case study with 7 questions, please answer each point briefly.
apple_case_exam_4563.docx
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APPLE INC.
Stephen Wozniak and Steve Jobs founded Apple Computer in 1976 when they began
selling a crudely designed personal computer called the Apple I to Silicon Valley
computer enthusiasts. Two years later, the partners introduced the first mass-produced
personal computer (PC), the Apple II, which eventually sold more than 10,000 units.
While the Apple II was relatively successful, the next revision of the product line, the
Macintosh (Mac), would dramatically change personal computing through its userfriendly graphical user interface (GUI), which allowed users to interact with screen
images rather than merely type text commands.
The Macintosh that was introduced in 1984 was hailed as a breakthrough in personal
computing, but it did not have the speed, power, or software availability to compete with
the PC that IBM had introduced in 1981. One of the reasons the Macintosh lacked the
necessary software was that Apple put very strict restrictions on the Apple Certified
Developer Program, which made it difficult for software developers to obtain Macs at a
discount and receive informational materials about the operating system.
With the Mac faring poorly in the market, during the remainder of 1985 Apple continued
to encounter problems and laid off one-fifth of its employees while posting its first ever
quarterly loss.
Despite these setbacks, Apple kept bringing innovative products to the market, while
closely guarding the secrets behind its technology. In 1987, Apple released a revamped
Macintosh computer that proved to be a favorite in K–12 schools and with graphic artists
and other users needing excellent graphics capabilities. However, by 1990, PCs running
Windows 3.0 and Word for Windows were preferred by businesses and consumers and
held a commanding 97+ percent share of the market for personal computers.
In 1991, Apple released its first-generation notebook computer, the PowerBook, and, in
1993, Apple’s board of directors opted to remove Mr. John Sculley from the position of
CEO (Chief Executive Officer). The board chose to place the chief operating officer, Mr.
Michael Spindler, in the vacated spot. Under Spindler, Apple released the PowerMac
family of PCs in 1994, the first Macs to incorporate the PowerPC chip, a very fast
processor co-developed with Motorola and IBM. Even though the PowerMac family
received excellent reviews by technology analysts, Microsoft’s Windows 95 matched
many of the capabilities of the Mac OS and prevented the PowerMac from gaining
significant market share. In January 1996, Apple asked Spindler to resign and chose Mr.
Gil Amelio, former president of National Semiconductor, to take his place.
During his first 100 days in office, Amelio announced many sweeping changes for the
company. He split Apple into seven distinct divisions, each responsible for its own profit
or loss, and he tried to better inform the developers and consumers of Apple’s products
and projects. In 1997, after recording additional quarterly losses, Apple’s board
terminated Amelio’s employment with the company and named Mr. Steve Jobs as interim
CEO.
Under Jobs’ leadership, Apple introduced the limited feature iMac in 1998 and the
company’s iBook line of notebook computers in 1999. The company was profitable in
every quarter during 1998 and 1999, and its share price reached an all-time high in the
upper $70 range. Jobs was named permanent CEO of Apple in 2000 and, in 2001,
oversaw the release of the iPod. The iPod recorded modest sales until the 2003 launch of
iTunes—the online retail store where consumers could legally purchase individual songs.
By July 2004, 100 million songs had been sold and iTunes had a 70 percent market share
among all legal online music download services. The tremendous success of the iPod
helped transform Apple from a struggling computer company into a powerful consumer
electronics company.
By 2005, consumers’ satisfaction with the iPod had helped renew interest in Apple
computers, with its market share in personal computers growing from a negligible share
to 4 percent. The company also exploited consumer loyalty and satisfaction with the iPod
to enter the market for smartphones with the 2007 launch of the iPhone. The brand
loyalty developed through the first iPod, and then the iPhone, made the company’s 2010
launch of the iPad a roaring success with 3.3 million units sold during its first three
months on the market. Much of Apple’s turnaround could be credited to Steve Jobs, who
had idea after idea for how to improve the company and turn its performance around. He
not only consistently pushed for innovative new ideas and products but also enforced
several structural changes, including ridding the company of unprofitable segments and
divisions.
Apple’s current mission statement is,
“Apple designs Macs, the best personal computers in the world, along with OS X, iLife,
iWork and professional software. Apple leads the digital music revolution with its iPods
and iTunes online store. Apple has reinvented the mobile phone with its revolutionary
iPhone and App store, and is defining the future of mobile media and computing devices
with iPad.” (Panmore Institute, 2016)
Apple’s current vision statement was introduced by CEO Tim Cook, who stated,
“We believe that we are on the face of the earth to make great products and that’s not
changing. We are constantly focusing on innovating. We believe in the simple not the
complex. We believe that we need to own and control the primary technologies behind
the products that we make, and participate only in markets where we can make a
significant contribution. We believe in saying no to thousands of projects, so that we can
really focus on the few that are truly important and meaningful to us. We believe in deep
collaboration and cross-pollination of our groups, which allow us to innovate in a way
that others cannot. And frankly, we don’t settle for anything less than excellence in every
group in the company, and we have the self- honesty to admit when we’re wrong and the
courage to change. And I think regardless of who is in what job those values are so
embedded in this company that Apple will do extremely well.” (Panmore Institute, 2016)
In 2012 Apple was voted the overall winner of the CMO Survey Award for Marketing
Excellence. Apple has been selected as the winner or co-winner for five consecutive
years by the sample of top marketers. So why is Apple a great marketer?
Here are ten strategies Apple has used to become one of the world’s greatest marketers:
(1) Hire customer-obsessed, empathetic employees. Steve Jobs had unique and
effective insights about how people want to interact with technology. Jobs used a
quote originally attributed to Henry Ford to describe why these insights were so
important:
“If I had asked people what they wanted, they would have said faster horses”—
illustrating the problem that customers may be limited to thinking only in terms
of what they know, instead of what is possible. So Jobs and colleagues thought
about the customer experience more deeply than the customer could. Jobs once
said, “One of the keys to Apple is that we build products that really turn us on”.
Lucky for customers, this often means products are exactly what they want
because Apple employees are so deeply entrenched in and committed to the
customer’s experience.
(2) (2) Iterative customer involvement. This customer obsession made formal
market research less important. However, it is no secret that Apple spends an
enormous amount of time observing customers using Apple’s and other
companies’ technologies. Called “participatory design” or “usability testing,”
Apple integrates customer experience into its design and development process to
understand their “pain points” and “opportunities”. Of course, Jobs himself was
often the most important customer, but this did not get in the way of more
systematic participation from customers throughout the process.
(3) Protect against scope creep and feature bloat. According to stereotypes, engineers
only want to work on projects that are innovative, intellectually challenging and cool,
while business people only want to work on projects that make money. Anyone who has
worked in a tech environment can attest to the fact that this leads to a natural tension
between the two groups. Compromises result in scope creep, feature bloat, and confusing,
overburdened, unfocused products. There were mp3 players before the iPod and smart
phones before the iPhone, but Apple’s innovation was to distill those products down to
their fundamental purposes (e.g., 1000 songs in your pocket) and then design them to be
simple and interesting to use. As Jobs noted, “We make progress by eliminating things.”
(4) Build compatible experiences. Customers want a streamlined, intuitive way to make
their computing and entertainment devices work as a system. Apple understood this and
conceived of its array of products as offering the customer first a “digital hub” and then
an “entertainment hub.” In both cases, hardware and software were designed for customer
compatibility within the system. This of course meant some incompatibilities with other
companies’ offerings. However, the joint benefits of having combinations of the Mac,
iPod, iPhone, iPad, and of course, iTunes, were of great value to customers.
(5) Enable customer discovery and differentiation through Apple Stores. A retail
presence gave Apple another forum to flex its design prowess. Customers come into the
stores to experience firsthand the aesthetics and ease of use of Apple products. They also
get to see the larger “solution” that the array of interconnected products offers. Carefully
recruited and trained sales associates are encouraged to take customers on a “ride” which
former head of Apple Stores, Ron Johnson, describes as “something short, fun, and
something you want to talk about.” Finally, the stores provide a place where customers
can go for support (the Genius Bars), creating yet another touch point to delight the
customer. The result: the highest retail sales per square foot among U.S. retailers.
(6) Build a moat. Apple has done this in three ways. First, Apple’s unique products are
communicated to customers through novel and provocative advertising. The 1984 Super
Bowl ad introducing the Macintosh is a perfect example. The heavily advertised iPod
with the silhouettes of people dancing to the beat of their own drummer kept this brand
image alive and well. Finally, Steve Jobs contributed to this renegade, non-conformist
image through press accounts of his demanding aesthetic.
Second, although Apple’s product development utilizes multiple branded partners, it
broke with industry norms and turned down attractive financial incentives to keep
customers focused on the Apple brand and not its component providers. Since the mid2000s, Apple has brought on new suppliers such as Intel, Microsoft, and ATI to provide
hardware and software solutions for many of its products. However, it has turned down
co-marketing efforts (such as Intel stickers on its machines) that every other major
competitor participates in with those same suppliers. Third and related, Apple’s decision
to exclude other companies’ brands from Apple Stores has contributed to its brand moat.
(7) Devise a business model that creates ongoing customer value. Generating
customer value means building a business model that ensures this value is created
repeatedly. Hiring customer-obsessed employees and opening retail stores are a big part
of creating value for Apple customers. However, iTunes should also be viewed as an
integral part of the business model. While iTunes itself is not a big money maker for
Apple, the iTunes desktop software and the iTunes Music Store make Apple’s hardware
even more valuable. From the customer’s point-of-view, this bundle of device and
content provides enormous value that promotes loyalty and cross-category spending.
(8) Cannibalize when necessary. Good marketing requires a willingness to cannibalize
your offerings if you have a superior option to bring to market. Apple has done this at this
least twice. First, Apple dropped its most popular iPod, the Mini, when it introduced the
Nano. Second, although offering unique features, the iPhone is a potential threat to
independent iPod sales because both play music. Many organizations might have been
afraid to build a product that would detract from its most popular product. Apple
understood that if it wasn’t the one to do it, another company would.
(9) Don’t try to be all things to all customers. Many companies fail by being unwilling
to make tough decisions about which customers to seek and products to offer. Apple, on
the other hand, made these tough decisions and adopted a strategy that focused on a
limited number of product lines and limited offerings within each line. Jobs brought this
strategy to Apple when he returned in 1997 at which point he slashed Apple’s 15 product
lines to just four. This strategy holds today. A few years ago, then COO Tim Cook
described Apple’s philosophy as, “One traditional management philosophy that’s taught
in many business schools is diversification. Well, that’s not us.” With a laser-like focus,
Apple makes a few big bets that deliver customer value and stand out in the crowd. The
result is that customers know what to expect from Apple and they usually get it.
(10) Create an ecosystem that makes offerings valuable. The introduction of the
iPhone was coupled with building an online App Store. However, the App Store only
works if there are companies willing to develop for the platform and integrate iOS apps
into their strategies going forward. Apple created development tools that promote a
simple, consistent experience for developers on the iOS platform. This helps to speed up
app development and deepen user engagement, a win-win-win for developers, customers
and, of course, Apple. With over 500,000 apps available and over 24 billion apps
downloaded to date, apps have not only helped increase switching costs for iPhone and
iPad users, but have also proved to be a lucrative revenue stream.
Business Strategy
The Company is committed to bringing the best personal computing, portable digital
music and mobile communication experience to consumers, students, educators,
businesses, and government agencies through its innovative hardware, software,
peripherals, services, and internet offerings. The Company’s business strategy leverages
its unique ability to design and develop its own operating system, hardware, application
software, and services to provide its customers new products and solutions with superior
ease-of-use, seamless integration, and innovative industrial design. The Company
believes continual investment in research and development is critical to the development
and enhancement of innovative products and technologies (Ashcroft, J, 2012)
After five CMO Survey Awards for Marketing Excellence, Apple has shown that it is not
only an outstanding technology company but also an outstanding marketer. Apple’s
marketing strategy is a unique blend of traditional and nontraditional elements. However,
at the core, Apple has figured out how to attract and retain customers, to generate an
enormous amount of word of mouth and brand appeal, and to build a business model,
channel structure, and moat that give it a powerful competitive advantage.
What is relevant to Apple are product features, product mix, links with other firms, and reputation.
Apple established a reputation as an innovator by offering an array of easy-to-use products
that cover a broad range of segments. However, its links with other firms have been limited, as we will
discuss in the next section on strategic alliances. There is economic value in product
differentiation, especially in the case of monopolistic competition. The primary economic
value of product differentiation comes from reducing environmental threats. The cost of product
differentiation acts as a barrier to entry, thus reducing the threat of new entrants. Not only does a
company have to bear the cost of standard business, it also must bear the costs associated
with overcoming the differentiation inherent in the incumbent. Since companies pursue niche markets,
there is a reduced threat of rivalry among industry competitors.
A company’s differentiated product will appear more attractive relative to substitutes,
thus reducing the threat of substitutes. If suppliers increase their prices, a company with a differentiated
product can pass that cost to its customers, thus reducing the threat of suppliers. Since a company with a
differentiated product competes as a quasi-monopoly in its market segment, there is a reduced threat of
buyers. With all of Porter’s Five Forces lower, a company may see economic value from a
product differentiation strategy. A company attempts to make its strategy a sustained competitive
advantage. For this to occur, a product differentiation strategy that is economically valuable must also be
rare, difficult to imitate, and the company must have the organization to exploit this.
Apple has a history of shunning strategic alliances. In 1987, Sculley refused to sign licensing contracts
with Apollo Computer. He felt that up-and-coming rival Sun Microsystems would overtake Apollo
Computer, which did happen. Then, Sculley and Michael Spindler (COO) partnered Apple with IBM
and Motorola on the PowerPC chip. Sculley and Spindler were hoping IBM would buy Apple
and put them in charge of the PC business. That never came to fruition, because Apple (with
Spindler as the CEO) seemed contradictory and was extraordinarily difficult in business dealings.
“If Apple had licensed the Mac OS when it first came out, Window wouldn’t exist
today.” –
Jon van Bronkhorst,
“The computer was never the problem. The company’s strategy was. Apple saw itself as
a hardware company; in order to protect our hardware profits, we didn’t license our operating
system. We had the most beautiful operating system, but to get it you had to buy our hardware at twice
the price. That was a mistake.” – Steve Wozniak, Apple cofounder
“If we had licensed earlier, we would be the Microsoft of today.” –Ian W. Diery, Apple
Executive VP,
“I am aware that I am known as the Great Satan on licensing…I was never for or against
licensing. I just did not see how it would make sense. But my approach was stupid. We were just fat
cats living off a business that had no competition.” – Jean-Louis Gassée, Be CEO and ex-CEO of
Apple, admitting he made a strategic mistake
Apple turned the corner in 1993. Spindler begrudgingly licensed the Mac to Power Computing in 1993
and to Radius (who made Mac monitors) in 1995. However, Spindler nixed Gateway in 1995 due to
cannibalization fears. Gil Amelio, an avid supporter of licensing, took over as CEO in 1996. Under
Amelio, Apple licensed to Motorola and IBM. In 1996, Apple announced the $427 million purchase of
NeXT Software, marking the return of Steve Jobs. Amelio suddenly resigned in 1997, and the stage was
set for Jobs to resume power.
Jobs despised licensing, calling cloners “leeches”. He pulled the plug, essentially killing
its largest licensee (Power Computing). Apple subsequently acquired Power Computing’s
customer database, Mac OS license, and key employees for $100 million of Apple stock and $10
million to cover debt and closing costs. The business was worth $400 million. A massive reversal
occurred in 1997 and 1998. In 1997, Jobs overhauled the board of directors and then entered Apple into
patent cross-licensing and technology agreements with Microsoft. In 1998, Jobs stated that Apple’s
strategy is to “focus all of our software development resources on extending the
Macintosh operating system. To realize our ambitious plans we mu …
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