Apple: SWOT, PESTLE and Porter's Five Analysis

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18th Apr 2019 Business Strategy Reference this

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1.    Executive Summary

The mobile telecommunications market, until recently was an assortment of various manufacturers such as Nokia, Siemens, Sony Ericsson, Samsung etc. The market has moved away from the endless number of mobile telephone manufacturers and four major players now control the industry, Samsung, HTC, RIM and Apple. While Apple’s market share has been steady over the past few years, operating profit has increased. The main reason behind the slow growth in market share is due mainly to the high price of the iPhone. By introducing an entry and mid-level iPhone, Apple will exploit an untapped market. Apple would see an increase in market share, gained from new customers who previously would not have bought an iPhone due to price.

Apple would also benefit from the enterprise market currently dominated by Research in Motion (RIM), who currently provide most smartphones to business users. This market development strategy is uncharted territory to Apple and could prove very lucrative if the operating system is developed to the needs of businesses as the iPhone’s ease of use would make it preferable to the Blackberry.

In the following report, we have conducted internal and external analyses to enable us to formulate a suitable strategy in- line with Apple’s mission statement to allow Apple to create a sustainable competitive advantage. If Apple are able to successfully implement these strategies to increase market share, as the market matures, the iPhone will become a ‘cash cow’, indicated by high market share and low market growth, providing a steady stream of income for Apple.

Apple has been building up a very big reputation and a very strong brand, I suppose that Apple is within the most expensive brands on earth (Osnews staff, 2018). Everybody associates automatically Apple with innovation, design, quality, being different, etc (Osnews staff, 2018). Apple cannot deliver products that are not innovative, well designed or top-notch quality, they would only destroy their own brand and reduce sales figures dramatically (Osnews staff, 2018). Innovation and quality are related with high price, the high price guarantees the customer that he is buying an excellent product, this is psychologically as well as from the business side, a typical business model (Osnews staff, 2018). The human psychology says that the higher the price, the better the product and otherwise. 

Apple have enjoyed growing market share over the past 5 years and each new product release is seen as an upgrade on the previous technology meaning that at any one time, Apple essentially has one mobile telephone in the market, i.e. the latest iPhone, unlike other manufacturers who release new products to sell alongside older models (Academiaedu, 2018). While some may see this as a disadvantage, there is always huge demand when Apple releases their latest iPhone and previous models of the iPhone still sell strong to ‘late adopters’ who want to own an iPhone but are dissuaded by the high price of the latest model (Academiaedu, 2018).

To cut costs, Apple eliminated some accessories from the 20GB package, including the dock, which is a $39 extra. The device is $299 and it adopts the iPod Mini’s intuitive Click Wheel, thus improving battery life and incorporating some key firmware enhancements.

1.1 Introduction

Apple Inc was started by Steve Jobs and Steve Wozniak in 1976 by Steve Jobs and Steve Wozniak. Apple became a famous brand and grew rapidly in the 1980’s, gained high profits, but had a drastic drop in 1996. Steve jobs who became the CEO then transformed Apple Inc. into a success story by introducing innovative and classy non-PC products in 2000’s, and from then on Apple became one of the largest successful start-ups in the US market.

Apple Inc now manufactures, and markets mobile communication and media devices, personal computers (PCs), and portable digital music players, and sells a variety of related software, services, accessories, networking solutions, and third-party digital content and applications. Apple’s product portfolio includes iPhone, iPad, Mac, iPod, Apple Watch, Apple TV. Its portfolio of consumer and expert software applications include iOS, macOS, watchOS and tvOS operating systems, iCloud, Apple Pay and a variety of accessory, service and support offerings. Apple sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store and Apple Music. The company operates globally across the US, Europe and Asia Pacific. It is headquartered in Cupertino, California. (reference)

Apple as a stable worldwide market share, and has had a high profit share in the smartphone market (Forbes). Walkley (Forbes) estimates starting in 2013 are:

  • 2013: 62%
  • 2014: 77%
  • 2015: 90% (iPhone 6 and 6 Plus were launched in September 2014)
  • 2016: 83%
  • 2017 1st quarter: 83%

As can be seen above, Apple captured almost all the industry’s smartphone profits in 2015, and although there was a decrease, Apple still produces most of them. (Forbes)

1.1 Apple Inc SWOT Analysis

(S)trengths

Apple has a strong brand image and a very successful marketing strategy which has made them to be a market leader in several products and services. Apple has a large and loyal customer base, with high profit margins on their products. Innovation and a sophisticated supply chain has made Apple a financially strong company. Great product quality.

(W)eaknesses

Apple products are premium priced, made for high end market, which means they are not affordable to everyone. The products also have a closed operating system, which makes them in-compatible with other brands. They have a very narrow product range compared to their competitors.

(O)pportunities

In the industry that Apple competes, technology is advancing at a fast pace, so the company’s capacity to compete is heavily dependent on its potential to have a consistent and timely flow of competitive products, services and technologies into the marketplace. The company has an opportunity to continue developing new technologies and improving its existing products by increasing their product range contribution through Research and development, licencing of intellectual property and third-party business and technology acquisitions. Apple made a successful acquisition when they bought Beats by Dre.

(T)hreats

There is an intense rise in competition from other brands, and imitations of their new products being sold at cheaper prices by competitors, which makes it very tough to keep their position as the market leader. Other brands offering low prices for products similar to Apple products poses a threat to their customer base.

1.2 Apple Porter’s Five Forces

Apple has achieved success as one of the most valuable companies in the world. Porter’s Five Forces analysis gives insights about the external factors influencing the firm (Panmorecom, 2015). Apple’s Five Forces analysis also sheds light on what the company does to ensure leadership despite the negative effects of external factors in the competitive landscape (Panmorecom, 2015). Though Apple had lows when it started up, when Steve Jobs became the CEO, the company flourished until it became an industry leader.

Based on Porter’s five forces analysis, one of the most significant external factors that has a strong impact on the firm is the bargaining power of buyers (Panmorecom, 2015). Also, the five forces analysis shows an indications of the places Apple needs to focus on in order to keep their position as the market leader in the industry (Panmorecom, 2015).

Apple’s threat of new entrant’s competitors is moderate. Apple is one of the world’s dominant IT, there is a strong focus on niche market i.e. high income consumers, and this makes it difficult for new entrants to hold market share, especially when just an iPhone alone needs about $100 million investment. Apple also uses contract manufacturing strategy which saves unnecessary cost and expense (reference). What lowers their threat is also because they have copyrights, patents and high switching cost. (reference)

Apple’s substitute product pressure is high-moderate. For almost every product Apple has, competitors have a substitute. Although that is the case, Apple’s Operating system still proves to be a strong area of Apple which is not having any near substitute. Apple also their own app store, iTunes and iClouds.

Suppliers bargaining power is moderate because of their unique capability to manufacture product for Apple (Scribdcom, 2018). But, Apple had a very well diversified supplier numbers; they aren’t manufacturing everything from one supplier and one place (Scribdcom, 2018). Apple buys thins in bulk, so this gives them a high buying power (Scribdcom, 2018).

There competitive rivalry is high because Apple’s product range is narrow. Apple’s product differentiation to other brands is high. The competitors have wide range of selection, but Apple’s limited product line which is simple and user friendly has increased their customer base. Apples distribution channels online and direct outlets is strong and helps Apple position its products. There is a need for Apple to increase investment in mobile, computer and software because of the strong competition (http://panmore.com/apple-inc-pestel-pestle-analysis-recommendations).

1.3 Sales trends and forecasts

Apple published its Q3 FY’17 results on Tuesday, reporting its strongest levels of revenue growth (7.2% year-over-year) in about seven quarters, driven by a surging services business and growth across its key hardware product categories (Trefis team, 2018). In this note, we take a look at some of the significant trends from the earnings release (Trefis team, 2018).

(https://www.forbes.com/sites/greatspeculations/2017/08/02/the-key-trends-from-apples-q3-earnings/#598330477733 – last accessed 20 January 2018)

Q4 2017 summary

  • Revenue of $52.579bn, up from $46.852bn in the same quarter a year ago
  • Earnings per diluted share of $2.07, up from $1.67 in the year-ago quarter
  • Gross margin of 37.9%, compared to 38.51% in the same quarter of 2016
  • Operating expenses of $6.811bn, compared to $6.052bn in the year-ago quarter
  • iPhone unit sales up 3%, revenue up 2% year-on-year
  • iPad unit sales up 11%, revenue up 14% year-on-year
  • Mac sales up 10%, revenue up 25% year-on-year
  • Services revenue up 34%
  • Other products revenue up 36%

This is all at the upper end of Apple’s predictions (Macworldcouk, 2018). While reporting on Q3, the company provided the following estimates for its fiscal 2017 fourth quarter:

  • Revenue between $49 billion and $52 billion
  • Gross margin between 37.5 percent and 38 percent
  • Operating expenses between $6.7 billion and $6.8 billion
  • Other income/(expense) of $500 million
  • Tax rate of 25.5 percent

Other income/expense was $797 million in the fourth quarter, rather than the $500 predicted (Macworldcouk, 2018).

(https://www.macworld.co.uk/news/apple/apple-financial-results-iphone-ipad-mac-sales-3581769/ – last accessed 20 January 2018)

2. Business proposition

My proposal to Apple Inc is to re-enact the iPod shuffle as another Apple wearable device. The new iPod shuffle will still be portable and workout friendly as the old one but it will have more advanced features. It will allow be user friendly and give users a great working out experience. The new iPod shuffle will be an all-in-one gadget, as it will be able to record your workout progress and other health statistics. This will also have Bluetooth and WiFi, so it can integrate with your phone.

2.1. Objectives

2.1.1 Profitability

  • Increase revenues by limiting expenses
  • Increase sales through introducing a new product line

2.1.2 Growth

  • Introduce a new product to the market
  • Advancement in existing technology

2.1.3 Customer service

  • Reduce customer complaints by 25 percent within a year

2.2. Target Market

This new iPod shuffle will be designed for those in the health and fitness category. Wearable devices have become not only trendy but a health monitoring device (Berkowitz, 2018). It will not be limited to only those who go to the gym, but those who do outdoor activities such as Hikers, cyclist, etc.

2.3. Strategy Statement

We will develop the simplest yet life changing wearable device that will make your fitness experience worthwhile. We will do this by incorporating all our technological expertise into developing the best wearable device to suit your needs.

3. Action Plan

3.1. Product

The new iPod will have the following features:

  • Touch screen
  • Voice recognition
  • Bluetooth and Wifi connection
  • Workout progress check
  • Access to music apps
  • More storage capacity
  • Wearable
  • Various colour selection

3.2. Price

As Laurent (2003) stated, a good marketer should set the right price for a product or service. Nowadays the price of a product is usually pre-fixed with set tax charges (Saint-Laurent, P. 2003, vol. 6, no. 7, pp. 35.). Apple does premium pricing, so the price range will be as follows:

  • Range from £350 for 8GB to £450 for 15GB

3.3. Place

The new iPod shuffle will be available in all Apple stores around the world. Most Apple store are located  in a

3.4. Promotion

The new product will be advertised on media channels like Television networks, over the internet and in magazines. 

4. Evaluation

The market research will not be all that is needed to bring this new product to the market, PESTLE analysis will be used to assess the external factors that could affect Apple’s growth, profit and reputation.

4.1. (P)olitical

Since Apple Inc. has contract suppliers around the world, it is open to several political difficulties. Therefore, this means that some of the important factors for Apple are:

  • Improve their free trade policies
  • Stable politics in developed countries

(http://panmore.com/apple-inc-five-forces-analysis-porters-model-case-study accessed 15 Jan 2018)

4.2. (E)conomic

The economic feature of the Pestle analysis specifies the market and industry conditions that impact the company (International Journal of Economics, Commerce and Management, United Kingdom). Most of the economic external factors in Apple’s remote or macro-environment create opportunities. The most distinct external factors to Apple economically are:

  • Rapid growth of developing countries
  • Stable economies of developed countries

The economic stability of most developed countries creates opportunities for companies like Apple to expand their businesses. However, the rapid growth of developing countries is more significant. For instance, the high economic growth rates of Asian countries are major opportunities for Apple to increase revenues through sales in these foreign markets. Based on this part of the PESTEL/PESTLE analysis model, Apple must ensure that it effectively exploits these economic opportunities. Speed and effectiveness are important because competitors are also targeting these high-growth economies  (http://panmore.com/apple-inc-five-forces-analysis-porters-model-case-study acced 15 Jan 2018).

4.3. (S)ocial

Apple has been making innovative changes to their products in pursuit to satisfy their customers needs. One of their most successful acquisitions has been Beats by Dr Dre, and also alliances like Sony and Phillips. Sales of Apple products increased by a good percentage in India in 2013, which forced the firm to open franchises and make investments in India, which makes it evident that Apple’s growth strategy is paying off (http://panmore.com/apple-inc-five-forces-analysis-porters-model-case-study acced 15 Jan 2018).

4.4. (T)echnology

Information technology is highest earner for past a decade but only those companies have earned well who had innovated. Current technological changes have had an impact on Apple. Although Apple has been a trend setter, some of the most significant technological external factors are:

  • Cloud computing trend
  • Technological integration
  • Growing apps market

Cloud computing is becoming popular among individuals and organizations. Apple can exploit this opportunity by offering cloud-friendly devices and apps. On the other hand, technological integration of devices is a major trend. Apple can take advantage of this opportunity by continuing its strategy of providing products that can be seamlessly connected to each other. In addition, the apps market is growing, Apple could grow its App Store. However, Apple needs to invest more and more in R&D because of the competitive and short product life cycle nature of the industry (http://panmore.com/apple-inc-five-forces-analysis-porters-model-case-study acced 15 Jan 2018). Apple has unique designs, but customers want more preferences.

4.5. (E)nvironmental

Apple is already addressing the opportunity to maintain business sustainability through recycling and related programs. In addition, the company continually seeks for new technological solutions to improve the energy efficiency of Apple products, such as through improved batteries, processors, and components that emit less heat. On the other hand, the labor rights trend is impacting the global business arena. Apple has already taken steps to address the opportunity to improve customer perception about its products by improving employment practices throughout its supply chain. According to the environmental analysis model, Apple is on the right track in addressing the opportunities based on environmental factors in its macro-environment (http://panmore.com/apple-inc-five-forces-analysis-porters-model-case-study acced 15 Jan 2018).

4.6. (L)egal

Governments are realizing the privacy issues connected to digital technology use. As a result, more privacy regulations are imposed on businesses like Apple. This factor is a threat because it creates new challenges for Apple in developing products that involve transmission of private information. However, this factor is also an opportunity for the company to improve product features that protect privacy. On the other hand, governments are also imposing stricter telecommunications regulations, which are a threat because they could potentially limit the usability of Apple products. Therefore, the new iPod will need to have strong privacy settings (http://panmore.com/apple-inc-five-forces-analysis-porters-model-case-study acced 15 Jan 2018).

5. Conclusion and reflection

Looking at the issues set out analysis Apple’s position in the market and the external factors that are affecting it, introducing a new product to the market will be ideal. However, there are risks involved with launching this new product, as it is something that has bee discontinued in the past and requires a lot of research and development before it can be put out on the market. Meanwhile Apple has a challenge to introduce a product that will allow them to stay above their competitors.

Creating a business plan has ben a real challenge for me, especially for a big company like Apple it has been challenging, and also the reputation that they have built for themselves. In the market that they are operating in, every move counts, so there is a need for thorough research and introducing the right product t the right time.

6. References

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