Apple computers: history, products, and market influence

Apple is a marketer of computers and other personal electronics. The company has been highly successful of late. It utilizes a strategy based around innovation and differentiation. The company has a number of key strengths, including a strong brand, a rock solid balance sheet and a culture that supports innovation. There are strong growth opportunities -- overseas, domestically and perhaps in tablets. Competition is the main threat to Apple.

The company's current marketing strategy is generally strong. The brand value has improved substantially in recent years, as has the market share of Apple's core products. The company is increasing its marketing budget. It is recommended that some price adjustments are made in order to make Apple products more competitive. It is also recommended that Apple focus its promotional message on strengthening the brand and increasing its international appeal rather than on building brand recognition. The key success measures are market share, revenues, profits and first-year sales of the iPad.

Company Description

Apple Inc. is a designer, manufacturer and marketer of a consumer electronic products personal computers, mp3 players, portable devices, and software. The company sells its products through multiple channels, including a direct sales force and online stores. The company recorded sales in the past twelve months of $46.7 billion and a profit of $9.4 billion. In contrast to most other computer manufacturers, Apple products are embedded with proprietary software. The company has enjoyed tremendous success in recent years, with a number of hit product introductions that have driven revenue, including the iPod and the iPhone.

Strategic Focus

The strategic focus on Apple is to develop its market share in a variety of personal electronic products. The company is also geographically focused, emphasizing major Western markets. The personal computing industry is characterized by a lack of differentiation among products, such that commoditization and price competition are common. Apple has sought to differentiate its products through marketing, brand building and proprietary software. In the company's other major markets -- portable devices, mp3 players -- there are fewer competitors and greater differentiation among competitors. Apple maintains, however, its strategy of differentiation.

Mission/Vision

Apple's mission statement is as follows:

"Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone."

Source: Apple.com

The company does not have a stated vision statement. The mission statement provides little indication of any coherent mission. There are references to innovation, which is a key driver in the industry, but all the elements of the mission statement are past-looking rather than forward and read like a marketing press release compared to most corporate mission statements. The lack of clarity and directness of this mission statement provides little guidance for the employees of the company with respect to what, precisely, they are aiming for in the future.

Goals

Apple has a number of tactical and strategic goals, as mentioned in their latest 10-K. The company has launched a new product in recent weeks, the iPad, with considerable fanfare, hoping to create momentum in a tablet computer space that has yet to resonate with consumers. Apple is increasing its marketing investment overall in the hopes of driving product and brand awareness. The company is investing in programs to enhance reseller sales. Apple invests heavily in research and development, a function of the rapid pace of technological change and the company's desire to lead this change. The company does not specify financial goals but a reasonable observer would contend that it hopes the introduction of the iPad will drive revenues and the rate of revenue growth higher in 2010 than in the past few years. The company enjoyed strong performance in the past few years, but with a splashy new product launch they are hoping to create a new segment, fuelling strong growth in a category relatively devoid of serious competition.

Core Competency and Sustainable Competitive Advantage

Apple's recent success has been driven but multiple core competencies, some of which have lead to sustainable competitive advantage. The two most important competencies are in product development and in brand development. Historically, the company's success has been predicated on its ability to introduce new products that resonate with consumers. In the past ten years, Apple has introduced a string of such products, spurring tremendous growth. The ability to continually introduce new products and breathe life into moribund product categories has allowed Apple to not only gain market share but to create it.

Apple's brand development has been spectacular, in particular in recent years. Apple has been able to successfully differentiate itself from other computer manufacturers, enabling it to charge premium prices for its products. The company's other core products -- the iPod and iPhone in particular -- also have a high degree of differentiation, owing to the strong branding of the company. Apple's brand value drives business to the entire family of products that it creates -- the owner of one Apple product is likely to be the owner of multiple Apple products. The company has been rated as the #20 brand in the world, with a brand value of $15.4 billion. The brand is considered to be "one of the most iconic young brands in the world" (Interbrand, 2009).

The brand is the single greatest source of sustainable competitive advantage for Apple. The brand has a high positive image among consumers, and is widely recognized in the company's core markets. The Apple brand alone can drive sales and create hype. It is worth noting, however, that while the brand is powerful, Apple competes against many other powerful brands as well. Microsoft ranks higher than Apple in the brand value survey, and a competing brand like Blackberry is also in the survey. The company's innovation has been sustained for several years, but cannot be considered to be a source of sustainable competitive advantage. Other firms can imitate or better Apple's product innovation ability. In addition, Apple could lose its innovation ability with the defection of key talent and the erosion of leadership. While this competitive advantage is long-lasting, history has shown that at Apple innovation also fluctuates depending on the company's personnel.

Situation Analysis

Apple is currently enjoying a strong current run of success. The company did not face adverse consequences as the result of the economic downturn, becoming a stock market superstar as a result. Revenues have increased rapidly in the past few years, from $13.9 billion in 2005 to $42.9 billion in 2009. Net income has also increased over that time, from $1.3 billion to $8.2 billion.

The company is engaged in intense competition in all of its product lines, save for the new iPad. In computing, the company battles several major brands, most of which have a low degree of product differentiation but also have a lower cost structure than does Apple. In mp3 players, Apple dominates the market. The iPhone competes against the Blackberry and Palm, although financial difficulty at the latter company could mark significant restructuring of that market.

The company's operating environment is difficult, but its brand value and rate of innovation have allowed it to thrive where others have found difficulty. Apple is expected to continue its run of success for the coming years, as its stock is priced at a multiple of 24.14, suggesting that the market predicts strong steady growth in the future for the company (MSN Moneycentral, 2010).

SWOT Analysis

Apple has many strengths from which to draw. The first is innovation. The new product innovations have made the company the envy of many executives (Berglass, 2010) but its marketing and distribution innovations have also helped to foster a unique brand awareness and culture. Innovation at Apple is fostered by design thinking -- where design takes on a critical aspect of the product development process; product development strategy, where innovation becomes a key objective of the company; the CEO as chief innovator, where the inspiration for innovation comes from the top down; and bold business experimentation, where the company is willing to tackle markets that other companies have dismissed (Thomke & Feinberg, 2009).

Brand power is another key strength at Apple. The company operates in the premium segment of its chosen markets, using a differentiated strategy. Apple prices above the level of the competition, and its brand allows it to do this. The brand personality is focused on lifestyle, rather than product, and about simplicity and a connection with customers (Marketing Minds, 2008).

Apple also has considerable financial strength. The company's recent run of success has increased its earnings per share from $1.64 in 2005 to $9.22 in 2009. As a result of this success, Apple has an impeccable balance sheet. The company has $23.4 billion in cash, giving it a current ratio of 2.74 and a cash ratio of 2.03. Apple has no long-term debt and a 2-to-1 debt ratio (MSN Moneycentral, 2010).

Apple has relatively few weaknesses. The company's emphasis on software, marketing and design has left it with a weakness in hardware. Apple products do not have the superior lifespans one would expect from a product commanding a premium price tag.

Another weakness is the dependence on leadership. Apple without Steve Jobs simply does not perform as well as Apple with Steve Jobs. Jobs is responsible for driving innovation at Apple in particular, and his involvement is a cornerstone of the company's innovation strategy. The importance of the leader is such that negative news concerning his health cause the company's stock to drop sharply. The health of Jobs has been a concern for several years and his departure is expected to have a negative impact on the company's fortunes (O'Toole, 2010).

There are many opportunities for Apple. With the high profile launch of the iPad, the company clearly sees tablet computers as a strong growth opportunity. The product exploits what the company feels is a niche with tremendous potential, currently occupied by products such as e-books and netbooks (Enderle, 2009).

Growth represents another significant opportunity. The company has both organic growth as a potential and overseas growth. The company's recent run of success has come as a the result of building market share in its segments -- organic growth. This is an opportunity that can be exploited for a long time, given Apple's relatively low market share outside of mp3 players. Overseas growth is also an opportunity, given Apple's low profile outside of the West. By extending the company's reach into the world's emerging economies, Apple can grow rapidly for years to come.

There are a few threats to Apple. The economy is not one of them. Competition, however, is. Apple competes against some of the world's largest, best-capitalized and most-recognized brands. This competition is intense and is expected to continue to be so for years coming. Competitive response to Apple's endeavors is expected to be strong. The company's dependence on innovation means that it is subject to a threat from innovation -- if another company takes over Apple's technological leadership, Apple will see reduced revenues as a result.

Market-Product Focus

Apple's objectives should be to increase revenues to $60 billion in 2010. The company should sell 1,000,000 iPad units and should increase its market share in other areas by five to ten points. The target market segments for Apple should not change -- the focus should be on greater penetration of existing target markets.

Apple has a broad target market. Their core is made up of users with higher education levels and higher disposal income. They are between 18-50 years old, live in Western countries and view themselves as unique individuals. It is a fallacy to suggest that Apple should concentrate on niches -- mass market companies are fundamentally different from niche companies. You cannot do $60 billion in business selling to niches, you need to sell to broad spectrum. While Apple understands its target market, that market is by necessity loosely defined; the company characterizes it as roughly "anyone who aspires to live a more creative life" (Morrison, no date).

Apple appeals to its target market with innovative products, innovative product design and with premium branding. The proprietary software serves to emphasize the differentiation of Apple products, as they are not compatible with the products of other manufacturers. The target market finds appeal in the relative uniqueness of Apple products and the snob appeal that goes along with that. Apple's premium positioning leverages this differentiation to promote a premium image of the product and to extract higher prices from the consumers. The focus on consumers with higher income levels is mainly out of necessity -- Apple prices itself out of lower-end markets.

Marketing Program

Product. Apple has a range of products to be promoted. These include computers, mp3 players, smartphones, tablets, applications and software. The corporate Apple name is a strong selling point, but within in each category there are brand families (iPod, Mac, iPhone). Within each family there are product brands (MacBook, Nano, 3G, etc.). Packaging is not a major component of the marketing scheme, due to the focus on online sales and the in-store presentation that emphasizes the design of the product itself. Apple sells warranties, and derives a respectable amount of income from them. That strategy should not change.

Price. Apple's products command premium prices. The basic idea should not change, but there are elements that could be adjusted. In the less differentiated categories such as smartphones, Apple should price the phone at a more competitive level and place the emphasis on revenue generation from software and applications. With its computers, the prices should come down somewhat as they have not been subject to the same high level of innovation in recent years that the rest of Apple's product lines have. They remain positioned at premium, but until the next generation of personal computers is launched they are not as differentiated -- save for branding and software -- as is reflected by the price.

Promotion. Apple has had considerable promotion success in recent years. The company emphasizes brand and should continue to do so. Apple is increasing its promotional budget in order to increase brand awareness. This approach makes little sense given that the company has the #20 brand in the world. Apple should focus its efforts on strengthening the brand and increasing its international appeal than on generating awareness, which at this point is superfluous.