Executive Summary
Apple is preparing to launch a new version of its smartphone called the iPhone 5S. The global smartphone industry is still at its growth stage. Thus, it provides immense growth opportunities to companies that are able to provide high-end smartphones such as iPhone 5S. Apple’s iPhone 5S will be positioned as a unique multipurpose phone that provides a large pool of applications for every function. This positioning strategy reflects the superior features and great functionality that iPhone 5S offers to its users. Thus, it will differentiate the phone from its competitors in the market. iPhone 5S will benefit from the strong brand image and the huge customer base that has already been established through the sale of its earlier versions.
iPhone 5S will target customers in the consumer, enterprise, and education markets. Generally, the potential customers include individuals whose lifestyles are characterized by a need for entertainment, reliable communication, and the ability to manage information. The main marketing objective is to achieve $18,000 million in sales in the first year. The company will have to sell at least 120 million units in order to breakeven by the end of the first year.
Current Marketing Situation
5 Year Financial Overview
Apple reported strong growth in revenue and profits in the last five years, as shown in Table 1 in the appendix. In 2013, the company’s net sales totaled $170,910 million, representing a 9% increase from the previous year’s sales (Apple, 2014). Overall, the company’s net sales increased consistently from $42,905 million in 2009 to $170,910 million in 2013 (Apple, 2014). This means that the company’s sales increased by 298% in the last five years.
This strong growth reflects the effectiveness of the company’s marketing strategy and the superiority of its products. Apple’s net income increased steadily from $8,235 million in 2009 to $41,733 million in 2012, representing a 407.8% growth (Apple, 2014). However, in 2013 the company’s net income reduced by 11.25% due to increased competition and falling demand for personal computers. By the end of 2013, the company had cash reserves of $146,761 million, and its debt-to-equity ratio was only 0.13. This means that the company is financially stable and is capable of financing its marketing strategies without external funding.
Market Description
Apple segments the market for its products according to psychographic variables. Specifically, the company considers factors such as the socio-economic status, lifestyle, education, and personality of potential customers to identify its target market. The choice of this strategy is based on the fact that the company produces high-quality products through innovation and differentiation to meet the needs of its customers. Generally, Apple serves customers in several markets, which include the “consumer, education, enterprise, and governments” (Apple, 2014). As a market leader, Apple sells its products in nearly all countries in the world.
Apple positions its products as superior and unique in the market. In order to highlight the unique features of its products, Apple uses a highly educated and talented workforce to sell most of its products directly to the customers (Apple, 2014). Over the years, the company has built a good reputation in the market. Thus, its products are associated with high quality, reliability, and elegance. This achievement has enabled the company to retain its customers and to acquire new ones.
Product Review
Apple is one of the leading manufacturers and distributors of high-end smartphones and computers. iPhone is the brand name that the company uses to sell its smartphones. iPhones combine the features of “a phone, music player, and internet device in one product” (Apple, 2014). Apart from these features, iPhones allow their users to access iTunes Store and iBooks Store in order to purchase entertainment products such as music, movies, books, and TV shows.
iPhone also provides connectivity to other devices such as personal computers (Apple, 2014). In order to provide these benefits, Apple’s iPhones use the iOS multi-touch operating system. Over the years, the company has focused on improving the quality of its iPhone by introducing new versions. iPhone 5C and iPhone 5S are the current versions, which were introduced in September 2013.
Competitive Review
Apple operates in markets that are characterized by intense competitive rivalry. The main factors that drive competition in the markets include the frequent introduction of new products and rapid technological advancements that influence the use of mobile phones and personal computers. Apple faces high competition because its competitors focus on reducing the prices of their products in order to gain market share (Apple, 2014).
The main factors that will determine Apple’s ability to maintain its competitiveness include product quality, product features, price, support services, and marketing strategies. The main threat to the company is the fact that the market consists of several large and well-funded firms that have decades of experience in the mobile phone industry (McCray, Gonzalez, & Darling, 2011). In addition, the company’s competitors are capable of imitating the features of its products or collaborating to produce superior products. This will lead to a significant reduction in the company’s market share and revenue.
Channels and Logistics Review
Apple uses both direct and indirect distribution channels to sell its products in various markets. The direct distribution channels include the company’s retail stores, online stores, and the direct sales force (Apple, 2014). The indirect channels, on the other hand, include independent retailers, wholesalers, and value-added resellers. The company’s retail stores are mainly located in high-traffic areas in shopping malls and urban shopping areas. Using the direct distribution channels enables the company to provide an excellent customer buying experience.
The company has established an effective supply chain system to meet the demand for its products. This includes partnering with suppliers to provide key services such as shipping and manufacturing some product parts. Moreover, the company places large orders for its supplies to ensure a constant supply of its products and to prevent its competitors from accessing third-party manufacturing resources.
SWOT Analysis for Apple’s iPhone 5S
Strengths
iPhone 5S has the following strengths. First, it has a strong brand image that is known for reliability and high quality in the market. Specifically, the phone’s operating system is considered to be the most stable and reliable. Second, iPhone 5S has an iconic look. It is made of “glass and metallic materials that give it a high-class and sophisticated look” (Apple, 2014). This makes the phone appealing to the young urban generation that identifies with trendy smartphones. Third, iPhone 5S combines the features of a computer, tablet, iPod, phone into one device, thereby improving its functionality. Additionally, it can operate on virtually all third party programs.
As a result, iPhone 5S is considered to be superior to its competitors. Fourth, iPhone 5S provides access to numerous applications and entertainment through the iTunes Store and Apps Store (Peterson, 2012). Finally, the important features of the iPhone 5S, such as the slide-to-unlock and the integrated touch technology, are protected by patents. Thus, they cannot be imitated by the competitors without the company’s permission. This will enable the product to maintain its competitiveness in the market.
Weaknesses
iPhone 5S has several weaknesses, which include the following. First, it lacks variety in terms of screen size and keypad choices. As a result, it cannot meet the tastes and preferences of customers who are interested in unique features. This reduces the competitiveness of the phone since its competitors provide customers with a variety of choices to satisfy their specific needs. Second, iPhone 5S lacks superior technologies. For instance, it lacks expandable memory and near-field communication functionality. These features are available in its competitors, such as Nokia Lumia 920 and Android devices (He, 2013).
Moreover, the phone’s battery life is very low, thereby limiting its use. Generally, the lack of superior features that are based on the latest technologies will limit the phone’s ability to penetrate the market. Third, iPhone 5S is more expensive than most of its competitors. Thus, it will be difficult to increase the sales of the phone in a market where competitors are constantly reducing their prices in order to attract customers.
Opportunities
The growth opportunities that are available include the following. To begin with, the earlier versions of the phone, such as the iPhone 4 and iPhone 4S, built a huge customer base due to their superior qualities (Apple, 2014). In this regard, the existing customers are likely to upgrade by purchasing iPhone 5S since they expect it to have better features and functionality than the previous versions. Second, there is a huge untapped market in emerging markets in Asia and the Middle East (Johnsons, 2012). These markets consist of large middle-income earners who are likely to spend on high-end smartphones such as iPhone 5S.
Finally, the research being conducted in the field of information and communication are likely to develop new technologies that will create new uses for computers and smartphones. This is an opportunity for iPhone 5S to gain market share since it can operate on different third party programs and it is compatible with several devices such as computers. Furthermore, the product can benefit from new technologies and innovations in terms of improvements in its features in order to compete effectively with its rivals.
Threats
iPhone 5S faces several threats that are likely to have negative impacts on its competitiveness if they are not addressed effectively. First, iPhone 5S is facing high competition from its rivals that have superior features. In particular, Samsung’s Galaxy S III has already overtaken iPhone 4S in terms of sales in the US. In addition, Galaxy S III has a bigger screen and a better camera than iPhone 5S (Edwards, 2013).
Second, there has been a shift in tastes away from iPhone in the last few years. Customers are shifting to new products such as Androids in order to benefit from their advanced technologies. In this regard, iPhone 5S is likely to lose its market share to its competitors in the future. Third, the economic downturn in major markets such as Europe will reduce the sales of the iPhone 5S. For instance, in the 2011/2012 financial year, the sales of iPhones in Europe grew by 71% (Apple, 2014). However, in the 2012/2013 financial year, the sales grew by only 16%, partly because of economic difficulties in European countries such as Spain and Greece.
Objectives and Issues
The overall objective of Apple is to increase its revenue through the sales of its smartphones. In this regard, it has set challenging but achievable marketing objectives for iPhone 5S. The objectives will be achieved in the first and the second year following the launch of the product.
First Year Objectives
In the first year of market entry, Apple expects iPhone 5S to achieve a market share of 30%. In monetary terms, the company’s objective is to realize $18,000 million in sales in the first year. The phone will be sold at an average retail price of $120 per unit. Thus, the company will have to sell at least 150 million units in order to achieve its first-year sales target. The sales target will enable the company to achieve breakeven in the last quarter of the first year.
Second Year Objectives
In the second year, the company’s objective will be to increase sales by 20%. This means that the goal will be to achieve $21.6 million in sales during the second year. The second objective will be to increase the market share by 10% in the second year.
Issues
During the introduction of the iPhone 5S, the main issue will be to create strong brand awareness and brand image. This will be achieved through a variety of marketing communication activities. Initially, the phone will be distributed through the company’s retail stores. This will enable the company’s sales associates who have vast knowledge about the product to explain its features directly to the customers in order to enhance brand awareness. Training and development programs will be provided to select independent retailers and wholesalers to improve their knowledge of the features and benefits of the iPhone 5S.
As a result, they will be able to enhance brand awareness and image by sparking word-of-mouth promotion of the product among the customers. The second issue will be to overcome the perceived inferiority of the iPhone 5S. This will involve improving the quality of the product by addressing its weaknesses, such as low battery life and lack of near-field communication capabilities. Both advertising and public relation activities will be used to inform the public about the improved qualities of the iPhone 5S in order to increase sales.
Marketing Strategy
Apple’s marketing strategy is based on three values, namely, empathy, focus, and impute (Apple, 2014). The company believes in developing and selling products that satisfy customer needs better than its competitors. In order to increase the competitiveness of its products, Apple concentrates only on important opportunities in terms of the market segments that are likely to purchase its products (Apple, 2014). Moreover, the company believes in presenting its value proposition in a manner that can be best understood by the market. These strategies will be used to market iPhone 5S.
Positioning
iPhone 5S will be positioned as a high-quality smartphone that provides unique features and great functionality. In this regard, the positioning statement will be ‘for the individuals who are interested in entertainment, communication, and ability to do business and to manage information while on the move, iPhone 5S being a multipurpose device, provides a large pool of applications for every function. Unlike the Androids, Galaxy, and BlackBerry, iPhone 5S has a stable operating system and unmatched ultra-friendly user interface’.
The positioning statement will facilitate the differentiation of the iPhone 5S based on its features. Given the high competition in the smartphone market, differentiation is necessary to attract new customers and to retain existing ones (Amstrong & Kotler, 2011). The brand promise will be to provide several applications such as entertainment and the ability to access the internet and iCloud services using a single handheld device.
The customers expect to enjoy reliability and flexibility since iPhone 5S has the most stable operating system and is capable of running on several third-party programs. In a nutshell, iPhone 5S will be positioned based on value rather than price. In order to position iPhone 5S as a superior smartphone, the company will utilize its marketing communication activities to inform the market about the value or benefits that are provided by the phone. Specifically, the main message of the communication activities will be that iPhone 5S is more than a smartphone. It provides superior functionality that enhances the lifestyle of its user.
Product Strategy
iPhone 5S will be introduced with all its features in various markets. As the product’s brand awareness increases, more varieties will be introduced to satisfy customers’ varied needs. Specifically, the features of the product will be improved through internal upgrades every two years to make it relevant to the market. This includes providing a variety of color choices and screen options. The internal upgrades will enable iPhone 5S to compete effectively with rival smartphones by providing superior functionality. Linking the marketing mix to the brand image of a product helps in delivering its brand promise (Pride, 2004). Thus, Apple’s marketing mix will be aligned to the brand image of the iPhone 5S in order to improve its sales.
The company will target different markets with its new iPhone 5S. In the consumer market, iPhone 5S will target the Millennials. This market segment consists of young adults and teenagers whose lifestyles are characterized by a strong need for entertainment, networking, and convenient communication. iPhone 5S will also target older generations that consist of individuals who are interested in reliable smartphones with an ultra-friendly user interface.
In the enterprise market, iPhone 5S will target businesses that are interested in providing their employees with state-of-the-art communication devices that provide opportunities for reliable communication and the ability to do business while being mobile. In the education market, iPhone 5S will target learning institutions, students, and faculty members who are interested in a single device that facilitates access to information through a variety of platforms such as iBook Store, iCloud, and the World Wide Web.
Pricing Strategy
Apple will use the customer value-based pricing strategy to set the price for iPhone 5S. Customer value-based pricing involves setting the price of a product based on customers’ perception of the benefits or qualities of the product (Kazmi, 2007). This pricing strategy is suitable for iPhone 5S due to the following reasons. First, the product offers unique features that are valued by customers. As a result, the iPhone 5S is an advanced version of its past models likely to be perceived by customers as a product that offers superior features. In this context, customers are likely to pay a premium price for the phone.
Second, the customer value-based pricing will enable the company to maintain the high-profit margins that it has always enjoyed by selling the previous versions of the iPhone. Third, the customer value-based pricing strategy will enable the company to avoid a price war in the market. Since Apple is one of the largest players in the market in terms of sales, its peers are likely to reduce their price if it prices iPhone 5S aggressively. This will lead to further downward pressure on prices, thereby exposing the company to the risk of making losses.
Consumer psychology will be taken into account when pricing iPhone 5S. Since iPhone 5S is a high-end product, the company will avoid setting a very low price for it. This strategy is based on the fact that consumers believe that price has a positive relationship with product quality. Empirical studies show that customers process prices from left-to-right rather than by rounding off (Hisrich, 2000).
In this regard, the price of the iPhone 5S will end with 9 to make it look cheap. For instance, if the retail price is $120 the price tag will bear $119, which customers are likely to see as $100. This strategy will enable iPhone 5S to penetrate the market by appearing to be cheap to customers.
Distribution Strategy
Apple uses both direct and indirect distribution channels to get its products to the market. The direct channels that will be used to distribute iPhone 5S include the company’s retail stores and online stores. This strategy is suitable because Apple has already established a global distribution network that consists of strategically located retail stores. Moreover, the company’s sales associates have vast knowledge about iPhone 5S (Apple, 2014).
Thus, they will be able to provide customer support and product information directly to the customers. The online store will enable the customers to buy iPhone 5S at their convenience without having to visit the physical stores. The online store will not only reduce the company’s sales cost but will also improve customers’ shopping experience.
The company will also use a two-level channel that consists of retailers and wholesalers. The company will partner with retailers that have global distribution networks such as Wal-Mart, eBay, and Best Buy to distribute iPhone 5S. In addition, it will use independent wholesalers to distribute the phone. These indirect channels will enable Apple to reach customers in the markets where it does not have its own retail stores, such as most major cities in Africa (Ranchhod & Marandi, 2005).
Marketing Communication Strategy
Since iPhone 5S targets the mass market, advertising will play an integral role in building its brand awareness. The phone will initially be advertised in print and electronic media. These include popular magazines, newspapers, radio, TV channels, and billboards. Online marketing through the company’s website and other popular websites such as Facebook, Google+, and Twitter will also be used to market iPhone 5S. Online marketing is an important communication channel since most smartphone users always use the internet by visiting popular websites to obtain important information. Thus, marketing iPhone 5S through popular websites will increase the chances of reaching potential customers with information about the product.
Apart from advertising, sales promotions and personal selling will be used to increase the sales of the iPhone 5S. Personal selling will be conducted by the company’s sales associates who operate from retail stores in large shopping malls. Sales promotions will include competitions and coupons that will enable customers to receive rewards by purchasing iPhone 5S. Additionally, discounts of up to 5% will be provided to customers who make large purchases. The sales promotions will mainly be used during the first year to gain market share.
Marketing Research
Marketing research will be conducted to understand customers’ tastes/ preferences and perceptions about the product. Marketing research will also help in understanding market conditions in order to forecast demand and to identify the new markets to target (Amstrong & Kotler, 2011). Thus, online surveys and website analytics will be used to track conversations about iPhone 5S in order to understand customers’ tastes and satisfaction levels.
Personal interviews will be conducted in order to obtain information concerning market conditions in new markets. Field trials will also be used to gauge customers’ reactions to iPhone 5S. This will involve adjusting prices and elements such as packaging to determine customers’ preferences. The information obtained through marketing research will be used to improve the quality of the iPhone 5S and to adjust its marketing strategy.
Action Programs
Apple’s iPhone 5S will be launched in May 2014. The following action programs will be implemented in the first six months in order to achieve the product’s marketing objectives.
In April, the company’s sales associates will focus on educating the independent retailers and wholesalers on the product’s features and the sales promotional campaigns that will be used to market it. The brand website for iPhone 5S will also be launched. Similarly, iPhone 5S will be introduced on Facebook, Google+, and Twitter to provide product information and the launch date. Moreover, a few samples will be provided to influential product reviewers to generate buzz about iPhone 5S.
In May, iPhone 5S will be launched and made available to customers in various stores. Displays will be launched in all the company’s retail stores. Additionally, marketing campaigns through Twitter, Facebook, and Google+ will be intensified to drive sales and brand awareness.
In June, advertising through electronic and print media will be launched by placing adverts on various TV channels, radio channels, and billboards that are situated in strategic areas. The adverts will focus on highlighting the unique features of the phone. In-store displays and signage will be improved to encourage customers to purchase iPhone 5S.
In July, the company’s sales associates will focus on providing support to the independent wholesalers and distributors. This will involve providing new information concerning on-going sales promotion activities. Moreover, trade discounts will be launched to reward independent retailers and wholesalers for making bulk purchases and selling large volumes of the iPhone 5S.
In August, sales promotions that target consumers will be launched. This will include a contest that enables customers to win prizes by purchasing iPhone 5S. The contests will generate buzz about iPhone 5S, thereby increasing sales. It will also enable the company to develop positive relationships with its customers. This will increase the chances of repeat purchases in the future.
In September, in-store displays and adverts will be updated to promote purchases. Additionally, the company will sponsor one popular TV show in its major markets, such as China, Europe, and the US. The show will be aired on TV channels with national coverage in order to reach as many customers as possible. iPhone 5S will benefit from increased brand awareness through a prolonged period of an advertisement on TV.
Budget
Apple has a target of achieving $18,000 million in sales by selling 150 million units of iPhone 5S at an average retail price of $120 in the first year. The company expects to breakeven in the last quarter of the first year. Since retail prices vary from region to region, the breakeven analysis will be done using the wholesale price of $195 per unit. The variable cost per unit is $100, and the fixed cost in the first year is $11,400 million. Based on this information, breakeven can be calculated as:
million units
This means that Apple will have to sell at least 120 million units in the first year to breakeven. Thus, it will make a profit if it achieves the sales target of 150 million units in the first year.
Controls
Apple has to implement several controls to ensure the success of its marketing plan. The factors that will be controlled during the implementation of the marketing plan include product quality, brand awareness, brand image, and customer satisfaction. Moreover, monthly sales and costs will be monitored to ensure that the set targets are being achieved.
Product quality will be controlled by monitoring complaints from customers concerning the functionality of the iPhone 5S. Minor defects that affect individual customers will be fixed immediately at the retail stores. Customers will be provided with a one-year product warranty to facilitate free repairs. If defects are detected in a significant number of iPhone 5S, the affected units will be recalled from the market. Contingency measures have been put in place to replace faulty products and accessories immediately.
The feedback obtained from customers and independent distributors will be used to improve the product’s quality and the effectiveness of the sales promotional activities. For instance, additional colors and screen options for iPhone 5S will be introduced if customers are not satisfied with the existing ones. This will help in ensuring that the expected level of customer satisfaction is achieved.
The company’s sales executives will measure the brand awareness and brand image of the iPhone 5S periodically. It will also hire independent consultants to provide an objective measure of the phone’s brand awareness and brand image. The results of these activities will inform decisions concerning the marketing communication strategy that has to be implemented to improve performance. For instance, the advertising budget will be increased, and new marketing communication channels will be employed if the product’s brand awareness index is below expectation.
Controlling costs and sales are also important for the success of the marketing plan (Drummond, Ensor, & Ashford, 2010). Monthly appraisal of cost performance will ensure that the marketing budget is not misused, thereby limiting the resources that are required to improve the competitiveness of the iPhone 5S. Similarly, monthly sales will be analyzed to determine the factors that facilitate the achievement of targets and vice versa. This will enable the company to take timely actions to ensure that breakeven is achieved by the fourth quarter of the first year.
Appendix
References
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