Apple is all about innovation, passion, aspiration, hopes, power and life style.
Perfect combination of internet browser, mobile phone and iPod which not only satisfy the customer needs but exceed their expectations. It’s a perfect match of information, communication, technology and entertainment which show its heartfelt connection with its customers.
Target market of iPhone consists of professionals, students, corporate users, and entrepreneurs. Initially its market is small but with the passage of time decrease in prices and addition of certain features will increase its market in coming years.
The success of Apple Company In Future lies on its skill to enter the Chinese mobile market. In this market due to economic, social and cultural differences Apple didn’t get the favorable outcomes. Apple is not feeling comfy with the Chinese Government. This
Government is known for having absolute sovereignty over their customers as well as their business.
Following is the report that throws light on market position, strength and weaknesses of Apple, when they entered Chinese market. Then at the end a plan is made that would clear Apple’s status in the market.
Market’s personal computers, digital music players and mobile communication devices are designed and manufactured by Apple Inc. and it also sells assortments of related software and networking solutions.
IPod has been a remarkable product of Apple; it has sold for more than 163 million units to date. As the market of digital music players has filled completely, Apple made a new smart phone that is known as iPhone. A person who is deliberate for style and would like to enjoy the entertainment, browse internet, iPhone is the best option for them. IPod, web browsing, email and personal computer all are combining in single, stylish and easy to use devise, in iPhone. Many people thought that Apple would not be able to survive in this complex market and in only 2 years they sold more than 21.17 million units. If we compare Apple, it took 3.75 years to sell that quantity of iPods.
For Apple iPhone is more important than iPod. The market of iPhone is also larger than that of the iPod. Now the real competition is between the traditional mobiles and smart phones in the market. In the first quarter of 2009 sales of mobile phones were 269.10 million whereas sales of smart phones were 36.4 million. The sale of mobile phone dropped 9.4% but smart phone sales increased by 12.7%.
China is the 3rd largest mobile user nation after India and U.S. To keep the momentum going Apple needs an excellent international success strategy and China is enormous candidate for that. 10 % of the world’s iPhone market could be made by China because in past two years 26 million units of mobile phones have been reached and lot of sales have been added by this. Apple will occupy 5% to 6% global sales if they released iPhone at once. China will become the most important part of Apple’s sales as the population becomes wealthier there.
There are 760 million users in the market of iPhone. iPhone is made available to 88 countries of the world. China mobile and China Unicom are the only two companies in the country that provide mobile service. Apple has not been succeeded to bring iPhone to China. China mobile and China Unicom collectively subscribed a base of 565 million users, in which 74% were of the iPhone market.
1 Situation Analysis
Apple got a strategy and according to that, it only got special partners. This strategy allows them to deal with carriers in each country. Because of this, all the cards are held by carriers and the mobile manufacturers doesn’t have anything. But in China there are only two mobile carriers, and they are China Mobile and China Unicom.
China Unicom would be an alternative partner of Apple; it got the smallest subscription base of 130 million. This decision wouldn’t be the good decision for some reasons.
In recent years China Unicom has been doing efforts against China Mobile. Monthly growth of China according to Operator proceeds in different ways. It’s between China mobile and China Unicom. China Unicom has adopted strategy to be a world leading broadband communication and information service provider due to continues decrease in revenue. This change in strategy put Apple in a difficult situation because if they choose China Unicom as their exclusive partner they would be taking risk. But China Unicom uses a wireless technology name CDMA. And iPhone uses GSM technology, so if Apple becomes partner with China Unicom they would have to build a 2nd version of iPhone, but this decision wouldn’t go with Apple’s strategy.
Thus, if Apple become partner with China Mobile this would be more suitable. Apple have largest smart phone and China mobile have the largest subscription base.
1.2 Environment Analysis
Now a day’s China is considered as world’s primary engine for growth. World Band forecast the continues raise in China GDP growth rate. The largest number of mobile subscription users is with the China and it’s growing at over 20% per anum. If it’s considered that population of China is 1.3 billion and only 35% uses mobile than it show really important growth opportunity for Apple. As compare to other emerging economies, China is the biggest receiver of foreign direct investments worldwide so Apple has an opportunity to jump into this economy and retain its existing brand image.
1.3 Political and Legal Environment
In China Government has complete control over mobile industry. (MII) Ministry of Information Industry regulated the Chinese telecom market and all foreign companies need its permission for entrance. China Unicom and China Mobile are also influenced by Ministry of Information Industry. Apple should be careful while entering into the market because Chinese government has absolute control over citizens and companies.
1.4 Economic Environment
Form the past quarter China has been the fastest growing nation with an average annual GDP growth rate of 10%. 2nd largest economy of the world is of China. And after China, United Nations. In 2008 United Nations have a GDP of $7.8 trillion.
1.5 Social and Cultural Factors
From past 10 years gross and disposable income has rapidly increased. And it is expected that this growth would continue till 2015. Since 1980’s Engel coefficient has been declining according statistical figures. Urban and rural populations both are at welfare level and this allows them to spend some of their income on non basic things. Chinese people who can afford are more interested in adaption of new technologies and show their strong interest in new products. Males are more than half of the population and eager to spend more on digital and electronics product such as mobile phones and digital cameras.
1.6 Technical environment
As China emphasized more on technology and science, it has become better connected to global economy. Due to this emphasis scientific structure has been improved which results in increase in available money for research purposes. Chinese government approximately used 2 percent of its budget on R & D which is equivalent to Japan and U.S spending. In 2G network the solely population coverage rate of China Mobile is 98%. China mobile haven’t yet started to operate with 3g network. If it is used on iPhone this would give best result. Fewer customers are satisfied in 2G network because internet speed is too slow in it. It is intended that China mobile have 70% 3G coverage at the end of 2009.
2: SWOT Analysis
2.1.1: Technical Innovation and 100% control
Apple is widely known for their interest to detail and their ability to bring something new to the environment. Apple really takes care of each and every step regarding the development of iPhone and this thing gives them a clear cut benefit over their competitors. The mobile market is characterized by the forcefulness that is rapidly moving. Apple controls the software and hardware design and this let them to rapid bring something new to the environment.
Google and Microsoft have adopted a strategy, in it they are developing software for Samsung and L.G. They have to focus on developing software for manufacturers that is why they couldn’t spare time for developing mobile technologies. Apple doesn’t have to consider different types of hardware while developing applications but Google and Microsoft does.
2.1.2: Strong Band image
One of the most healthiest and recognized IT brands in the World is Apple which has a loyal set of enthusiastic customers that advocate the brand. This strong loyalty means that Apple has ability not only to recruits the new customers but to retain them. This can be approved by that Apple forces them to come back again and again for new products and services which increase the opportunity for company to extend new products for their shoppers, e.g. the iPod.
2.1.3: Software Development Experience
Apple got experience in software development. This in one its most important strength. Apple has opened up an area to prepare a way for the most advance technologies. This experience allows Apple to point out past competitor in highly competitive market.
Apple accomplished that sales would be possible if variety of applications are available for iPhone. Apple develops a software development kit by using their experience in software development. This kit allows the software developers to create original applications for the iPhone.
In just 9 months App store has with over 50,000 applications submitted and more than a Billion downloads. It has been a huge success.
The competitors of Apple are Nokia, Microsoft, RIM, and Palm. There is race among them to seizure resources of developer and empower them to create powerful application for their devices. And Apple contrived to gain important advantage over its competitors in this race.
2.1.4: High switching costs
In non Apple Phones iTunes are not available. There are switching costs related to buy a non Apple phone and transfer music to it. iTunes now became the popular music application.
2.1.5: Strong relationships with 3rd party Manufacturers
Foxcon is the specialist manufacturer of high quality devices, Apple developed strong relationship with it. The base of this relationship is on the list of strengths of Apple Company.
In terms of upgradability iPhone is more valuable than the traditional phones. Traditional phones remain the same throughout their life time but iPhone software can be upgraded. From App store iPhone users can add apps to their phone.
Apple iPhone is heavily advertise by using the channel of internet and saved the 400 million of company.
2.2.1: Technological complications
No doubt Apple iPhone is the first in the arena of computer phone but like every new product its has some weaknesses such as iPhone is not a 3G devise due to which it can’t work in technologically advanced countries like Japan and Korea. Both used the 3G compliant phones. Some other iPhone features are not impressive like subpar camera and no removable memory.
2.2.2: High Prices
It’s a common concept that Apple offered high priced products that’s why a survey shows that 52% of customers are happy with their current mobile devices because Apple iPhone is highly priced round about 500 to 600 dollars. Apple should also consider the cost cautious consumers.
2.2.3: Distribution Channels
Apple has decided to choose only the Cingular and Apple retailer as channels of distribution which is considered as its weakness.
2.2.4: Problem of User interface
Apple iPhone may suffer the “gorilla arm” problem due to its touch screen interface which becomes flat, dull and solid results in uncomfortable for its customers.
2.2.5: Unique Product
Apple iPhone is a unique product as there is no diversification and customization to offer.
2.2.6: Dependence on 3rd part party providers
Finally all these weaknesses raised a question whether iPhone can be used for corporate use or it just can be used as entertainment system.
2.2.7: Gorilla arm: A major side effect
Gorilla arm is just a business term not a problem or we can say a major side effect that may cause have obliterate the vertically oriented touch-screens. Humans can’t carry such a huge device all time because their arms will suffer the great pain after a short period. It can be diminish by use of short term devices e.g. ATMs and horizontally mounted screens e.g. desktop PCs but all these can be used to give rest human hands. In addition RSI issues can also come in front of by the use of screen on surface.
Apple iPhone is compatible with other Apple products like Mac and new Apple TV and its big screen also allow the better wireless connectivity whether it’s also friendly with Mac OS software tools means boundless potential for upgradeability.
2.3.1: iPhone as a Gaming platform
In App store 22.5% of applications are games according to an empirical research by O’Reilly Radar. iPhone has all the things required to be a gaming device. Its touch screen control, GPS, digital compass etc. it allows 3rd party developers to create games that haven’t been seen before in the industry. Apple not only got an important rank in mobile phone market, but it is also an important player of gaming industry.
Apple got the guts to win a large portion of handheld gaming market that is one of the most competitive markets. It is because of the unique features of iPhone that they got such place in the gaming market. Independent developers easily create games within limited budgets and they got millions of customers around the world, this could be possible because of Apps store. Apple empowered the developer community, and it’s a serious threat for Sony and Nintendo.
2.3.2: In App Purchasing
The developers charge its iPhone users for digital content within the application; this is because of the latest release of iPhone. This was an important opportunity for apple. Apple stores charge from developer’s commission of 30% after storing the details of customer’s credit card.
2.3.3: Multi Touch Track pad as an Input Method for Pin-Ying
iPhone keyboard software allows you to switch between over 40 international layouts. Where as Chinese have a poor input method for Pin Ying. iPhone also got the feature through which you can draw a Chinese character with your finger and tap to choose the matched result.
2.3.4: iPhone as Hub
iPhone came into existence before two years; in this time span they have changed their strategy. Initially it was marketed as a device. The focus of Apple marketing division is on the unique features of iPhone. Its second version was marketed as an application platform. Next thing that came is the digital hub. This enables the developers to sum up with the 3rd party’s devices.
2.3.5: Mobile Computing
Now a day there is a demand of improved mobile computing experience. iPhone has an opportunity to combine both computing and entertainment in one unit system.
2.3.6: International Partnership
The innovation of iPhone allowed the Apple to collaborate with dominant mobile phone companies which will overflow the iPhone 3Gs market result in increase in long term revenues and reduction of marketing cost.
2.3.7: Expansion in target segment and demand
Target market of Apple are the people who wants all in one computing solution but technology become advance day by day, in result smart phones will become cheaper which will allow the fun loving people to approach the iPhone. Apple has an opportunity to make these people its target segment and upgrade the iPhone 3Gs.
2.4.1: Competition from Microsoft, RIM, Palm, Nokia and Google.
There are many competitions around, the biggest threat to IT companies. No doubt the market of smart phone is growing rapidly but popularity of competitor’s product can affect the demand of Apple iPhone. As the hurdles to entry decreased, new entrants enter the market, and create a really challenging situation for Apple Company. Google started to develop software for smart phone, and smart phone manufacturers are allowed to use this software free of cost. This strategy of Google can cause disrupt. Apple has to be more careful. To reduce the competition and to being successful in technology markets Apple should work hard on research and development
2.4.2: iPhone Clones and Copyright in China
Apple can not rely on China’s copyright laws as they are uncertain. Many iPhone clones currently exist in the market. Product substitution is another big threat to IT consumable market. A specific clone called Hi Phone, is similar to the iPhone, one can not distinguish between the iPhone and clone. The existence of these clones is a threat to Apple. Because of it revenue of Apple declined, and it is damaging Apple’s band reputation. iPhone need to develop strong brand acknowledgement and make agree their customers that the iPhone is far more superior to those clones. Technology attracts only if it remain change. May be tomorrow’s technology may be totally different from today so research and development of new technologies and concepts is the only source to become at competitive position.
2.4.3: Less spending trend
Although China is considered as stable economy but iPhone is going to be released in time when people are cautious about their spending.
2.5.4: Legal threat
In 2005 Apple had won the legal case of pre-empted the launch of new Apple products. Internal employees of Apple had leaked the information about their new upcoming product before its launch. Another case of Apple vs. Cisco trademark-infringement lawsuit, these types of lawsuits are also an important threat that may affect on the product launch stream.
3: Porter’s Five forces Model
3.1: Bargaining power of Buyers
Broadly speaking there is a specific shopper group which is considered the principle purchaser of iPhone and now a day’s consumers have alternate choices of a single product so we can say bargaining power of iPhone buyers is somewhat more powerful. Consumers become more sensitive regarding prices so it raises a question whether buyers will pay a premium for Apple cachet and technological convergence when they have an opportunity to equally fulfill their needs with cheaper alternatives.
3.2: Bargaining Power of Suppliers
As I stated earlier Apple iPhone is one of the healthiest and recognized IT brands in the world. For Apple, iPhone is not just the sum of its parts because if these parts and alternatives are available in market from different sources they can’t be as much interesting as Apple presents. What an Apple provides is software that really appeal its customers as it together it all parts and permit its users to interact with the phone in a compelling way. And of course, that software is owns and developed by Apple from its suppliers but Apple is now thinking about forward integration with its suppliers. So this makes sense that bargaining power of supplier is not powerful.
3.3: Threat of new Entrants
Intense competition is going to face by iPhone from impressionists who sells similar and comparable devices at a lower price. But this threat becomes more when we think about the established players of cell phone industry like Samsung and LG rather than new companies trying to enter in existed markets. No doubt another credible threat Apple has to face is from software companies such as Google and Microsoft who are trying to carve out a niche for themselves. Both companies are trying to developed software for mobile devices because Microsoft has a lot of experience and Google has a team which is actively investigating on it. But it could be only possible if, rather than satisfied themselves with creating software licensing for cell phones, any one of them will directly take initiative to enter into the existed cell phone devise industry.
3.4: Threat of Substitutes
User interface of iPhone which is driven by multi-touch screen is a feature that distinguishes Apple from its competitors. No doubt various patents relating to this technology is claimed by Apple but soon the other opponent will be able to offer the product with similar feature. Like LG and synaptic, revealed the details of upcoming product with touch-screen interface feature.
3.5: Barriers to entry
Although no of barriers have been faced by Apple in the development of iPhone but it should considered the obstacles while entering in new mass market of China.
Economies of scale
As Apple have vast experience of mass-marketing (mass production and mass consumption) electronic devices so they have the ability to overcome and navigate the barriers.
Differentiation of Product
This is favorable attribute of Apple because it has a strong brand image which makes it different from its closest competitors. But as the technology become advanced day by day may be this trait become strength of its nearest opponents. So Apple should do more research and development to maintain its brand identity otherwise it may happen that competitor’s products have no product differentiation in near future.
Requirement of Capital
Some cell phone companies have experience of manufacturing cell phones not software and some companies have experience of making software only. But Apple has an ability to face the friction of this barrier because it deals with both software and hardware. No doubt Apple has an advantage over here because it invests ample of capital in manufacturing hardware and software but this trait can be lost any time. So Apple should keep in mind every time when going to built new strategy for new economy according to its budget.
Whenever a company enters in new market two things discourage it. First one is current players and second is patents, approval requirements & regulations of that economy. Apple has applied for patent in Chinese economy which will make its product more reliable as compare to its competitors.
Over Cost and independent in size
Undoubtedly Apple invest a lot on knowledge, experience and R & D, and it requires a lot of cost which Apple considered its positive trait which may not an easy task for competitors to emulate. Because Apple deals with lot of manufacturing resources and channels and this helps it to minimize the friction of this trait. Moreover Apple has another advantage when we talk about independence of size because of patent and technology for iPhone and it allows the Apple to create short term monopoly.
4: Competitor Analysis
The following chart interprets the current prices and the feature sets.
4.1: Competitive: Scores vs. Features
5: Market Segmentation
From USA and Europe all the wide range of market segments were attracted to the iPhone. General trend amongst consumers can be delineated by the following charts.
5.1: Analysis of purchasing desire:
5: Selected market strategy
In past while entering any new market Apple has a strategy of initially setting a high price than lowers the price over time. But the environment of China is totally different from previous markets that Apple has entered. First thing is that Apple’s Digital music players and laptops are very popular but Apple does not have any strong brand in China. Secondly iPhone clones becoming popular in the market and it’s damaging Apple’s brand. And last but not the least smart phones are common in China thus Chinese are not very much willing to purchase smart phone as a new thing.
So Apple marketing strategy for communication with Chinese will be following.
Commercials: Apple will use commercial videos but to cut down the expenses students of universities can be hire rather than actors, actresses and directors. It will make customers more realistic and closer to product because 32% of its overall population is young.
Bill Boards: Some important and proper location should be used by Apple to publicize its product.
Flyers: some part time students or persons will be hired by Apple to promote its iPhone 3Gs sales.
Internet: As 35% of iPhone sales are depend on professionals so internet is the best source to catch this targeted segment. By giving ads on internet different popular sites Apple not only attract its potential customers but cut down its marketing expenses.
6: Marketing P’s
Few changes should be made in the Apple’s iPhone. Firstly iPhone would be available in different colors. Apple should follow the trends that are popular amongst the Chinese regarding phones.
To differentiate the iPhone from its competitors certain changes should be made. Chinese character should be made available in iPhone so that user can draw them on multi touch screen as this has been difficult for Chinese previously.
Apple should disable Wi-Fi connection on the iPhone because it is against the censorship control. And it’s an important thing in China
To make feasible for Chinese, Apple should lower the iPhone 3Gs weight and fit into wallet just to add the feature to act as debit or credit card.
iPhone clones has excavated Apple’s pricing strategy. If Apple initially sets the prices high and then lower the price this strategy would have negative effects on consumers. Because, then they won’t be able to distinguish between the iPhone and iPhone clones.
In China iPhone is available for 4000 RMB. iPhone clones have half of this price. Apple should carefully price their iPhone so the person can purchase the product easily without any confusion.
Apple must price their product in a way that it would capture developer resources. They should have such kind of long term strategy so that within China they would have large number of users.
One of the most important decisions is to choose the distribution within China. Apple has strong relationship with distribution channels. But in China they would change their strategy. Apple has a store in Beijing. There is a need to find a Company in China to become its partner. They should partner with the best china mobiles partner this will allow Apple to reach market easily. Apple should focus on Shanghai, Beijing, and Hong Kong because there the people have high earnings.
Apple must allow their customers to make online orders this would benefits Apple financially.
Few features should be carefully focused so that Chinese would know that iPhone is a new mobile technology. Apple should advertise the iPhone as something new and unseen in the market this would also make it different form clones.
Apple can differentiate their iPhone from iPhone clones by simply focusing on iPhone applications as iPhone clones won’t be able to run this application. Pin Ying technology will also differentiate the iPhone from clones.
iPhone 3Gs is the best way to smash the huge and well established cell phone market, but now it’s going to establish its image in China. To enter the highly competitive market is a critical problem. Apple must take into consideration the political environment of the company before partnership. In China Government has authority over everything. There is a lot of difference among Chinese, Europeans and Americans. They use mobile in different ways. Apple should make available the features for Chinese in the iPhone. Apple should develop application software so as to differentiate iPhone from clones. All these things can be done successfully if Apple overcome and navigate the challenges of Chinese economy.
For Apple to reach Chinese market is something more than generating revenue. Through iPhone Apple can build brand recognition and this is a great way of driving future sales.
Following are some graphs which will show the facts and figures regarding china and Apple iPhone to support our project.
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