The iPod: history and cultural impact

¶ … marketing overview of the Apple iPod, specifically focusing on the marketing environment, consumer behavior and market segmentation, product positioning and role in the marketing mix.

Marketing Environment

IPod music downloads signal an entirely new global business mode. The growth of Apple's iPod and iTunes products signal an entirely new approach to selling musical content online. The success of this model is defined by 1 billion songs sold, and 1 million videos sold in the first twenty days that content form was available for the Video iPod. The iTunes Music Store offers Windows and Mac users the industry's largest online music catalog of over 500,000 songs and a new standard in pricing for 99 cents per song.

The industry works to strategically source key components as availability is a critical part of the distribution and selling strategies. Manufacturing its own key components is allowing the industry to gain increasingly higher levels of bargaining leverage with key component suppliers. Several manufacturers are also able to take advantage of mass production technologies to create high volume, high quality MP3 and consumer audio devices.

Another aspect of this market is that strategic alliances proliferate. Sony is currently a part of strategic alliances with many of its key competitors such as IBM and Toshiba (development of semiconductors) and Samsung (development of LCDs). Apple's many relationships with component suppliers and memory producers and the rumors of them acquiring Samsung to ensure a supply of memory for iPods and nanos is a case in point. These collective alliances allow companies to spread their R&D costs across the many variations of products produced.

Apple continues to focus on launching a new iPod approximately every two years, which is the Apple development cycle for all products. Apple's research and development expenditure totaled $471 million and $446 million in fiscal 2003 and fiscal 2002, according to Apple (2003). Rapid technological advances learned in the personal computer industry have helped Apple gain the market leadership position in personal music players.

Consumer behavior and market segmentation

The overall brand awareness of consumer portable audio electronics devices is growing exponentially as Apple's iPod product strategy continues to mature and MP3 musical files are available through iTunes and other sites for sale.

A iPod has 69% of the MP3 market according to NPD (Online Reporter, 2006) and as result has through aggressive marketing and business development efforts, created an entirely new product category. The recent development agreement between Nike and iPod where runners can attach their iPod to Nike shoes to measure their running, jogging and walking distance is revolutionary (Nike, 2006). This exemplifies the future direction of personal music devices including iPods and iPod clones.

Exponential Customer retention is also happening due to viral marketing. As Apple has shown in their iTunes and iPod combinations, customer retention and growth is possible for the entire portable audio electronic devices, now dominated with MP3 players. The following figure graphically illustrates the growth of iPod relative to Walkman.

Product Positioning

Apple's iPod faces heavy competition from consumer and cellular technologies and as a result concentrates on rapid product development and frequent product launches to accentuate leadership in the personal MP3 market. The industry has a heavy exposure to the consumer electronics and cellular technologies, as these areas are already dominated by contract manufacturers who are looking to bring MP3 capabilities to these devices, especially cellular phones. All companies in this industry including Apple has seen some cannibalization of its products in recent times, as sales of some of its newly released products have an affect on sales of some of its more established MP3 products. Pervasively impacting Apple and its product positioning is the supply of raw materials continues to influence future product designs and production strategies, and is a potentially significant weakness if there is a disruption to memory or electronics. The fact that every music player on average generates $250 in incremental sales revenue of music is what sustains the entire industry today. There are signs however that this is reaching a saturation point, according to Credit Suisse, 2006.

Product, Price, Promotion and Place

Apple's unique product design and innate ability to create a brand that generates a very high level of customer loyalty can be attributed to the synchronization of all four elements of the marketing mix working in conjunction with each other to accomplish this. Starting at the product, the iPod has defined the personal MP3 category and as the recent product introductions in the latter half of 2007 indicate, the company has a strong grasp of where their product designs are going for the long-term, namely the integration of video at lower price points.