Marketing led management(Apple's iphone) - Essay Example

?Marketing Led Management (Apple iPhone) Table of Contents Introduction 3 Strategic Analysis 4 Marketing Challenges & Effective Solutions 9 O2 Preference 13 Conclusion 15 References 16 Bibliography 19 Introduction The study will be focused upon the UK based company Telefonica, popularly known as O2. It has been in venture with Apple to promote iPhone in the UK market. The brand O2 caters the services in the telecommunication sector offering integrated mobile, fixed and broadband services in the UK, Germany, Ireland, Slovakia and Czech Republic (Telefonica, 2010). In the year 2007, Apple launched its product iPhone with O2 in the UK market. Apple iPhone was offered in different tariffs with variety of handsets in the UK market (Guardian News and Media Limited, 2011). In order to launch iPhone in the European market, Apple needs to have a contract with the service provider. They had options in the European market. There were UK’s O2, France’s Orange and Germany’s T-Mobile. There were rumours regarding the revenue sharing percentage deal between Apple and others. After the plethora of negotiations, the UK’s O2 was finalised for the deal to market Apple’s product (iPhone). Strategic Analysis The deal was finalised between the UK’s O2 and Apple for the distribution of the Apple’s iPhone in the UK market. The deal concentrated upon the revenue sharing percentage that O2 would provide to Apple from the iPhone sales. The significance of the deal to O2 can be justified by the strategic analysis through the SWOT evaluation. SWOT Analysis Strengths O2 is known as the successful network operator in the UK market. The awareness of the brand is huge among the target customer group. There are more than 300 stores of O2 in the UK market (Franchise Development Services Ltd, 2011). Telefonica has been operating for more than 85 years in the UK telecommunication industry and has a consistency growth rate and is acquainted with their target consumers’ need and wants. By the year 2009 it had about 265 million customers operating in 25 countries. Telefonica provides integrated ICT solutions to all segments of customers that can be demonstrated in a graphical format below. Telefonica has diverse operations and generates revenue from different market operations, which build up a strong financial position of the company (Telefonica, 2010). (Telefonica, 2010). Telefonica has been able to increase its consumer base by 2009 and it is still on the rise. The company achieved a 9 % growth in the number of consumers by the end of 2009. The expansion in the consumer base will generate more revenues for the company. With the increasing number of consumers there is more possibility of increase in the sales of iPhone. This will generate more revenues for Apple (Telefonica Europe plc, 2009). Apple is one of the leading brands in the global market and is known for its iPhone. The newly launched product of Apple is the ‘iPhone 4’ in the UK market. O2 provides maximum advantage to every class of users at an affordable rate (PR Wall Street, 2010). The mobile network of Telefonica covers 99% of the UK populace. O2’s 3G network covers over 80% of the UK’s populace. The best selling device of Telefonica O2 UK is the iPhone that has more than 2 million sales (Telefonica, 2010). Weaknesses The UK consumers had the facility of 3G phones before the launch of the iPhone in the UK market. They were already using the 3G technology. There were problems related to the offering of the call rates. The call rates of the iPhone deal allowed 200 inclusive minutes for ?35 whereas the competitors provided 750 inclusive minutes with a free phone. The consumers were apprehensive about the contract related to iPhone. The main concern was regarding the up-gradation of the phone, the device itself as it has non-removable battery and limited battery life. The consumers wanted to upgrade their iPhone 3G as it faced the problem of battery life. This problem was a concern for Telefonica O2 UK against their endeavour to increase the sales and get more revenue. Opportunities There is huge opportunity in the communication industry. There has been change in the application of usage of internet. Recent trends are focused upon the usage of internet application through their mobile phones. 3G has provided this facility. The iPhone has been able to provide the same facility. O2 with Apple iPhone is introducing the iPhone 4 with modern technology by merging 2G and 3G technologies. Consumers are eagerly waiting for the iPhone 4 as they want to upgrade their iPhone 3G. There has been a huge sale of the iPhone and the target consumers are huge for the up-gradation (Morgan Stanley, 2009). The O2 has been able to sell many iPhones in the UK market. Apart from the existing consumers, the company has been targeting new consumers with the new unique feature in iPhone 4. This product is expected to be more advanced than the 3G and consumers are looking forward to procure the product. Telefonica O2 UK spots increased opportunities in the new digital environment. Consumers are being more focused on the new technology and the offerings of the price in accessing the technical advantages. In order to increase the profitability, Telefonica O2 UK has taken the strategy of transformation (Telefonica, 2010). The strategy to capture the market is through the efficient information system that will provide efficient global application with enhanced IT governance model. Telefonica O2 UK is in planning for lowering the tariff plan with flexibility. The company is developing emotional relationship with the consumers and focusing upon the innovation techniques in the level of service, business and application (Telefonica, 2010). Telefonica O2 UK has developed the strategy to capture the growth of the market and potential revenue by making the possibilities a reality with an aim of generating value for shareholders, customers, partners, employees and society (Telefonica, 2010). Threats The potential threat that might occur is through the up-gradation cost. The cost being higher, the consumers would not be happy with the transformation process. The users of 3G iPhone were dissatisfied when O2 did not offer the subsidiary rates for the up-gradation. The potential market for the new launch of 4G is costly for the existing consumers (Beaumont, 2011). The contract with AT&T was another threat for the Apple iPhone users. The deal was done with O2 and Apple regarding the pricing policy of call rates and other rates with AT&T. The minimum contract was for two years and early break up cost to consumers was fixed at $175. The other threat is the deal with the Telefonica O2 UK. Apple might offer the competitors of O2 the new deal that would benefit Apple Inc. Vodafone and many others are interested to do business with Apple related to the iPhones for the UK market. Overall there is huge potential for the technical device in the upcoming years that will help in increase of the sales of new innovative technical mobile phones. Consumers are expecting more from the technical advancement in the mobile devices with lower prices and lower connection charges. Marketing Challenges & Effective Solutions The challenge faced while launching iPhone with O2 in the UK market was huge as the market already brimmed with the 3G technology. There were several competitors who offered the 3G technical features for the UK market. Another challenge was the VAT (value added tax) of the UK taxation system. The VAT of the UK government policy had increased the price of iPhone. The price was fixed at ?269 (US $538.80). The price of the iPhone in the UK market was higher than the price of the iPhone in the US market. There was a contract between the AT&T network provider and Apple regarding the iPhone. Consumers purchasing iPhone was to use the AT&T network and was forced to use their tariff plan. Violation of the contract would cost to the consumers as they need to pay a break up fee of $175. The British government had offered the 3G licensing for the telecom companies. O2 had taken up the licence of 3G for a worth of ?4030 million from the British government (Politics UK, 2011). Even though there were many players offering 3G technology in the UK market, Apple iPhone with O2 had successfully launched the product in the year 2007. The market potential was huge due to the features and applications offered by Apple and they were accepted by the consumers. The iPhone had different features that were unique in nature compared to other smart phones offered by the competitors in the UK market with the 3G technology. The features attracted and lured the consumers towards it in comparison to the competing mobiles from other vendors. The iPhone had a 3.5 inch touch screen and weighed 135 grams; and consisted of number pad or keyboard with one button. Most part of the surface was developed with multi touch glass screen. The iPhone was available in two versions with 4GB and 8GB and Apple OS X system equipped with EDGE and Wi-Fi technology. Apart from calling and text messaging, it provided full iPod functionality from music and video playback with e-mail facility and photo management application with 2-megapixel camera. This offerings and features were able to attract many consumers when it was launched in the UK market (Apple Inc, 2011). There was competition for the 3G market in the UK telecom industry. But when Apple’s iPhone was launched with the 3G technology, there were many customers who wanted to purchase the iPhone. The features and the application available in the iPhone with O2 made the consumers purchase the product. The iPhone became the must-have gadget in the collection of technical devices. The pricing of the iPhone was more compared to the launch in the US market. As mentioned earlier, the price for the 3G iPhone in the UK market was ?269 (USD $538.80). Price for the US market was $499 for 4GB and $599 for 8 GB. The differences were due to the high VAT policy of the British government. Even being premium priced in the UK market, customers were attracted towards the 3G iPhone. The major reason for being attracted with a premium pricing was data transferability. All the data in the address book, iTUnes, calendar and other applications could be easily synched directly with a Mac or a PC. The iPhone had QWERTY soft keyboard along with visual voicemail that permitted the users to view the list of their voicemails. The device had the capacity to read Microsoft Office applications. With the premium pricing there was the problem of downloading ringtones and other music. At the initial stage, iPhone over the air did not support music download. In September 2007, Apple launched its new application known as the iTunes Wi-Fi Music Store. Apple along with the special music store offered certain specialised ringtone downloads. Telefonica O2 UK has a strong consumer base in the telecom industry. Telefonica O2 UK by the end of the year 2006 had 27.3% acquired of the market share where as T-Mobile had 24.1%, Orange had 22%, Vodafone had 21.1% and 3UK had 5.5%. The market leader was Telefonica O2 UK in the UK market and thus Apple wanted to be in venture with the company for the 3G iPhone. The company operated in the European market and had huge loyal consumers. The potential for Apple with O2 was greater than other competitors. The competitive operators used different techniques in attracting consumers. The estimated cost of acquisition of a new customer was ?150 in 2005 and ?400 for a high valued subscriber. The important technique was providing quality handsets along with signing up for a monthly plan. For the prepaid customers handsets were under ?50. The mobile operators subsidised between 50% and 100% of the handset value; and as a consequence they have been involved in handset designing. The handsets were sold through the operators with the system locked to prevent inter operator usage. For this purpose Apple iPhone with O2 was launched in the UK market. Millions of pounds were spent for the 3G licence and O2 had to recover the cost of operations. This was possible through the deal that was between O2 and Apple. The potential of the market was huge because there was the market for delivering contents like music, images and many more functions that made Apple to develop its own Wi-Fi store and saw potential in generating more revenues from such services. O2 had agreed upon the margin that was offered by Apple Inc in use of the device in the UK market. 40% of the revenue generated from the usage of the iPhone is to be provided to Apple Inc. Apple Inc saw huge capacity of O2 in the UK and European market and therefore had been in contract with them. To enter in the UK market, Apple had many options in choosing the operators for the sales of Apple iPhone. At the end of 2006, O2 had the maximum share of the market and many loyal consumers. The US based company thought it would be better to deal with O2 to gain maximum advantage of the market and increase the sales. O2 had better market opportunities as the awareness of the brand was enormous and with the effect of brand image, Apple enjoys greater chance in increasing the sales volume. O2 Preference From the above discussion and thorough understanding of the concepts of 3G and Apple’s iPhone, it can be deduced that the deal between O2 and Apple was beneficial for both the US and the UK based companies. The huge demand for the iPhone has provided a competitive advantage in the cellular phone market. Over millions of Apple iPhones have been sold by O2 and O2 successfully led the mobile market in the UK. Through the increased sales of Apple iPhone, O2 had been able to generate huge margin from the UK market operations. Both the companies have been able to receive greater portion of the market share and have been able to enjoy the benefit of 3G technology. The revenues were high from the UK market and it is evident that Apple enjoyed the market share that O2 had in UK. In the category of smart phones, the best deal was the offering of Apple iPhone. The main reasons for the increase in the sales were brand value of O2 and Apple Inc. O2’s market share with enormous consumer base along with the quality and the features of the Apple iPhone (from Apple Inc), have developed the potential market opportunity for the 3G technology with the additional features. O2 with Apple’s iPhone had increased their market presence and generated huge volume of sales that made the financial position of the company stronger. The offering of Apple Inc in their iPhone product was different from the competitors, but to enter in the UK market it was not easy. O2 had made it possible for Apple to enjoy the benefit of the UK telecom market. According to the case study, the data presented shows that there has been increase in the sales figure since its launch. There has been increase in the demand for the iPhone in the UK market. With the launch of Apple’s iPhone 4 that is integrated with 2G and 3G technology, it has been expected that there will be increase in the volume of sales. The offering and features in the iPhone 4 is enhanced and there is huge potential as consumers want to upgrade their 3G iPhone. Along with these, there are many new consumers who are attracted towards the iPhone 4. O2 is more focused upon the deal that has been offered by new Palm Pre. Since the contract of iPhone is over, O2 has now focused upon the Palm Pre as it is expected that the product is going to perform better and is highly demanded in the UK market (Telefonica O2 UK Limited, 2010). From the above discussion it is evident that the Apple Inc has been wise in choosing O2 for the UK market operation. Conclusion The business deal between the US based company Apple Inc and the UK based company O2 in reverence to the Apple Inc product, 3G iPhone had been successful in the UK market. Both the companies have been mutually benefited from the deal in between them. The percentage of margins that were settled made both the companies generate revenue from the UK market and have been able to provide consumers what they expected from the 3G deal. There were many rumours regarding the deal about the contract between the operators and the companies, but eventually the deal has been successfully operated in the UK market benefiting the operators as well as the companies. References Apple Inc, 2011. iPhone 3GS More To Love Less To Pay. iPhone 3G. [Online] Available at: http://www.apple.com/iphone/iphone-3gs/ [Accessed January 05, 2011]. Franchise Development Services Ltd, 2011. Strength in Numbers with an O2 Franchise. The Franchise Magazine. [Online] Available at: http://www.thefranchisemagazine.net/page/O2-uk-limited/strength-in-numbers.php [Accessed January 05, 2011]. Guardian News and Media Limited, 2011. Apple iPhone. Technology. [Online] Available at: http://www.guardian.co.uk/technology/2007/sep/18/iPhone [Accessed January 05, 2011]. Morgan Stanley, 2009. The Mobile Internet Report Set Up. Report. [Online] Available at: http://www.ccst.ucr.edu/meetings/speakers/presentations/2010/Feb/020410Gassee.pdf [Accessed January 05, 2011]. PR Wall Street, 2010. Iphone 4 O2 Deals - Get the iphone 4 At Free with Best Offers. Press Release. [Online] Available at: http://www.prwallstreet.com/2823/seo-press-release-iPhone_4_O2_deals__Get_the_iPhone_4_at_free_with_best_offers.html [Accessed January 05, 2011]. Politics UK, 2011. 3G Mobile Telecommunication. Media. [Online] Available at: http://www.politics.co.uk/briefings-guides/issue-briefs/culture-media-and-sport/3g-mobile-telecommunications-$366551.htm [Accessed January 05, 2011]. Telefonica, 2010. O2 At a Glance. Telefonica Europe Plc. [Online] Available at: http://www.O2.com/about/O2_at_a_glance.asp [Accessed January 05, 2011]. Telefonica, 2010. Telefonica Profile & Strategy. Media Centre. [Online] Available at: http://www.O2.com/media_files/strategy_profile_november2010.pdf [Accessed January 05, 2011]. Telefonica Europe plc, 2009. Telefonica Europe Announces Strong First Quarter Results for 2009. Press Release. [Online] Available at: http://www.O2.com/investor/press_release_14409.asp [Accessed January 05, 2011]. Telefonica, 2010. Telefonica O2 UK. About Telefonica. [Online] Available at: http://www.O2.com/about/Telefonica_O2_uk.asp [Accessed January 05, 2011]. Beaumont, C., 2011. Apple iPhone 3GS: O2 Customers Express Anger over Upgrade Cost. The Telegraph. [Online] Available at: http://www.telegraph.co.uk/technology/apple/5483574/Apple-iPhone-3GS-O2-customers-express-anger-over-upgrade-costs.html [Accessed January 05, 2011]. Telefonica O2 UK Limited, 2010. The New Palm Pre. O2. [Online] Available at: http://www.o2.co.uk/palmpre [Accessed January 05, 2011]. Bibliography IESE Business School, 2009. Apple’s iPhone: Calling Europe or Europe Calling (Abridged). ecch the Case for Learning. Read More