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PESTEL five forces and SWOT analysis of Apple

Introduction:

“Steven Wozniak and Steven Jobs had been friends in high school. They had both been interested in electronics, and both had been perceived as outsiders. They kept in touch after graduation, and both ended up dropping out of school and getting jobs working for companies in Silicon Valley. (Woz for Hewlett-Packard, Jobs for Atari)Wozniak had been dabbling in computer-design for some time when, in 1976, he designed what would become the Apple I. Jobs, who had an eye for the future, insisted that he and Wozniak try to sell the machine, and on April 1, 1976, Apple Computer was born.

Hobbyists did not take the Apple I very seriously, and Apple did not begin to take off until 1977, when the Apple II debuted at a local computer trade show. The first personal computer to come in a plastic case and include color graphics, the Apple II was an impressive machine. Orders for Apple machines were multiplied by several times after its introduction. And with the introduction in early '78 of the Apple Disk II, the most inexpensive, easy to use floppy drive ever (at the time), Apple sales further increased.

With the increase in sales, however, came an increase in company size, and by 1980, when the Apple III was released, Apple had several thousand employees, and was beginning to sell computers abroad. Apple had taken on a number of more experienced mid-level managers and, more importantly, several new investors, who opted to take seats on the board of directors. Older, more conservative men, the new directors made sure that Apple became a "real company," much to the dismay of many of its original employees.

In October 2003, Apple released iTunes for Windows. While the iPod had been available for Windows for some time, it had used third-party software which failed to provide the unique user experience that iTunes/iPod integration allowed. With the release of a stable, user-friendly Windows version of iTunes, which included both iPod and Music Store integration, Apple was poised to take the digital music industry by storm. Apple cemented its position with the January 2004 release of the iPod mini, which while smaller in capacity than the original iPod, was smaller than many cell phones. In the first year alone, the iTunes Music Store sold more than 70 million songs, and by July this number had increased to more than 100 million. The iTunes Music Store had a 70% market share among all legal online music download services. IPods had moved from expensive toys to must-have Christmas presents, and Apple found itself in the position of having a monopoly for the first time in several decades.”

Vision Statement:

“Apple is committed to provide best computing experience to its consumers including students, professionals, educators and industrial customers all over the world through its hardware, software and internet offerings”

Apple's Mission Statement:

Apple Computer is committed to protecting the environment, health, and safety of our employees, customers and the global communities where we work and live. We recognize that by integrating sound environmental, health, and safety management practices into all aspects of our business, we can offer technologically innovative products and services while conserving and enhancing resources for future generations. Apple strives for continual improvement in our environmental, health and safety management systems and in the environmental quality of our products, processes and services.

Environmental Analysis:

PEST Analysis:-

With the help of PEST analysis, it is possible to gain an understanding of Apple's business potential, future market situation and the direction of its operation. The political, economic, social and technological factors are four components of PEST analysis. Considering the PEST analysis is powerful and covering lots of factors in identifying SWOT factors, the SWOT analysis will be simplified in the next part to show a graph picture of the list of factors involved in both of the above analysis.

Political Factors:

Currently, Apple's business operations are executed all over the world. According to financial report of 2009, more than half sale of Apple products is coming from different countries other than America. There are several issues which are beyond the control of company i.e. War against terrorism, geopolitical uncertainties, public health issues and sanctions on different countries. Such issues effect on sales of Apple Product worldwide. Apple has outsourced its business operations to different companies to reduce operating cost. These functions include product manufacturing, transportation and logistics management. Such companies spread in different parts of world like Cork, Ireland, Korea, China and Czech Republic. Any delay could be occurred due to political instability and other events which may damage the Apple image in its customers and retailers.

Economic Factors

The world’s economic conditions are getting better after recession. In past few years, oil prices went to record high level which causes inflation in world’s economy. Due to such economic factors, consumer’s purchasing power reduced and they don’t want to spend money on such products like unwilling to busy iPod, iphone and updating personal computer or laptop. Last year high unemployment rate was observed in USA and Europe which causes sharp fall in Apple products. Furthermore, currency exchange rate is seen very volatile during recession, especially dollar’s rate against pound sterling and euro. Although world’s economy is overcoming recession but it is expected that US economy will take longer time than other countries of the world. So US Dollar may goes down in this year.

Social Factors:

Environmental protection and Health & Safety are become major issues in those countries where Apple operates. A variety of regulations and laws are imposed in such countries which may unfavourably affect the company's financial condition and results by requiring a safe disposal or recycling Apple's products. Particularly, such regulations are adopted in European Union and some parts of Canada which are big markets of Apple Products. Certain products of the company are actually face health issues because of the design problem. It is reported that the improper use of iPod may lead to loss of hearing power of users.

Technology Factors:

The market for PC, portable music player, mobile phone and other consumer electronic products are in those natures of products which have heavy competition and fast technological changes. The companies which manufacture such type of products have to spend enough money on research and development because of rapid change in electronic products, short product life, frequent introduction of new products and the continual improvement in product performance and design. It is basic requirement to survive in the market. It is also a great advantage for Apple to its competitors that company has full control over the entire production procedures of personal computer and the continual innovation on iPod and iPhone. Now there are many products introduced in the market to compete Apple’s products. So it becomes a necessary to spend more on R&D which causes a huge spending of its capital reserve compared with its competitors i.e. Dell uses Microsoft's operating system in all of its products while Apple installs its own brand operating system which increase its production cost.

Porter’s Five Forces:-

Porter's five forces analysis is a framework for business strategy development put forth by Michael E. Porter of Harvard Business School in 1979. It uses concepts developed in Industrial Organization Economics (IOE) to derive five forces that determine the competitive intensity and therefore the attractiveness of a market. Porter's Five Forces include following factors:

Threats of substitutes

Apple's products are facing very high competition. Specially, computer and iPod player are moving fast in world market. Companies like IBM introduced ThinkPad with different series to cover different needs of consumers. For example, the R Series ThinkPad is for normal daily use of computer. T series is introduced for premier performance and X series is specified for business travellers because of its features like Thinnest and lightest model. The other competitor Dell also specified its product for different customer usage like solutions for Home, Small & Medium Business, Large Business, Public Sector and its Partners. So all above products are available in the market as a substitute of Apple's computer products and are also giving tough time to survive in the market for Apple.

However, Apple has maintained a better position in the market by presenting different operating system that is OSX Operating Systems, while others rely on Microsoft Windows Operating Systems. The OSX Operating Systems is created by Apple which means Apple can make a difference in software packages and overall functionality from the other companies. The unique feature of its product also helped Apple to obtain brand loyalty of customers and it allows Apple's product to stay in an innovative and price conscious among other products.In the world of portable music, Apple's iPod, which is based on hard-disk, is inevitably facing a massive competition. Huge verities of alternatives are available in today’s market like Sony's mp3 and other flash memory featured devices. However, Apple's product has a better storage and design compared with the Sony's mp3. Other portable music device such as radio, CD player is not in comparable with iPod, because of its leading technology and stylish brand.

Threat of Existing Rivals:

The threat of existing rivals is very high for Apple in current market. Apple is operating in two big market segments like personal computers and portable music players. There are big names competing in the market like Dell, HP Compaq, Gateway and Toshiba. Every Rival is providing different products and services with different strategies which make difficult for Apple to gain maximum share of the market. Low price war makes harder for every company to continue its products at same rate for long time. Apple has occupied a better market position by improvement and investment on research and development.

Apple's iPods are facing good competition but now improvement and firm control on design and technology makes easy for Apple to stand on top in the market. Currently Apple iPod is capturing 60% market share and 25% market share for Sony Walkman. But Apple’s rivals are continuously working on development of their products which is big threat for Apple.

Threat of New Entrants:

Now the present market of personal computers is well established and highly competitive such as Dell, HP Compaq, Lenovo, Sony and Toshiba is big players of the market. There are two major barriers for new entrants which are very difficult to remove. First, to enter in the market needs massive amount of capital which allows new company to be active in market and be a participant of price war and sustain the market pressure while promoting its products and produce economies of scale products. Secondly, every existing company have their own copyrights for patents and technologies which made new entries difficult to adopt. But in music player industry, there are high chances of new arrivals for example Google is planning to introduce new iplayer against iPod which have many new features and also Google commenced a huge survey before launching its new product. Some mobile phone companies also developing new products to compete iPod.

Bargaining Power of Customers:

In operating systems, Apple's OSX Operating System is the only substitute operating systems available for use if consumers deny using Microsoft operating system. So bargaining power of the customer is reduced in this case because he has very limited option but in recent market statistics, Microsoft is leading the world market by its products and Apple does not allow any other company to use Apple’s operating system which makes limited use of its customers and that’s why Apple is not as big as Microsoft.

All the products of Apple have been sold out in different mediums in entire world at same time with similar price. This marketing strategy gives high price of its products when new product is launched. For example, Apple had sold 270,000 units of the newly launched iPhone 3G in its first week. It was estimated that Apple will sell 5.1 million units in its fiscal fourth quarter, according to Mike Abramsky, of RBC Capital Markets. The popularity of Apple's products contains very low bargaining power of buyer due to its popularity especially iPod and iphone. Online stores and direct stores are helping so much in obtaining its goals. Although other alternatives are available in portable music player market but still Apple has very low bargaining power of consumers.

Bargaining Power of Suppliers:

Apple is providing very complex devices in the market and it is not manufacturing everything by own. Apple made many contracts with different suppliers like Hitachi Global Storage Technologies, Western Digital, and Seagate. Apple did not make a contract with single company just because of establishing high bargaining power to its suppliers which carried Apple into better positions of negotiation. This strategy helps Apple to avoid shortages and also low cost components. But in some cases, some key components are always difficult to maintain if manufactures decided to produce the common products instead of the customized one. The Intel® microprocessors are an example of how Apple is trying to keep this customized supply. Based on efficient communication with the vendor, Apple uses product introduction plans, strategic inventories, coordinated product introductions, internal and external manufacturing schedules and levels to ensure the availability of such components. It has been proved to be an efficient method for both sides. By customizing key components, Apple's products are more flexible in terms of size and weight which gives them a better position in the market place

The SWOT analysis:

Strengths:

Customer Loyalty

Innovation

Product Diversification and Differentiation

Unique Mac OSX operating system

World market capacity

Weakness

Poor Product Quality Control

High Price

Lack of market consideration when launching new product

Zero Dividends Policy

Opportunities

New stake in the mobile phone industry

Entry to the emerging economy

Threat

Strong competition in the technology market

Substitute products are widely available in the market

Value Chain Analysis:

A value chain analysis provides internal capabilities of a company which makes easy to understand that on what level a company sustains competition in existing market. The value chain framework is originally developed by Porter. Now we will identify resources which Apple utilizes and these are as follows:

Technology and Product Design

Production

Sales and Marketing

Customer Service

Legal Services

Technology and Product Design:

This is the speciality of Apple to concentrate on developing new technology and innovative product designs. Its products represent remarkable designs and styles which attracts people from all over the world. Apple provides cutting edge technology since the company is established. Apple was first company which provides a platform for electronic spreadsheet which is VisiCalc on the Apple II Plus and also produces a "digital lifestyle" hub, the Macintosh product lines. Apple also working on development and improvement of technology and designs that why its operating systems is much reliable than Microsoft Windows and Mac computers provide some useful and handy software like iMovie, iPhoto, and iTunes are the most wide-ranging end user product. So Apple says "it's very easy to be different, but very difficult to be better."

Production

As we know that Apple refused to give license its operating system to other companies, so apple’s developed hard ware and bundle package of software turn out to be the foundation of Apple's production process. Apple reached unmatched performance through 64 bit architecture, integrated unique styling with the multi-colour translucent iMac cases, and redefined spontaneous operation with the iPod. Whereas each manufactured goods preface has not been a success, Apple deals component production as a natural expansion of the design process.

Sales and Marketing

We might purely call this section "Steve Jobs". Since his return in 1997 as CEO, he personally make publics many jobs for new product introductions, reconsiders matching marketing campaigns and strategies, and endorses new product development course of actions. In a exit from their chaotic history, Jobs "entered into patent cross-licensing and technology agreements with Microsoft." (Linzmayer, 290) After years of mediocre market share and cannibalization of a customer’s loyalty base, expensive Personal Computers market was now in the reach of Apple which never been so easy. Apple started practice of full control over market premium.

Customer Service:

Apple has kept hold of considerable cash reserves at the time of unpredictable growth and supremacy of PCs globally by creating a virtual liking of their customer base with introduction of technically advanced products like iPods, Macs & iphones, and insistently practising hardware and software updates. Apple reduced time laps in manufacturing product stage to end user stage. All basic activities are integrated with each other effectively which increase output of manufacturing and assembling units to delivery to its consumers. Even Apple provided software to its customers that resolve all compatibility issues with Windows XP on its new Intel-based iMac system and then make available online free to iMac users. Always Apple focus on best customer services even gives better than its customers expected.

Legal Services

In an environment of continuous change and innovation, it is impossible that aim to produce improved and developed products and services, Apple will suffer patent and copyright breach claims. “The dispute over the Apple logo on its iTunes Music Store, for example, continues despite a previously reached settlement with Beatles' Apple Corps Ltd. in 1991. (Dow Jones Newswires) While such litigation as Microsoft's Windows infringement on Mac OS patents has been highly publicized, use of legal guidance to drive acquisition versus internal development strategies for such products as GarageBand and iMusic have proven highly valuable. (Linzmayer, 172-4, 250) Intellectual property is sacred to Apple. There was a recent attempt to uncover the identities of internal "sources who leaked confidential information about an unreleased product to online media outlets in 2004." (Wong)”

Critical Success Factors:

This critical success factors are those activities which are very hard to adopt by the competitors and rivals of a company. Every big and famous company has some special course of actions which allow company to grab handful market share to survive. So that Apple also has some critical factors which lead company towards success. The major success factor of Apple is its innovation of different products. In every year, company introduces different products with non identical features. Such sort of innovations and improvement retains its consumers and attract other to buy such magnificent products. The other critical success factor is its own operating system. Current Apple operating system is known as most reliable and durable system which has its own bundle packages and software. Different companies have approached to Apple to buy the licence of MAC OSX operating system but company has denied allowing other companies to use this system. The leadership of Steve is also considered a success factor for the company, as we know that after his arrival in company, Apple regain its early years positions and reputation in the market. Now in portable music devices market, Apple is a world leader among many other companies like Sony and Toshiba.

STRATEGIC FIT:

Apple Computer Inc.’s strategy to gain market share dominance by market penetration has achieved good results since last decade specially after introducing iPods. MAC users also do not compromise on quality and style of new MAC products. Windows compatibility software gave a high market rise when it was available online free for its users. The industry is unappealing for new entrants but it is not same for the existing companies, there is significant market growth to be oppressed. Market analysis of Apple pointed out that strategies which are implemented to infiltrate in the market, are strategically fit with the critical success factors of the industry. Even in 2009 results, The Company seems profitable in such hazardous market conditions but results were much better than 2008 when recession appears all over the world. Apple should invest its reserve to development and innovations to take full advantage of its competitiveness in this industry. Apple’s growth strategy is to increase its market share and also sustain its current market position is working very well and Apple makes easy to access of its all products through online stores and different distribution channels. Luckily the leadership of Steve suited and its strategy has provided the company with a strategic fit with its major strength which is the company’s innovation. Introduction of new MAC book and iPods in the market proves higher results and increased Apple’s reputation in market which proves company’s strength matches with its strategy.

Strategy against possible threat:

We already discussed some possible threats which may occur and effect adversely on the market share of Apple. The current environment is volatile regarding innovation and new style products. All computing and audio products have very short life. We assume that Google iplayer or new product of Sony arrives in the market and made a record sale which causes a sharp fall in market share of Apple. We also assume that Google iplayer have new features and state of the art technology with innovative design of the gadget. Even in this scenario, a huge population turned towards Google iplayer which previously use iPod. To deal with such circumstances, Apple will take following steps through different models to identify exact and rational strategy.

Bowman Strategy Clock:

This clock is used to identify and analyze accurate strategy with all relevant information that helps to keep present in competitive market. Bowman strategy clock gives well balanced indications how to enter or compete in new or existing market. Currently, Apple is adopted “Diversification with a price premium” strategy which lies on strategy number 4 in Bowman Strategy Clock. There are eight different strategies on Bowman Strategy Clock which can be adopted according to market conditions and market share available. These are the following strategies of Bowman Clock.

Low price/low added value (No frills) - Likely to be segment specific

Low price - Risk of price war and low margins/need to be a 'cost leader'

Hybrid - Low cost bases and reinvestment in low price and differentiation

Differentiation-Without a price premium, Perceived added value by user, yielding, market share benefits-With a price premium -Perceived added value sufficient to bear price premium

Focused differentiation - Perceived added value to a 'particular segment' warranting a premium price

Increased price/standard - Higher margins if competitors do not value follow/risk of losing market share

Increased price/low values - Only feasible in a monopoly situation

Low value/standard price - Loss of market share

Ansoff’s Matrix:

This model is developed to indicate different market scenarios which help to identify proper solutions to react in the market. Basically the main purpose of this Matrix is to point out market situation and management selects a strategy which is matching with situation and the objectives of the company. At present, Apple is operating in “Market Penetration” but after arrival of Google’s iplayer, it goes into Product development. Here are four sections of this model which are used in dependence of situation.

1. Market Penetration:

2. Product Development:

3. Market Development:

4. Diversification:

Recommendations:

It is recommended that Apple must refocus on its strength which can only be achieved by consistent spending on product differentiation. We assume that new product is introduced in the current market which reduced Apple market share. We identify current strategy through Bowman Strategic Clock but to deal with such situation, Apple must alter its old strategy to new strategy which I suggest, would be Differentiation without price premium. This strategy will help to regain market share and also product development will force to starch market share of Apple. Furthermore, immediate attention must be given to the high costs in manufacturing which may help to reduce price when necessary. Apple is also unable to fight in price war due to providing high quality of products and services. To compete in price war, Apple should establish a niche market that makes possible to fight and also reduce operating and manufacturing cost. It can also be achieved through strategic alliances or mergers to make possible economies of scale, improvement in its distribution channels, increase quality and increase market share in the future.

An implementation of the strategies mentioned above in recent times, Apple can be expect to secure its position as the market leader Personal computing and also portable music device market all over the world.

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