Porters Five Forces Analysed The External Environment Industry Marketing Essay

1038 words (4 pages) Essay

1st Jan 1970 Marketing Reference this

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Among the different choices, Apple has chosen the differentiation focus strategy in the broad industry. The invention and development of products by Apple are its highly unique attributes, with devices such as the iPhone, iPod and iPad where the use touch screen and other interfaces to operate the products. Apple spends billions of dollars every year on R&D (Research and Development) to develop and promote its products in order to achieve superior quality over competitors’ products. Apple slogan is ‘Think Different’, which drives them to innovate and provide high quality regarding their products. Apple’s markets are global, but they are focusing on active markets such as America, the EU and some Asian countries. However, Apple focuses on a market segment where customers clearly feel that Apple provides value for its customers. In addition, Apple had a positive growth rate during the economic crisis of 2007-2009 (Business week, 2010). Apple’s premium price strategy and its success have become a significant barrier to competitors such as Nokia, Motorola, HTC and the E-book by Sony.

Porter’s Five Forces Analysis

Porter’s Five Forces analysed the external environment of the industry in order to give a better understanding of the strengths and weaknesses within the organisation. These analyses give the company the ability to identify the opportunities and threats from external factors (Harrison, 2003). These forces include:

Threat of new entrants

For each of its product lines, Apple, like any other company, faces rigorous competition. This high-tech industry requires continual research and development (R&D). This sector is difficult for new companies to enter because new entrants must spend a large amount of capital on R&D and on the advertising and promotion of their brand. There are some dominant producers in this sector such as Apple, Microsoft, Dell and Sony, who share the majority of the market. Apple should be aware of new entrants because they may come up with surprisingly better technology or a better product. However, these new entrants are less of a threat because it is difficult to enter and penetrate the market in a limited time (Harrison, 2003).

Power of the supplier

Porter’s second force states that the bargaining power of suppliers imposes a threat to any company. It also includes, the availability of substitute suppliers which is an important factor in determining the power of the supplier. Suppliers are known as third parties in this industry, and they are classified in two groups. The first group makes the major parts for the products. This group is not strong because of the availability and easy of replacing the items they make, such as batteries, wire connections, screens and other internal components. In contrast, the second group provides accurate parts and important programmes such as flash-memory and DRAM. This group is strong because of their specialized and advanced products, as well as the lack of alternative products (Nistor, 2010). There are some suppliers who dominate the market; for example, Intel, Microsoft and Sony. So, it is important for Apple to have a good relationship with its suppliers.

Power of the buyer

The buyer’s bargaining power is very high in the industry because competitors offer a wide range of similar products with competitive prices. The Apple Corporation faces a moderate threat from buyers because they have a lot of products that consumers can choose from. In addition, the threat of buyers comes from their demand for new features in Apple products. However, there are a large number of companies that offer similar products and there is quite a big differentiation in price and performance. Therefore, loyalty is often shown towards a specific brand because there are not many differences in the quality and price between brands (Nistor, 2010). Buyers are often more sensitive to brand rather than price. Apple’s customers are individuals, education departments, enterprises, governments and creative customers. So, the variety of consumers and their needs has a direct impact on Apple’s future strategies.

Threat of substitutes

The technological environment is changing fast every day. There are not many substitutes in this industry because of the high-tech features. However, alternatives are always available from competitors. If some other company such as BlackBerry, Google, Samsung or Microsoft come up with new technology or the same kind of phone at a lower price or with more features at the same price, then this is a problem for Apple (O’ Grady, 2009). Customers usually tend to look to the latest technology instead of traditional methods. Apple has the ability and efficiently to design and develop its own hardware and application software to become unique and distinct from its competitors.

Competitive rivalry

The competition in this industry is very high, almost in all areas of business, because of the continuing requirement to provide new products all the time. Competitive prices, new products, design innovations and technology are the main factors that Apple has to compete with other international companies on, such as IBM, HP, Acer and Dell. The consumers’ choices also differ; some prefer to save some cash rather purchase high performance specification technology and some prefer the newest technology. So, the result is that companies implement different strategies; for example, low-cost and best-cost strategies. Some manufacturers offer products at the lowest price in an attempt to cut their costs by ignoring everything except some basic features. Some other companies in the middle price range, such as Dell and HP, focus on attracting customers by offering varying prices. And the top of the range companies, like Apple, gain customers through their high quality products, features and innovative design, which makes their products popular all over the world (O’ Grady, 2009).

Among the different choices, Apple has chosen the differentiation focus strategy in the broad industry. The invention and development of products by Apple are its highly unique attributes, with devices such as the iPhone, iPod and iPad where the use touch screen and other interfaces to operate the products. Apple spends billions of dollars every year on R&D (Research and Development) to develop and promote its products in order to achieve superior quality over competitors’ products. Apple slogan is ‘Think Different’, which drives them to innovate and provide high quality regarding their products. Apple’s markets are global, but they are focusing on active markets such as America, the EU and some Asian countries. However, Apple focuses on a market segment where customers clearly feel that Apple provides value for its customers. In addition, Apple had a positive growth rate during the economic crisis of 2007-2009 (Business week, 2010). Apple’s premium price strategy and its success have become a significant barrier to competitors such as Nokia, Motorola, HTC and the E-book by Sony.

Porter’s Five Forces Analysis

Porter’s Five Forces analysed the external environment of the industry in order to give a better understanding of the strengths and weaknesses within the organisation. These analyses give the company the ability to identify the opportunities and threats from external factors (Harrison, 2003). These forces include:

Threat of new entrants

For each of its product lines, Apple, like any other company, faces rigorous competition. This high-tech industry requires continual research and development (R&D). This sector is difficult for new companies to enter because new entrants must spend a large amount of capital on R&D and on the advertising and promotion of their brand. There are some dominant producers in this sector such as Apple, Microsoft, Dell and Sony, who share the majority of the market. Apple should be aware of new entrants because they may come up with surprisingly better technology or a better product. However, these new entrants are less of a threat because it is difficult to enter and penetrate the market in a limited time (Harrison, 2003).

Power of the supplier

Porter’s second force states that the bargaining power of suppliers imposes a threat to any company. It also includes, the availability of substitute suppliers which is an important factor in determining the power of the supplier. Suppliers are known as third parties in this industry, and they are classified in two groups. The first group makes the major parts for the products. This group is not strong because of the availability and easy of replacing the items they make, such as batteries, wire connections, screens and other internal components. In contrast, the second group provides accurate parts and important programmes such as flash-memory and DRAM. This group is strong because of their specialized and advanced products, as well as the lack of alternative products (Nistor, 2010). There are some suppliers who dominate the market; for example, Intel, Microsoft and Sony. So, it is important for Apple to have a good relationship with its suppliers.

Power of the buyer

The buyer’s bargaining power is very high in the industry because competitors offer a wide range of similar products with competitive prices. The Apple Corporation faces a moderate threat from buyers because they have a lot of products that consumers can choose from. In addition, the threat of buyers comes from their demand for new features in Apple products. However, there are a large number of companies that offer similar products and there is quite a big differentiation in price and performance. Therefore, loyalty is often shown towards a specific brand because there are not many differences in the quality and price between brands (Nistor, 2010). Buyers are often more sensitive to brand rather than price. Apple’s customers are individuals, education departments, enterprises, governments and creative customers. So, the variety of consumers and their needs has a direct impact on Apple’s future strategies.

Threat of substitutes

The technological environment is changing fast every day. There are not many substitutes in this industry because of the high-tech features. However, alternatives are always available from competitors. If some other company such as BlackBerry, Google, Samsung or Microsoft come up with new technology or the same kind of phone at a lower price or with more features at the same price, then this is a problem for Apple (O’ Grady, 2009). Customers usually tend to look to the latest technology instead of traditional methods. Apple has the ability and efficiently to design and develop its own hardware and application software to become unique and distinct from its competitors.

Competitive rivalry

The competition in this industry is very high, almost in all areas of business, because of the continuing requirement to provide new products all the time. Competitive prices, new products, design innovations and technology are the main factors that Apple has to compete with other international companies on, such as IBM, HP, Acer and Dell. The consumers’ choices also differ; some prefer to save some cash rather purchase high performance specification technology and some prefer the newest technology. So, the result is that companies implement different strategies; for example, low-cost and best-cost strategies. Some manufacturers offer products at the lowest price in an attempt to cut their costs by ignoring everything except some basic features. Some other companies in the middle price range, such as Dell and HP, focus on attracting customers by offering varying prices. And the top of the range companies, like Apple, gain customers through their high quality products, features and innovative design, which makes their products popular all over the world (O’ Grady, 2009).

APPENDICES:

Porter’s Generic Strategy model:

Porter’s Five Forces model:

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