Nokia vs Apple Case Study
|✅ Paper Type: Free Essay||✅ Subject: Marketing|
|✅ Wordcount: 5485 words||✅ Published: 12th Jun 2017|
The Board of Apple iTunes has requested a report that seeks to examine the key macro and micro environmental factors within the music download industry and provide significant information regarding the current threat of Nokia entering the music download market. Also, recent trends should be observed and a strategy has to be developed that will limit Nokia’s impact and protect Apple’s market share within Europe. In order to do so, we used significant instruments to analyse the market and we formulated a strategy accordingly.
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2.1 Apple’s Mission Statement:
Apple is committed to bringing the best personal computing experience to student, educators, creative professionals and condumers arounf the world through its innovative hardware, software and iternet offerings. Apple continious to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the online phone market this year with its revolutionary iPhone.
2.2 Apple’s strategy:
Apple inc. is a vertically integrated company, manufacturing and supplying all hardware and software as well as its own operating systems. Apple Inc. chose this strategy so they could retain profit and ensure profit is not lost by financing other company’s profit margins. The practice behind this theory is to heavily finance research and development and have have the necessary means of production to cover all areas of the business. Marketing and advertising are also a key component in Apple Inc.’s strategy to have a better market position.
2.3 Apple’s market:
To exactly define Apples market is nearly impossible as the company takes part in the multimedia download market by offering a wide range of services like music, ringtones, games, Podcasts and movies (most popular is their iTunes service) as well as having recently entered the mobile phone market with its new iPhone. The multimedia download market is described by Mintel as “anything that can be copied from the Internet to a PC, other portable devices (mobile phones, PDA), game consoles or multimedia devices” (Mintel, 2007). This includes music, video/television programmes, games, wallpapers, icons and ringtones. For our report we will focus on the music part which is of special interest to the Board of Apple iTunes although some consideration about the whole multimedia download market will have to be done, as Apple provides a variety of multimedia services and a reduction of the market to the music download market might be to narrow sometimes.
Apple is not yet part of the mobile download market (unlike Nokia that has entered this market with its new Ovi service and the launch of its N-Series devices) as this market is strictly defined by Mintel as “products that are downloaded to a mobile phone, including ongoing subscription purchases or single one-off downloads. These products include icons, wallpaper, ringtones, music, news or video clips, jokes and games. These services are for mobile phones only and similar items downloaded to a PC are excluded” (Mintel, 2005) .
The mobile phones market is being defined by Mintel as “handset manufacturers and network service providers” (Mintel, 2007).
3. Overview of the multimedia download market:
This overview has been generated on the base of a Mintel report about uploading and downloading in the UK in 2007 and the figures provided only show the UK market. Since it can be assumed that the UK market does not differ dramatically from the Europeen market since network providers, third party providers and mobile manufacturers taking part in this market are accessed through the world wide web and therfore are also being used from Europeen customers, the facts given can be transformed to the Europeen market.
The multimedia download market and especially the music download market is a fast changing and fast growing emergent market that is characterised by high fragmentation as more and more players such as mobile phone manufacturers, network- and third party providers enter the market.
Market Size and Segmentation:
The UK value for the download market in 2006 has increased 179% above 2002 to £343 million and especially the growth of music downloads is acting as a main driver for the market and is overtaking mobile phone downloads that have been the largest segment of the market in the past. Mintel forecasts further expansion of the market between 2007 and 2009.
The multimedia download market is a highly fragmented market with many players, that is being dominated by Apple iTunes with nearly 80% market share. Third-party providers like Napster, MonsterMob, iTouch and Zed are also an imporant source of the market, although in the case of mobile downloads network providers are significant too.
Key Points of the Internal Market Environment:
An increasing desire of consumers to benefit from new technology can clearly be recognized and especially in the music download market, consumer interest has increased due to innovative product launches, such as the Apple iPod. Also, there’s a trend for technology devices to blend functions that have been associated with only one product, as recent examples like the Apple iPhone or the freshly announced Google Gphone show.
Key Points of the External Market Environment:
The current lack of legislation regarding copyright issues, encourages people away from legal download services. A trend being recognized by Mintel is that ad-supported content is getting more and more accepted from customers as they are more willing to download from official sources if the content is free.
Mintel predicts that rather being an “add-on” downloading will become an activity carried out on most devices. As a result mobile Internet surfing will increasingly become mass market!
4. Key factors to success for Apple:
- The company’s wide and always up-to-date range of downloadable files.
- The companies fresh and exiting presentation of services and devices that delivers the attitude towards the customer that downloading is fun.
- Design and fashion have proved highly important for the company, as their products are being regarded as “hip” and “stylish”.
- The ease of use for its products and services.
- The company’s innovative technologies.
- Strong branding that attracts new customers, keeps older ones and creates additional value.
- Highly effective advertising
- Many formal and informal cooperations with big multinational firms
Economical aspects: Consumers currently feel very safe about their financial situation and about their prosper life. As a result to that, they are willing to spent more in fast moving goods and luxury. However, costs evole to be the most important factor for customers when it comes to purchasing a mobile phone and additional services as well as downloads.
Socio-cultural aspects: There’s a trend in the mulimedia download market towards targeting younger consumer groups, since these groups show higher interest in downloading and are less restrictive towards new technologies. Despite this trend Apple have to consider that older consumer groups are usually wealthier than younger people and have more money to spent and it is also important for the furture to meditate that the overall population is growing older.
Technical aspects: The wide range of fast changing high-tech/high-quality download possibilities, encourages consumers to download but it also puts more pressure on competing firms, as they have to stay up-to-date with the newest technologies. Considerable developments in the mobile phone market (3G handsets becoming reality and expanded features available to the customer) will push the multimedia download market into new spheres and will open up great opportunities for Apple.
Still, since Apple is taking part in a highly competitive market with new technologies arising and changing in a very fast rate product-life-cycles are short and companies have to invest strongly in R&D in order to stay competitive and to fullfil the market demand.
Legal aspects: Issues of copyrights and illegal downloads greatly affect the music download industry and are a major problem for active legal providers. A former lack of legislation in this area has encouraged consumers away from commercial downloading services and as a response to this, new technologies have been introduced that protect the copyright of owners and prevent customers to download and share files illegaly. Digital Rights Managment (DRM) was created to controll the number of copies that can be made from a download and although for the music industry there are many positive aspects to DRM, there are surely as many negative for the consumer. Therefore, some companies have already planned to open big portals on DRM-Free tracks, that will legally enable the consumer to download files without being limited to a certain number of computers, portable digital devices and CD burns for a reaonable price. Moreover DRM-Free tracks can be played on any MP3 capable device! Although Apple has already updated its offer with DRM-Free tracks, the choice for customers is still very limited, as Apple could only strike deals with EMI that allow them to offer DRM-Free tracks. Also, Apple’s DRM-Free tracks are more expensive than those of its competitiors which could become a major problem in the future, if the company doesn’t adapt its pricing to the market.
6. Porter’s 5 Forces:
Substitute products: A substitute product is not a direct alternative to the product a company is selling. For example, the new Sony Walkman media player is not a substitute for the iPod Touch, it is a competitor. However, a personal CD player or MP3 player could be if certain aspects of the market were to change, e.g. price and there was a high elasticity of demand. In the case of iTunes, with music there is a wide range of options for buying music and therefore are many substitutes within the music industry, for example tapes, CDs, vinyl and DVDs. All of these are easily accessible and just as convenient as downloading from the internet. The benefit which iTunes has is that you do not have to buy whole albums; you can download songs individually and at a fraction of the cost of a single song on another format. Also you are able to buy movies, TV shows, audio books and Podcasts, all available 24 hours a day, 7 days a week. Reports by Mintel have shown that sale price and the volume of sales is falling for non digital media, consequently as a result of internet downloading. Album sales are in dramatic decline; largely due to a boost in single downloads. High definition gaming and music channels have also deflected consumers away from buying into the music industry. However, for the future, it is likely that technological innovation will replace popular digital mediums and formats but we asume that this is not a very big threat for Apple, as the company has proved to always be up-to-date with the newest technologie and will do so in the future.
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The Threat of new Entrants: Already, there are hundreds of media downloading sites available to use on the internet. Some are legal and some are not. It is more difficult to block and put barriers up for illegal entrants into the market because they are not abiding by the law and therefore do not have patents, licences or the rights to distribute media, but still do. With legitimate start up companies, there are capital requirements, possible patents & licences to obtain and ultimately the prospect of competing with already well established and reputable companies such as iTunes. Mintel predicts that there will be an influx of new companies willing to invest in the online downloading industry. A big threat for Apple constitutes the entrance of Amazon into the market. The company announced the launch of a new music download portal that offers a wide range of DRM-Free tracks to a reasonable price. Since there are many advantages to DRM-Free tracks, like the fact that users can legaly copy the files without being restricted to a certain number of copies, consumers are expected to highly welcome the new download store. Apple has to be aware of the fact, that it could loose both new and old customers by restricting them to Digital Rights Management tracks that can only be played on Apple’s iPod and not on any MP3 capable device, as it is the case with Amazon. Another threat of new entrants Apple has to face is, that the download industry is likely to change towards add-driven downloads, which means that customers won’t have to pay for their downloads if they agree to watching adds. Google will launch its own mobile phone, the G-Phone. Google’s strategy is to give its services for free to customers and than sell adds to pay for them. Apart from that, Nokia’s launch of the new Ovi Store together with its new N-Series will be the greates threat of new entrance as it will allow customers to directly download files to their mobile which Apples iPhone currently doesn’t do.
Bargaining Power Of Customers: Due to the vast range of direct alternatives and substitutes, iTunes needs to price competitively as well as maintaining reputation and range & availability. Consumers are easily swayed to alternative products, especially the ease and free use of illegal downloading sites and therefore need to be drawn in to using legal downloading sites like iTunes. Consumers have great power due to their ability to buy from any one competitor in the music industry and can therefore potentially dictate prices by constantly buying from the cheapest company, thus forcing competitors to reduce prices. Obviously one customer would not make a difference, but collectively customers are strong. As for the Apple iPhone, it has to be considered that network providers have great power over the company, as they could decide not to sell the iPhone or put pressure on the company that forces them to pay a certain amount of their revenues to the provider. At the moment, Apple has restricted itself to one provider, O2, and therefore greatly depends on them selling the iPhone but this will surely change over time.
Bargaining Power of Suppliers: Similarly to bargaining power of customers, there is the bargaining power of suppliers. iTunes have to submit to the requirements of the consumer market to be competitive, but on the other hand have the ability to bargain with their suppliers due to the size and reputation of the company, thus they are a supplier and a customer. Due to the volume of sales that iTunes have, it would be foolish for companies such as SonyBMG, Universal, Warner and EMI to not compromise on the costs and rights to distribute their music, as their success in the music download market highly depends on the successful distribution of their music, mainly through Apple. This fact clearly limits the bargaining power of suppliers to a certain degree, although Apple has to consider that without their music iTunes could not function as efficiently as the market demands. Therefore a compromise must arise that suits both companies, a possible agreement could be initial fees plus percentage of sales.
Intensity of Rivalry: Although the amount of companies operating in the music download market is pretty high, Apple is the clear market leader. Still the multimedia download market is a market in its growth phase with fast changing technologies and many new companies entering the market. At the moment, it seems very unlikely that a company could seriously threaten Apple’s market position but the company has to be aware of the fact that there are other big multinational companies trying to enter the market with new technologies and ways of offering their services.
7. The Industry Life Cycle:
The multimedia download market is a market in its growth phase that is being stimulated by an increasing desire of customers to benefit from multimedia technology and services. Technical innovations are leading to an increasing number of consumers seeking to interact through the internet and to download their music. The market value of the music download market has shown very strong and is going to rise even more in the future as customers familiarise themselves more and more with the internet and are increasingly aware of innovative technologies. Especially the youth segment pays great interest to the digital download of music and holds out good prospects for long-term growth. At the same time more and more firms are entering the music download market and prices for technology and services are expected to fall. Add-driven content services and the entrance of firms offering download services from online portals directly to the mobile will bring new perspectives into the market and constitute a threat and a opportunity at the same time.
8. Four Links Model – Lynch:
Informal co-operative links:
Google: There are many informal ties that form the alliance between Google and iTunes. The reasoning for the alliance has long been speculated and many believe it is to overthrow the dominant leader in the market; Microsoft. With Google developing an Office type package and Apple inc. already having an operating system well established, an alliance could be the key to outsmarting Microsoft and decrease their market share. The main features that form the alliance are as follows: Google currently have a video application that has been made available for users to browse freely but cannot download from. Therefore a link to the iTunes website where consumers can download the video can be made available. The link is perfect because customers can view on Google Video and then download from iTunes if they wish. iTunes can be integrated into the Google toolbar or software pack. Also, Google have a sponsored search for the iTunes website where users are directed to the iTunes website and a small fee is provided to Google from the company for the service. CEO of Google Eric Schmidt is currently sitting on the board of Directors for Apple inc. due to the past possible development of the Google iPhone, but this development never really took off. However, he has said recently that Apple and Google are “doing more and more things together” and there is a possible tablet style personal computer on the horizon. “We have similar goals and similar competitors.” Though there is no formal agreement or alliance yet.
Starbucks: Currently only available in the USA, when in a Starbucks Coffee Shop, any iPod touch, iPhone or PC with iTunes on can connect to the iTunes website for free. There is a Starbucks option on the webpage that can allow you to see the current song that is playing and also the last 10 tracks played. Songs can be previewed and downloaded and will automatically sync to your PC when next connected. This is convenient for the customer and benefits both Starbucks and Apple.
Formal co-operative links:
Nike: Bringing sports and music together, Apple and Nike have produced the Nike+iPod which is designed to give the ultimate workout experience. In order to benefit from this, the customer must own a pair of Nike+ trainers (Nike+Air Zoom Moire), an iPod and the Nike+iPod sport kit which is what connects the trainers to the iPod. It is connected via wireless receivers. The idea was realised when Apple CEO Steve Jobs conducted research that showed 50% of the 50 million who bought iPods last year used them during a workout. “Both companies define their core markets by lifestyle,” (Kraft, 2006). Nike’s target audience a sports culture and for Apple’s target audience it is the creativity culture. Both have come together to create a new profile, thus being the lifestyle and technology that has founded the partnership. The two huge brands have come together to create a fusion brand that will attract massive attention.
Coca-Cola: Coca-Cola and iTunes teamed up to promote the release of a coke branded music website that had iTunes services integrated into the website. The website would be available across Europe and allow viewers to see the latest up and coming artists and to download podcasts from iTunes. “We’re excited to announce this partnership with Apple…Together we are creating a unique and exciting platform that gives young people a voice and allows them to refresh their music experience every day.” (Dominique Reiniche, president of Coca-Cola European Union Group, 2006) 70 million free songs would be downloaded from iTunes in the promotion due to special codes printed on coke bottles. The strategic decision was made by Coca-Cola to join with iTunes because of the failure of its own digital downloading website ‘MyCokeMusic’, which lost out to iTunes quite badly. The alliance means that Coca-Cola can sell music but it is only iPod compatible due to DRM restrictive measures.
Network Operators:Apple’s strategy was potentially to play the network operators off each other to ensure they got the best deal possible. Apple decided to go for the biggest operators in each of the country’s that they were supplying the phone in: UK – O2; France – Orange; Germany – T-Mobile. O2 secured their deal by offering 40% of any revenues made from the iPhone and possibly more in commission and other areas. The tactics employed have left Apple highly unfavourable with other Network operators. (Wray, 2007)
It is the complementors who add the value to a company without there actually being agreements or strict negotiations. Companies such as SonyBMG, EMI, Universal and Warner all benefit iTunes because obviously if it wasn’t for these companies iTunes would not function as well as it does and would not generate anywhere near the amount of money that it currently does. Ultimately, Steve Jobs listened to the concerns that music companies had regarding illegal downloading, piracy etc. He came up with the idea for iTunes and this was basically an external source for music companies to make money in the digital downloading industry with minimal effort. It wasn’t strictly a way of how it would help Apple, but how it would help the music producers and the industry. Therefore the collaboration of iTunes with the big players in the music industry complemented each other.
Strengths: Apple is the clear market leader in the music downloadand steady financial performance. Revenues have grown from $5,742 million in 2002 to $19,315 million in 2006 and the company’s net profit has increased from $65 million in 2002 to $1,989 million in 2006 (Datamonitor, 2007). Steady financial growth shows the good financial state of the company and builds the base for future growth and expansion. Also, the company has a very strong branding and enjoys a high level of brand recognition and brand awarness that allows the company to differentiate its offers and stimulate sales. Another strengths of the company is defined by its successful distribution of the iPod and its software iTunes. With every iPod sold, the consumer automaticaly installs iTunes on his pc, as it is only possible to download music from Apple’s original software to an iPod. Moreover, Apple procucts are being considered as “hip”, “stylish” and “fashionable” which is increasingly becoming important for consumers. Furthermore, Apple devices and software attract customers for their convinience, their ease of use and for always being up-to-date with the newest technology. Apple has also collaborated with large brand companies like Nike, Starbucks, CocaCola and Google,which has had beneficial impacts on both Apple and their partners and has created a new profile, e.g. linking sports and music culture.
Weaknesses: First off all there is to say that although the interconnection between the iPod/iPhone and iTunes has been a key factor to Apple’s success this restriction could become a problem in the future, as more and more customers are looking for devices and online portals that allow them to download MP3s to any MP3 capable device. Moreover, Apple has only a very limited offer of DRM-Free tracks on iTunes, which can be defined as a strong weakness since an increasing number of customers fancy DRM-Free downloads. Another weakness for Apple lies in its pricing, especially for its iPhone. A Mintel research about the mobile phone market in the UK defined “pricing and costs to be the most important factor when it comes to purchasing a phone (Mintel, 2007). Also, the iPhone currently doesn’t allow the costumer to directly download files to the mobile, which, compared to the new Nokia N-Series, is a enormous weakness, since it could prevent customers to buy the Apple device and go for the Nokia handset instead. This could lead to a loss of Apple’s market share to its competitor Nokia. Also, technically, the iPhone isn’t quiet as good as its competitor the Nokia N95, as it runs on a slower mobile data service and comes only with a 2 Megapixel camera. Another weakness for Apple is, that they’ve only chosen one operator in each country where the iPhone is available and thus has restricted the consumers choice of network operators.
Threats: The comany’s biggest threat probably constitutes the entrance of Nokia into the digital download market. By providing the opportunity to directly download files to a handset device, Nokia could gain some of Apple’s a market share in the digital download market, since customers are increasingly fancying mobile downloads that don’t restrict them to a bulky pc or laptop. The mobile download market is “one of the most opportunity-rich markets the world has ever seen”, as Nokia’s Chief Executive Olli-Pekka Kallasvuo states (Halper,2007), and if Apple doesn’t catch up fast on this opportunity it is running risk to loose its superiour market position to Nokia. Another threat for Apple constitutes the launch of online portals that are specialized in marketing DRM-Free tracks. More and more customers are looking for music that doesn’t restrict them to a certain number of copies or to a special device as it is the case with iTunes and the iPod. Although Apple is currently trying to improve its choice of DRM-Free tracks, it still lacks the greater choice and lower price of companies such as Amazon which could lead to custmers switching over from Apple to those in terms of DRM more convinincing sites. Also the threat of illegal download sites would have an negative impact, due to the availability of free digital content that could sway customers away from Apple’s iTunes.
Opportunities: Although currently especially the youth customer segment is seen as the major target group for downloading, as these customers seem to be less restrictive towards new technologies, providing more substantial and sophisticated products and services for older and wealthier people could proof very profitable for Apple. With the launch of its iPhone Apple has already done an important move into the mobile phone market that might allow the company to challenge its biggest threat Nokia on their home market. As more and more customers are increasingly becoming aware of innovative techologies and of the benefits arising out of Internet downloading Apple should now take advantage of the great opportunities arising from the fast growing mobile phone download market by making its services directly downloadable to its iPhone as its rival Nokia has already done. Also, the upcoming change in the digital download industry towards ad-supported content could be an opportunity for Apple, if the company manages to strike advertising deals with companies that allow Apple to offer services for free to customers who agree to watching ads. This could bring a whole new bunch of customers to the company. Although these customers won’t have to pay for the add-supported services, they will probably buy an iPod or an iPhone or another Apple hardware device.
10. 1 About Nokia:
Although having its origins in the wood-pulp industry the finnish handset manufacturer Nokia has become a global leader in the manufacturing of mobiles and mobile networks and is now the market leader in the mobile phone market with 36% of the world’s market share. In 2006 the company sold 290 million units and therefore it sells more phones than its three nearest competitors combined. More recently the company has made a move into the mobile download market, which was considered by Nokia’s president and chief executive Olli-Pekka Kallasvuo to be “one of the opportunity- rich markets of all time” (Fildes, 2007), by launching its new multimedia online portal Ovi, which consists of the three components Nokia Music Store, N-Gage Service and Nokia Maps and acts as gateway for consumers to Nokia services. The company has done this as an answer to the announcement of Apple that it would launch a new iphone and therefore enter the mobile phone market, which constitutes a serious threat to the finnish handset manufacturer in its home market. Nokia is now going from a purely hardware-driven company to the service sector and is becoming a player in the multimedia solutions market.
10.2 Nokia’s Mission Statement:
Nokia focuses on bringing people together by providing consumers with human technology that fulfills people’s need to communicate and share. Nokia aims to provide technology that is intuitive, beautiful and a joy to use. The company’s strategy relies on growing, transforming and building its business to ensure its future success and it sees the internet as its main quest, due to the continously changing communications industry with the internet at the center of this transformation. The company’s vision is a world where everyone can be connected.
10.3 Nokia’s new N-Series compared to Apple’s iPhone:
Nokia has launched its new N-Series which consists of the totally new N81 device and an upgrated version of its flagship N95. The N81 is a music-orienated handset which enabels the consumer to directly download songs from the Nokia Music Store to the mobile. This opportunity makes the handset superior to Apples new Iphone as consumers no longer rely on a PC or iPod but can directly download their files to the mobile. The N81 has a 8GB memory with the capacity to store 6000 music tracks, which is about the same as the new Iphone, and it uses a 3G connectivity. The Apple iPhone uses a slow mobile data service called EDGE and that makes it about four times slower than the N81. The new N81 will cost about EUR 360 and is therefore slightly cheaper than the Apple iPhone which comes about EUR 399. The upgrated version of Nokia’s flagship N95 is being marketed as a multimedia device and could take on the highly praised iPhone. It comes with 8 GB of storage, a 2.8 inch screen and 3G connectivity and will feature a 5 Megapixel camera, which is a lot, compared to the rather dissapointing 2 Megapixel camera of the iPhone. The N95 costs about EUR 419 and is therefor sligthly more expensive than the iPhone. Technically the Nokia N-series appears to be better than the Apple iPhone since it offers a faster connectivity and a better camera but what makes it really superior to the iPhone is the fact, that the consumer can download files from the Nokia Music Store directly to the mobile. Still the highly anticipated iPhone looks more fashionable and it’s got the greater consumer attention since many costumers are already familiar with the Apple iPod and Apple iTunes and can’t wait for the
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