Apple Inc Market Analysis

Apple Inc Market Analysis According to Kotler Marketing is not like Euclidean geometry, a fixed system of concepts and axioms. Rather, marketing is one of the most dynamic fields within the management arena. The marketplace continuously throws out fresh challenges, and companies must respond. Therefore, it is not surprising that new marketing ideas keep surfacing to meet the new marketplace challenges. (Varadarajan, 2009) Product, price, promotion and place are factors that, within limits, are capable of being influenced or controlled. Marketing strategy can be viewed as reflecting a marketing mix of these four elements. (OShaughnessey, 1984). Market planning involves the logical sequence and a series of activities leading to the setting of marketing objectives and the formulation of plans for achieving them. Marketing tools are used in the realisation of market plans. This paper aims to critically evaluate how Apple Inc could use some of the main strategic marketing tools (Product Life Cycle, Ansoff Matrix, Boston Matrix etc) to develop and manage its products and product portfolios. Some of the advantages and limitations observed will also be discussed. 1.1: BACKGROUND OF APPLE INC Apple was founded in 1976 by Steve Wozniak and Steve Jobs with the aim of providing user-friendly computers to a set of computer hobbyists (David, 2007; pg 2-3). The first computer they made had no keyboard or power supply and they were able to sell about 200 of such computers which they called Apple 1 (International directory of company history, 2001). Later that year, they began working on Apple II with the intention of reaching a greater market segment. Apple II was a success and made more than $1 million in annual sales. Apple II stored information on cassette tapes and that made them very slow. Apple improved on this memory problem in 1979 with Apple II+ and made 400% more sales than that of the previous year. (International directory of company history, 2001) Apple III was launched in 1980 to break into the office market dominated by IBM. However, the computer was released without adequate testing and many of its unit were defective. Production was stopped and the problem was fixed but Apple III was not as successful as Apple II in the market and it was discontinued in 1984. (International directory of company history, 2001) The company forged ahead despite the failure of Apple III and released more than 40 software programs. It became the first personal computer to reach $1 billion in annual sales in 1982. (International directory of company history, 2001) Steve Wozniak left Apple in 1983 and John Sculley was hired to be the Company president. Steve Jobs was eventually forced out of the company too. Apple turned down Microsofts appeal for the license of their Macintosh operating system. Microsoft went on to develop DOS operating system which soon became the international operating standard for more than 90% of all personal computers in the world. (David, 2007; pg 2-3) Apple experienced a lot of problems with poor management and failed products over the next couple of years and its financial losses reached a staggering $1 billion in 1997. Its share price fell from $70 in 1991 to $14 and its lost majority of its market share. (International directory of company history, 2001) Steve Jobs returned as the CEO of Apple in 1998 and began making efforts to right all the wrongs that had been made over the years. He instantly forged a relationship with Microsoft which included the release of Macintoshs version of Microsofts popular office software (David, 2007; pg 2-3). He went on to eliminate 15 of the companys 19 products (International directory of company history, 2001) as they were not making profits. He introduced the iMac, a sleek and colourful computer in 1998 (David, 2007; pg 2-3). The iMac was a great success and Apples annual sale for that year was $5.9 billion. They experienced continuous growth and their stock made a 140% increase to $99 by the end of 1999 (International directory of company history, 2001). The iPod was introduced in 2001 and over 100million units has been sold. The iTunes online store was launched in 2003. It is a platform where people can download music and pay for it and it has gone on to become the biggest online music store recording more than 4 billion downloads. In January 2006, the Mac book Pro was launched (Anonymous, 2008). In January, 2007, the iPhone and Apple TV were launched and Apple Computer Inc became Apple Inc to accommodate its wide range of products (Anonymous, 2008). 1.2: THE MARKETING MIX According to Professor Peter Doyle, the selection of the target market and design of the marketing mix are the two key decisions that determine the success of a firm in a new market (Baker, 2007). Marketing comprises of a number of elements and the relationship/interdependencies between these elements is referred to as the marketing mix (Cartwright, 2002). The marketing mix is made up of four basic components that can be combined in a number of ways to achieve different end results (Baker, 2007) and these are Product, Place, People and Promotion. Only the product will be discussed in details for the purpose of this paper. 1.2.1: PRODUCT A product has been defined as tangible in the past but we are at the age where that definition is no longer adequate as it does not completely capture the whole essence of a product. A product is defined as a combination of both tangible and intangible properties for the sole purpose of customer satisfaction (Baker, Marketing Strategy and Management, 2007). A product is more than just the food a customer eats at a restaurant; it includes all the services rendered such as convenience, speed, mobility etc (Cheverton, 2004). 1.3: THE PRODUCT LIFE CYCLE A typical product goes through different stages in its life time and this is referred to as the product life cycle. This is illustrated with the diagram below: INTRODUCTION: The introductory stage is crucial to the life of a product. It is advisable for companies to invest a lot of money into advertisement at this stage to ensure they are able to make sufficient impact upon entry into the market (Cartwright, 2002). The rate of growth and investment at this stage is inversely proportional (Cheverton, 2004). GROWTH: There is a change in marketing strategy at this stage and the cost on advertising reduces as the customers are aware of the brand (Assael, 1985; Pg 308) resulting in a lot of market growth. A lot of sales are usually generated at this stage due to customer awareness. It is usually very good to be the first company to pass through successful unchartered water. However, as soon the success become obvious, other companies will wish to enter the market (Cartwright, 2002). MATURITY: This is the most profitable stage. However, the product is capable of little or no further developments. An effective marketing mix is essential for survival at this stage as competition becomes stiff and competitors will do anything to survive in the market (Baker Hart, Product Strategy and Management, 1999; Pg 97 100). There are too many players in the market at this stage and it is imperative for organizations to come up with new products or improvement on existing products (Cartwright, 2002). DECLINE: With decline in sales, impending death is inevitable and the company can either re-design the product or totally withdraw it (Assael, 1985; Pg 308). 1.3.1: ANALYSIS OF THE IPHONE FAMILY USING THE PRODUCT LIFE CYCLE Every once in a while a revolutionary product comes along that changes everything these were the words of Steve Jobs at the launch of the iPhone in January, 2007. Jobs had noticed an opportunity in the mobile handset market two years prior and set Apples Engineers in motion to develop the iPhone (Grossman, 2007) which was to save people the stress of carrying both an MP3 player and a phone and the cost of purchasing the two items. The iPhone marked Apples entrance into the mobile handset market. It combines the features of the iPod, smart phones and mobile computing into one device. The user interface is built around a new input technology called multi touch and the only physical button on the iPhone is the home key; every other feature is virtual (Honan, 2007). INTRODUCTION: The build-up to the introduction of the iPhone was second to none. It generated over 69 million hits on Google prior to its launch (Koeppel, 2007). The popularity translated to huge sales and Apple reported selling more than one million iPhones within the first quarter (Financial Statements, 2007). There were some mistakes with the marketing strategy for the iPhone and the obvious one was in the price slash just three months after its introduction (Vertygo Team, 2008). The early adopters were outraged but Steve Jobs made efforts to pacify them by offering $100 store credit that customers could use in purchasing at retail Apple stores or online (Mickalowski, Mickelson, Keltgen, 2008). GROWTH: Apple Inc introduced iPhone3G a little over a year after the first iPhone was launched. The iPhone 3G was compatible with 3G networks which translated into higher connection speed at half the price of the original iPhone, it promised better battery life and also included a built-in GPS (MacWorld, 2008). Iphone 3G was highly successful and Apple sold more than 11.6 million units of the handset (UNITED STATES SECURITIES AND EXCHANGE COMMISSION, 2008). The sale of the Iphone expanded beyond the US and the company had a target of reaching 70 countries before the end of 2008. However, the contract with ATT increased by more than 10% from the monthly charge of the previous model therefore, even though the iPhone3G was cheaper, customers will end up spending more over the two-year contract with ATT (MacWorld, 2008). June, 2009 marked the launch of yet another iPhone this time the iPhone3Gs. The features include: Hands free control, longer battery life. It also included the soft ware iPhone OS 3.0, a new software capable of a lot of functionalities such as copy and paste, MMS etc (Vertygo Team, 2008). It had larger memory capacities and was again cheaper than the previous model. The product was well accepted by the market and Apple sold more than 20 million units of the iPhone and witnessed a growth of 78% from the previous year sale (UNITED STATES SECURITY AND EXCHANGE COMMISSION, 2010). In June 2010, the company again introduced a new iPhone; the iPhone 4. This included such features as face time (ability for callers to see each other while making phone calls provided they are both using the iPhone4), 5 mega Pixel camera etc. Building on the success of the previous iPhones, the fourth generation of the iPhone recorded an instant success upon its launch. The company declared more than 93% growth in its iPhone net and unit sales for the year ended September, 2010. This success was attributed in part to the huge demand on the iPhone 4 (UNITED STATES SECURITIES AND EXCHANGE COMMISSION, 2009). ADVANTAGES OF THE PLC The PLC helps organizations plan and make allowance for the eventualities of products. The realisation that every product will die if not improved or modified in some ways, help organizations work hard at constantly improving their products. This fact is not lost on Apple Inc and the company strives to constantly improve on its products or add new features to its existing products. Apple Inc is probably the company that understands the importance of the product lifecycle the most and they usually replace their own product with a new product while its still in the growth stage (Average of a year after its launch). The strategy is commendable as it ensures that no competitor takes their position and their market share. DISADVANTAGES OF THE PLC A number of limitations were observed with the PLC and these are: It has no time limits associated with the stages. Thereby making it difficult to estimate exactly what stage a product is in its lifecycle. For instance, in the case of the Apple Inc, the iPhone 3Gs was still enjoying a lot of sales and the introduction of the iPhone4 could have been delayed for a couple of months more to milk the sales of the iPhone 3Gs to the maximum. It can cause a company to kill its own product prematurely because of the need to retain their position in the market. This could be seen in the case of the iPhone 3Gs; with the new iPhone 4, the decline of the iPhone 3Gs is imminent sooner rather than later. Even though every product will decline eventually, the PLC does not take the effect of technology into consideration. The lifecycle of the iPhone could be extended by constant introduction of new applications. Lastly, not every product goes through the stages in the life cycle as it is possible for products to go from introduction to decline etc. 1.4: RISK ANALYSIS USING THE ANSOFF MATRIX The Ansoff Matrix is a strategic marketing tool that proposes ways in which organisations seeking growth can come up with a strategy that encompasses risk analysis, directional policy, portfolio management etc (Lancaster Massingham, 1999); (CIM, 2003). The framework of this tool is shown below: The cells (Strategies) in the matrix are: MARKET PENETRATION: The market penetration strategy has the lowest risk involved and as such the easiest route to take. It involves expansion of sales in existing market and this can be achieved by expanding distribution channels, improving service performance, price slashes, increasing the frequency of usage etc (CIM, 2003); (Aaker McLoughlin, 2007). The most important aim is for a company to increase their market share. MARKET DEVELOPMENT: This is a strategy of growth based on entering new markets (countries) and targeting new segments (Aaker McLoughlin, 2007). PRODUCT DVELOPMENT: This strategy is based on developing new products for existing markets (Lancaster Massingham, 1999). DIVERSIFICATION: This is the most risky of all the strategies as it involves delving into a totally new market with a totally new product (WMG, 2010) 1.4.1: MANAGING APPLE INC PRODUCT PORTFOLIO USING THE ANSOFF MATRIX MARKET PENETRATION: Although Apple Inc is doing a fantastic job with this strategy; there is still ample room for growth and this can be achieved using the increase in product usage approach (Aaker McLoughlin, 2007). Apple could increase the iPhone usage by targeting the older people (50 years and above). They currently do not find the iPhone appealing because it lacks a keypad and as such, it will be difficult to use. A solution is to come up with an iPhone that combines all the current features of an iPhone with a keypad; an iPhone that displays a keypad when slid up might be a good place to start. MARKET DEVELOPMENT: One of the strategies Apple Inc can adopt in increasing its growth is geographic expansion (Aaker McLoughlin, 2007). There are still so many countries where the iPhone and iPad are not yet been sold. Acquiring more markets will translate to more sale and ultimately more market share. PRODUCT DEVELOPMENT: This involves line extensions, developing new products for existing markets, expanding product scope etc. (Aaker McLoughlin, 2007). There is a huge problem usually encountered when using the Macintosh Computers to browse or download software as most vendors are not familiar with the operating system and this could be frustrating for users. It is important for Apple to bridge this technological gap by introducing a more compatible operating system and applications. DIVERSIFICATION: From Computers to MP3 players to iPhones to iPad; Apple Inc knows all about diversification and it has worked for them. Even though it is the most risky of all the growth strategies, if successful, the ROI (return on investment) could be huge. Apple recently entered the tablet market and they own 95% of the market share within just 6months of launching the iPad. ADVANTAGES OF THE ANSOFF MATRIX The Ansoff Matrix is very useful in coming up with a growth strategy for an Organization. Apple Inc explores all the possible growth opportunities and it has helped in their growth and expansion. It has also pointed out areas where there is still room for growth and expansion. LIMITATIONS OF THE ANSOFF MATRIX The limitation observed with the Ansoff Matrix is similar to those observed with the other tools. The tool is not exhaustive enough to be used alone in coming to a marketing decision and as such for effective use, it should be used with other tools such as SWOT analysis, PEST analysis etc. 1.5: PRODUCT PORTFOLIO ANALYSIS USING THE BCG MATRIX The Boston Consulting Group (BCG) matrix is a portfolio management tool that helps companies group their products based on the market growth and market share matrix (Kotler et al, 2008)as shown below: The matrix is divided into four segments namely: STARS: These are products with high market share in a high growth market. Their growth rate is rapid and hence, often requires a lot of investment. If market share is retained, they often grow into cash cows (Kotler et al, 2008). QUESTION MARKS: These are products with low market share in a high growth market. They are also referred to as problem children. They usually require a lot of money to maintain or increase their market share. A company usually has two options with such products; invest a lot of money to grow them into stars or just phase out the product (Doyle Stern, 2006). CASH COWS: These are products with high market share in a low growth market. They usually require low investments to maintain their market shares and as such, they usually generate the resources required to maintain other products that require a lot of investment (Kotler et al, 2008) (Doyle Stern, 2006). DOGS: These are products with low market share in a slow growth market and they are usually unprofitable (Doyle Stern, 2006). It is advisable to avoid or totally minimize the number of Dogs in a companys portfolio. 1.5.1: HOW APPLE INC COULD USE THE BCG TO MANAGE THEIR PRODUCT PORTFOLIO Apple has a range of products. The iPhone family and the iPad will be analysed using the BCG matrix. STARS iPhone 4 iPad QUESTION MARKS iPhone 3Gs IPOD Cash Cow FIGURE 1.5.1: Apple Inc BCG Matrix STARS: The iPhone 4 is currently the star product of the company as it experiences high market share in a high growth market (Mobile hand set market). The high market share it enjoys is largely due to the success of the previous models. It is very likely that the iPhone 4 will retain its market share for a while to come as there is currently no product in the market that combines all the features it has for the price it is available for. Another product of the Apple Inc that falls under this category is the iPad. Even though it was just introduced in April 2010, it has enjoyed a passive sale of 7.5 million units already (UNITED STATES SECURITY AND EXCHANGE COMMISSION, 2010) and the iPad accounted for 8% of the companys total net sales for 2010. According to Mintel reports, it owns more than 95% of the tablet market which shows that it enjoys high market share in a high growth market. QUESTION MARKS: The iPhone3Gs has lost a huge part of its market share to the iPhone4 and as therefore become a question mark (albeit in the early stages!). It will generate some cash for the company for a while to come mainly because of the reduction in its price. However, with the new iPhone 4 it is unlikely to grow into a star again and it is advisable for the company to phase it out eventually. CASH COWS: The iPod is the companys major cash cow. It has been around for a long time and enjoys huge market share. The growth in the market has reduced with a lot of gadgets that combine MP3 players with their other features. However, it requires little or no further advertisement as people are aware of it and will continue to buy it for a while to come. The resources generated from it can be used to fund other products in the portfolio. ADVANTAGES OF THE BCG MATRIX The major advantage of the BCG Matrix is that it helps companies determine their position in a market relative to their competitors. They can use the result from the analysis to determine what products to invest resources in and what products to phase out. For instance, knowing that the iPhone 3Gs has become a question mark will help the company focus more on the new iPhone4 and reduce the production and advertisement costs that would have been incurred on the iPhone3Gs. Also, the revenue realised from their cash cow (iPod) can be channelled to other products in their portfolio. LIMITATIONS OF THE BCG MATRIX However, there were some limitations observed with the tool. The matrix views each product in a portfolio as independent from each other. It is possible to have low market share in a high growth market (Question Mark) and still be profitable. This is seen in the case of the iPhone3. Even though it has lost its market leader position, it will serve more as a cash cow for the company for a while to come because it will continue to enjoy sales rather than instantly becoming a question mark. The matrix judges the performance of products using only growth rate and market share. This is not sufficient as there are a number of other factors that determine the success of a product in a market such as the marketing mix etc. A major determinant in the case of Apples iPhone is the ATT. Customers are not happy with the quality of their network and even though Apple is making profits on the phone; they could be making more if they were with a more preferred network. Therefore, the choice of network provider also impacts on the performance of their products. CONCLUSION The business environment has become highly competitive and it is imperative for any company entering the market to develop a strategic plan based on analysis of the market, customer needs etc. It is often a wise choice for an organization to have multiple growth strategies for their various products and product portfolios. Apple Inc Products and Product Portfolios have been analysed using the Product Lifecycle, Ansoff Matrix and BCG Matrix. Some advantages and limitations observed with the tools have been discussed and recommendations have been made in areas where there is still ample room for growth. There is no stand-alone or all sufficient marketing tool and the full potential of a tool can only be realised when used with one or two other tools. 2.0: THE MARKETING GAME The marketing game was about four companies vying for the number one position in a market that showed excellent room for growth and profit (word processing software). The aim of the game was to be the company that made the most profit after 5 financial years. As four companies were competing for the market shares and profits, it was important for each company to understand the market, the competitors and the market trends and use this understanding to come up with a strategy that will set them apart from the remaining three if they were to make profit and ultimately win the game. WORDSOFT3 Before any decision or strategy could be made, it was important to understand the different market segments and their unique needs and these are summarized below: THE MODERN STUDENTS: This segment consists majorly of college students who are not keen on the technicalities of the software but on the price. For this category, economy is the most crucial factor. THE HOME SCRIBBLERS: This segment consists of a mix of households who use the software for various purposes. This category of users prefers easy to use software and one which is not easily prone to errors. They are also a price-sensitive segment. THE HARRIED TYPISTS: As frequent (not necessarily expert) users of the software, members of this category want software that is easy to learn and use. Price is not a major factor for this category as they are usually not in the position to make purchasing decisions. THE PROFESSIONAL WRITERS: As professionals in their field, this segments primary concern is for software that can save them time and affords them special commands for advanced auditing and formatting capabilities. THE HIGH-TECH MANAGERS: Members of this segment are interested in the latest software and the number of capabilities they offer. They are motivated by social needs for status and esteem. Price is not of concern to this category of users. THE CONCERNED PARENTS: This category of users wants easy to use software that children can learn themselves. 2.1: YEAR 1 In the first year, WordSoft3 targeted the students and home scribblers and the product 10, 4, 3 was manufactured. The 4Ps of marketing (Price, Place, Promotion and Product) were employed in formulating the strategy for the first year. Emphasis was placed on Channel two since it was the channel students frequented more and as such fifteen salesmen were deployed to this channel against the five deployed to channel one. However, the retail price was erroneously set at  £136, which was higher than that for channel one.  £200,000 was spent on promotion and pioneering advertisement was used to raise general awareness about the software market. The Company did not fully utilize its budget and had money in excess at the end of the year. 30,000 units were requested however; only 20,716 units were sold out of the 24,000 units that were produced. Money was therefore lost on inventory transferred. Some of the decisions made paid off and Wordsoft3 made a profit in excess of  £500,000. However, this performance was dismal when compared to the performance of the other three companies and even though profit was made, the year ended on a sour note. 2.2: YEAR 2 The performance from the first year was analysed alongside the market research report and some errors made in the first year were highlighted as follows: Promotion is key in marketing and the amount spent on advertisement was insufficient. This affected the overall performance relative to the other companies. Sales performance was less than actual production hence, the company lost money for inventory transferred. The product was not achieving the desired result in the targeted segments and it was therefore important to re-assess the various segments and manufacture a more needed product. The price set for the channel two market was erroneously higher than that of channel one After careful analysis, it was necessary to re-strategise if Wordsoft3 was to become a Company to be reckoned with. The first step was to reassess the marketing mix (Product, Price, Place and Promotion) and determine what market segment to target and generally try and improve on the performance of the previous year. PRODUCT: It was obvious from the previous year performance that there was a need to manufacture a new product that will target a different segment of the market. It was decided that the typists and managers should be targeted since they made up 47% of the market and the new product 12, 6, 5 was manufactured to suit their needs. PRICE: The retail price was set at  £280 for Channel one since the majority of the target market shopped there and  £240 for channel two to attract students, home and parents. Even though the product was not produced to meet the specifications of the later group, it was decided that they will compromise on product if the price was right. PLACE: Fifteen more salesmen were employed and they were deployed on a ratio 20:15 to channels one and two respectively. PROMOTION: Advertisement will help inform potential customers and there was a chance they will become customers therefore, a loan of  £500,000 was taken from the bank and it was spent solely on advertisement. Indirect advertisement was employed. The decisions made paid off and Wordsoft3 made the most sales and performed well in more segments than anticipated. It sold all the units produced and it became the market leader in four out of the six segments owning more than 25% of the market share and it doubled the profit made in the first year. 2.3: YEAR 3 By the third year, the rudiments of the market had been understood and the decisions for the third year were easier to make. Slight modification was made to the product to be more suited to managers but not enough to deter the typists and writers from purchasing. In addition, the prices were increased slightly from that of the previous year. Thirteen more salesmen were employed and they were distributed evenly between the two channels to increase awareness for the product in both channels and their commission was increased to 8% which was more than the average been paid in the market. The percentage non-selling time was set at 20:25 for channels one and two respectively, thereby raising more awareness for the brand with personal marketing.  £43,000 was spent on sales promotion and  £550,000 was spent on advertisement and direct advertisement was employed to reinforce Wordsoft3 as a market leader. The retail price was set at  £289.77 for channel one and  £259.46 for channel tw o. At the end of the third year, Wordsoft3 made the most sales. It also went on to become the market leader in all the six segments, a feat that had not been achieved previously by any of the other companies. It owned more that 30% of the overall market share and made profit in excess of  £2,000,000. 2.4: YEAR 4 By the fourth year, Wordsoft3 had been able to carve a niche for itself as a reputable and trusted brand. The ease of learning was slightly increased and the product 13, 6, 6 was manufactured. As a result of the volume of sales of the previous year, it was imperative to employ more salesmen. Eight more salesmen were employed and they were shared at the ratio 30:26 to channels one and two respectively.  £500,000 was spent on indirect advertisement and  £14,000 was spent on sales promotion. Wordsoft3 maintained its lead at the end of the third year, selling more than 70,000 units. It made profits of over  £3million and owned more than 35% of the market share. 2.5: YEAR 5 For the fifth year, the price for the products was reduced to attract more consumers since the product has been in the market for a number of years and market research showed that it might be getting to its saturation stage in the product lifecycle. The price was therefore set at  £279.85 and  £250.36 for channels one and two respectively.  £500,000 was spent on advertisement and  £43,000 was spent on sales promotion. The game ended on a very happy note for Wordsoft3 and they totalled a cumulative profit of over  £10million and maintained the market leader position and market share of over 30%. LESSONS LEARNT In retrospect, the failure at the end of the first year was the launching pad for the success of Wordsoft3. It was evident that they needed to re-assess their strategy and determine whether it was strong enough to help them achieve their vision of being the market leader and the company with the most profit after the fifth financial year. They realised the need to better understand the market. The market research gave them the insight they needed to identify possible market opportunities and to focus their resources on it. More money could have been spent on advertisement in the first year. Marketing is all about taking risks