Apple's differentiation strategy and competition in personal computers and mobile devices

¶ … innovation, Apple has managed to stay afloat in the highly competitive personal computers industry. To remain relevant in a dynamic market, the Tech Company has over time sought to forge a path which significantly differs from those of its main competitors by adopting a differentiation strategy in which most of its products differ from those of the competition mainly in terms of design and quality. In this text, I explore Apple's industry, environment and strategy.

Apple's Main Products and Competition

Together with a number of its subsidiaries; Apple manufactures, designs and offers for sale a wide range of products including personal computers, digital music players (portable) and media and mobile communication devices. Further, the giant Tech Company offers for sale related digital content (third party), solutions related to networking, peripherals and software. Basically, most of the company's main products are sold to its global clientele through a quite a number of value-added resellers, whole-sellers (third-party), retail stores and online stores. The company also utilizes a direct sales force. Through its retail and online stores, the company offers for sale products such as the iPod, iPad, iPhone and Mac (third-party). Other peripherals and accessories sold through the company's retail and online stores include headphones, speakers, storage devices, application software etc. which are essentially compatible to the company's main products as highlighted above. Through its iTunes stores, the company distributes several digital applications and content.

In general terms, Apple's clients include creative markets, governments, small and medium enterprises, academia, and individuals. With Cupertino, California acting as its headquarters, the company founded by Ronald Wayne, Steve Wozniak and Steve Jobs sometimes in 1976 has since established itself as a household name in the personal computers and mobile devices marketplace with its flagship products such as the iPhone, the iPad and the iPod receiving a warm reception across the world. In terms of hardware and most specifically the hugely popular iPad, HP's new tablet could be considered Apple's main competition in that segment. Apart from the two products being significantly popular, HP's device mainly seeks to capitalize on its connectivity to computers, tablets, printers, phones and other devices. Though Apple's iPad has some of these capabilities, the same cannot be said to be part of its core (Dalrymple n.p).

In its 2010 10k: annual report, Apple admits that the market it operates in is highly competitive (Apple 6). Though Apple has a number of competitors depending on the platform one concerns himself or herself with, its main and most fierce competitor today seems to be Google. The other significant competitors of Apple include Amazon, Research in Motion (RIM) and Hewlett Packard (HP). Today, Google is Apple's main competitor on the smartphone OS front. The former's smartphone powering software, the Android, has in recent times been in fierce competition with Apple's own iOS. The competition between the two operating systems has in the past prompted skepticism from none other than the late Steve Jobs, Apple's co-founder and tech luminary. In one of the firm's quarterly earnings call with investors, Jobs said that Google's Android was essentially "fragmented" adding that Google's way of reporting its Android user numbers was inaccurate (Milian n.p).

The Industry's Business Environment and Competition

The competition in the personal computers marketplace has variously been described as being cutthroat. The various factors that give competitors in this industry a competitive edge include the level of customer service, innovation, reliability and continuous improvement (kaizen). To remain relevant, firms in this market have been known to constantly slash their prices.

To survive the cutthroat competition that characterizes the industry, Apple has effectively adopted a differentiation strategy. Essentially, "product differentiation involves creating differences in the firm's product offering that set it apart from competing offerings" (Ferrell and Hartline 209). In this case, Apple emphasizes on quality, branding by way of advertising, service, and design. The key drivers the firm utilizes to make this strategy work include R&D, creativity, kaizen (continuous improvement), superior engineering skills and unique marketing capabilities. On the other hand, Google, Apple's competitor on the OS front also seems to be adopting the differentiation strategy. In this regard, it seeks to differentiate its Android OS from Apple's iOS by encouraging customers to further customize the software to suit their needs. HP, Apples main Competitor in the computer hardware market seems to favor a cost leadership strategy. According to Harrison and John, HP's profit margins have been as a result of cost cutting initiatives (134).

In regard to the degree of competition from existing competitors, it can be noted that Apple operates in a highly competitive marketplace. The personal computer industry is hence characterized by a significant level of rivalry between players, with competing firms constantly slashing prices to stay ahead of the competition. When it comes to potential entrants, it can be noted that the personal computers industry is not especially attractive to new entrants. This is because of the low profit margins coupled with a significantly high level of competition. Further, the current players dominate important niches like Apple's touch devices and OS.

Looking at the degree of competition from substitute products, it can be noted that the consumer technology sector has in the recent past experienced significant growth effectively meaning that consumers today have a wide range of alternatives when it comes to tech products. For instance, the PC market has significantly been eaten away by smart phones and other more convenient hand held devices. This calls for diversification on the part of traditional PC manufactures.

The Industry Power over Customers and Suppliers

In the personal computers industry, buyers wield significant influence over manufacturers. In this case, we have consumers who demand for the latest smart phones with the most functionality and those who ask for a product that possesses basic functionality. It is the former group that has significant influence over manufacturers given the fragmentation in this particular industry where the lack of a certain 'basic' function could lead customers (in droves) to another player. In regard to suppliers, it can be noted that while some components used in the manufacture of devices come from a wide range of suppliers, there are other components which are supplied by one or two dominant suppliers i.e. The OS and the microprocessor. Therefore, for the latter products, the industry's level of influence over suppliers is significantly low.

Major Trends in the Industry and the Impact of Technology and Regulation

Some of the most prominent trends in the personal computers market include international growth, integration and convenience. When it comes to international growth, it can be noted that industry players have found new demand for their products in emerging economies like India and China. Further, these economies have established themselves as leading outsourcing partners for the tech giants. Next, integration as a trend has seen computer-embedded products become the in-thing. Multifunctional products include cell phones with cameras etc. Lastly, convenience as yet another trend has informed the development of easily manageable devices with more memory storage and enhanced compactness.

When it comes to technology and regulation, it can be noted that for this particular industry, the need to keep up with the changes regarding the two cannot be overstated. Today, technology has become highly relevant in this market thanks to the need for device convergence. This is more so the case as consumers continue to seek those devices considered multifunctional in their quest to 'do more with less.' Technology in this industry has also effectively shortened the product lifecycle of most devices due to innovation. Regulation on the other hand continues to be a priority of the government with bills being drafted regularly to avert the misuse of technology. Further, regulation is important given the need to ensure that players in the personal computers marketplace do not engage in unfair business practices.

Ratio Analysis

To further evaluate how successful Apple is, such ratios as the gross profit margin, inventory turnover, current ratio and return on equity can be taken into consideration.

Gross Profit Margin

Apple's gross profit margin can be computed by deducting C.O.G.S from the figure given for sales. The resulting figure in this case is then divided with the sales figure. Consider below.

2008 gross profit margin = 37.49B - 23.49B/37.49B = 0.37

2009 gross profit margin = 42.90B - 24.95B/42.90B = 0.42

2010 gross profit margin = 65.07B - 38.47B/65.07B = 0.41

Basically this ratio concerns itself with the gross profit sales are earning. Looking at the figures above, though the gross profit earned on sales increased in 2009 compared to 2008, it recorded a slight decline in 2010. The firm could hence be experiencing slight problems when it comes to the management of its production costs.

Inventory Turnover

Apple's inventory turnover will be computed by dividing the figure for the cost of goods sold with the figure for average inventory. Consider below.

2008 inventory turnover = 23.80B/0.509B = 46.76

2009 inventory turnover = 24.95B/0.455B = 54.84

2010 inventory turnover = 38.47B/1.05B = 36.64

This ratio helps a business to determine whether it has excessive stock. Given that the figure for inventory turnover decreased in the year 2010 in comparison to 2009, one could conclude that Apple managed its stock well in the period under consideration.

Current Ratio

Apple's current ratio can be computed by dividing the value of current liabilities with the current assets value. Consider below.

2008 current ratio = 30.01B/11.36B = 2.64

2009 current ratio = 31.56B/11.51B = 2.74

2010 current ratio = 41.68B/20.72B = 2.01

Current ratio helps a company to determine how ready it is to settle its short-term obligations if and when they fall due. Basically, a current ratio of less than 1 is sign that the business may not be able to settle its short-term obligations if and when they fall due.

Return on Equity

Return on equity (ROE) can be computed by dividing the figure for income (net) with that of shareholders equity. Consider below.

2008 return on equity = 6.12B/22.30B = 0.27

2009 return on equity = 8.24B/31.64B = 0.26

2010 return on equity = 14.01B/47.79B = 0.29

This ratio measures how much investors are getting back from the company for each of their invested dollar. The higher ROE in 2010 in comparison to 2009 is an indicator that in the period under consideration, Apple efficiently used its assets to rake in healthy earnings.

Conclusion

In conclusion, it can be noted that over time, Apple has largely been successful in the highly competitive personal computers marketplace as a result of its resolve to ensure that its products are significantly different from those of competitors. Further, the company has been a market leader when it comes to innovation. However, it should be noted that to remain relevant in the market going forward, Apple must continue offering value to its customers whilst ensuring that its products continue to stand out from those offered for sale by competitors.