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There is a risk, however, that the company begins to lag the pace of technological change, and in such a situation would see reduced relevance in its industries. What the PEST analysis shows is that in general the external environmental forces have either a favorable or neutral impact on Apple's operations. Traditional sources of external risk (political/legal) are minimal and the other key risk source (technological change) has traditionally been an area of strength for Apple. The trends for the future are positive, so Apple is likely to continue to succeed simply by staying the course.
In the external environment, a firm like Apple has innumerable opportunities. The ones most appealing are closely related to either Apple's technology or media properties. Extensions of Apple TV to compete with Netflix could be an opportunity. Video game consoles are a related business where Apple can succeed, just as rival Microsoft has. There remains significant room for growth both in personal computers and in many overseas markets, where Apple remains a niche product. The external environment contains many threats, however. Apple faces intense competition and many of its competitors can match its wealth, brand power and R&D capabilities. An example would be Google's Android, which has surpassed the iPhone in market share (the Independent, 2011). Samsung and other firms are a threat to the tablet business, and while a credible threat in mp3 players has yet to emerge, the possibility puts Apple's market share at risk. If Apple enters the game console business, all three competitors can be expected to react swiftly and strongly to keep Apple out of the market. There are potential threats to the company's trade secrets and there is the threat that brand power is diluted by a series of weaker products or backlash against the company's hubris by partners.
Based on the SWOT analysis, it is clear that Apple is a very strong competitor and its prospects are in general bright, given the plethora of strengths and dearth of weaknesses. However, competition in almost all of its businesses is intense, and the competitive landscape can shift quickly. This implies that Apple needs to consistently reinforce its strengths. The company has long thrived on its brand image (Kahney, 2002) and has recently thrived on technological innovation as well. If Apple can maintain industry leadership in both of these categories, it should be able to maintain its current status within the industry and enter new markets successfully. That is does not need to guard against significant threats beyond competition or shore up major weaknesses gives Apple the freedom to pursue a strategy based on reinforcing its strengths in order to exploit the opportunities that exist for it in the marketplace.
IV Market Segmentation
There are a number of segments within the video game console industry. Mainstream consoles are the largest segment (70%) with PCs and mobile devices being minor segments. With 67% market saturation, video games are distributed widely both in terms of age and gender, and in terms of geography as well with games popular in the Americas, Europe and Asia. The mobile gaming concept is expected to have two main market segments.
The first such segment consists of users who trade up from mobile devices. These consumers are expected to skew younger demographically, as younger consumers are more likely to use their mobile devices for gaming. They will be both male and female and will not have a significant skew in terms of education -- the product is expected to be fairly mass market. This group is expected to be roughly 60% of sales. They want more sophisticated games for mobile, and to be able to take their gaming systems with them to visit friends, or keep them entertained at school or on public transport. These consumers will use the console primarily for entertainment. They will not need significant support as they are very technologically savvy. These consumers are well familiar with the Apple brand -- word of mouth and traditional media promotions will be sufficient to raise awareness. This consumer group is going to be moderately price-sensitive -- gaming is important for them but they sometimes have low levels of disposable income. Despite this, the console is a moderate involvement purchase.
The second major segment of users is expected to comprise around 30% of the market. This group will be older gamers 35+ (adults over 50 comprise 25% of the total gaming market). This group also seeks entertainment, but will have less heavy usage than the first segment. This group is familiar with the Apple brand but is less likely to own an Apple product aside from perhaps an iPod. For this group, the video game console purchase is a high involvement purchase, even though this group has more disposable income. Once the purchase decision is made, however, this group tends to be less price sensitive because of its higher levels of disposable income.
V. Alternative Marketing Strategies
There are a number of marketing strategies for the iPad Game. As this is a new product, it could replace an existing product in the Apple lineup, it could be launched as an entirely new product or as a brand extension, and there is a decision that needs to be made with respect to how this product will be positioned within the context of the video game industry.
Replacing an existing product in the lineup is an option that appeals under two different circumstances, neither of which applies to Apple. The first circumstance is if there is an existing product that is at the end of the product life cycle and the new product represents an opportunity to renew growth. This is not the case with Apple -- all of its products are strong sellers and all appear to have years of useful life ahead of them. The second circumstance is if there is a shortage of resources for marketing products. With Apple's $26 billion cash balance, there is no shortage of resources for launching a new product -- funds need not come at the expense of existing products.
The branding alternatives are more complicated. Apple could launch the game console as a standalone product, for example the iGame, or it could launch it as a brand extension of an existing product such as the iPad. As a standalone product, this console would have to carve out its own niche in the industry but it would still have the strength of the Apple brand, which is more powerful than any of the individual product brands within the Apple family. A new brand essentially signals to the market that Apple is creating a new category for this product, and that has a certain allure. However, it takes more work to build the brand from scratch than to leverage the strength of an existing brand. The existing iPad brand is dominant in its category but is struggling with new competitors using the Android operating system from Google. Apple surely must expect iPad market share to fall considerably over the next couple of years. Introducing a version built specifically for gaming would strengthen the iPad brand at a time when it is vulnerable and would also lend brand power to the new product. This mutually beneficial situation may tip the scales towards what is effectively a co-branding arrangement between the iPad line and the new console.
The final set of alternatives that Apple needs to consider relate to the positioning of the console within the video game industry. In this, it is similar to the iPad in that it fits in a new niche that is yet unoccupied. This niche lies in between the 10% or so of game consumers who use mobile devices for their games and those consumers who use PCs or traditional consoles. The iPad Game fits in between these groups, combining advantages and disadvantages of each type of product. If Apple positions the new device as an alternative to existing mobile gaming, it would benefit from technological superiority but would suffer in terms of its price point. If Apple positions the new device vs. existing consoles it might match price but will deliver a slightly inferior gaming experience, albeit with mobility. If Apple positions the product as an extension of the iPad console, it would truly occupy new territory and it would be difficult to determine without a test market program how video game users would respond.
VI. Selected Marketing Strategy
The selected strategy is to position the new console as a gaming version of the iPad, called the iPad Game. This takes advantage of the mutually beneficial branding opportunity and highlights to consumers the unique nature of the product, distinct from either a gaming on mobile devices or traditional consoles. This strategy therefore offers the most upside for the device, and given Apple's strong brand loyalty and massive marketing budget capacity, optimism is a good approach for the firm to take -- failure is something the company has…[continue]
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