1. Brief Summary of Case
Apple Inc., which designs, produces and famous for computers, MP3 players, phones, and tablets, is one of the largest and most profitable companies in the world. The company was found in 1976 by Steve Jobs and Steve Wozniak in Los Altos, California. At the beginning, Job’s mission was to bring an easy-to-use computer to the market, which led to the release of the Apple II in April 1978. After that, Apple quickly became the industry leader and launched a successful IPO in 1980. In 1985, due to decline of Apple’s net income, Jobs was forces out and John Sculley started to lead this company. Sculley pushed the Mac into new markets, most notably in desktop publishing and education, he tried to move Apple into the mainstream by becoming a low cost producer of computers with mass-market appeal and also chose to forge an alliance with Apple’s foremost rival, IBM. However, Sculley’s strategy did not work well, he was replaced by Michael Spindler in 1993. Unfortunately, Spindler couldn’t help Apple to return its market leading position.
In order to save the company, Jobs became the company’s interim CEO in 1997. While previous CEOs sought to broaden Apple’ products, Jobs believed deeply in focus. In 1998, the iMac was introduced and Apple turnaround and posted a $309 million at that year. In 2001, Jobs presented his vision for the Macintosh in what called the “digital hub”. Apple’s shift toward a digital hub strategy was initiated by the debut of the iPod in 2001, follow by the iPhone in 2007, then the iPad in 2010. Steve Jobs had changed Apple from a company on the verge of bankruptcy to one of the largest and most profitable companies in the world. For a few weeks during the spring of 2012, Apple’s market capitalization surpassed $600 billion, making it the most valuable company in the history of the world. Unfortunately, Steve Jobs tragically died of cancer on October, 2011. The new CEO, Tim Cook, had an extraordinary challenge: how to sustain Apple current success and take it to the next level.
2. Position Statement: Recommended Decision
For Apple, Apple must deeply focus on its current products, continue its “digital hub” strategy, and develop, reform and provide more advanced and revolutionary products to retain its royal customers and attract more new customers, in addition, besides the market of U.S., Apple should find other market to look for new market demand.
3. Decision Options:
1) Keep updating current popular products (include iMac, Macbook, Ipod, iPhone and Ipad).), which can generate profits, with Premium –priced strategy. 2) Quit nonprofit and unpopular product (eg. Mini iMac, Apple TV) and develop and introduce new product 3) Expand new market such as China and India
4. Proof of Recommended Option / Critique of Options
1) Keep updating current popular products (include iMac, Macbook, Ipod, iPhone and Ipad).), which can generate profits, with Premium –priced strategy. Reasons:
Variety of products and high profit margin
1. Analysts estimated that Apple generated more than 50% of the cellphone industry’s total profits with less than 4% unit market share.
2. In 2012, four years after iPhone launched, Apple vied with Samsung for the largest market share in smartphones.it accounted for 44% of Apple’s total revenue
3. Analysts estimated that Apple commanded a wholesale ASP of $659 from its iPhones, while competitors’ ASPs on roughly similar hardware ranged between $250 and $350. One study showed that the bill of materials for the latest 16GB model was just under $188.
1. While iPods were available in all price segments, iPod ASPs generally ran $50 to $100 higher than the competition. However, Apple continued to hold more than 70% of the U.S. MP3 market.
iMac and MacBook:
1. The company’s greatest strength lay in the premium-priced PC category; 91% of PCs priced above $1000 in the U.S. market were sold by Apple. 2. From the Exhibit 5, PC Manufacturers’ Key Operating Measures, 1997-2011, we can see that Apple’s gross margins is much higher than Dell and HP, which means Apple’s premium-price strategy work well.
1. Until 2012, 55 million iPads had been sold; Apple had built another $35 billion business.
2) Quit nonprofit and unpopular product (e.g. Mini iMac, Apple TV) and develop and introduce new product
Mac Mini: Apple’s entry-level desktop, the $599 prices tag did not come with a keyboard or a mouse. Consumers could buy other desktop with more functions and faster performance at a lower price. Apple TV: its sales were paltry compared to Apple’s other products. These two products did not generate enough profit for Apple. Revenue
1. From the Exhibit 1a, Apple Inc. selected Financial Information, 1991 to 2012, we can see that the sales after 2001, 2008 and 2010 (when iPod, iPhone and iPad were introduced) achieved significant increasing, that is because Apple introduced new produces to the market. According to this historical evidence, we can expect that if Apple introduce new successful product to the market (eg. Apple Watcher, iWatch), these new produce may generate more revenue for Apple. 2. For a few weeks during the spring of 2012, Apple’s market capitalization surpassed $600 billion, making it the most valuable company in the history of the world.
3) Keep expanding new market such as China
In countries such as China, the iPhone was just taking off in 2012: even without subsidies, Chinese consumers were willing to buy iPhones for price approaching $1000 USD. Market potential
1. As countries such as China and India moved their faster 3G and ultimately 4G networks, demand for smartphones was expected to continue growing rapidly. 2. Personal Computer industry boomed through the early 2000s, propelled by emerging markets such as China. 3. Lenovo vaulted into the front ranks of PC vendors because its dominant position in China, the fastest growing PC market in the world.
5. Major Disadvantages of Recommendation:
Evidence and mitigation
Average selling prices of PC declined by a compound annual rate of 8%-10% per year from early 1990s through 2005. The rate of decline in ASP lessened between 2006 to 2011 to a compound annual rate of 2%. The growth in demand for laptops was linked to lower prices: the ASP for a portable PC was $746 in 2011, down 25% in only three years. 2. Mac Mini is Apple’s entry-level desktop; the $599 prices tag did not come with a keyboard or a mouse. Consumers could buy other desktop with more functions and faster performance at a lower price. 3. Analysts estimated that Apple commanded a wholesale ASP of $659 from its iPhones, while competitors’ ASPs on roughly similar hardware ranged between $250 and $350. Mitigation:
Apple has a price strategy that it will reduce the price of the old product when a new product will be introduce to the market. (e.g. when iPhone 5 was introduced, price of iPhone 4S was reduced from $649 to $549) Competition
1. The four top PC vendors- HP, Dell, Lenovo and Acer accounted for 53.6% of would wide shipments in 2011, they are big competitors of Apple’s iMac and MacBook. 2. Before Apple started to implement its “digital hug” strategy, it only has competitors in PC industry, however, when Apple launch iPod, iPhone, iPad, app store, iTunes, and iCloud, its competitors was added from several numbers to a lot of numbers, such as Samsung, HTC, Amazon, RIM, Microsoft, Napster, Walmart and etc. Mitigation:
Apple deeply focused on its “digital hug” and provides new products and services to link all Apple’s products together to enhance its brand power. (e.g. iCloud and iTunes to link all apple products together )
6. Major Risks and Responses:
1) Risk: declining of average selling prices in PC and cell phone industry Response: when Apple updates its products (whatever Apple products, such as MacBook, iPhone etc.), it will lower the price of old version product. The low price of old version strategy can attract more customers to buy Apple’s product that can increase Apple’s revenue. 2)
Risk: future demand for iPods may decrease
Response: in 2009, Jobs bought Lala.com, a music streaming service. The deal raised speculations that Apple could be exploring an alternative model to store and play digital music, bypassing downloads on a media player altogether. 3)
Risk: the life cycle of electronic device is short
Response: Apple holds Apple Worldwide Developer Conference at least once each
year to introduce new product or update its old product. 4) Risk: dispute of patent
Response: Apple initiated litigations against Android devices, first against HTC and then Samsung to protect its intellectual property in 2010. 5) Risk: Fierce competition in each product industry
Response: 1. Apple implement premium price strategy to differentiate its product from other brand’s products. 2. Apple keeps introducing new product and service to link all products into a cohesive whole (eg. iTunes and iCloud can link MacBook, iPhone, iPad together)