successful in allowing the third party developers to develop innovative software’s like making the iPhone work as a remote and the car can be fully operated by sitting outside the car and similar applications help the company to share profits from other developers and are unique business model implementers. This is also adopted by Amazon recently. (Marshal, 2010)The utopian vision to create the convergence device from Apple is under serious controversy, even though they have filed 200 patents but LG claimed that they copied their design & Apple Inc. lost claim for IPHONE trademark against Infogear. The company has reduced their marketing expenses by using the retailer outlets all around the world and invested that money to open their own 317 stores all around the world, this has helped the company to get the sales revenue similar to the maturity stage of the product life cycle even though the product is at the introduction phase. The company might be planning to have more strategic partnerships as they have done for iPods with Nike, Volkswagen etc. where the iPods was given free with each unit purchased. (Williams and Mullin, 2008) The company with China Unicom is doing excellent with 100,000 sales in first 3 days and 200,000 pre orders for iPhone 4 as compared to 5000 order for original iPhone, even there is a restriction of wi-fi feature due to government rules. The company is giving iPhone for free with the $43, 2 months contract, which they haven’t done before (Ong, 2010); this shows that the management is conscious of the social and economic factors of the target market. They have to do similar during their launch or other high populated countries. The process used by the firm is towards perfection which should be implemented by every firm to gain competitive advantage. (Gosnay & Richardson, 2008)
ConclusionIt has been observed that the company has maintained strong sales and developing new markets and also adding the value of the brand with more features and third party software’s available for the users. Although with lot of technical limitations the company has experienced good sales with the help of strategic partners and intensive advertising. The company is spending lot of money on all the channels of promotional mix, however the company should give more emphasis on website advertising to reduce the costs. The company is well known for innovative ideas and thereby inspiring others to develop innovative ideas along with their service to the society by following CSR approaches. The last section of the report present the recommendations which can be utilized by the managers for effective marketing of iPhone.
Recommendations This strategy must have lost early adopters and loyal customers and reducing the price by 66% in 1yr is not good way to treat customers and forcing them to sign contract with AT & T, O2, Vodaphone or T-Mobile, which resulted in slowing down of sales and even though 3.3 million iPhones were sold in 8months but only 2million contracts were signed with AT&T. (Adapted by researcher) Another mistake is the launch of iPhone after 7 months in UK, Germany and France; almost after 1yr in other Western Europe like Sweden, Austria even in Canada, Brazil etc. So a good product has adopted a bad strategy. They could have delayed the product launch or decreased the prices only after 1yr or should have started with $399 only. (Vertygoteam, 2010) The company should find ways to differentiate the product in China but as cheap players and mobile phones even pirated iPhone is available so its difficult to maintain the brand image. Also Wi-Fi is disabled due to government restrictions but the Chinese love colors so the back side of the iPhone should be available in trendy colors. There is enough scope for people in China with 470 Million users. (Research and Markets, 2010) India is also a good market with population reaching 1.3Billion, and company can earn if they sell at similar price offerings due to economy of scale. But they are offering at $800, which is expensive even for Americans. The company has to be find ways to challenge dual and triple sim phones available in India and cost around $100. Even on $50 phone from Nokia, the company is investing heavily on marketing but iPhone wants to establish with poor marketing requires careful planning. (Rhiain, 2010) The company is offering unlimited bank width to the subscribers which will overload the network, so company should also invest in expanding the bandwidth along with aggressive marketing investment, especially in growing markets with poor infrastructure like India as 44% of revenue comes from non-US market. (Annual Reports, 2010) Olive (2009) views that company will sustain the market forces with the help of media integration, games and sophisticated software. However, company could include Mobile commerce, user generated print media production and 3D games to attract more customers. The company should understand the social forces and use it to target the customers. Rising prices, decrease income, world financial crisis affect the buyer’s purchasing power. Old age customers are free and can be the target market, so they can be connected with their grandchildren. The company can create advertisements devoted to elders in this case. Another target market can be singles who can utilize their free time for entertainment purposes when they feel lonely, as they don’t have family obligations and enough financials. With the increasing migration of citizens from one country to other, even American and Britishers are moving to developing countries due to lost cost living. So this can be another target market for Apple, where they are away from their country but feel connected with the product from their country. (Gosnay & Richardson, 2008) The users can’t forward any contact or use blue-tooth with other phones, ringtones needs to be purchased and difficult to use the speakerphone in cars. (Squarejp, 2010) The company should find ways to rectify it to make it more suitable for customers.REFERENCES
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Appendix A. Marketing Mix
Appendix B Porter 5 Forces
5 Forces Model (Adapted from Kotler et al, 2005 & Apple Annual Reports, 2010)
Porter 5 forces model helps to understand the marketing forces which affect any company brand. According to the above model:
i) The Supplier power is quite strong as it has support of big companies like AT & T, Orange, Vodaphone which are helping in the sales and also using their touch points to give products to the customers. They have enough financial capability to support the company. The low cost assembly unit in China is also helping to keeps the cost low. (Williams and Mullins, 2008)
ii) New Entrants: The threat is quite high due to other big brands competing at the hardware, design and software level. Google and Microsoft want to capture the mobile software market. (Twes, 2009)
iii) Substitutes: Everyday there are more products coming in the market from communication medium like SKYPE, VOIP etc and smartphones, PDA and Chinese mobile are common everywhere, unless the company is innovative, they can’t stand in the market. (Kiprin, 2009)
iv)Rivalry: it is quite intense as all the mobile phones have dominance in their region and it will be difficult for iPhone to take over the market. All big brands like Sony, Nokia, LG etc. have enough funds to fight for the target market. (Williams and Mullins, 2008)
v) Buyers position is little week as the smartphones are made by manufacturers and the consumers have choices but there is no good replacement for iPhone which comes with its unique features. (O’grady, 2007)
Appendix C. Consumer Satisfaction survey (Tews, 2009)
