Company Analysis: Apple Inc - Case Study Example

Company Analysis: Apple Inc. Executive Summary The recent recession has caused huge challenges to companies all over the world. Many of the prominentcompanies in America, and Europe were collapsed or forced to reduce their activities because of the recent recession. Even though some of these surviving companies are showing signs of a revival now, still a lot of things need to do by these companies to escape completely from the recession. Apple Inc. is one company which is facing the recession challenges as well as leadership challenges at present. Even though the company still holds impressive financial performances records, many people believe that the future of Apple Inc. is not so good. The company is facing stiff challenges from the competitors now. Its marketing strategies are believed to be ineffective compared to that of the competitors’. This report analyses the effectiveness of Apple Inc.’s marketing strategies in recent times with the help of its 2013 annual report. Table of Contents Executive Summary 2 1.0 Introduction 4 1.1 Introduction the report 4 1.2 Introduction the report 4 1.3 Introduction the report 5 1.4 Data collection methods 5 2.0 Case study of Apple Inc. based on different economic theories 6 2.1 Endogenous theory 6 2.2 The AD-AS or aggregate demand- aggregate supply model 8 3.0 Conclusions 10 References 11 Appendix 12 1.1 Introduction 1.1 Introduction to the report The recent recession has caused a lot of problems to companies all over the world in general and American companies in particular. The collapse of Lehman Brothers and many other American companies has caused concerns in the minds of American investors. Investors in share markets or stock markets are keen on knowing the present performances and the future prospects of prominent companies. The aim of this report is to analyze the performances of an American company in recent times with the help of established economic theories and principles. 1.2 Introduction to the company “Apple was founded in Cupertino, California on April 1, 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne to sell the Apple I personal computer kit” (Apple Inc. History, 2008). The initial name of the company was Apple computers since the company was interested only in doing business in the computer and operating system industry. However, the severe competition from the Microsoft, forced the company owners to explore other options to survive in the market. In the 80’s and 90’s, Apple computers struggled a lot to survive in the market. Many people thought that the company was on the verge of closing down. However, at the beginning of 2000, the company has diversified its business and entered the consumer electronics industry. The name of the company was changed from Apple computers to Apple Inc. to make the consumers all over the world aware that the company is no more a computer company, but a major player in the consumer electronics industry. A series of innovative products such as iPhone, iPod, iPad, iTunes etc were introduced in the market at the beginning of 2000, by Apple Inc. All these products were examples for radical innovation rather than incremental innovation. As a result of that consumers all over the world have accepted these products with both hands and the rest is history. Apple Inc. is the most valuable technology company in the world at present. Moreover, the company is second largest terms of market capitalization now (Kim 2010). The success of Apple Inc. is mainly attributed to the charismatic leadership of its founder Steve Jobs. Steve Jobs was instrumental behind the introduction of all major products from Apple Inc. However, he was passed away recently and many people believe that the company is currently facing a leadership vacuum at the top. Moreover, Samsung and Sony like consumer electronics companies are currently causing huge challenges to the products from Apple Inc. The company’s ability to counter these challenges is watched with curiosity by scholars and economists. Under such circumstances, it is logical to analyze the effectiveness of Apple Inc.’s marketing strategies with the help of economic theories and principles. 1.3 Research aim and objectives The aim of this report is to evaluate the marketing strategies adopted in Apple Inc. and its effectiveness in achieving the company objectives. The objectives of this report are listed below; To identify the marketing strategies of Apple Inc. To identify the pros and cons of these strategies. To analyze the pros and cons of these strategies and to suggest potential changes and improvements if possible. 1.4 Data collection methods Only secondary research is conducted as part of this research to collect data. Both qualitative and quantitative data are collected from secondary sources such as websites, articles, journals and books. Apple Inc.’s 2013 annual report is used as the major source of data for this report. 2.0 Case Study of Apple Inc. based on different economic theories 2.1 Endogenous Growth Theory “Endogenous growth is long-run economic growth at a rate determined by forces that are internal to the economic system, particularly those forces governing the opportunities and incentives to create technological knowledge”(Endogenous growth, N.d., p.1). In the case of Apple Inc., the major internal force that determines the long-run economic growth of the company is innovation. As mentioned earlier, Apple Inc. is believed to be the most valuable technology company in the world at present because of its abilities in developing new products and based on the trends in the market. Apple Inc. never believes in incremental innovation; it believes only in radical innovation. “Incremental innovation modestly improves a firm’s product or processes or fine-tunes its business model. Radical innovation significantly improves existing products and services or replaces them with new ones” (Susman et al., 2006, p.16). The products such as iPhone, iPod, iPad etc are examples of Apple Inc.’s abilities to produce radically innovative products. It should be noted that while most of the mobile phone manufacturers thought about improving the features of existing mobile phones, Apple Inc. thought differently and introduced world’s first touchscreen phone (iPhone) in the market at the beginning of twenty first century. Since then, the focus of all mobile phone manufacturers was shifted towards the manufacturing of touchscreen phones. In short, one of the critical success factors of Apple Inc., is its ability to produce innovative products. The following table provides a rough idea about Apple Inc.’s financial performances in recent times. 2013 2012 2011 2010 2009 Net sales $170,910 $156,508 $108,249 $ 65,225 $ 42,905 Net income $ 37,037 $ 41,733 $ 25,922 $ 14,013 $ 8,235 Earnings per share: Basic $ 40.03 $ 44.64 $ 28.05 $ 15.41 $ 9.22 Long-term obligations $ 20,208 $ 16,664 $ 10,100 $ 5,531 $ 3,502 Total liabilities $ 83,451 $ 57,854 $ 39,756 $ 27,392 $ 15,861 (Apple Inc. Annual Report 2013, 2013, p.24) From the above table, it is evident that net income and earnings per share, of Apple Inc. has been decreased considerably in 2013 compared to that in 2012. At the same time, long term obligations and total liabilities of the company has been increased substantially in 2013 compared to that in 2012. It is evident that the company was performing better until 2012 and the year 2013 was not good for the company. When a company performs better when its net income increases and total liabilities decreases. In the case of Apple Inc. net income decreases while total liabilities increases which is not good for the long term prospects of the company. The endogenous growth theory says that “in order to sustain a positive growth rate of output per capita in the long run, there must be continual advances in technological knowledge in the form of new goods, new markets, or new processes (Aghion and Howitt, p.11). Apple Inc. failed to introduce any innovative products in recent times. Even though its focus at the beginning of 2000 was towards developing only radically innovative products, at present the company in keen on developing incrementally innovative products. None of the products introduced in the market by Apple Inc. in recent time can be considered as an example of radical innovation. The company is modifying the existing products at present. It is a fact that radical innovation is a difficult task and it would be difficult for companies to introduce entirely new products all the time. At the same time, consumers all over the world expect radically innovative products from Apple Inc. all the time since the company has set its reputation in that manner. Until recent times, Apple Inc. was able to deliver more than what it promised. Now, the company is struggling to fulfil the expectations of the customers. That is why the company is not performing well even though the sales of Apple products are increasing all over the world (See appendix for more details). It should be noted that the percentage increase of sales of Apple products was considerably reduced in 2013 compared to that in 2012. In other words, even though the sales is growing, the pace at which the growth taking place is not giving a good picture about Apple Inc.’s future. According to Durand (2013, p.187), “under competitive market assumptions and, in particular, it is generally admitted that growth would eventually stall unless an exogenous technical progress component is added to the endogenous growth model. Apple Inc. failed to add any exogenous technical progress component. That is why the company is struggling now. 2.2 The AD–AS or aggregate demand–aggregate supply model “The macroeconomic model for Aggregate Demand and Aggregate Supply differs from the microeconomic model in the fact that the AD/AS model represents all goods and not just one single good. It takes into account the price level of all goods as well as the overall aggregate output of the economy”(Aggregate Demand and Supply, 2006). Apple Inc. is not ready to reduce the prices of its products beyond certain limits while the competitors are ready to do so. For example, Apple Inc. has recently made announcement that it will introduce cheap iPhones, in order to catch the Indian market. “India Today, a newsweekly, reports that after discounts a 16-gigabyte iphone costs Rs 34,000 whereas the eight-gigabyte version is comes in at Rs Rs 33,500 after discounts” (Mirani, 2014). In India, Samsung and Sony like mobile manufacturers are providing better phones at a cheaper rate compared that offered by Apple Inc. It should be noted that Indians are no so keen on purchasing products based on company reputation alone. They compare the prices of the products before taking any purchasing decision. Therefore, Apple cannot increase its sales in India based on its reputation alone. The company needs to reduce the prices of its products considerably not only in Indian market, but also in all other emerging markets, if they want to improve the sales. The demand for electronic products is growing much rapidly in emerging markets compared to that in American or European markets. Countries such as China, India, Brazil, Russia, are offering tremendous growth potential to Apple Inc. However, suitable marketing strategies are necessary for Apple Inc. to capture these markets from competitors such as Samsung and Sony. The following figure represents an example of the AS/AD model. (The Aggregate Supply - Aggregate Demand Model, n.d., p.1) “The Aggregate Demand (AD) curve has its traditional negative slope. This implies that, given any amount of nominal income, purchasers will be able to buy more real goods at lower prices than they would at higher prices” (The Aggregate Supply - Aggregate Demand Model, n.d., p.1). The income of the people in emerging countries is growing slowly, but steadily. As a result of that the demand for expensive goods is growing in these countries. At the same time, the people in developed countries such as America and Europe are still facing the recession problems. Therefore, the demand for expensive goods in these markets may not be as good as it was in the past. Therefore, it is necessary for Apple Inc. to shift its focus more towards emerging markets, in order to develop properly. 3.0 Conclusions Apple Inc. is concentrating more on developed markets such as America, and Europe than on developing or emerging markets such as India and China. The company is doing not enough things to market its products properly in emerging markets. As a result of that the performances of the company in the recent past are not so good. Even though the sales of Apple’s products are increasing, the pace at which this growth takes places is not so encouraging for the company. American and European markets are almost saturated for Apple Inc.’s products. The company needs to give more attention to world’s most heavily populated and most rapidly emerging economies such as China and India. Apple Inc. should develop some products suitable for these markets. The company should realize that people in these markets are interested in cheaply priced and good quality products. They are not so interested in purchasing from a reputed company, if the prices of the products are high. The company should formulate suitable marketing strategies to capture the markets in emerging countries. References Aghion, P and Howitt, P. N.d. Endogenous Growth Theory. [Online] Available at: http://www.fordham.edu/economics/mcleod/aghionhowittchapter1.pdf[Accessed 27 May 2014] Apple Inc. Annual Report 2013. [Online] Available at: http://investor.apple.com/financials.cfm [Accessed 27 May 2014] Apple Inc. History. 2008. [Online] Available at: http://www.ipodtopctransfer.com/news/apple-inc.html [Accessed on 27 May 2014] Aggregate Demand and Supply, 2006. [Online] Available at: http://www.econport.org/content/handbook/ADandS.html[Accessed on 27 May 2014] Durand, R. 2013. Thinking and growing: Towards a reconciliation of exogenous and endogenous growth theories. Journal of Economic and Social Measurement 38 (2013) 187–200 Endogenous growth, N.d. [Online] Available at: http://www.econ.brown.edu/fac/peter_howitt/publication/endogenous.pdf[Accessed 27 May 2014] Kim, R. 2010. Apple Passes Microsoft As Top Tech Company, [Online] Available at: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/05/26/BUDJ1DL0IU.DTL [Accessed 27 May 2014] Mirani, L. 2014. Apple’s latest “cheap” iPhone for India is baffling. [Online] Available at: http://qz.com/213467/apple-cheap-iphone-5c-for-india-is-baffling/#/h/71687,3/ [Accessed 27 May 2014] Susman, G., Jansen, K & Michael J. 2006. Innovation and Change Management in Small and Medium-Sized Manufacturing Companies. [Online] Available at: http://www.smeal.psu.edu/cmtoc/research/nistcm.pdf[Accessed 27 May 2014] The Aggregate Supply - Aggregate Demand Model. N.d. [Online] Available at: http://www2.hmc.edu/~evans/chap2.pdf [Accessed 27 May 2014] Appendix 2013 Change 2012 Change 2011 Net Sales by Operating Segment: Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,739 9% $ 57,512 50% $ 38,315 Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,883 4% 36,323 31% 27,778 Greater China (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,417 13% 22,533 78% 12,690 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,462 27% 10,571 94% 5,437 Rest of Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,181 4% 10,741 8% 9,902 Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,228 7% 18,828 33% 14,127 Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $170,910 9% $156,508 45% $108,249 Net Sales by Product: iPhone (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,279 16% $ 78,692 71% $ 45,998 iPad (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,980 3% 30,945 61% 19,168 Mac (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,483 (7)% 23,221 7% 21,783 iPod (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,411 (21)% 5,615 (25)% 7,453 iTunes, software and services (c) . . . . . . . . . . . . . . . . . 16,051 25% 12,890 38% 9,373 Accessories (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,706 11% 5,145 15% 4,474 Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $170,910 9% $156,508 45% $108,249 (Apple Inc. Annual Report 2013, 2013, p.27) Read More