Market strategies of apple inc

Apple Inc. (previously Apple Computer, Inc) is a multinational corporation that was established on April 1, 1976 in California and incorporated on January 3, 1977. [i] The company for 30 years was named as Apple Computer Inc. but it changed its name to Apple Inc. on January 9, 2007 as it wanted to expand to the consumer electronics market and do not only stay in the computer market. [ii] 

As of September 25, 2010, the Company has 317 retail stores in 11 countries. By these stores, 233 are in the United States and 84 internationally. The company sells its products mostly through its retail stores and online stores.

Furthermore, the company for the year 2010 employs 46,600 full – time employees and 2800 temporary employees and contractors. [iii] 

Apple designs, manufactures and markets a range of computer software, hardware products and personal computers. Some of its products are the following:

Products

Hardware Products

Consumer Electronics

Application

Software

Operation System Software

Displays & Peripheral Products

Marketing Tools

Nowadays, many companies use various Strategic Marketing tools in order to help them manage and develop effective marketing decisions for their products and products portfolios. Many of these of tools are the following:[1]

Porter matrix

Ansoff matrix

Boston Consulting Group Matrix (BCG)

Directional policy matrix

PEST analysis

SWOT analysis (Strengths, Weaknesses, Opportunities, Threats)

Gap analysis

Product life cycle analysis

Marketing audit

Market research

Market segmentation studies

Diffusion of innovation

Forecasting

Cano Model

Quality Functional Deployment (QFD)

However, the main Strategic Marketing tools relating to the product are the following:

Ansoff Matrix

Product Lifecycle

Boston Consulting Group Matrix

[1]Malcolm McDonald on marketing planning [electronic resource] : Understanding Marketing plans and Strategy / Malcolm McDonald. Publication Info. London ; Philadelphia : Kogan Page, 2008.)

In order for Apple to develop new products and products portfolio, it could use the Ansoff Matrix.

Ansoff Matrix

Ansoff Matrix is a well known marketing tool which was first published in Harvard Business Review. Many companies nowadays use it in order to help them decide for the development of their product and the market share. [3,4]

The matrix has 2 dimensions. The first one consists of existing and new products while the second consist of existing and new markets. Inside the matrix there are four main categories with suggested grown strategies for each one in order to help the company set the correct direction of their business strategy. The four categories are:

Market Penetration in which the company enter into an existing market with existing products/services.

Product Development in which the company introduce new products/services into existing customers.

Market Development which the company tries to attract new customers with existing products/services

Diversification occurs when the company tries to capture new customers with completely new products/services.[3,4]

An example of the Ansoff matrix is the following:

Ansoff Matrix w500.gif

Apple could use each of these four categories in order to manage its existing products and develop new products/ services

Market Penetration:

In this strategy, Apple could aim on selling the existing products, e.g. Mac Computers to the existing markets. More specifically, Apple:

Should try to increase the market share of the existing product. This could be achieved by using the appropriate marketing tools( lower prices, sales promotion, advertising) in order to attract new customers to buy its products.[3,4] For example, more advertisement or reduced prices on Mac Computers could persuade new customers that prefer Windows operations system to change to Macintosh. This is more highly to be achieved in the grown markets because in there the product is at its rising stage.

In order to increase its sales and its profit, Apple could persuade existing customers to buy more products. This can be done during an economic grown where customers are willing to spent more money in technological items. [4] For example, Apple could use more advertisements or sales promotion to persuade customers to buy an iPhone for all the members of their family. Or Apple could persuade existing iPod customers to buy also a Mac computer.

Could try to αποκτήσει the leadership role in the market by διώχνοντας all the other competitors. This could be achieved by adopting an appropriate promotional campaign. For example,

to drive out any competitors in order to have only its product in the whole market. It will succeed this by adopting a very aggressive promotional campaign. (1,3)

Product Development

In this strategic option, Apple could create new products for the existing customers. With them, Apple has already a strong relationship, so it knows their need and specifications for creating a new product. Therefore, it could innovate its products in order to keep their customers satisfied, beat its competitors and keep its leadership role in the market.

An example of this strategy is the iPod. The first iPod that Apple introduced was in October 2001. This was the first entertainment tool from Apple for people to use it all the time in order to hear their favourite music. However it had a black-white screen and only 5 GB capacity for songs. Therefore, in 2003 Apple introduced an iPod with the maximum of 40 GB capacity. In 2004 it introduced an iPod with a colour screen and 60 GB capacity. Nowadays, Apple has created an iPod that has a 3.5-inch (diagonal) widescreen Multi-Touch display, Wifi and many other features(Diversification). These changes belong to the product development as Apple innovate its products to attract the existing customers and replace their product with the new.[6]

Another example is that Apple every year innovate the iPhone. The first iPhone was released in 2007. The next year Apple introduced the iPhone 3G. In 2009 Apple announced the iPhone 3GS and in 2010 it announced the 4G. All these products are aiming to the same market share, the customers who have already bought the first iPhone and want to replace it with the new one.[6]

Market Development

In the Market Development, Apple could use different marketing strategies in order to sell existing products/services to new markets and increase its profit. It could achieve that, either by expanding to other geographical areas or by looking for users that will use the product in a different way. A common example is by expanding to foreign markets or to expand from the private sector to the public.[4] Some examples of Apple are the following:

Apple did not stayed on selling only to U.S but expanded on all over the world and in 2010 it earned $24,298 from America sales and $30,929 from worldwide. [5]

Another example is that when Apple introduces a new product to the market, it leaves the previous one for some time in the market in order for the customers with low income to buy it. With this technique Apple gain a new market and make a small profit.

Another example is that Apple in the beginning was only selling only to customer market but a few years later, it expanded to the area of education.

Diversification

This strategic option is the most risky of all as Apple has to think of new products and introduced them into totally new markets. This option has a very high failure rate as many products fail to come up with the expectations of the customers, so the company has a loss instead of a profit. [4]

The most recent example of diversification to Apple was the introduction of iPad in 2010. With this product Apple was aiming in capturing the customers who used the Internet all the time and did not want to carry a notebook with them. With iPad Apple did not enter to a completely different market because iPad is like an iPhone with a bigger screen. Therefore, Apple knew how to handle this type of product.

Another example is the introduction of iPhone. In 2007 Apple introduced the iPhone, the first mobile phone from Apple. With the specific product, it entered immediately to the mobile market which was totally new to them and in which did not have any previous experience. Apple knew that it should have many competitors and it knew that the product will be either a failure or a success. Therefore, with appropriate marketing and management strategies, iPhone proved to be a success.

A much older example is the introduction of iPod. Apple introduced the iPod in 2001. Like in the case of iPhone, Apple was also entering into a whole different area from the computer market. It was entering into the music market and was aiming for existing customers to buy an iPod and for new customers to try one and also try the services of Apple.

Finally, as Apple has already entered in the markets of Mobile Communications, Computers, TV and Music, it could develop a gaming console, like Play Station 3, in order to enter to the market of gaming. If it enters this area, it will make a lot of profit because young people spent a lot of money on gaming

Market Penetration

Usage of appropriate Marketing Tools(advertising, lower prices, etc)

Persuade existing customers to buy more products.

Product Development

Introduction of iPod, the first entertainment tool from Apple

Innovation of iPhone each year

Market Development

Apple expended Worldwide

Diversification

Introduction of Ipad

Introduction of iPhone

Introduction of iPod

Apple could create a gaming console

Ansoff’s Matrix- Planning for Grown,PO Box 475, Chichester, PO18 8WX, United Kingdom,

(UR:Lhttp://marketingteacher.com/lesson-store/lesson-ansoff.html)

3) Ansoff Product/ Market Matrix, Boston House, 214 High Street, Boston Spa, West Yorkshire, LS23 6AD, Tel +44 0844 800 0085, Fax +44 01937 529236.

(URL: http://tutor2u.net/business/strategy/ansoff_matrix.htm)

4) Mike Meldrum, Malcolm McDonald Marketing in a nutshell, BH, 1st edition 2007,

(URL:http://books.google.com/books?id=sjO9TV3NNT8C&printsec=frontcover&dq=Marketing+in+a+nutshell&hl=el&ei=MBf0TMLhNMyChQfu19jrCw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCgQ6AEwAA#v=onepage&q&f=false)

5) United States Security and Exchange Commission, Form 10-K Apple Inc., Washigton, D.C.20549,(URL:http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Njc1MzN8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1)

6)Apple Inc,http://www.apple.com

After developing new products and products portfolio, Apple should use some tools in order to manage them. The most popular tools for managing and controlling are the Product Lifecycle and the Boston Matrix.

Product Lifecycle(PLC)

This tool is very useful for Apple as it will be able to manage and control its products/ services and determine different marketing strategies for them.[4]

More specifically, the product lifecycle has to do with the life of the product in the market. As Johnson G. and Scholes mention Product life cycle is similar to the human’s lifecycle. Humans during their lives pass trough different stages e.g. birth, grown, maturity, decline and death. The same thing happens with product lifecycle. It passes trough introduction, grown, maturity, saturation and the final stage of decline cause of some natural limiting factors.[1]

An example of a product lifecycle curve is shown the figure 1.

Figure 1 [1]

Each product lifecycle has 5 different stages:

Introduction: During this stage, Apple is introducing a new product into the market, e.g. iPhone. Most products that exist in the markets are not totally new from the previous ones but with some minor changes. Products totally new, like TV, Computers appears in the market only a few times. In this stage, iPhone is not make any profit because it is new to the market and the customers are cautious of buying it as they do not know it.

However, Apple has a very profitable strategy of announcing to ‘pre-order’ the product before its release to the market. With this policy, Apple gains a lot of money from early adopters and invests them to other areas, like advertising iPhone.

Generally, this stage is very difficult because despite the fact that there is no competition, the expenses are very high and many companies do not manage to pass into the next stage. Therefore every company has to ‘play’ with the marketing mix (price, promotion, product, distribution) in order to make some profit. [1]

Grown: If a product manages to reach this stage, then it will prove to be a success, like iPhone. Here its sales are increasing rapidly as customers tend to prefer it and are buying it.So will make a profit. [1]

The same thing happened to iPhone. Apple chose a very good strategy for the introduction of iPhone, so its sales increased rapidly and it made a lot of profit.

However, in this stage starts the competition. Therefore, if the company do not develop a smart marketing mix so as to attract more customers, then its sales and profit will be decreased. [1,3]

One limitation of the grown stage is that barriers to entry may be low, as existing competitors have not built up much scale, experience or customer loyalty. Another downside is the power of suppliers if there is a shortage of components or materials that fast-growing businesses need for expansion.

Maturity: In this stage, the market is almost full and the sales continue to increase until they reach a peak and start to decline.[1]

but the profit for the company start to decrease as it has to drop its product prices because the advertisements expenditures are increasing because customers know the product.[3]

However, competition is increasing and when the markets are full; the grown of the product begins to decline.

Therefore, during this stage, the company should make some radical changes concerning the marketing mix in order not to lose customers.

Saturation: This is the stage that the market is full of companies competing for the same product and the sales are decreasing.

Producers attempt to differentiate products and brands are the key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and uses a greater variety of media. The rate of sales grown eventually levels out. Generally, there are too many firms competing for too little business at this stage. As a result, price wars may break out and there are casualties or tactical withdrawals among the competitive companies. [2,1]

Decline: In the final stage, the product has come to its decline as there is a downturn

in the market. This means that the market is full of more innovative products in more attractive prices.[2]

The limitations of PLC are that this tool is not the same for all products e.g. mobile phones have shorter lifecycle than automobiles. Its product has a unique lifecycle e.g. some go from introduction to decline, while some other might reach the saturation and decline stage and then grow again. Therefore is very difficult for the marketing managers to predict in which stage is the product. The most common is that when sales peak and then decline, the managers conclude that the product is in the decline stage. Furthermore, some products do not experience any decline like Coca Cola or Pepsi. These products are in maturity for many years, so the company has only profits from these.[2,3]

To sum up the PLC is ideal as a descriptive model as it focuses on the future sales and understanding the dynamics of the market.[1]

1) McDonald, Malcolm and Adrian Payne (1996), Marketing Planning for Services, Oxford: Butterworth-Heinemann, pp 77-117

2) Our registered business address is

PO Box 475, Chichester, PO18 8WX, United Kingdom, http://marketingteacher.com/lesson-store/lesson-ansoff.html

3)The Product Life Cycle, 1st Floor, Goeland House,178 St Albans Road, Arnold, Nottingham, NG5 6GW, (URL: http://www.ukessays.com/contact.php)

[5] Johnson G. and Scholes K. 1999 “Exploring Corporate Strategy”, 5th Edition London Prentice Hall International 1999.

The Boston Consulting Group Box (“BCG Box”)

The Boston Matrix is another useful tool for the marketing managers in order to plan the product portfolio of their company. First the managers should divide the company’s portfolio into the products that generate cash and the products that do not. Then they should use it in order to see which one produce cash and make profit for the company and which are not. [2] Therefore, the company can evaluate if its products are healthy .

The BCG Box uses a form of a two- dimensional matrix. These are the market share, which indicates the strength or limitations of the market and the market growth rate.

In order for someone to use the matrix, he should divide it into 4 quadrants, stars, cash cows, dogs, question marks, like the matrix in Figure2. Furthermore, he should use circles for each product or product portfolio of the company. The size of the circle indicates the size of the sales or profit for the particular product, product line or business unit the company has.[1,5]

In order for Apple to apply the Boston Matrix and manage its products, it should divide its product portfolio into 4 categories deciding which of them are dogs, stars, cash cows and question marks.

Figure 2

Stars: Stars are products that are in high growth market with high market share. As Tony Proctor said ‘stars are tomorrow’s cash earners’. This means that stars make a lot of profit for the company but in order for the company to keep these products to this stage, it must spend a high amount of money. Therefore, stars are neutral from the point of view of cash generation. [1,2]

iPhone is an example of a star product that Apple has in its portfolio. iPhone in its grown generates a lot of gross profit to the company but it also needs a lot of money in order to change it to cash cow. When it reaches the maturity stage and change to cash cow it has only profit to the company without any expenses for investment.

Cash cows: In this stage are the mature products with low growth and high market share, so this area is the most profitable of all as they generate a lot of cash that can be used in improving other areas or in supplying research and development of new products. The company have to invest only a small amount of money to keep them where they are. [1,3]

An example of cash cow is the iPod. Despite the fact that Apple does not make considerable changes to the specific product, customers prefer it and buy it. In 2010 Apple sold 8,274 units without making considerable changes.

Another example is iTunes. Customers from iTunes can purchase many songs, videos and nowadays even books. Apple all these years made minor changes to iTunes but customers continue to buy from there. Therefore, iTunes is a very profitable programme for Apple without any cost for investment.

A case in point is Apple Computer’s flagship product called the iPod, which occupies a dominant 73% share the portable music player market (Cantrell 2006). Analysts believe it is the impetus for Apple’s financial rebirth 40% of Apple’s sales is attributed to the iPod product line (Cantrell 2006)

Dogs: These are products with low market share and low market growth. They are completely profitless for the company and have no future. The best thing each company should do is to divest these products.[1] However, many companies that have dog products have to think carefully before divest them because they might be a portfolio of other products which might be stars. So if the customers that buy the dog with the star, they will stop buying both of them and the company will lose money.

Many companies like Apple do not have many dogs’ products because they are IT companies and they innovate their products very often in order not to lose their position on the market.

One example is the iPhone 3Gs when Apple released iPhone 4G.This happens to all of the products of Apple. When it releases a new product, it leaves the previous one for some time in the market with a very low price. This is a dog product.

Another example is the iPods shuffle that does not have any screen. These are products with little or no demand on the market because most of the customers buy the iPod with a screen. Therefore, these products make little profit for the company, so they are dogs.

Question marks: These are products with low market share but high market grown. These are also unprofitable for the company as they are low market share and the company have to invest a lot of money to grow their market share. Therefore, marketing managers have to think very carefully in which ones they should invest. If they invest in a profitable product then it will become star and afterwards cash cow or else it will become dogs.[1,3]

An example of question marks is the Mac Computers. Most people worldwide prefer to buy a computer with a Windows operation system instead of Macintosh, so Apple has to invest a lot of money, as they are very complex products with high technology in order to change them into stars.

In General each company have to possess at least one cash cow in order to make profit and invest it to other areas, like stars so as to become a cash cow. If a company has many dog products then the best solution is either convert them to stars or dispatched them. There is also the possibility for a company to have question marks. If that happens, then either it should change them to stars and then cash cow or let them become dogs and dispose them. [1]

However, despite for all the positive results that Apple could have with BSG matrix, it has many limitations.

Firstly, the matrix assumes that every product is independent from the product portfolio of the company. This is not all the times true as many products depend from others and if the company consider a product dog and divest it, then it will create a problem to the other product.

Furthermore,

The limitations of BCG matrix are that the higher rates of profit do not always related to high rates of market share. Furthermore, it is usually applies to product lines instead of simply a product. Finally, the main problem with these tools is that they are not always accurate.[2]

In addition, the growth-share matrix is based on the assumption that high rates of growth use large cash resources and that maturity of the life cycle brings about the expected profit returns. This may be incorrect due to various reasons (Cipher 2006): capital intensity may be low and the business/product could be grown without major cash outlay; high entry barriers may exist so margins may be sustainable and big enough to produce a positive cash flow and a growth at the same time; and industry overcapacity and price competition may depress prices in maturity.

• Furthermore, market growth is not the only factor or necessarily the most important factor when assessing the attractiveness of a market. A fast growing market is not necessarily an attractive one. Growth markets attract new entrants and if capacity exceeds demand then the market may become a low margin one and therefore unattractive. A high growth market may lack size and stability.

1) Tony Proctor, Strategic marketing [electronic resource] : an introduction, London ; New York : Routledge, 2000.

2) Our registered business address is PO Box 475, Chichester, PO18 8WX, United Kingdom, http://marketingteacher.com/lesson-store/lesson-ansoff.html

3) Ansoff Product/ Market Matrix, Boston House, 214 High Street, Boston Spa, West Yorkshire, LS23 6AD, Tel +44 0844 800 0085, Fax +44 01937 529236.

(URL: http://tutor2u.net/business/strategy/ansoff_matrix.htm)

4) Mike Meldrum, Malcolm McDonald, Marketing in a nutshell, 1st edition 2007

5) David Mercer, Marketing, Blackwell Business, 2nd Edition

The best known hardware products are the Mac computers, the Iphone, the IPod and the latest success, the Ipad. As for the software, Apple designs the Mac OS X Operating System which is for the Mac computers, the iTunes media browser , the iLife which is a multimedia software for organising, editing and publishing photos, movies and music, the iWork which is an office suite type of applications, the Aperture which is a professional photography tool, the Final Cut which is a editing tool as you can cut various scenes of a video, the Logic Studio which is a music production tool and finally the iOS which is an operating mobile system.i