Strategy Analysis of Apple Ipod Essay

Jaipuria Institute of Management Lucknow [pic] – SMGT -I – [pic] INTRODUCTION Apple’s motto, “Think Differently” is a concept that the company does very well by creating innovative products that continue to define the world of computer design. Other computer manufacturers have attempted for decades to replicate the iconoclastic appeal of the Apple design. None have succeeded in the manner of Apple. When Steve Jobs assumed the post of CEO in 1998, he re-revolutionized the entire company. Apple introduced the iMac and iBook product lines for the more basic computer buyers and the PowerBook and G series computers for the advanced purchasers.

Apple continues to forge ahead in design with the introduction of the iPod digital music player and the iTunes Web site for the sale and download of music. Among giant rival firms, such as IBM, Apple is on the forefront of a revolution of technology, integrating music, images, and animation. Brief History • Established in 1976 by Steve Jobs and Steve Wozniak in California. • For funding Wozniak sold his Hewlett Packard scientific calculator. • Raised a net start of $1300. • Apple delivered the first Apple I to hobbyists. • Apple quickly earned $774,000.

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Vision Statement Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings. Mission Statement Apple Computer is committed to protecting the environment, health and safety of our employees, customers and the global communities where we operate.

We recognize that by integrating sound environmental, health and safety management practices into all aspects of our business, we can offer technologically innovative products and services while conserving and enhancing resources for future generations. Apple strives for continuous improvement in our environmental, health and safety management systems and in the environmental quality of our products, processes and services. Corporate Strategy • Apple Inc. is a company that is vertically integrated, designing its own operating systems software and hardware, and selling these products through its own retail stores. To retain an edge in the highly competitive personal computer and consumer electronics markets, Apple’s stated philosophy is to increase investments in research and development, as well as marketing and advertising to extend market position. Marketing Strategy • Committed to bringing the best portable music device and mobile communication experience for people of all ages. • Innovative product designs and styles. • Adhere to customer preferences in size, capacity and weight. Target Market • Primary Target Market: Teens and Young Adults to age 29. Secondary Target Market: Adults ages 30+ . WHY IPODS BECAME ICONS ? Problems with other MP3 players….. Communication & distribution [pic] Compleity of design, usage and battery life [pic] [pic]storage capacity & portability UNDERSTANDING BRAND IMAGE OF iPods [pic] Before ipods there were MP3 players….. then….. iPods Everywhere….. [pic] [pic] [pic] [pic] Ipods became ICONS because……… •clean •good-looking •reliable •freedom •cool •status •“it makes you happy”, •“typical Sony product”, “classic Apple product”, •user-friendly •neat •“an image thing” “the iPod” not something like “Apple’s new mp3-player”. iPod as a cultural artifact…. [pic] [pic][pic] 1st GENERATION • Launch –November 10, 2001 • Priced at $399 • 5 GbGigabyte • “IDIOTS PRICED OUR DEVICE” • Not compatible with Windows • No MP3, infactAAC format was used • Advertisement –“1000 songs in your pocket” • IT WAS A SUCCESS BUT NOT A SENSATION 2nd GENERATION • Launched in July 2002 • •Bigger Storage Capacity [10Gb & 20 Gb] • •Lesser in Price • •Mechanical Scroll Wheel Replaced • •Heavier due to casing • Announced it Windows Compatible Version 3rd GENERATION

What made it a big hit ? •40 GbHard disk •Slightly smaller in size •Had more distinct beveled edges •Came with a docking station •Had a touch sensation button with RED BACKLIGHT •Purchasing online from Apple store offered to engrave 2 lines of laser text on the back of IPOD. ITMS(I tunes music store) 1. Allowed user to own music 2. Allowed Portability 3. ITMS –the 1stlegal digital music store to offer music from all 5 majors record labels. It offered 2 lacsongs library Featured rules for downloading & copying (They were uniform across all available songs) PEST Analysis: Economical aspects: Inflation currently has increased in UK and the US and may affect current sales of ipods which have already slowed. • Global economy in a down turn • The exchange rate will also affect Apple as they are importing or exporting goods within the international market. Socio-cultural aspects: • Again Anti-American agenda may cause potential customers to but from another company. • A generally aging British population, so many may be put off by the technology • As much as it is a iPod culture, it can go away as quickly as it came. People may find something else which is better and more value for money.

Technical aspects: The wide range of fast changing high-tech/high-quality download possibilities, encourages consumers to download but it also puts more pressure on competing firms, as they have to stay up-to-date with the newest technologies. Considerable developments in the mobile phone market (3G handsets becoming reality and expanded features available to the customer) will push the multimedia download market into new spheres and will open up great opportunities for Apple. Many substitutes available from iRiver, Samsung and Sony. Competition moving away from copy protection on songs, Such as Amazon.

Peer-to-peer file sharing applications like Lime wire and Kazaa are still extremely popular. Although this is a problem with the music industry on a whole. This still however affects iTunes. Legal aspects: Issues of copyrights and illegal downloads greatly affect the music download industry and are a major problem for active legal providers. A former lack of legislation in this area has encouraged consumers away from commercial downloading services and as a response to this, new technologies have been introduced that protect the copyright of owners and prevent customers to download and share files illegaly.

Digital Rights Managment (DRM) was created to control the number of copies that can be made from a download and although for the music industry there are many positive aspects to DRM, there are surely as many negative for the consumer. Therefore, some companies have already planned to open big portals on DRM-Free tracks that will legally enable the consumer to download files without being limited to a certain number of computers, portable digital devices and CD burns for a reasonable price. Porter’s 5 Forces: [pic] Substitute products: A substitute product is not a direct alternative to the product a company is selling.

For example, the new Sony Walkman media player is not a substitute for the iPod Touch, it is a competitor. However, a personal CD player or MP3 player could be if certain aspects of the market were to change, e. g. price and there was a high elasticity of demand. In the case of iTunes, with music there is a wide range of options for buying music and therefore are many substitutes within the music industry, for example tapes, CDs, vinyl and DVDs. All of these are easily accessible and just as convenient as downloading from the internet.

The benefit which iTunes has is that you do not have to buy whole albums; you can download songs individually and at a fraction of the cost of a single song on another format. Also you are able to buy movies, TV shows, audio books and Podcasts, all available 24 hours a day, 7 days a week. Reports by Mintel have shown that sale price and the volume of sales is falling for non digital media, consequently as a result of internet downloading. The Threat of new Entrants: Already, there are hundreds of media downloading sites available to use on the internet. Some are legal and some are not.

It is more difficult to block and put barriers up for illegal entrants into the market because they are not abiding by the law and therefore do not have patents, licences or the rights to distribute media, but still do. With legitimate start up companies, there are capital requirements, possible patents & licences to obtain and ultimately the prospect of competing with already well established and reputable companies such as iTunes. Mintel predicts that there will be an influx of new companies willing to invest in the online downloading industry. A big threat for Apple constitutes the entrance of Amazon into the market.

The company announced the launch of a new music download portal that offers a wide range of DRM-Free tracks to a reasonable price. Since there are many advantages to DRM-Free tracks, like the fact that users can legaly copy the files without being restricted to a certain number of copies, consumers are expected to highly welcome the new download store. Apple has to be aware of the fact, that it could lose both new and old customers by restricting them to Digital Rights Management tracks that can only be played on Apple’s iPod and not on any MP3 capable device, as it is the case with Amazon.

Bargaining Power Of Customers: Due to the vast range of direct alternatives and substitutes, iTunes needs to price competitively as well as maintaining reputation and range & availability. Consumers are easily swayed to alternative products, especially the ease and free use of illegal downloading sites and therefore need to be drawn in to using legal downloading sites like iTunes. Consumers have great power due to their ability to buy from any one competitor in the music industry and can therefore potentially dictate prices by constantly buying from the cheapest company, thus forcing competitors to reduce prices.

Obviously one customer would not make a difference, but collectively customers are strong. As for the Apple iPhone, it has to be considered that network providers have great power over the company, as they could decide not to sell the iPhone or put pressure on the company that forces them to pay a certain amount of their revenues to the provider. At the moment, Apple has restricted itself to one provider, O2, and therefore greatly depends on them selling the iPhone but this will surely change over time. Bargaining Power of Suppliers: Similarly to bargaining power of customers, there is the bargaining power of suppliers. Tunes have to submit to the requirements of the consumer market to be competitive, but on the other hand have the ability to bargain with their suppliers due to the size and reputation of the company, thus they are a supplier and a customer. Due to the volume of sales that iTunes have, it would be foolish for companies such as SonyBMG, Universal, Warner and EMI to not compromise on the costs and rights to distribute their music, as their success in the music download market highly depends on the successful distribution of their music, mainly through Apple.

This fact clearly limits the bargaining power of suppliers to a certain degree, although Apple has to consider that without their music iTunes could not function as efficiently as the market demands. Therefore a compromise must arise that suits both companies, a possible agreement could be initial fees plus percentage of sales. Intensity of Rivalry: Although the amount of companies operating in the music download market is pretty high, Apple is the clear market leader. Still the multimedia download market is a market in its growth phase with fast changing technologies and many new companies entering the market.

At the moment, it seems very unlikely that a company could seriously threaten Apple’s market position but the company has to be aware of the fact that there are other big multinational companies trying to enter the market with new technologies and ways of offering their services. SWOT Analysis: [pic] Strenghts: Apple is the clear market leader in the music downloadand steady financial performance. Revenues have grown from $5,742 million in 2002 to $19,315 million in 2006 and the company’s net profit has increased from $65 million in 2002 to $1,989 million in 2006 (Datamonitor, 2007).

Steady financial growth shows the good financial state of the company and builds the base for future growth and expansion. Also, the company has a very strong branding and enjoys a high level of brand recognition and brand awareness that allows the company to differentiate its offers and stimulate sales. Strengths of the company is defined by its successful distribution of the iPod and its software iTunes. With every iPod sold, the consumer automatically installs iTunes on his pc, as it is only possible to download music from Apple’s original software to an iPod.

Moreover, Apple products’ are being considered as “hip”, “stylish” and “fashionable” which is increasingly becoming important for consumers. Furthermore, Apple devices and software attract customers for their convenience, their ease of use and for always being up-to-date with the newest technology. Apple has also collaborated with large brand companies like Nike, Starbucks, Coca Cola and Google, which has had beneficial impacts on both Apple and their partners and has created a new profile, e. g. linking sports and music culture.

Weaknesses: First off all there is to say that although the interconnection between the iPod/iPhone and iTunes has been a key factor to Apple’s success this restriction could become a problem in the future, as more and more customers are looking for devices and online portals that allow them to download MP3s to any MP3 capable device. Moreover, Apple has only a very limited offer of DRM-Free tracks on iTunes, which can be defined as a strong weakness since an increasing number of customers fancy DRM-Free downloads.

Another weakness for Apple lies in its pricing, especially for its iPhone. A Mintel research about the mobile phone market in the UK defined “pricing and costs to be the most important factor when it comes to purchasing a phone (Mintel, 2007). Also, the iPhone currently doesn’t allow the costumer to directly download files to the mobile, which, compared to the new Nokia N-Series, is a enormous weakness, since it could prevent customers to buy the Apple device and go for the Nokia handset instead.

This could lead to a loss of Apple’s market share to its competitor Nokia. Also, technically, the iPhone isn’t quiet as good as its competitor the Nokia N95, as it runs on a slower mobile data service and comes only with a 2 Megapixel camera. Another weakness for Apple is, that they’ve only chosen one operator in each country where the iPhone is available and thus has restricted the consumer’s choice of network operators. Threats: The comany’s biggest threat probably constitutes the entrance of Nokia into the digital download market.

By providing the opportunity to directly download files to a handset device, Nokia could gain some of Apple’s a market share in the digital download market, since customers are increasingly fancying mobile downloads that don’t restrict them to a bulky pc or laptop. The mobile download market is “one of the most opportunity-rich markets the world has ever seen”, as Nokia’s Chief Executive Olli-Pekka Kallasvuo states (Halper,2007), and if Apple doesn’t catch up fast on this opportunity it is running risk to loose its superiour market position to Nokia.

Another threat for Apple constitutes the launch of online portals that are specialized in marketing DRM-Free tracks. More and more customers are looking for music that doesn’t restrict them to a certain number of copies or to a special device as it is the case with iTunes and the iPod. Although Apple is currently trying to improve its choice of DRM-Free tracks, it still lacks the greater choice and lower price of companies such as Amazon which could lead to custmers switching over from Apple to those in terms of DRM more convinincing sites.

Also the threat of illegal download sites would have an negative impact, due to the availability of free digital content that could sway customers away from Apple’s iTunes. Opportunities: Although currently especially the youth customer segment is seen as the major target group for downloading, as these customers seem to be less restrictive towards new technologies, providing more substantial and sophisticated products and services for older and wealthier people could proof very profitable for Apple.

With the launch of its iPhone Apple has already done an important move into the mobile phone market that might allow the company to challenge its biggest threat Nokia on their home market. As more and more customers are increasingly becoming aware of innovative techologies and of the benefits arising out of Internet downloading Apple should now take advantage of the great opportunities arising from the fast growing mobile phone download market by making its services directly downloadable to its iPhone as its rival Nokia has already done.

Also, the upcoming change in the digital download industry towards ad-supported content could be an opportunity for Apple, if the company manages to strike advertising deals with companies that allow Apple to offer services for free to customers who agree to watching ads. This could bring a whole new bunch of customers to the company. Although these customers won’t have to pay for the add-supported services, they will probably buy an iPod or an iPhone or another Apple hardware device. Resource Analysis:- The resources of an organisation include its human resource skills, the investment and the capital in every part of the organisation.

Apple has advantages in the production and marketing of its new iPod music player and associated software that set the standards for the industry. It had also invested heavily in branding its products and the Apple retail stores that sold its products. All these were part of its resources. Apple takes supplies it buys in- such as components, energy, skills and capital equipment and then uses its own resources and expertise to create a product from these supplies- such as a computer or an iPod- that has a value which is higher than the combined value of all the supplies which have been used to make the product.

Environmental Analysis:- Organisations need to develop corporate strategies that are best suited to their strengths and weaknesses in relation to the environment in which they operate. For example, Apple faces a highly competitive environment for its competitors in relation to the American companies such as Dell, Hewlett Packard. In addition, the company had to cope with changing levels of economic growth in many markets around the world, which influenced the decisions of its customers to purchase new computers. Competitors Apple’s top three hardware competitors are Dell, Hewlett-Packard, and IBM.

In addition, Apple competes with Microsoft in many areas of the personal computer software industry. With the computer market continuing to be characterized by rapid technological advances both in hardware and software development, all computer manufacturers face steep competition. In an area that it helped create-and once dominated-Apple is now quite small in the personal computer industry. Sales of the Macintosh line of personal computers account for less than 5 percent of the total market in the United States and less than 3 percent of the international personal computer market.

However, Apple’s customers tend to be loyal to the brand-nearly fanatical in fact. Dell Inc. Founded in 1984 by Michael Dell, Dell Inc. (www. dell. corn) was the largest manufacturer of personal computers in 2001. Dell’s total revenue in 2004 of $49,205 million dwarfs Apple’s 2004 total revenue of $8,279 million. Dell’s greatest strength is its ability to drive down costs through its direct sales approach. Dell computers are manufactured once an order has been received, thus reducing inventory and warehousing expenses.

Dell has nearly perfected the cost and quality control aspects of just-in-time manufacturing, and thereby has enjoyed a tremendous advantage over its rivals in quality and production costs. This has allowed Dell to grasp 30 percent of the annual personal computer sales in the United States in 2004 and almost 18 percent of worldwide sales. However, Dell is not known for innovation. Dell has limited itself to few product categories outside of its core computer hardware. Dell’s sales of items such as printers, network switches, projectors, and USB storage devices have been limited.

However, due to the slowing computer business, and Apple’s success in consumer products, Dell is diversifying its product line into consumer electronics. Dell has begun to branch out into other areas by launching its own music download store, digital music jukebox, and wireless personal digital assistant, and it is even going so far as to market flat-panel televisions. Apple, via its iPod and iTunes digital music line and other products, such as iPhoto and iMovies, has shown that music, movies, and photos are a natural extension for the computer user.

Apple maintains a Web site that allows customers to browse and find the latest products available. Apple recognizes the need to have previous customers revisit the site to make future purchases and is capitalizing on this through iTunes: music that can be purchased only at Apple’s Web site and downloaded to its iPod. Dell, in an attempt to replicate Apple’s success, has entered this realm of music with its Jukebox software, whereby customers can download music for a fee or listen to Internet radio at no charge.

However, the iPod digital music player and the iTunes music site were clearly leading in the digital music arena in 2004. Hewlett-Packard Bill Hewlett and Dave Packard founded Hewlett-Packard (www. hp. corn) in 1939. Hewlett-Packard’s merger with Compaq on May 3, 2002, has created a large company with total revenue in 2004 of $79,905 million, compared to Apple’s total revenue of $8,279 million. In addition, Hewlett-Packard’s net income in 2004 of $3,497 million is much larger than Apple’s net income of $276 million.

Today, Hewlett-Packard is a leading global provider of products, technologies, solutions, and services to consumers and business; its offerings span IT infrastructure, personal computing and access devices, global services, and imaging and printing. Currently Hewlett-Packard commands 15. 7 percent of the global personal computer market. However, the profit margin for Hewlett-Packard’s personal computers is a razor-thin 0. 9 percent. However, Hewlett-Packard does have certain competitive strengths.

Sales of printers and printer ink account for approximately 30 percent of the company’s total revenue but generate 70 percent of its operating profits. Like Dell, Hewlett-Packard poses a threat to Apple’s growth. Hewlett-Packard can capitalize on the longevity of its name and offer a desktop computer at a price much lower than Apple can. International Business Machines Apple and IBM (www. ibm. com) have enjoyed a long and somewhat profitable partnership for many years. Apple and IBM jointly developed the Power PC line of central processing chips to compete with Intel and its Pentium line of central processors.

For many years, Apple has been the largest user of the Power PC central processor. However, production delays for the past two years have meant that Apple has often not been able to meet demand, especially for the Power Macintosh and Powerbook line of computers. In July of 2005, Steve Jobs announced that future Apple products and its operating systems would employ Intel’s Pentium processors. In December 2004, it was announced that Lenovo Group Limited, the largest information technology company in China, would acquire IBM’s Personal Computing Division.

IBM-with total revenue in 2004 of $96,293 million and net income of $8,430 million-is a behemoth, with sales in technology consulting, mainframe construction and operation, servers, and other Internet activities. Microsoft John Sculley’s decision not to license the Macintosh operating system to Bill Gates has to be one of the great miscalculations in business. With the Macintosh struggling at less than 3 percent of the global market, the Windows operating system developed by Microsoft(www. microsoft. corn) to emulate the ease of the Macintosh operating system now dominates close to 95 percent of the personal computer industry.

Microsoft’s net revenue in 2004 was $36,835 million. In addition, Microsoft’s 2004 net income of $8,168 million is almost as large as Apple’s total 2004 net sales. Microsoft has continued to be a serious competitor to Apple. The Windows Media Player comes bundled with the Windows operating system that is sold on almost every computer in the world. Media Player includes a link to Microsoft’s own music site, and sales at Microsoft’s site are steadily gaining on Apple’s iTunes. Virus threats are becoming an increasing burden to all companies who have computers.

In fact, information technology (IT) professionals are taking a second look at Apple because of the growing frustration with the Microsoft and its all-too-common worm attacks, which gum up corporate networks and leave all Windows-based computers vulnerable to future attacks. Although few IT departments have considered eliminating their Windows systems altogether, many are starting to incorporate a few Macintosh products to effectively manage their networks. Reasons for iPod boom • iPod became first to use compress technology • iPod was first commercial brand to market portable MP3 successfully. The capacity to store thousands of songs. • Many celebrities liked it • Cool and sleek design • Click wheel concept (Menu selection) • Good interface software -itune • Simple to use • Product came from Apple, known for cool gadgets. • got rid of CD player, all music in one place. • Ability to keep Music,Photos, Movies and Games at one place. • massive advertising done for this product. • People’s support for device ———————– Product: Portable Music Player Brand: Apple Brand(family): ipod Presented by: SATYENDRA VEER

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