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Apple is a consumer technology company that markets a wide range of branded consumer electronics. According to Porter's typology, Apple utilizes a differentiation strategy, wherein it markets to a mass audience but focuses on finding ways to differentiate itself from its competitors (QuickMBA, 2010). With this strategy, it is the degree to which the company is able to successfully differentiate itself that allows it to make money.
Apple's most important activities are product development and marketing. The company develops its products at its California headquarters. The development process is highly secretive, but it also contributes strongly to the company's differentiation (Lowensohn, 2012). The products are developed individually to appeal to consumers on a number of different levels. Slick design is important to the success of the products, as Apple aims to have superior aesthetic value to its competitors. The company also utilizes proprietary operating systems and software in order to distinguish its products from those of the competition. In addition, Apple products are developed with the objective of creating a family of products. The high degree of integration between the company's different products encourages consumers to purchase multiple products in the family. This is an advantage that few if any competitors have.
Secrecy is only one element of the corporate culture. It allows the company to bring products to market with first-mover advantage. In general, Apple has not invented new products, but has been able to bring its products (iPod, iPhone and iPad in particular) to market in a way where their innovations have allowed them to stand out from existing players in those markets. As a result of that, Apple has gained significant first mover advantages. If rivals knew what Apple was developing, these advantages would not last as long, but in some products Apple's first mover advantage has lasted well over a year, allowing the company to build market share relatively uncontested. Given that the company's business model relies on bringing new customers into the Apple family and then selling them other products within the family, this first mover advantage is critical to growth.
Beyond secrecy, innovation and consumer focus are two key cultural aspects of the company's product development strategy. Apple has on multiple occasions taken product ideas already in the marketplace and adapted them to meet Apple's standards of consumer friendliness. By adding Apple's own innovative capabilities, the company's versions of these products tend to significantly outperform other models on the market. In the case of the iPod, Apple was able to dominate the mp3 player market with its superior product. In the case of the iPhone, Apple targeting the consumer audience when existing players Palm and Blackberry were focused on the corporate market allowed it to deliver a unique product and rapidly build market share. The tablet computer market was so moribund that it did not exist for several years until Apple released the iPad, its innovations strong enough to create a market where nobody had previously succeeded in doing so. The culture of innovation therefore is essential to developing new products that resonate with the consumer and eclipse all previous products on the market. This puts other companies in the position of catching up to Apple, something that further accentuates the company's reputation for innovation -- it sets the parameters for future competition in those markets.
Goodson (2011) writes in Forbes that brand loyalty is essential to the company's success. Brand power is one of the most important sources of sustainable competitive advantage, and along with innovation is one of the reasons why Apple is able to create the differentiation that drives its market share gains and high margins. Interbrand (2011) rates the Apple brand as the 8th-most valuable in the world, although direct competitors like Microsoft and Google are rated higher. Nevertheless, Apple's brand value drives exceptional brand loyalty. The company utilizes this loyalty not only to drive existing customers of one product to purchase additional products from the company, but many Apple customers serve as evangelists for the company as well, and convinces customers to forgo competing products even when those products offer lower prices or even better quality (Goodson, 2011).
Embedded in the company's brand loyalty, its innovation and even its secrecy is a deep-rooted passion for what it does. The company's mission statement "Apple is committed to bringing the best personal computing experience…" guides the passion that is embedded in the corporate culture for creating the best products. This drives several key strategic decisions, including vertical integration and the creation of a cohesive family of products that can interact with one another. This passion stemmed from Steve Jobs and extended out to the customer base to a degree that other personal electronics firms have been unable to match, and this is another source of competitive advantage -- arguably sustainable -- for the company (Goodson, 2011).
2. The personal electronics industry is characterized by a state of monopolistic competition. The culture and methods of Apple allow it to compete with a differentiated strategy -- Apple is arguable the most differentiated of the companies against which it competes. Consider the intersection between vertical integration, horizontal product integration and secrecy. Each of these factors shapes the company's research and development strategy. The result is that Apple has a tremendous amount of intellectual property rights. Naturally, the company will hold patents on its own technology, and it guards its IP vigorously, for example with its long-running battle with Samsung (Matussek, 2012).
Protecting IP is essential to competing in personal electronics. On a functional, user-centric level, most of the products Apple produces do not function in a significantly different manner from those of competitors. The look, feel and certain processes, however, do help to differentiate Apple and the company must protect those from imitators. This is because the products and software are easy to imitate, but because they contribute to the value of Apple's brand, the company must protect their work as best as possible. Doing so allows Apple to have a monopoly on certain proprietary products, designs and functionality, and that monopoly combined with branding strengthens the appeal of Apple products and allows the company to extract its high margins (monopoly rents) from consumers.
The company leverages efficiency to drive down its costs. Efficiency starts at the design stage. Unlike some competitors, Apple does not make umpteen iterations of its products. The iPhone, for example, comes in six iterations -- three different memory sizes and two different color schemes. Customization beyond that is left to third parties, who produce cases, screens and other accessories for the product. The low number of iterations allows the company to produce its products at a very high volume. Apple locations most of its production in China, in part because that is where many parts suppliers are situated, creating electronics manufacturing clusters. These clusters lower the cost of production, as shipping components to assembly facilities is cheap and easy. Partnering with FedEx allows Apple to bring its products to the consumer quickly from China, and its differentiation allows it to pass those shipping costs on to customers. High levels of production efficiency lower the variable costs of production, improving Apple's margins.
Similarly, monopoly opportunities, even if short-lived, can be derived from leveraging information that competitors do not have. The launch of the iPad is a study in this. The tablet segment had been long since given up for dead, but Apple recognized that a market might exist for this now, compared with when tablets has been tried before. The approach that many electronics companies had taken was to adopt a one-size-fits-all approach to product development. People wanted computers, mp3 players and phones was the theory. Apple realized that there were people who perhaps owned computers but did not need full-scale computing power, in particular a keyboard, and realized that the tablet could fill that need in the market. Nobody else in the industry realized this - the knowledge was Apple's alone. In a way, the company had gone through this before with the iPod Touch, which was basically an iPhone without a phone. There was a much larger market for that product than was expected when it was launched. Apple's superior knowledge of the market afforded it the opportunity, with both of these products, to segment the consumer electronics in a unique way. This compelled Apple to develop products that nobody else thought to develop, because Apple alone realized that there was a market. The iPad still has a strong market share in tablets and the iPod Touch remains without a serious competitor.
The process by which the company's knowledge is converted into products and brought to market is subject to some of the company's famous secrecy, but in the past appears to have been driven in large part by the vision of Steve Jobs. As the driving force behind innovation at Apple, Jobs was able to identify these untapped opportunities in the market and drive their development. Senior management plays a very hands-on role in the coordination function…[continue]
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