Based in Cupertino, California, the Apple Company is a designer, innovator, producer, and distributor of consumer electronics including computers, smartphones, tablets, and wearable devices. Besides, it develops various software products including operating systems, web browsers, productivity suites, and online books and music stores. The company has moved its products and services across many transnational boundaries. Its unique taste of designing superior hardware and software products has continued to build its sales and public image over the years. However, Apple Inc. has struggled to maintain its success in the electronics industry since the demise of Steve Jobs on October 5, 2011. With Tim Cook as the new CEO taking over the company, there have been questions about the succession of Job’s innovativeness and product vision. The company managed to sustain its remarkable growth from 2010 to 2014 in spite of the recent economic recession in the United States. Indeed, from 2012 to early 2015, it has been the most valuable company in the stock market globally. In spite of this incredible achievement in the electronics industry, Apple Inc. faced fresh challenges during the 2015 fiscal year. Cook, who was previously the head of the sales and operations department in the company, is very talented. However, he lacks the innovative spirit of Steve Jobs. This situation has left the new CEO struggling to sustain the firm’s position in the consumer electronics industry. This essay delves into Apple Inc.’s strategic issue with a view of deriving various recommendations that can help it fix its current challenges.
One of the key goals of Apple Inc.’s former CEO, Steve Jobs, was to transform the company into an innovative digital lifestyle hub and align it with current market patterns. Although there have been strategies put forward to achieve success, the firm is facing a multifaceted and competitive business environment. At the outset, the Apple Company follows a centric strategy that has only allowed an expansive growth of its home market in the United States where it generates about 60% revenue. Other companies such as Nokia have adopted a global strategy that accounts for about 99% of revenue accumulation outside the country. This situation has greatly affected the popularity of its products, especially iPods and iPads whose sales dropped tremendously. Recent market statistics indicate that the Apple Company’s market share continued to decrease through 2015. Its US-centric strategy is uncomplimentary in an environment characterized by intensifying competition. Operating in an industry that has proved to be highly dynamic, the Apple Inc. is fronting intense competition from rival companies such as Microsoft, Samsung, Dell, Hewlett-Packard, Sony, Lenovo, Toshiba, and Google among others. These establishments have introduced alternative products such as smartphones and tablets that have significantly reduced the sales for the iPhone and iPad. Changes in technology have also led to competitive pricing, product performance, and features. Despite its attainment of a high growth rate owing to the debut of new products in 2015, the firm faces the challenge of sustaining its development. This situation implies a growth trajectory that has continued to decrease with age. Existing products, especially in the event of new ones, tend to decrease in sales due to increased age, obsoleteness, and competition.
External Analysis: Porter’s Five Forces Model
Porter’s Five Forces model is an analytical framework that represents five distinct factors that shape the nature of competition for the Apple Company in the consumer electronics industry. This model can help to assess the effect of market forces and their knack to compete in the market.
Rivalry within the Consumer Electronics Industry
The Apple Company operates in a fierce market that is characterized by intensive competition in all spheres. This component of the Porter’s Five Forces model helps in establishing the intensity of competitive powers of rival companies. Based on Apple Inc.’s case study, the rivalry within the consumer electronics industry is based on two external factors including high aggressiveness of firms and low switching costs. Other players in this field such as Samsung, Dell, Google, Sony, Microsoft, and Lenovo among others are aggressively competing with the Apple Company in the market.
On the other hand, the switching cost for Apple Inc. is relatively low; hence, customers can easily switch from the company’s products to purchase other brands from its competitors. For instance, Apple Inc.’s iPads and iPhones have been leading in the generation of revenue for the company, leading to tremendous growth in previous years. Although these products still achieve the highest revenue amongst its other consumer electronics, their sales volume significantly reduced in 2015. This situation has made competition stiffer. Thus, the competitive rivalry has become one of the most regarded considerations in the firm’s strategic design.
Bargaining Power of Suppliers
To complete its operations, the Apple Company manages a complex supplier network that is spread over many countries such as the US, Mexico, Taiwan, China, Japan, and Brazil among others. This large number of suppliers has restrained the company’s bargaining power. The influence of suppliers on product demand is significant for the realization of increased sales volume. Various studies have shown that suppliers have a weak bargaining power owing to their high number and increased supply of Apple products. The company is considered to have fewer than two hundred component suppliers for its products. However, there are more suppliers in many parts of the world; hence, the company has alternative options. This phenomenon makes individual sellers less powerful in imposing their demands on the Apple Company. Thus, the firm does not need to focus on the bargaining power of suppliers in the formulation of development strategies aimed at innovation and leadership in the consumer electronics industry.
Bargaining Power of Buyers
The bargaining power of Apple Inc.’s customers is considered strong since it has a significant effect on the company’s business. Consumer trends pose various implications for businesses. In the case study, the bargaining power of customers is strong bases on the small size of the individual buyers and low switching costs. Customers can easily change their preferences to apple products. The bargaining power of customers is steered by the abundance of choice in an environment that is characterized by low consumer switching costs, which can otherwise lead to increased competition. Furthermore, the price elasticity for Apple products and services reinforces the bargaining power of buyers. Although the company benefits from its longstanding brand loyalty amongst its diverse clientele around the world, which sustains considerable sales volumes, its services per consumer are not substantial. Therefore, Apple Inc. should consider this component of Porter’s Five Forces model in the development of its business strategies.
The threat of New Entrants
The threat of new entrants that can affect the firm’s market significantly is rather low. At the outset, the cost of establishing a business in the consumer electronics industry is extremely high. Entry into this type of market requires new companies to create recognition for their brands, which attracts additional costs. As a result, most new companies avoid investing in this kind of environment. Furthermore, the introduction of new entrants to the marketplace prompts an entrepreneur to spend a huge amount of capital on research and development and manufacturing to launch and build its product recognition prior to the generation of revenue. Since such entrant products already find strong competition within the industry amongst powerful companies such as Apple, Amazon, and Google among others.
The Threat of Substitute Products
The threat of substitute products and services is not substantial to affect the firm’s business. The design and superiority of Apple products make them attractive to customers. Based on the case study, there is a moderate availability of alternative products that are characterized by comparatively low performance. It is no doubt that substitutes for Apple products are readily available in the market. For instance, people can opt to buy and use digital cameras to take pictures instead of the iPhone or iPad. To a further extent, they can also choose landline telephones to make calls. However, these substitutes are characterized by the low performance because they have limited features, which reduce functionality. Many customers are inclined to purchasing Apple products due to the availability of advanced features. Therefore, substitute products available in the market have a weak force in affecting Apple Inc.’s business.
The success of any company is linked to its capacity to use its financial resources to analyze its strengths in a bid to overcome various weaknesses and threats that arise in the industry in which it operates.
Apple Inc.’s financial analysis indicates that its gross profit margin increased from 38.59% in 2014 to 40.06% in 2015. However, it reduced to 39.08% in 2016. Its liquidity improved from 2015 to 2016. This financial factor can be revealed from its current ratio that increased from 1.11 in 2015 to 1.35 in September 2016. The company’s activity increased slightly in 2015, leading to an increased profit margin.
Apple Inc.’s SWOT analysis provides insight into the plans of the firm to optimize its successful development based on such strengths and opportunities.
Strengths. Apple Inc.’s key strengths include a strong brand image, high-profit margins, and effective innovation processes. Indeed, Apple is regarded as one of the world’s most powerful and valuable brands. The company should use this feature to innovate and introduce new products to the market. A company’s strengths enable it to overcome its threats within its business environment with a view of improving business performance.
Weaknesses. The Apple Company has various weaknesses that have become obstacles to its success. At the outset, the firm has a limited distribution framework that is underpinned by its policy of exclusivity. This situation has limited its market reach due to the control it exercises over its distribution of products. Other weaknesses include high selling prices, which have reduced its clientele base.
Opportunities. Various opportunities in the operating environment of the Apple Company include the rising demand for tablets and smartphones. The company can tap this opportunity by developing a competitive pricing strategy to attract more customers globally. There is also an opportunity to establish new product lines to increase supply and innovation.
Threats. Competition is the most notable threat to the success of the Apple Company. Thus, there is a need to understand the dynamics of internal and external market forces that will drive the company to sustain its business amidst the increasing power of rivals such as Google, Samsung, Lenovo, and Dell among others.
Despite the existence of a reputable brand image, high-profit margins, and effective innovative processes, various recommendations for future prowess in the consumer electronics industry arise from Apple Inc.’s case study.
Google Inc.’s Android operating system has taken over the market for smartphone software. In 2015, the Android operating system made Google Inc. seize approximately 81% of the smartphone market share while the Apple Company only possessed 15%. This trend has been caused by the competitive pricing of Android-based mobile devices. The problem with the Apple Company is that it launches new superior products with extraordinary prices. Thus, the company should consider lowering its unit prices to compete effectively with other players in the industry.
Combine Music Store with Online Streaming Platform
One reason for iPod’s decreased sales is that people no longer need to buy a separate device to serve as an offline music store. Nowadays, besides streaming online, mobile phones can support considerable storage (in gigabytes), which can be used to store music, pictures, and videos among other types of files. This situation led to a decrease of about 19.3% of unit sales in 2015. With the advent of new technology, Apple Inc. should integrate online streaming services into its music store. Streaming platforms offer some additional benefits to the customer. The presence of this feature in Apple products will increase its attractiveness and, thus, result in increased sales volume.
The company’s SWOT analysis reveals that it possesses prime strengths that can be helpful in addressing its organizational weaknesses. Having one of the world’s strongest and valuable brands, the Apple Company should embark on rapid innovation to keep abreast of state-of-the-art technologies. This strategy will sustain its competitiveness in the industry with a view of gaining a larger market share, especially in the sale of the iPad and iPhone.
Sustaining Competitive Position
With the current strategic challenges that a being faced by Tim Cook and his senior managers, it is possible for new companies with strong financial backing to eventually challenge the Apple Inc.’s position in the consumer electronics industry. Although the occurrence of such an event is unforeseeable in the near future, it is important for the Apple Company to sustain the strength of its competitive position by developing newfangled electronic devices with a view of establishing their brand loyalty head of anticipated products of its rivals.
Expansion of Distribution Networks
The Apple Company needs to expand its distribution networks to widen market reach. This objective should be realized by adopting inclusivity policies that will allow the establishment of more retail points to increase product sales volume. Giving a chance to more sellers will pave way for market expansions, a strategy that will give the Apple Company a chance to regain its share in the consumer industry.
Reinforcement of Patent Portfolio
The consumer electronics industry within which the Apple Company operates is very competitive. In spite of having various advantages based on product design and superiority, the company is facing tough competition and product imitation from some rival companies. This situation has resulted in decreased iPod, iPad, and iPhone sales. The company is losing its market share in the personal computer industry. As a result, it should undertake appropriate measures to address these threats through a sturdier patent portfolio in conjunction with unremitting innovation to attain a cutting edge competitive power that will sustain profitability even when the rival companies introduce new products to the market.