The Marketing Strategy Of Apple Inc And Its Effectiveness

The Marketing Strategy Of Apple Inc And Its Effectiveness After reviewing the list of available topics for the 2012 Oxford Brookes Research and Analysis Project, I was most drawn to the topic A review of the Marketing Strategy of an organisation and its success because this relationship between the marketing strategy and organisational success is an area of high interest to me. I believe that undertaking this project will expose me to the real life interplay of the marketing models in the implementation of the business strategy of an organisation and help me to understand how a good marketing strategy can result in the success or otherwise of an organisations business strategy. Being much aware of how between 1995 and 1997 Apple Incorporated (then Apple Computers Incorporated) almost went bankrupt with $1 billion in backorders (California Digital Library, 1998); I believe that Apple Incorporated will be a fit candidate for this project analysis to show how an effective marketing strategy turned a failing company into the most valuable corporate body in share prices in under a decade (BBC UK, 2012). 1.2 Brief historic overview of Apple Inc. and its development: Apple Inc. wholly-owned subsidiary involved in the design, manufacture and marketing of mobile communication devices, computers and portable digital devices, including related software solutions and peripherals. Apple was established in 1976 by Steve Jobs and Steve Wozniak and Incorporated on January 3, 1977 in Cupertino, California (California Digital Library, 1998). Initially a success, infighting and a power struggle between founder Jobs and CEO John Sculley on which products to develop and market led to Jobs resigning from Apple in 1985 (California Digital Library, 1998). Misguided product development, poor research into consumer products and a failure to understand consumer needs led to a fall in market share, profits and faced near bankruptcy in 1996 after huge losses and unfulfilled backorders (California Digital Library, 1998). A restructuring of products and a strategic partnership with Microsoft to invest $150 Million in non-voting Apple shares and making available Office, Internet and development tools on Apples Macintosh computers, helped keep Apple afloat (CNET News, 1997). Apple currently is a market leader in the Mobile Computing industry with a much diversified range of products; including the iPod, iPhone, iPad, Macintosh Computers. 1.3 Project Objectives: The objectives I aim to achieve by undertaking this project work include: To understand how the ANSOFF and Marketing Mix models are applied to the market/product relationship and the overall development of a marketing strategy for an organisation. To review the marketing strategy of Apple using the ANSOFF and Marketing Mix models and access how the market/ products of Apple are developed effectively marketed to their consumer base. To access the contribution(s) that the application of these models by Apple Incorporated has made to their financial performance. This assessment will include: The contribution to net sales from their main market products. Access the effectiveness of their marketing costs to net sales. 1.4 Overall Research Approach The research is centred on the analysis and review of the marketing strategy of Apple Incorporated by evaluating their product development and marketing strategies from the ANSOFF and Marketing Mix models. The research approach which will enable me meet the outlined objectives will include a mix of theoretical models and making inductive conclusions from their practical application by Apple. Deductive assessment from qualitative and quantitative contributions to the success of Apple by their applications of the functions of these models will be made from the financial statements of Apple and from Industry and Media publications. Chapter 2 Information Gathering In this research and analysis project there were mainly two sources of information I considered; primary and secondary. 2.1 Sources of Information Primary Sources Primary sources are the first hand information gathered by the researcher directly in the research field from his subjects and are usually in their crude form (Yale University, 2008). Methods for obtaining primary data include: Questionnaires and Oral Interviews I will not make use of the primary data sources due to constraints including: Financial constraints, time limit, subject location and the non-response of the subject to my request for information. Secondary Sources Secondary sources of information are that which is available to a researcher as a result of other research work or publications in a relevant field; this necessarily will not mean similar or same research objectives; but does make the relevant fact and data available to a secondary researcher (University of Illinois, 2011). Sources of secondary data include Industry related and media publications, Textbooks, Financial reports, etc. I will make use of secondary data sources as they were more convenient to the constraints I faced. My sources of secondary data included: Industry and Media Publications: I will make use of publications and tools from experts in the computing industry including reports from C.Net, Web Archives Organisation and The Car Phone Warehouse. References will also be made to major events and activities of the Apple in media and news publications and some of which include the Financial Times, The Guardian, The New York Times, The BBC and CNN. This enabled me to access independent views on the success or otherwise of Apples marketing strategy. Library research: During the research I frequented my local library in Leyton, the library of the London School of Economics (LSE) and the Library of the London School of Business and Finance. This facilitated me on my understanding of the ANSOFF and Marketing Mix models and their theoretical development. Electronic Research: I also made use of the internet to gather the majority of information I needed to analyse the history, development and current strategic position of Apple Incorporated, to which the website of the SEC, www.sec.gov, provided me with financial publications and reports. I also found information on the prices of relevant competitive products including the Samsung, HTC and VIM (Black Berry) from industry participants like the Car Phone Warehouse, www.carphonewarehouse.com. 2.3 Ethical Considerations of the Project: As an ACCA student and having written the Ethics and corporate governance module I do understand clearly the ethical situations that can arise from analysing an organisations strategies. I have as such made no attempt to obtain or disclose any top level information or data that might jeopardise the long term strategic position of my subject of study: Apple Incorporated. All the information that I will use in my analysis are publicly available from Apples financial reports and from various other industry and media outlets. References will be made to these media outlets, news events and such relevant information in the financial statements of Apple and all such sources will be disclosed as due and correctly attributed to. To the best of my knowledge neither myself nor any close relative hold any form of financial instrument, shares or stock in Apple or any competitor in the mobile electronics industry and as such I do not seek to profit from this research for any effects it might have on such instruments. 2.4 Theoretical base and definition of Models The ANSOFF Model developed by H. Ansoff (Johnson et al 2005) is a product/market growth matrix that allows an organisation to generate alternative directions for its strategic development. Alternative strategic directions are options of products and market coverage that are available to an organisation taking into account their strategic capability and the expectations of stakeholders (Johnson et al, 2005). Protect / Build Product Development Consolidation With existing capabilities Market Penetration Beyond current expectations With new capabilities Market Development Diversification New segments With existing capabilities New territories With new capabilities New uses with new capabilities Beyond current expectations Beyond current expectations Source: H. Ansoff (1988) as cited by Johnson et al (2005). An organisation typically starts from the position of building or protecting their market presence with its existing products in their existing market (Box 1). The organisation then has the choice of pushing further the same product in that very market or moving to developing new products in that market (Box 2). The organisation can also bring their existing products into new markets (Box 3) and finally the last and most radical option of diversifying into a new market with a new product (Box 4). (Box 1) Protect / Build: According to Johnson et al (2005) this involves consolidating and strengthening their current market status with their current products. This may require just increasing the efficiency of their processes by downsizing some activities. This approach is much preferred stagnant markets and requires much competitive advantage or edge to win over customers from competitors. Box 2 Product Development: A business resides in an environment and changes in that environment will demand new products or services at the expense of an established product. An organisation then delivers these modified or new products to existing markets. Product development is most utilised by industries with short product life cycle software and consumer electronics (Johnson et al, 2005). Box 3 Market Development: This is the case where existing products are offered to new markets which may include exploiting into other market segments, developing new users for existing products and advancing on the geographical stage both nationally and internationally. In all cases, it is prudential that market development strategies are based on products or services that meet the critical success factors of the intended new market. As simply on offloading traditional products or services into new markets are likely to fail. Market development also requires a degree of product and capability development (Johnson et al, 2005). Box 4 Diversification: This is a strategy that removes an organisation away from their current markets and products; that is their established comfort zone of domination as one may put it (Johnson et al, 2005). Diversification increases the market power that the head office must oversee and may be in response to a market decline, an attempt to spread risk or as a corporate response to the expectations of powerful stakeholders. Diversification can be understood in two ways; Related and Unrelated. Related diversification is seen as a strategic development beyond current products and markets; but within the capabilities or value network of the organisation. Unrelated diversification has to do with developing beyond the current capabilities or current value system and this is often referred to as conglomerate strategy (Johnson et al, 2005). An organisation can make a choice as to which of the function(s) of the model to apply in its strategic options. When this option has been made an organisation then has to develop a marketing approach to gain the advantage over their competitors. Marketing Model (Marketing Mix): Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitably; it is widely used as a concept or a process and to cover a series of techniques (CIM, 2012). Marketing strategy therefore reflects a companys best options as to how it can most profitably apply its skills and resources to the chosen product and segment market Consumers have needs and wants, and are placed into segments based on those needs, but understanding the nature of customers and their needs is only just but the first step in implementing a business strategy. An organisation needs to communicate to the consumer why their product fulfils these needs and the tools used in this communication form the basis of the marketing mix model; being the Product, Price, Place and Promotion, also known as the 4Ps. The 4 Ps model was developed by McCarthy (Kotler et al, 2008) but modern scholars have identified 3 more Ps, People, Processes and Physical evidence that are more at play in the service sector, Booms and Bitner in (1981), as cited by Brassington and Pettit (2006). Product: This is what the customer receives from the organisation or manufacturer; totality of goods and services that the company offers the target market. (Kotler et al, 2008:49). A product goes beyond just the item sold, and is not only what to make, but how, when and its life span of feasible production. In marketing terms a product is split between the actual product and the augmented product. The actual product in its simple terms must satisfy the basic needs of the customer; and thus can be termed as the threshold product. However if an organisation seeks to survive in a changing market, it must provide more than the basic product. Price: The price is the amount of money the customer parts with in order to acquire the product; and may involve more than just the basic and straightforward calculation of costs and expected profit margins of the organisation (Brassington and Pettit, 2006). A common trait with price; regardless of the basis of calculation; is that it must reflect the value the customer holds to the product. This is a customers individual behaviour trait as Brassington and Pettit (2006) noted; and is a judgemental perception of what they are getting for their money, what options their spending power held for them and how much the amount relatively means to them. External factors that affect price include competitors and the general economy. The influence of pricing on the success of the overall marketing mix approach can be established with Bowmans Strategic clock model which shows the link between the perceived value of product, the price and its chances of success. A product that fails to communicate the appreciable value / price ratio to consumers will fail. The Strategic Clock Model, (C. Bowman and D. Faulkner 1997) Brassington and Pettit (2006), notes that within a given economic situation price sends all sorts of messages to the customers; it indicate quality and desirability and in the eyes of competitors it is seen as a challenge as low pricing can indicate a price war and high pricing leaves room for a competitor to undercut. Internal factors that may affect pricing include required return or shareholder expectations, cost of manufacture. Pricing is the most flexible element of the marketing mix but it is also quite a dangerous element to play with (Brassington and Pettit 2006). Place: Once the product and the price have been determined, the customer must be able to purchase the product. This can be directly from the manufacturer or from an intermediary or distributor. There are various modes of distribution in order to transfer the product to the customer; from simple mail order to long and complex distribution chains. Place in the modern era of marketing has also taken the electronic edge and includes the internet and telephone orders. The Place function is not just about the movement and transfer of goods, it is about manipulation, competitive advantage and power of bargain between the consumer and the manufacturer (Brassington and Pettit 2006). Promotion: Product promotion is about communicating to the consumer or customer. An organisation has a product that may be competing with several others to satisfy a customers need. The act of convincing consumers on why an organisations products are the best in fulfilling their need is what promotion is all about. Often seen as the most active and glamorous part of marketing, it does demand a daunting amount of artistic endeavour and can be used to overcome setbacks an organisation may have in the other aspects of the marketing mix. Promotion in totality however contains two main acts: pull promotions that attempt to attract the consumer to purchase the product and push promotions that aim for retailers or intermediaries, encourage them to purchase the product and promote them to their own consumers. Promotion involves not just advertising but also discounts or sales promotions, personal selling, branding and public relations (Brassington and Pettit 2006). People, Processes and Physical Presence: Booms and Bitner (1981), as cited by Brassington and Pettit (2006), added 3 more Ps (People, Processes and Physical Presence) to the initial 4 Ps model to reflect the extra activities in the marketing of services. People reflect the human aspect of rendering a service to a consumer. A customer that feels comfortable with a particular service provider trusts them and has a rapport with them; forms a relationship with that provider that a competitor will find hard to break into. People add value to the service package that goes beyond what the service aims to offer (Brassington and Pettit 2006). Process concerns the live provision and consumption of a service; which is much different to the hidden processes of manufacturing sectors. A service provider has to maintain consistency with the consumer this involves specific quality controls, training, manuals of service, time of service and a professional level of quality (Brassington and Pettit, 2006). Physical Evidence has to do with how an organisation maintains an ambience of their principal locality of rendering services for the consumer. This is a premises from which their service is sold or delivered and includes how appealing it is in terms of maintenance, design and accessibility. This can include the airplane one boards when they book a flight, the room they sleep in when they book a hotel (Brassington and Pettit 2006). 2.5 Limitations of the report This report has limitation due to the constraints it was subject to and the intrinsic limitations of the theoretical models. The unavailability of primary data has restrained this reports view of scope to the secondary data and the financial statements of Apple Incorporated. Constraints that limit the scope and dept of the report also include the number of words which as underlined in the project outline is a maximum of 6,500 words. Time has also been a constraining factor limiting the extent to which the research could be carried out. The location of the study subject, Apple Incorporated has also made it impossible to study the cultural influences and other market factors, apart from marketing strategy, that could and can affect the success. The nature of the theoretical models ANSOFF and the Marketing Mix model restrains their exact application and thus analysing their real life application. These models like all theoretical models may not necessarily be reflected in their totality when applied and certain assumptions need to be made in order to analyse their effectiveness. Chapter 3 3.1 Application of Models and Analysis An assessment of the current marketing strategy of Apple Incorporated using the ANSOFF and 7 Ps Marketing Mix modules will set a point out on what exactly Apple does and how this has been effectively reflected in their success. Outline of ANSOFF Model as Applied By Apple: Market Penetration: Apple from its period of incorporation had been focused on gaining a market share in the computer and I.T industry and although they had a reflection of research into other I.T based products; their main focus was on a limited product spectrum which included the Apple II, Lisa and Later the Macintosh computers (California Digital Library, 1998). They based this market penetration strategy on their style and brand appeal, and sought to grow their market share the more. This clearly fitted into the ANSOFF model function of market penetration and market consolidation strategy. This approach however begun to recede in the 1990s as their strategic competitors Microsoft and IBM outgrew Apples market share with much cheaper and more innovative computers which in addition capitalised on the inability of Apples computers to integrate with other industry standard software and computers (Jim Carlton, 1998). Market Development Function: Apples market spans across the globe and is segmented on a regional and product basis including consumer, business, education, enterprise and government organisations that make use of the power and productivity of Apples products. This market has been developed with focus on product differentiation and enhanced knowledgeable sales persons, which allows the easy conveyance of value of products to consumers (Apple Inc, 2011). Apple is also active in the reseller and third-party locations market including Apple Premium Reseller Program which allow high level integration and support services to their products (Apple Inc, 2011). This high value market development is directly linked to their products which are developed on value, ease of use and integration. Product Development Function: Being involved in the mobile computing industry which is highly characterized by frequent product introductions and rapid technological advances requires strategic application of the product development function of the marketing mix model. iPod: This is a portable digital music player introduced in 2001as a niche product it clearly struck a nerve with a new generation of electronic users. With the traditional PC being regarded as my parents computer or the official business computer, Apple identified a market that desired the portability of an electronic music player and the storage prowess of a computer for that music data. It includes the iPod touch, iPod nano, iPod shuffle and iPod classic all of which work with iTunes and related accessories both Apples and third-party compatibles. Apple sold more than 15 million units in the last three months of 2005 and helping double the quarterly profits of Apple from $255 Million in 2004 to $565 Million in 2005 (BBC UK, 2006). The graph 3.1 shows how this product dominates the mobile music devices industry. Graph 3.1 Source: IDC, 2006 as cited CNN Money, 2006. Apple US Electronics Music Player Market Share iPhone: Developed in early 2007, the iPhone combines a smart mobile phone, an iPod and an internet communications device; as then CEO Steve Jobs put it a widescreen iPod with touch controls, a revolutionary phone and a break through internet communicator (Anthony Imbimbo, 2009). It also includes accessories that allow it to communicate with other Apple products and tools that elaborate on ease of use, value and user friendliness. Within three months Apple had sold 270,000 iPhone devices and generated $5 Million of net revenue for the 3rd quarter of 2007, (Apple Inc, 2007). Graph 3.2 Sources: Apple Incorporated Financial Statements, 2010 2011, Growth in Net iPhone Sales Between 2008 2011. Graph 3.3 Sources: Apple Incorporated Financial Statements, 2010 2011. Percentage Growth Net iPhone Sales to Net Sales 2008 2011. Graph 3.2 and 3.3 above indicate how the iPhone product grew rapidly and its net contributions to sales. Mac: This is the personal computing product which includes desktop and portable computers, related devices and third party hardware products. They are designed to target high end business and professional customers. iPad: In the first quarter of 2012 Apple introduced the iPad which like the iPod touch and iPhone is based on the multi-touch technology, showing how using their existing capabilities Apple develops products to fulfil market needs (Apple Press Info, 2010). Described as a multi-purpose mobile device for browsing the web, reading and various other functions, the market reception of the iPad was so successful that Apple sold 300,000 within the first twenty-four hours of its launch (Ars Technica, 2010). Graph 3.4 shows the accelerated growth of net sales contribution from the iPad product. Graph 3.4 Sources: Apple Incorporated Financial Statements, 2011. Percentage Growth in Net iPad Sales to Net Sales Between 2010 and 2011. This simultaneous implementation of the product and market development functions of the ANSOFF model clearly follows in line with Johnson et al (2005) observation that market development requires a degree of both products development and capability development. Chart 3.5 Sources: Apple Incorporated Financial Statements, 2011, Percentage of Products to Net Sales. Chart 3.5 above shows the net contribution to net sales from the most recent products from Apple Incorporated. iTunes and iCloud: The iTunes offers a tool for organising digital files on apples devices on both Windows and Mac platforms it is integrated into the iTunes Store which allows the rental and purchase of digital products from Apple accredited sellers, including the App Store and iBookstore with one account (Apple Inc, 2011). The iTunes interface provides an integration platform for all devices one may own allowing files to be wireless pushed to all devices (Apple Inc, 2011). Extending on the iTunes digital hub integration, Apple introduced the iCloud in October 2011, which allows consumers to store and share all their files across all Apple devices they own, perform backups and various other functions including managing mail and contacts. This digital hub ideology allows Apple to provide the augmented services that make their products value stand above those of their competitors. Software Products and Computer Technologies: Apple offers a range of computer softwares for education, enterprise and government customers including the Mac OS X, iLife 11, iWork 09, server software and professional application software including Final Cut Pro, Logic Studio etc (Apple Inc, 2011). Apple also builds software for their mobile devices supported by the iOS architecture and offers these augmenting products to enhance the customer use and value of their products. Display Peripheral Products: Apple has a range of peripherals and display devices including the Apple LED Cinema Display, AppleTV and Thunderbold Display, Apple also offers several third-party augmenting devices that add value to their products (Apple Inc, 2011). Diversification Functions: When Apple introduced the iTunes and iTunes Store product they created a completely different product line that strays from their electronics products lines and yet offers more augmented value to their mobile devices. This online music store can be seen as a concentric or related diversification that provided a platform where the music industry could sell its products easily to the rapidly growing market of iPod and iPhone users. This diversification has been so successful that Apples online music store the iTunes overtook the largest music retailers in number of songs sold in 2008, (Apple Press Info, 2008). Source: ArsTechnica 2008, Apple iTunes Store Music Sales by % Volume. A more detailed analysis shows how Apple changed the way consumers purchase music from buying a whole album to allowing selection of a particular track or set of tracks. This lies in related horizontal diversification as Johnson et al (2005) pointed out as activities that are complimentary to the parents core activity network. Apple clearly uses a combination of the ANSOFF product, market development and diversification functions to effectively contribute to its success as a mobile I.T manufacturer. Application of the 7P Marketing Mix Model by Apple Incorporated Apple applies the 7P marketing model by either identifying a specific markets needs or by creating a market by defining products that address the needs of their target segment consumers. Product: Apple defines their products with the final consumer in focus and does not seek to gain all the consumers in the market; rather they focus on the Value seeking consumers and thus all of Apples products are designed to satisfy the needs of these value consumers. Products are designed with each aspect specifically detailed to achieve an advantage over equivalent competitor products including; superior ease of use, seamless integration and innovative design (Apple Inc, 2010). As Kotler et al (2008) describes, Apple provides augmenting services and peripherals for almost all of their product lines including maintaining compatibility to older generations and other third-party devices and software. These services, which are additional to all Apple products as basic packages at no and extra packages at extra costs allows consumers to continuously add more value to their products to fulfil their evolving needs. Currently as I write this report, Apple has launched several series of product upgrades and differentiation within the iPhone, iPod and iPad for other value consumers identified in their market segment whose needs the current products do not meet; including the iPhone 5, iPod Touch, iPad Mini and the Mac Book Pro and iMac (Apple Online Store, 2012). Pricing: One other aspect of the Marketing mix model which Apple applies effectively is the pricing of their products. Apple markets itself as a high end product manufacturer with a high-quality buying experience for their target consumers, and this is reflected in their pricing. Apples products are higher in prices in a comparison to their market competitors but this it leverages with its unique ability to design and develop its own operating systems, hardware, application software and services and provide its customers with new products and solutions of superior ease of use, seamless integration and innovative design. Apple believes in high quality sales and after sales support experience and ensures that although their prices are higher than any competitor; the final end consumer knows that the quality of product, sales and after sales support is second to none (Apple Inc, 2011). From C. Bowman and D. Faulkners (1996) strategic clock model, Apple Incorporated can be seen to be solely concentrated on a high value high price relationship which they also described as focused product differentiation. A samples analysis of the current UK mobile phone market prices ranges between the major market competitors and Apples iPhone product belo