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In August 2011 Apple became the world’s most valuable company overtaking Exxon Mobile, with a market capitalisation of $337 Billion compared to Exxon $331 Billion. Now that Steve Jobs is no longer driving the vision for Apple, can it maintain its market leadership, competitive edge and unique selling proposition?
Apple users are very loyal and without question, nearly all of this group believe equating Apple with innovation is a fundamental truth. They wait (often in long queues) with baited breadth for the next development to delight and surprise them. Indeed, Apple has topped Fortune Magazine’s most admired companies for four consecutive years and is number one in the key attributes of innovation, people management, use of corporate assets, quality management, social responsibility, quality of management, financial soundness, long-term investment and quality of products and services.
How exactly does Apple come up with its ideas and what did the company do to develop its blockbuster products in the first place and become number one? Clearly there are too many factors to identify any one overriding contributor, but the question is whether its existing business model and approach can be maintained and developed without Jobs?
What’s certain is that design and product innovation is a key element of the success formula. Apple focuses on a select group of products developing beautiful, aesthetically pleasing products in a manner that makes it very difficult to scale up to broad and extensive product lines – indeed Apple has fewer than 50 products currently on sale. The iPhone and iPad, which didn’t even exist five years ago, now contribute nearly 70% of Apple’s revenues.
However, Apple deals with these growth constraints by controlling its entire production system and as a consequence does not rely on other businesses to provide inputs to the design and development of its products. Apple owns its operating system, software, and hardware; all of the technology and customer interactions that create its distinctive total user experience. To this it adds a culture of innovation.
Ironically, given Apple’s reputation for being fluent in the language of their customer and the markets in which it competes, its knowledge of its markets does not appear to be down to detailed market research; at least not in the term of traditional marketing approaches.
In an extensive interview given to CNN in March 2008, Steve Jobs said
“We do no market research. We don’t hire consultants. The only consultants I’ve ever hired in my 10 years is one firm to analyze Gateway’s retail strategy so I would not make some of the same mistakes they made [when launching Apple’s retail stores]. But we never hire consultants, per se. We just want to make great products.
When we created the iTunes Music Store, we did that because we thought it would be great to be able to buy music electronically, not because we had plans to redefine the music industry. I mean, it just seemed like writing on the wall, that eventually all music would be distributed electronically. That seemed obvious because why have the cost? The music industry has huge returns. Why have all this [overhead] when you can just send electrons around easily?”
Perhaps this approach by Steve Jobs was not as radical as it seemed – there is a litany of high profile market research failures, with multinational businesses, such as Coca-Cola and Levis, pouring tens of millions of dollars into conventional market research into new products that bombed when launched.
Marketing is defined by the Institute of Marketing as:
The management process responsible for identifying, anticipating and satisfying customer requirements profitably.
However, management writers, such as Henry Mintzberg and Tom Peters, have suggested that a more organic approach to marketing is necessary when firms operate at the cutting edge of technology where they must react quickly to changing environments. Mintzberg and Peters believe that, in these circumstances, marketing strategy emerges rather than being systematically formulated. In the fast-moving world of high technology businesses, perhaps the hunches and visions of those at the forefront of these markets, such as Jobs, are a better guide when trying to anticipate customer requirements rather than purely identifying present needs. Indeed, although customers may be able to articulate their needs and wants, are they able to offer solutions to these, especially when new technologies evolve so rapidly?
Apple’s gross profit margin in the computer market currently stands at 42%, up from nearly 30% 5 years ago, and compares favourably with HP and Dell at 31% and 19% respectively. In the mobile phone sector, Apple’s gross profit margins are higher than Nokia’s 31%. One of the reasons for these generous margins is because Apple’s spending on marketing is relatively low for the technology sector. Products service sales are achieved through “word of mouth” process reducing the cost of acquiring new customers.
It is clear that Apple has been ‘first to market’ with many concepts, but the gap in function and design is narrowing fast. Android competitors, like Samsung and HTC in the smartphone market, have technically competitive products and Amazon with its Fire tablet undercutting the Apple iPad in price (though not satisfying consumers as much) are providing genuine competition to Apple’s predominance. In fact, for 2011 as a whole, Samsung managed to edge out Apple as the year’s top smartphone manufacturer, but with 37 million iPhones sold, Apple dominated the smartphone market during the fourth quarter. Apple announced in January 2012, that it doubled its profits from a year earlier, reporting a 73 % jump in revenue as it sold more than double the amount of iPads and iPhones over the year.
So, returning to the title of this post – what next for Apple? Can it continue to surprise and delight the markets and sustain its competitive advantage? Where will new growth and first mover advantage be found? Whatever Apple does it takes care to create ‘customer lock-in’, making it difficult for consumers to use other devices and software. Apple initially achieved customer lock-in with hardware, then with its apps, its upcoming iCloud offering and now its recent announcement of new e-textbooks for the iPad, which has taken the education market by storm. Apple is partnering with textbook publishers Pearson, McGraw Hill and Houghton Mifflin Harcourt, three of the biggest names in the textbook industry which provide 90% of the textbooks available to high school students. The development seems set to revolutionise the college textbook market. Using a free Mac App, iBooks Author, authors can create and publish their own books. However, although Apple appears to be offering the tools to democratise publishing, the sting in the tail is Apple’s desire to retain its lock-in policy. Dan Wineman pointed out on his blog that Apple’s End User License Agreement (EULA) states that books made with the iBook Author app and sold through the iBook store can’t be sold anywhere else.
IB style questions
1. Define the following terms:
- unique selling proposition
- gross profit margin
2. Explain the meaning of revenue and comment on possible sources of revenue for Apple.
3. Analyse the impact that external opportunities and threats in the smartphone market may have on Apple’s objectives and strategy.
4. Evaluate Apples’ marketing strategies.
Students investigate the launch of iBooks Author and
- summarise the contrasting arguments for and against Apple’s End User License Agreement (EULA)
- discuss the potential consequences on the traditional print market of Apple’s iBooks Author and its publishing partnership with Pearson, McGraw Hill and Houghton Mifflin Harcourt
Bloomberg: The Tech Beat
BBC News – Technology