Value Capture Reflects the Ability

Value capture reflects the ability of the firm to differentiate its products in such a way that the firm can earn premiums on the product. If a product is sufficiently differentiated, the firm should have stronger pricing controls than its competitors, allowing it to be more profitable. A good example of this is with respect to Apple and its iPhone. The iPhone is one of many smartphones on the market, but this product not only costs more than other, similar products but also has a strong market share. The primary reason for this is Apple's ability to differentiate the product from the numerous other competitors.

Apple uses branding as the primary means of differentiating its products. Branding is the core of Apple's marketing strategy. The company has cultivated a brand image that associates its products with high standards of quality and with fun and youthfulness. These brand associations are powerful influencers of consumer behavior, as consumers are willing to pay a premium to be associated with specific images. Apple products such as the iPhone, therefore, are aspirational products. The same can be said for some of the company's competitors -- Blackberries are for executives, for example.

Apple builds and supports these brand associations in a number of ways. The company's pricing strategy helps to differentiate the product. The brand image of high quality requires premium pricing, a phenomenon known as negative price elasticity. Negative price elasticity means that as the price goes higher, the product is viewed by consumers as being higher quality, which spurs greater demand. In reciprocity, the differentiation helps support the higher price. The brand association is also supported by exclusivity. Apple ensures that when a new product is released, supplies are insufficient to meet demand. Sellouts and product unavailability supports a brand image of coolness and exclusivity, two of the key aspirational associations that Apple cultivates. Each new iPhone model is launched according to this pattern, a tactic devised to maintain a positive image of the brand's vitality.

Another means by which Apple differentiates the iPhone is through platform exclusivity. The operating system for the iPhone is not used by any other smartphone products. The applications that the iPhone utilizes are also exclusive to the iPhone, though some may be adapted for use on other operating systems. This lack of compatibility has long been a key strategy for Apple in all of its products. The general idea behind it is to foster a sense of exclusivity among Apple customers, that they are part of a special club that somehow makes them superior to customers of other smartphones. Apple takes great care to foster this sense of superiority among its customers, playing on the inherent vanity of many consumers. Apple wishes for its consumers to believe that they are receiving the absolute best smartphone when they purchase an iPhone, regardless of whether or not that is actually the case. If consumers believe this, they will be willing to pay higher prices. Much of the success of the iPhone is associated with the ability of Apple to make this connection with consumers, because without such associations, consumers would not be willing to spend extra on an iPhone and would probably spend more time comparison shopping different smartphones. In essence, Apple wants its customers to purchase an Apple, rather than product that delivers a specific bundle of benefits.

The iPhone has a strong market share in smartphones, and has allowed Apple to emerge as a power in mobile devices. This indicates that the company has been successful in creating the brand associations that drive the product differentiation in the iPhone. Other smartphones compare poorly with respect to brand associations next to the iPhone for a couple of reasons. One is that there is some confusion between the platform brand (i.e. Android) and the manufacturer's brand. With the iPhone, the same brand is associated with both. Another reason is that other companies in the industry are competing for different consumers than the Apple. For example, some firms are pursuing a cost leadership strategy rather than a differentiation strategy.

For the most part, only a couple of smartphone hardware manufacturers have been able to differentiate their brands successfully -- Blackberry and the iPhone -- and this is because they are the main two devices that are pursuing a differentiated strategy. These two brands also have been in the industry longer than many other players. The newer players have had a more difficult time creating differentiation -- even when their products are superior they are not always perceived as such by the market. It is simply assumed by many consumers that weaker brands equate to weaker products.