Porters Five Forces: Apple Company - Essay Example

Porter’s Five Forces: Apple Company Apple Company is the maker of the iPhone and the iPad and is the most influential in its brand and the biggest name in technology, and its Smartphone business and the ecosystem of apps, software, music and other digital content is the biggest in the world in terms of revenues and traction in the premium markets all over the world. The company is described as being in the business of providing both portable devices and computing devices for mobile communication and personal computing, together with the digital content, platform and apps that go with the hardware. Apart from the iPhone and the iPad, the company is also the maker of the Mac and the Apple TV platforms, together with software such as iOS and OS X, and iCloud. ( Allan 2014). ABSTRACT Apple has a truly formidable business providing mobile computing and communications products and services, as well as digital content, software, and apps to its customers all over the world, in an ecosystem that is hard to match in the world of tech. Its market valuation makes it among the top companies in the world, and the biggest name in technology. The company however suffers threats inform of competition. There is stiff competition from Pandora and Spotify which have tried to offer undifferentiated products. This has become a threat and the company needs to put up appropriate strategies to remain in the competitive advantage. Though the company has established brand and networks across the globe, it is not making expected profits margins. The company uses technological advantage to produce durable goods of high quality and also services yet it records lower sale. It is evidence that the problem is in the poor advertising strategies and lack of customer focus. If the problems are not solved the company will record lower sales in the long run which might cause it to make losses and then close. The threats from subscription-based streaming services from the likes of Pandora and Spotify, which is a direct challenge to the download for a fee model of Apple iTunes. This is a big problem potentially for Apple because the new firms can tank iTunes music revenues, and seriously undermine Apple’s business model. The proposed solutions therefore give methods of solving the problems on advertising and customer focus. This report makes use of external environmental analytical frameworks such as PESTLE and Porter’s Five Forces frameworks, as well as a SWOT analysis, 7Ps and TOWS to properly assess the extent of the market problem and Apple’s condition relative to the external market challenge (Hunt 2011; Goldman 2010) SITUATION ANALYSIS A. External Environmental Analysis Porter’s Five Forces Ordinarily, the five sources that improve its competition include:[Set10] i. Supplier power. Apple Company has flexible suppliers of the raw materials from China, Singapore and Thailand. This is to enable the products to be produced even if one of the companies fails to provide. ii. Buyer power. Because of the established brand across the globe, the company has many customers who are willing to buy the products. However the customer relation has not been improved and therefore the customer have no full loyalty. iii. Competitive rivalry. Pandora and Spotify who are competitors offer undifferentiated products in the markets. However, their brand are not established that much and therefore Apple will continue to take dominion in its market share. iv. Threat of substitution. There is a threat of substitution as Pandora and Spotify produces similar products. Apple trademark has enabled the customers to differentiate the products. Apple products have longer warrants compared to their competitors. v. Threats of new entry. The need of communication and the love for music has made this industry to be competitive. This makes many companies to desire to enter the industry and imitate the products. Apple Company has a unique trademark that is difficult to copy. The company has entered profitable segments and has also strategized to open more branches to meet this challenge PESTLE Analysis. Concentrating on Apple’s core domestic market which is the United States, no political factors are relevant due to the stable political system in the US. Economic factors include purchasing power issues with changes in the buying power of the dollar, and jobs numbers and how those affect consumption. Social factors relate to the way consumers warm up to streaming versus traditional social practices of downloading and paying for downloaded content. The changing consumer trends of smart phones have shown that man to be a social being. Technological factors relate to advancements in cloud computing and how those impact streaming music and digital content consumption. Legal factors relate to legal issues with streaming and royalty payments for artists. Environmental factors are negligible for digital content (Hunt 2011; Goldman 2010). Internal Apples Analysis Marketing mix -the 7ps i. Product –The products of the company have a unique selling proposition and feature that enables it to remain in the competitive advantage. The brand is the best and it is perceived to be the best. ii. Place –The company has open many branches and segments to meet its wide customer base. It has established distribution networks across the globe. The company also uses digital marketing to reach wide target audiences in all the ages and income levels.[Pet14] iii. Price – The price of the products are competitive and they are lower compared to other competitors. This does not however compromise the quality of the products. iv. Promotion –The Company uses face book, tweeter and email to market its products. It also uses broadcast to get its target audience. v. People – The Company has more customers who keep on changing as their loyalty is not fully certain. The managers of the company are often tasked with strategizing methods of reaching out to more customers. vi. Processes –The Company delivers the products and services with the request from the customers. The presence of websites and technology has speed up the processes. vii. Physical Evidence – There is physical evidence from the company sales contact experience where the company is able to get feedback of its sales. The contact persons are essential in the company to retain the customers. SWOT Analysis While many competitors seem to offer credible threats to the various aspects of Apple’s business, such as selling music and digital content, the truth is that Apple is operating from a host of formidable strengths. i. Strengths. It has established and best brands that commands the loyalty of the customers. Secondly, it has diversified and durable products that makes it to be on the competitive advantage and also enabling it to have enough apps and content that few companies outside are able to penetrate and to topple. It also has a wide networks of customer base ii. Weaknesses. The company has poor customer relation that has made the company customer base to reduce and fluctuate at all the time. The company has also neglected the power of research. It has poor coordination in research and thus the modern consumer trends are no considered. iii. Opportunities. The company uses the technological advancement to produce a product that the customers would love. This has enabled it to have established brands over its competitors. iv. Threats. The company threats include competitors such as Spotify and Pandora companies that try to provide the same products as Apple Company. However, Apple Company has differentiated its products to meet wide markets. It also has many market segments that it targets. TOWS Analysis This matrix has identified the external opportunities and threats and compared them to a company’s internal strengths and weaknesses .Apple Company could be explained exhaustively using the TOWS matrix which shows the strategies that the company would take to be on the competitive advantage over its competitors. The table below summarizes the matrix for the apple company: TOWS MATRIX STRENGTHS -Established brand product -Durable products -Established networks WEAKNESS -Poor coordination in research -Poor customer focus OPPORTUNITIES -Technological systems SO strategy -customer focus -rise in customer loyalty -increased marketing WO strategy -Communications systems -Invest in research THREATS -Competitors- Pandora and Spotify ST strategy -Quality goods -Low prices -More online sell -Most advertising WT strategy -Evade customer ignorance PROPOSED STRATEGIES AND SOLUTIONS The presence of competition has enabled the Apple Company to strategies to meet the problem of advertisement and customer focus. SMART Objectives OBJECTIVES SUB OBJECTIVES KPI-key performance indicators Create awareness(Advertisement) More advertising, news paper and journals, instagram, SMS and bill boards. Customer increase, sales increase Customer focus. Customer’s retention, value, satisfaction, customer’s research and loyalty. Increased sales Customer focus. It is essential that the customer focuses on the customer so as to develop the customer loyalty. This will enable the company not to have not only new customers but also to retain the previous customers. Customers will be done using the following strategies: i. Customer satisfaction. The company should ensure it does research to understand the demand and the current consumer trends so as to produce the products that will suite them. This will enable the customer to be satisfied and thus will maintain the loyalty. The satisfied customers become marketing apostles by referring towards others potential buyers.[Mat11] ii. Customer value. Ordinarily, the customer value contributes to customer retention. Customers will only buy the products that are perceived to be the best. The Apple Company should produce best products at a lower price. The price should not compromise the quality of the product. The company should give the customers with best product and services at best costs and quality.[Chr11] iii. Customer retention. The company should have a data base for all the customers of which it will contact them to inquire of the product. The company should also have a feedback platform to monitor the customer demands. iv. Customer loyalty. The company should produce goods of high quality that will attract more consumers. The goods should have unique selling proportion so as to sell more. Advertisement and Marketing The advancement of technology has enabled the consumer trends and behavior to change significantly. Most of the customers are internet users and the company should therefore interact them in this platforms. The company has tried to use the digital marketing such as face book, tweeter and email to meet the customers. However, the competitors Pandora and Spotify use these platforms also and this brings more competition. The company should use the following platforms which just like others require finances. i. Instagram.This is a new platform that enables the company to engage content marketing well since it displays the visuals of the products. This will enable it to be on the competitive advantage. ii. Journals and newspaper. The company should also use this media since it will enable all the target audience to be reached. This is because this printed media can easily be used by all. iii. Billboards. They should also focus on the billboards which will be situated at all the targeted audiences. iv. SMS.This is vital in customer retention as it gives the customer the updates of the products. Though it is expensive it is essential that it is used. Budgeting. Apple Company should put more funds in the strategies that are new so as to be on the competitive advantage. Other common methods of advertisement should attract fewer costs. Media Cost $ Use News paper and journal 10,000 printing Inform the customer Face book 2,000 browsing “ Mail 2,000 Feedback and informing Local events 1,000 “ E news paper 5,000 ” Mobile instant messaging,SMS 10,000 Update the customers Mobile apps, instagram 12,000 “ Podcast 1,000 “ Radio 5,000 “ Bill boards 14,000 Inform Total 62,000 per annum Conclusion In conclusion it is evidenced that the company will be on the competitive advantage when it has more of the customer focus and advertisement. This is done uniquely from its competitor so as to beat them. With the correct application of these strategies the sales will increase which will intern raise the revenue? [Zac14] According to Zacks investment research, “Over the next five years, the analysts that follow this company are expecting it to grow earnings at an average annual rate of 14.15%. This year, analysts are forecasting earnings increase of 39.81% over last year. Analysts expect earnings growth next year of 6.18% over this year's forecasted earnings.”This is due to the good strategies that have been put.[Zac14] Assuming gross margins for the new streaming service equal to existing Apple margins. Gross margins for new service pegged at 37 to 39 percent (Apple 2014).Revenue projections through to 2017 should exceed yearly Spotify revenues of $ 1 billion in 2014, to $ 2 billion by 2017.Projected revenues for Apple music streaming is at $ 2 billion at least; with gross margins at $740 million make use of Apple's mobile platforms. Cash flow from music streaming prorated for music streaming share of total revenues, or less than 5 percent of total cash flows (Apple 2014) Works Cited Apple (2014). Apple Reports Fourth Quarter Result. Apple.com. [Online] Available from: http://www.apple.com/pr/library/2013/10/28Apple-Reports-Fourth-Quarter-Results.html/ [Accessed 12 December 2014] Allan, D. (2014). Apple snaps up Beats Electronics and Beats Music streaming service for $3bn. IT Pro Portal. [Online] Available from: http://www.itproportal.com/2014/05/29/apple-snaps-up-beats-electronics-and-beats-music-streaming-service-for-3bn/ [Accessed 13 November 2014] Set10: , (Godin, 2010), Pet14: , (Perez, 2014), Mat11: , (Matthwew, 2011), Chr11: , (Rowe, 2011), Zac14: , (Zacks, 2014), Read More