Apples iPhone: Calling Europe - Essay Example

Apple’s iPhone: Calling Europe Introduction The use of mobile handsets and the phenomenal emergence of the mobile telecommunications industry over the past decades have transformed communications globally. What was virtually inexistent in terms of access and immediate connections with friends and business colleagues through the mobile technology is now seen as an indispensable tool. Primarily designed for communication purposes, mobile cell phones and increasingly technologically updated gadgets have innovative applications ranging from accessing music, entertaining through games, downloading videos, searching through the internet, and gaining wider office and business applications. In this regard, the mobile telecommunications industry have been capturing increasing potentials for increased revenues paving the way for increased competition and the design for creative marketing strategies. The case of Apple’s iPhone manifests the experience of introducing the iPhone in 2007 made up of a multi touch glass screen, the first in the market (Mitchell, 2009, p. 4). Its entry in the United Kingdom (UK) market is hereby being evaluated in terms of two of the most famous analytical tools in marketing, the Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis and the PEST (Political, Economic, Social and Technological) analysis, to determine if Matthew Key, Chief Executive of O2, the top mobile operator in the UK, made the right decision. Since SWOT analysis is also derived from PEST analysis of the external environment, the external factors influencing O2’s decision can further be analysed in terms of which prominent factors (political, economic, social, technological) could have influenced O2’s strategy to distribute the product. In this regard, the case analysis aims to determine if O2 made the right decision in terms of forging an agreement with Apple regarding the launching and marketing of iPhone in the UK. Case Background 1. Brief overview of case facts Michael Key, the chief executive officer of O2, the number one mobile operator in the UK, was faced with the situation of evaluating the effectiveness and viability of their recent decision of entering into an agreement with Apple regarding marketing the iPhone in UK under a revenue-sharing deal (Mitchell, 2009, p. 5). So, using one of marketing’s analytical tools, the SWOT analysis, of the strategic move, the essay would hereby present strengths, weaknesses, opportunities and threat of the decision. In addition, the PEST analysis would closely evaluate which external factors in the environment (political, economic, social and technological) greatly impact the strategic decision of O2 to market the product. Launched in November 9, 2007, the initial evaluation of iPhone’s performance in the European market through O2’s agreement with Apple has generated some concerns which would further analyze using the analytical tools such as SWOT and PEST. 2. Reasons why SWOT and PEST analyses were chosen The Internet Center for Management and Business Administration, Inc. through its NetMBA website, indicate that a SWOT analysis is “a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans… the SWOT analysis is useful when a very limited amount of time is available to address a complex strategic situation” (NetMBA, 2010, par. 1). Since the case facts gave appropriate information on O2’s internal situation, strengths and weaknesses can be generated. Likewise, the external environment of the mobile telecommunications industry in Europe was discussed in detail, giving enough information to categorise opportunities and threats, as required in this analytical tool. 3. However, PEST analysis is deemed a necessary analytical tool to evaluate which particular factors in the external environment could have influenced O2’s decision to market the iPhone in the UK and if these factors would persist to influence the future operations of O2 regarding marketing the product in the short and long term. Response to Questions 1. Using the strategic analysis toolbox, evaluate the context in which O2 decided to distribute this product. SWOT Analysis To enable one to identify the strengths, it is important to note that the organisation being evaluated is O2, identified as the top mobile operator in the UK. The capability of O2 is its demonstrated and potential ability to accomplish, against the opposition of circumstance, or competition, whatever it sets out to do. Christensen, Andrews & Bower (1978) cited Howard H. Stevenson, as pioneering in the “study of management practice in defining corporate strengths and weaknesses as part of the strategic process. He looked at five aspects of the process: (1) the attributes of the company which managers examined, (2) the organizational scope of the strengths and weaknesses identified, (3) the measurement employed in the process of definition, (4) the criteria for telling a strength from a weakness, and (5) the sources of relevant information” (p.254). Using this abovementioned discussion, as the competitive advantage, the following strengths and weaknesses in the internal environment of O2 are hereby identified: Strengths: 1. Telefonica’s O2 is the top mobile operator in the UK by the end of 2006, with 27.3% market share (Mitchell, 2009, p.2). 2. Apple considered O2 as the European partner for UK to market their iPhones indicating market leadership. The distinctive competence of an organisation is more than what it can do; it is what it can do particularly well. Also, O2 has been identified as a product leader in their field of endeavor. Leadership is not possible for a majority of companies. The strength of O2 comes from their years of experience as a mobile operator coupled with the skills that underlie whatever success has been achieved. This has been recognised by Apple which provided the reason why O2 was chosen to market iPhones in the UK. The official website of O2 reveals that the company “provides integrated mobile, fixed and broadband services in the UK, Ireland, Germany, the Czech Republic and Slovakia. Together, (they are known as) Telefónica Europe, but customers know (them) as O2. Telefónica Europe also owns 50% of the Tesco Mobile joint venture business in the UK and Ireland, as well as, the Tchibo Mobilfunk joint venture in Germany” (Telefonica, 2010, par. 1) . Their broad clientele base in terms of mobile customers already reached 54.5 million across Europe making them the leader in this field. Weaknesses: Despite market leadership through competencies and skills in marketing their products, O2 has some eminent weaknesses in marketing the iPhone as indicated below: 1. O2 lacked the UK EDGE network, the network compatible to run Apple’s iPhones (Mitchell, 2009, p. 5). As stated in the case facts, “critics complained that the iPhone did not run off the 3G network; the device worked off of AT&T’s EDGE network and Wi-Fi internet hotspots only” (Mitchell, 2009, p. 4). 2. The product was classified as relatively high priced yet containing a low amount of inclusive minutes (200 minutes versus the competitor’s 750 minutes) (Mitchell,2009,p.6). The fact that there are competitors that can accord customers with 750 minutes inclusive calls versus O2’s 200 minutes; this is a weakness in product offer considering that the iPhone was pegged at a high price. 3. The nonremovable battery and limited battery life of the iPhone itself would affect marketability of the product. Batteries are consideration for customers’ purchase intents. With the limited battery life that is nonremovable, customers would be asking what will happen to their units if problems with the batteries would occur. Opportunities: The determination of a suitable strategy for O2 should actually begin with an identification of the opportunities and threats in its environment. According to Christensen, et.al. “the environment of an organization in business, like that of any other organic entity, is the pattern of all the external conditions and influences that affect its life and development. They are technological, economic, social, and political, in kind” (1978, p. 247). With O2 forged agreement with Apple to market the latter’s iPhone, the following opportunities as possibly gained: 1. Using financial trends from Exhibit 2, there are great potentials for increase in revenues, as projected below: 2007 2008 2009 Projected Units 1,170 10,000 13,800 Gross Revenues 314,730* 2,690,000 3,712,200 * 269 x total units Less: Revenue sharing (assume average 25%) 7,868.25 672,500 928,050 Monthly contracts (35/mo. per 200 min.) 420 420 420 Net Revenues 306,441.75 2,017,080 2,783,730 Projected Units were sourced from Exhibit 2: iPhone Total Sales - Mitchell, 2009, p.8. Computations for Gross Revenues multiply the number of projected units per year by the total unit price (269) of the iPhone. It was stated that the revenue sharing between Apple and O2 could range between 10% to 40%, so for simplicity, the average rate of 25% was used to compute the projected net revenues that could be generated by O2 during the next three years. As indicated above, O2 would still generate substantial opportunities in terms of increased net revenues from marketing Apple’s iPhone. There is the increasing demand for iPhone’s as indicated in Exhibit 2 of the case (Mitchell, 2009, p.8), especially the year after it is launched in the market. This opportunity can be matched by the competitive advantage and leadership of O2 to potentially generate the projected revenues. Threats: On the other hand, O2 still faces some amount of risk and threat in terms of the pace of technological developments in the mobile industry. Specifically, the fast pace of technology, especially in the mobile telecommunications industry, could render the iPhone outdated in a matter of two years, to be possibly replaced by a 3G model in 2008 (Mitchell, 2009, p. 6). In this regard, O2 must anticipate the effect of this scenario, if indeed, it happens. The company must determine ways and means to respond in terms of identifying the future for iPhones and the competitive response from other mobile providers in the area. As averred by Smith (2010), “Apple’s new devices, the iPhone 4, the iPad and the new iPod touch 4G are already upgraded (or totally new) devices capable of support for great games” (par. 5). Further, there are also possibilities of other mobile providers which could market iPhones in the UK aside from O2. This is another area that must be evaluated to enable management to prepare for the appropriate marketing strategy to face this threat. Recent developments have revealed that iPhone is currently being distributed by Vodafone (Vodafone, 2010) and Orange (Orange, 2010). The experience gained through successful execution of a strategy centered upon one goal may unexpectedly develop capabilities which should be examined. Despite the threats that could diminish O2’s market share, identifying them could pave the way for O2’s design of appropriate strategies which would directly respond to the possible replacement of iPhone in a short span of time. As revealed in the article entitled SWOT analysis (2010), threats in the form of “emergence of substitute products” (SWOT, 2010, p.1), would assist in the creation of strategies that would “establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats” (SWOT, 2010, p. 1). Therefore, the analytical tool revealed that the opportunities are far greater than the threat which ultimately made O2 to forge the agreement to market Apple’s iPhone. Marketing Challenges 2. Identify the marketing challenges; determine how these challenges were addressed and state if the proposed solutions have been effective. In identifying the marketing challenges, the PEST analysis is most helpful in determining which external factors in the environment pose as marketing challenges which influenced O2’s decision to market iPhone in the UK. According to Morrison, the PEST analysis is “a useful tool for understanding the “big picture” of the environment, in which you are operating, and the opportunities and threats that lie within it. By understanding the environment in which you operate (external to your company or department), you can take advantage of the opportunities and minimize the threats” (Morrison, 2007, par. 1). In the case of O2’s decision to embark into an agreement with Apple to market the iPhone in the UK, takes into account the political, economic, social and technological factors in the external environment. Political Factors A report by the US Department of State (US DOS) on the form of government of the UK indicated that it is basically a constitutional monarchy with absolutely no written constitution. The body of law governing the country is statutes, traditional practice and common law (US DOS, 2010, par. 3). The parliamentary form of government exists and legislates policies pursuant to foreign trade, energy, immigration and monetary concerns. During the agreement forged between Apple and O2 in 2007, there were no eminent political risks, making the international agreement feasible and viable in terms of political stability. Further, since the United States, as the home country of Apple, had been a close ally of the UK, “the United Kingdom and the United States continually consult on foreign policy issues and global problems and share major foreign and security policy objectives. The United Kingdom is the sixth-largest market for U.S. goods exports after Canada, Mexico, China, Japan, and Germany, and the sixth-largest supplier of U.S. imports after Canada, China, Mexico, Japan, and Germany” (US DOS, 2010, pars. 36 & 37). The facts indicate that there have been smooth international trade relations between the US and the UK spanning lengths of time that paved the way for neither a smooth facilitation of agreement between O2 and Apple to push through without any intergovernmental dilemma nor the imposition of trade sanctions by the UK government. Economic Factors As indicated in the US DOS (2010) report, the economy of the UK is “the sixth-largest economy in the world, is the second-largest economy in the European Union, and is a major international trading power. A highly developed, diversified, market-based economy with extensive social welfare services provides most residents with a high standard of living” (US DOS, 2010, par. 33). These factors prove that the UK is a conducive market for iPhone given the positive economic condition in 2007 and providing an optimistic outlook for the near future. The status of the mobile telecommunications industry in 2007 indicates a more than 50% share of the global telecommunications market (Mitchell, 2009, p.1) with individuals reported to own more than three mobile phone units (Mitchell, 2009, p. 2). The UK market was revealed to charge higher value added tax (VAT) for products necessitating the pricing of iPhone to be slightly higher than its selling price in the US. This was considered a marketing challenge that could be justified with other advanced features of the iPhone, as compared to 3G phones, which most UK customers were deemed to have already owned (Mitchell, 2009, p. 6). Marketing the iPhone, despite its higher price, focused on more advanced technology specifically in terms of its ability to store an enormous amount of songs, sharing the iPod functionality. As indicated in the case, in 2007 there was intensified competition from the mobile telecommunications providers regarding the ability of the mobile phone units to download and store music. By focusing on this feature and other advanced applications of the iPhone, O2 would have addressed the high price of the unit. Social Factors Social factors should include any or a combination of evaluating the following: “consumer attitudes and opinions, media views, law changes affecting social factors, brand, company, technology image, consumer buying patterns, major events and influences, buying access and trends, ethnic/religious factors, advertising and publicity, ethical issues, demographics (age, gender, race, family size,), lifestyle changes, population shifts, education, trends, attitudes, earning capacity,” (Morrison, 2007, par. 17) among others. It was initially indicated that mobile phone users in the UK usually own more than one or two phones. For the launching and marketing of iPhone in the UK, the marketing challenges that O2 faced centered on consumer attitudes about the iPhone, consumer buying patterns, demographics, and earning capacity. With the slightly higher price, the age of potential buyers would be the working professionals who could afford buying the phone due to their higher earning capacity. The additional and advanced features of using the touch screen with other pertinent applications enabling accessing the internet, use of the QWERTY soft keyboard, and the visual voicemail are strategies that address the social challenges. With the success of marketing the first one million units of the iPhone within two months, buyer preferences for purchasing the iPhone focused on its advanced features despite the slightly high price. Due to its success, current news reveal that Apple has unveiled its iPhone 4, the Phone Arena (2010), in its article entitled O2 UK plans to sell the iPhone 4 to exisitng customers first; bars new ones, the preference for offering the new model is prioritised to existing clients. As indicated “O2 UK decided to give their existing and loyal customers a break as they will offer the iPhone 4 to them first when it's launched. Due to limited stock, this surprising move shows how they're more interested in keeping their long time customers happy rather than attracting new ones which would provide for more business” (Phone Arena, 2010, par.1). Technological Factors The fast pace of technological developments in the mobile telecommunications industry have remained to be a marketing challenge for mobile providers. New and advanced features on mobile units address the problem of potential outdates. Further, the iPhone’s future success in the UK market depends on addressing the mentioned weaknesses: the UK Edge network, more call minutes, and improving the battery concerns (make it removable with extended battery life). Internal Marketing Challenges Aside from the external factors that pose challenges to O2 in marketing iPhone in the UK, the weaknesses are considered internal in so far as O2 and Apple could both come up with measures to address them. The challenge of inaccessibility to the Edge network was addressed by negotiating with the UK Wi-Fi provider, The Cloud, for access points numbering about 7,500 converging in the most predominantly commercial areas where the target market or potential purchasers are located. The high cost was addressed by focusing on the advanced features of the iPhone. The strategy was effective given the number of units sold (1,000,000 units) in a matter of two months. The battery life and nonremovable weakness could be addressed through Apple’s IT department in charge of upgrading the initial version. The noted weaknesses could be eliminated in future iPhone versions. As indicated in iPhone’s website, the iPhone 4 is built is with a “rechargeable lithium-ion battery with standby time of up to 300 hours” (iPhone 4, 2010, 1). 3. Did O2 choose wisely? The decision on whether O2 chose wisely in forging an agreement with Apple to market the iPhone despite weaknesses and threats could be justified from the gains and advantages that O2 generated from the agreement. The analytical tools, SWOT and PEST analyses, highlighted the strengths of O2 and identified the important weaknesses which enabled them to focus and address them as needed. The external factors in the environment, which were evaluated and identified through the PEST analysis, paved the way for O2 to be guided on the most important factors that could influence marketing the iPhone in UK (Aware, 2010). These factors were social factors (consumer preferences and spending, demographics), economic factors (the positive economic status of UK with stable employment and income provided to its residents are conducive elements to market the iPhone), and the technological factors (fast technological pace of the mobile telecommunications industry) were all considered and instrumental in O2’s decision to market the iPhone (Christensen, et.al, 1978, p. 247; CIPD, 2010). The results of the agreement with Apple paved the way for O2 to gain the following benefits: (1) positive and productive net revenues over the long run; (2) the ability to retain market leadership as mobile operator in the UK; (3) future growth prospects in terms of expansion in marketing future versions of the iPhone; (4) be instrumental in sustaining a smooth and profitable international relationship with a US company contributing positive growths to the economy in terms of tax revenues, and increased profits fueled from increases in consumer spending; (5) the competitive pressure initiated from the venture enhanced the improvement of product quality by local mobile producers, among others; and (6) support for the product which was found to be environmental friendly, to wit: “iPhone 4 embodies Apple’s continuing environmental progress. It is designed with the following features to reduce environmental impact: PVC-free handset, PVC-free headphones, PVC-free USB cable, bromine-free printed circuit boards, mercury-free LCD display, arsenic-free display glass, majority of packaging made from post-consumer recycled fibreboard and bio-based materials, and power adapter outperforms strictest global energy-efficiency standards” (iPhone 4, 2010,p.1). The other cost that O2 considered was the revenue-sharing agreement which still provides positive net revenue for O2 in the long run. Their consideration of the stability and successful performance of Apple through its organisational existence has paid off in terms of the financial returns, customer satisfaction, contribution to the economy, and adhering to standards compatible with environmental safety. As indicated in Marketing and the 7Ps, the challenges posed by the social and technological environment have introduced new levels of competitive forces (Marketing, 2009, p. 9) that were eminently evaluated and considered by O2. The future prospects for O2 could have been appropriately evaluated using advanced information technology, immediate monitoring of performance, and training and development of personnel to retain their competitive advantage in their field of endeavor. Every organisation has actual and potential strengths and weaknesses; as well as opportunities and threats. O2 has identified its own strengths and limitations and maintained a workable surveillance of its changing environment. By identifying the external factors that influence the marketing of iPhone, O2 gained expertise in addressing the marketing challenges and threats, as well as its weaknesses. It was able to capitalize on its strengths to boost its competitive advantage in the market. In so doing, with all advantages overcoming costs and with the effects being realized not only in terms of financial gain but also in positive repercussions to various stakeholders, one could justify that O2 made the right decision to forge an agreement with Apple and to market iPhone in the UK. Conclusion As required in the module, the paper was able to achieve its objective of analyzing the case of Apple’s iPhone through the experience of introducing the iPhone in 2007. Its entry in the UK market was evaluated in terms of two analytical tools in marketing, the SWOT analysis and the PEST analysis to finally proffer that Matthew Key, Chief Executive of O2, the top mobile operator in UK, made the right decision. Reference List Aware (2010). SWOT and PEST analysis, [Online]. Available at: http://www.marketing-intelligence.co.uk/help/Q&A/question24.htm [Accessed 04 January 2011]. Christensen, CR, Andews, KR, & Bower, JL 1978. Business Policy: Text and Cases. Richard D. Irwin, Inc. 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