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Running head: APPLE 1

All Things Apple

Ryan Dresher

Southwestern College Professional Studies

CAPS600 Graduate Project

Arthur Smith

April 12, 2013

APPLE

Abstract

One of the most popular business success stories of the last 40 years, the rise, fall and rise again

of technological giant, Apple, Inc., is discussed from the water cooler to major textbooks trying

to understand the vision and strategy of the late Steve Jobs. Though Jobs was a cofounder, he

was not the Chief Executive Officer when the company went public in 1980, or in 1985 when he

was let go. Only when he returned over a decade later, did he run the company he named. This

paper will evaluate the competitive forces, general competitive strategies, marketing strategies,

strengths, weaknesses, and strategic challenges going fwd from four different time frames in the

life of Apple, Inc. The events that lead to a disastrous 15 year period, Apple’s rise back to the

forefront of the industry and warning signs of the same type of downfall will be discussed.

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Introduction

This work will review strategic and competitive aspects of each era in Apple’s rich

history. There will be an examination of competitive forces, generic competitive strategies,

marketing strategies, strengths and weaknesses and, finally, Apple’s strategic challenges as it

moves forward through each era. The competitive forces analysis will review Apple’s strategies

in alignment with Porter’s Five Forces model for each era. Rivalry among other firms in the

industry, substitutes from companies in other industries, effects of supplier bargaining power,

effects of buyer bargaining power and pressures from new competitive entrants will be the forces

evaluated (Thompson, Peteraf, Gamble, & Strickland, 2012). The generic competitive strategies

will be evaluated based on Ferrell and Hartline’s (2011) three basic competitive strategies,

operational excellence, product leadership and customer intimacy. Most firms generally excel at

one of these three basic strategies and manage customer perceptions of the other two. A look at

marketing strategies in each era will reveal how Apple intended to increase market share and

what tools the company used by identifying the positioning strategy, the product differentiation

strategy and the market segmentation strategy. Apple’s strengths and weaknesses will be

discussed and strategic challenges will be forward looking into the next era. All of the

evaluations will conclude at the end of the work to prove Apple is at risk once again for the same

failure. The element of product differentiation was the most important factor for Apple in

history and is no less important today. Additionally, at the end of the exercise, there will be a

reflection of how the history of Apple can be applied in current and future endeavors.

In 1976, Steve Jobs sold his Volkswagen van while his friend, Steve Wozniak, sold his

Hewlett-Packard calculator to raise a combined $1,300 in bootstrap financing in order to start

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their new personal computer company, Apple. The first year was stereotypical of young

entrepreneurial stories, with the first production line progressing from Wozniak’s apartment to

Jobs’ parents’ garage until an investor provided the two with $250,000. With the gain in capital,

Jobs and Wozniak incorporated Apple and moved production out of the garage. Four years later,

Apple filed with the SEC for an Initial Public Offering and began trading shares publicly

(Tomory, 2011).

The progression of Apple can be evaluated in phases, or eras, as leadership changes took

place. The company seemed to ride a roller coaster of difficulties as the years passed, caused by

an evolving industry, fierce competition and the changes in leadership. The first era, beginning

in 1977, started with the company’s incorporation and ended with Jobs ousting by the Board of

Directors in 1985. The second era, 1986 through 1996, was chaotic with several changes in

leadership as Apple buoyed from CEO to CEO trying to gain a focus and advantage. The third

era began in 1997, and saw Jobs at the helm once again until his death from cancer in 2011. Tim

Cook, Jobs’ protégé, has received the torch as CEO since 2011 and is bringing Apple through the

last era to present day (Green & Edwards, 2012).

Era: 1977 - 1985

Competitive Forces

Competing firms in the computer industry during this era for more expensive, business

equipment were International Business Machine, or IBM, Burroughs and Digital Equipment.

These were vertically integrated, large-scale companies, primarily known and used for business

computer equipment (Hagell III & Singer, 2000). Other large manufacturers creating pressure

on the business machine market were Cromemco Incorporated, North Star Computers, Inc., Ohio

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Scientific, Inc. and Vector Graphics, Inc. A few companies were, like Apple, more flexible and

customer oriented than the computer giants, including Commodore International, LTD. and

Radio Shack, which was a subsidiary of Tandy Corporation (Langlois, 1992). Franklin

Computer Corporation was another small competitor to Apple (Miles, 1984). These young

companies, marketing both personal and specialized business machines, could produce

equipment for consumers and companies with the advantage of speed, flexibility and creativity,

allowing them to erode the market share held by the giants of the industry (Hagell III & Singer,

2000). Rivalry is increased as more competitors enter the market. As the industry grew and the

smaller, more flexible companies emerged, Apple needed to adjust to offensive or defensive

strategies in order to force and respond to the competitive market (Thompson et al., 2012). The

firm utilized an offensive strategy by utilizing research and development to create higher quality,

user-friendly computers for both the business and consumer. Apple also used a defensive

strategy when it sued another young competitor, Franklin Computer Corporation, for copyright

infringement and won a significant case for the competitive advantage of software code

copyrights (Miles, 1984).

Supplier bargaining power was weak during this era due to a several factors. Young

suppliers to the growing list of companies were eager for the business and most of the

components were retrieved from more than one source. Additionally, some components

procured from only one source were still available from others (Morgan Stanley & Co, 1980). It

is in a company’s best interest to have multiple sources in case a supplier goes out of business, is

victim of a disaster, is unable to procure materials or is unable to meet the capacity required.

Multiple sources lower risk for not meeting demand due to supply base. Costs tend to stay more

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reasonable and terms are more likely to be in the company’s favor when supplier bargaining

power is weak.

Buyers exert competitive pressure in an industry if they have strong bargaining power or

are price-sensitive. Buyer bargaining power during this early era was relatively strong. The

industry was developing quickly and because competition between suppliers grew more intense,

buyers were able to comparison shop. The products in the industry were similar, without much

differentiation in the industry. However, Apple did have a competitive advantage with open and

user-friendly software, which slightly decreased buyer bargaining power for the company. In its

infancy, Apple used distributorships, which would buy at wholesale prices, and sell the

computers to retail stores, who would then sell to the end user. The wholesale prices created

buyer bargaining power for the distributors. As the era progressed, Apple began to open retail

outlets for better distribution management and a decrease in buyer bargaining power. Suggested

retail price for the machines was relatively high, compared to some other companies, such as

Franklin Computer Corporation who offered similar products for close to half the price creating

increased buyer price sensitivity for Apple (Miles, 1984). Interestingly, Apple was forming a

strong brand known for quality and reliability, adding value that decreased buyer price-

sensitivity (Thompson et al., 2012).

Industry substitutes are alternatives, which allow consumers to step outside the industry,

or to a closely related industry, and still acquire the same perceived value (Thompson et al.,

2012). Apple products allowed users to perform a variety of tasks such as manage lists for

friends or customer contacts, manage inventory and financial information, create and print

invoices, charts and graphs for management reports, as well as create documents from a word

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processing application. The industry substitutes for these items were traditional paper and pen,

standard typewriters and electronic typewriters. With the suggested retail cost of an Apple II

computer system starting at $1,850, and the Apple III system for business applications starting at

$4,300, clients needed to perceive a high value in the equipment to change from the relatively

low cost substitutes. The perceived value for customers were professional appearance of

documents, charts and graphs, ease of updating and managing reports, which saved company

time, and decreased required filing space (Morgan Stanley & Co, 1980).

The threat of potential new entrants to the industry was moderate for Apple computers,

and strong for Apple software. In this early growth stage of the computer industry, high barriers

to entry such as required startup capital, high skill and high knowledge requirements for creating

the machines on a competitive scale were difficult for many hobby builders. This suggests a low

threat of new entrants for equipment manufacture; however, with the amount of hobbyists and

garage-style computer builders and the increasing demand for lower cost systems, the threat

remained moderate. Additionally, some large companies were also proposing personal computer

market entry, namely Hewlett-Packard, IBM and Texas Instruments, which would have

substantial capital for entry. Software design, such as programs and applications, had a low cost

of entry, and the programming languages were easier to learn, develop, market and distribute,

which spurred competition quickly. Apple’s strategy, therefore, welcomed the software

developers and licensed as partners to share royalties (Morgan Stanley & Co, 1980).

Generic Competitive Strategies

Operational excellence is the ability of a company to create a competitive advantage

through managing the supply, operation and distribution streams as effectively as possible to

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produce the highest quality product and a reasonable price (Ferrell & Hartline, 2012). Apple’s

supply was dependable, since alternative suppliers were available for most components.

Additionally, Apple’s increasing buyer bargaining power during this era allowed for negotiated

terms in supply, helping to lower costs. The company was also increasing effectiveness of

global operations by establishing a manufacturing presence in County Cork, Ireland to support an

independent distributor known as Eurapple, which supplied to 21 other foreign independent

distributors in Europe, the Middle East, Far East, Australia, Philippines and South Africa. Apple

further increased control and profitability of operations globally by purchasing Eurapple’s

distribution rights to the 21 independent European distributors. Domestically, as stated

previously, Apple terminated agreements with independent distributorships in the U.S., and

began to distribute directly to retailers through company owned regional support centers. This

new strategy increased control of distribution, retailer support and improved end-user relations

(Morgan Stanley & Co, 1980).

Product leadership is necessary to create customer satisfaction and loyalty. In the early

years of growth, Apple began a strategy of continued innovation. The company understood the

rapidly evolving technological market and the necessity of quick adaptation and implementation

of equipment and software. From 1978 to 1980, Apple increased research and development from

$600,000 to $7.3 million (Morgan Stanley & Co, 1980). In an effort to protect its products,

Apple sued another young competitor, Franklin Computer Corporation, for copyright

infringement and won a significant case for the competitive advantage of software code

copyrights (Miles, 1984).

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Customer Intimacy is the ability of the firm to understand the needs of the customer, meet

those needs timely and consistently and develop lasting relationships with customers more

effectively than the competition (Ferrell & Hartline, 2012). Apple focused on personal

computers, user-friendly software and interfacing with networks and peripherals in order to build

a more productive end user. The company progressed as a brand known for ease of use, quality

and reliability. In addition, as Apple grew within the industry, the need to become closer to the

customer was realized. The firm began a strategic initiative to place regional support centers in 7

major cities in the U.S. and Canada, as well as Zeist, Netherlands to pursue effective retail and

customer support relationships. The perceived high-end product and customer support would

align the company with the customer intimacy goals and build lasting relationships with both

retailers and customers.

Marketing Strategies

Positioning strategy is the attempt to strengthen the image of the product portfolio. A

company can strengthen the current position, reposition itself or reposition the competition. A

company may choose to strengthen its current position by further developing what it does well in

order to stay competitive in the market. If the company is losing market share, it could tweak or

completely change the product mix to appeal to a new target market. Repositioning the

competition could be used to devalue another firm in the customer’s eyes, ethically, of course

(Ferrell & Hartline, 2012). Advertising noticeable benefits of a company’s products compared

with the obvious disadvantages of a competitor is an example. Apple’s positioning strategy

between 1977 and 1985 was mainly to strengthen its current position. Apple had a strong

foothold in the personal computing, business, peripheral, software and application markets. The

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industry was still growing, with demand increasing significantly and quickly, signaling the

leadership to strengthen through innovative development (Morgan Stanley & Co, 1980).

Market segment strategy is the focus of the company on a particular group or groups of

consumers. Companies can use a mass marketing strategy by not focusing on specific group but

considering all as the same market, a differentiated marketing strategy by separating markets by

one or more groups and tailoring products per group, or a niche marketing strategy by focusing

on a narrow, well defined group (Ferrell & Hartline, 2012). Apple utilized a differentiated

market segment strategy, creating products appealing to the individual personal computer user,

and products with features appealing to businesses, and products for those who needed to

upgrade or purchase software for existing equipment. The benefit for Apple was increased brand

recognition and a diverse customer base.

Product differentiation refers to the competitive differences of a company’s products.

According to Ferrell and Hartline, product descriptors, customer support services and image are

types of product differentiation. Product descriptors describe the features, advantages and

benefits of the products. Customer support services, before and after the sale, may be the only

product differentiation if the product mix and price is similar to the competition. Image is the

perception of the customer of a company and its products, usually positive if the company has

built quality, reliability and trust into the brand (2012). Apple was attempting to build a strong

brand image, based on ease-of-use and number of applications, as well as build customer support

structure. A temporary setback with the debut of the LISA in 1983, which turned out to be

expensive, slow and with few applications, was overridden by the introduction of the successful

Macintosh in 1984, bringing the first graphical user interface, using icons and files that could be

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dragged and dropped to move them in the system (McCune, 1996). The company had a focus on

each element of product differentiation and a structured position strategy and market segment

strategy, which helps create a well balanced overall marketing strategy.

Strengths and Weaknesses

During this early era, Apple’s strengths came in a variety of forms. The company

became strong in research and development, which allowed for robust products and product mix.

The development of the Macintosh brought “user-friendly” to a new level and a vectored effort

toward low design to market times was a necessity Apple was able to perform on most new

products. The partnering with other software companies allowed new income streams. In

parallel with new products and increased sales, Apple was building an effective distribution

network and customer support system. With the industry expanding at a steady rate, customer

focus, the drive for operational excellence and innovative products helped Apple form a

competitive advantage. With the IPO in 1980, and the success of the Macintosh, Apple had a

strong capital foundation.

Apple was a small, but growing, company in the industry. There were several in the

industry with more experience, capital, marketing and technological resources. Many of the

larger firms also had a greater amount of company owned retail stores, which had greater control

over sales. As Apple was trying to grow into new markets, build new facilities such as

manufacturing structures and regional support centers and develop new products, organizational

harmony was at risk. The Apple III, which was late to market from the proposed introduction,

had just been developed and not yet fully embraced by the business market. The need for more

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application packages, technical resources and sales staff was recognized by the company, but

should have been recognized too late (Morgan Stanley & Co, 1980).

Strategic Challenges Going Forward

Apple was anticipating greater investments in spare parts warehousing in the new

geographical locations, additional service expertise and on-site service for Apple III systems and

future products needed careful timing so as not to strain resources. New markets and

applications in personal computers as well as new peripherals and software packages to enhance

the productivity of the customer were also anticipated by Apple (Morgan Stanley & Co, 1980).

Apple had already complied with required design changes from the FCC to mitigate radio

frequency interference to communications. Because of the expansion of both the personal and

business markets for computers, and the exponential advances in technology, Apple should have

also anticipated more environmental factors, such as regulatory changes, additions or changes to

standards for suppliers and manufacturers. More litigation for patent and copyright infringement

should be considered a risk as well.

Steve Jobs was let go from Apple in 1985. Though losing Jobs was not considered a

weakness or risk by the company, as the co-founder and visionary, he inspired many employees

of the company, which could cause an exodus of employees wanting to continue to follow him.

The design teams Jobs led which carried Apple to new heights were still there, but it was quite

possible a new CEO would not be able to muster the vision and creativity Jobs inspired. Without

continued innovation, Apple could begin to lose market share to competitors.

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Era: 1986 – 1996

Competitive Forces

Rivalry between competitors in the computer industry during this era was intense. Apple

had slowly closed its system over the years to others, meaning Apple computers would only talk

to other Apple products over networks and serial ports. To compete with Apple’s graphic user

interface, Microsoft developed an operating system, which was very similar, and marketed it to

IBM and other companies building personal computers. The operating system was called

Microsoft Windows, and was an open architecture software, meaning it could talk with other

types of systems and peripherals such as printers, scanners, drives and networks. Businesses and

individual consumers were switching to IBM compatible computers at an alarming rate. Even

though most users thought of Apple as a higher end computer, the convenience of open

architecture was a greater value. Apple did begin licensing with other IBM compatible products

in 1994, though it was too late to keep many would-be loyal customers. In 1996, Apple had 6.6

percent of the market share, down from 9.57 percent in 1991 (McCune, 1996).

As technology advanced, new products began to emerge and with it, new companies.

Notebook computers, were developed so people could take computers with them. The

Macintosh Powerbook by Apple had rivals including Hewlett-Packard, Dell, Gateway 2000 and

Compaq (McCune, 1996). The need for a smaller, digital organizer was created by Apple, called

the Apple Newton, in 1993. These organizers, called Personal Digital Assistants (PDA), became

very popular as more applications became available. Companies such as Palm, Sharp,

Blackberry and Microsoft were competing in the market soon after the Newton inspired them

(Cain, 2003).

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Supplier bargaining power in this era had strengthened. Most of Apple’s components and

material were available from multiple suppliers, the company had developed more single source

manufacturers for key components. Apple also signed a supply agreement with Motorola for 5

years, which, though lowered the cost of material, also increased the bargaining power of

Motorola (Apple, 1994). Single source suppliers increase the supplier bargaining power because

the components are critical to Apple’s products. Apple would incur a high cost to switch to

another provider because an alternative supplier would have to develop the technology

internally. However, since many of the components are standard for the industry and are made

by several suppliers, the industry supplier bargaining power, though strengthened, would be only

moderate.

The pressure of buyer bargaining power had strengthened since the first era due to

switching costs of the buyer had decreased. With Microsoft Windows being very similar to

Apple’s operating system, and being installed on most IBM compatible machines, product

differentiation was decreased and therefore, buyer bargaining power increased. Additionally,

buyers were much more educated than in the past with personal computers being around for

approximately twenty years. Buyers educated in the quality and prices of the products have

increased bargaining power (Ferrell & Hartline, 2012).

Substitutes for personal computers and business machines in the past were pen, paper,

personnel and elaborate filing systems. However, users were becoming much more dependent

on the software applications developed to make professional and personal recording, filing and

presenting easier and more space-saving. Substitutes were decreasing. Most businesses

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depended on computers for design and process development, data tracking, project management,

budgeting, resource management and financial management.

The threat of potential new entrants increased due to technological advances in the

industry. As components became smaller, notebooks and handheld devices increased in

popularity, opportunities for new companies came available. Notebook computers and handheld

devices had smaller barriers to entry, grew rapidly, and could attract newcomers to the industry

in pursuit of attractive profits (Ferrell & Hartline, 2012).


In pursuit of operational excellence, Apple has implemented some significant changes in

the value stream. From supply, the company has utilized single source supply for some

components and entered into at least one agreement for single source supply for five years to

help reduce supply cost. The Apple Newton is evidence the firm continues to utilize research

and development to create innovative products and pursue new markets. Two manufacturing

facilities in the U.S., one in Cork, Ireland and one in Singapore feed distribution lines. With 45%

to 48% of revenues coming from international sales, Apple has strategically positioned two

global sales and marketing divisions, Apple Europe and Apple Pacific. Additionally, the global

market adds risk to revenues through currency exchange rates and inflation due to host country

and domestic economic factors. Foreign exchange forward and options contracts are purchased

and sold with the intent to hedge against and reduce cost of fluctuations in exchange and interest

rates. Apple has moved away from company owned retail stores, begun distributing to third

party retailers and is acting on an initiative to distribute to mass merchandise stores, consumer

electronics outlets and computer superstores. In order to more precisely align the organizational

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structure with business strategy, a company-wide reorganization initiative was announced in

April of 1995, which would consolidate sales, marketing and customer focus areas into three

major divisions known as Americas, Europe and Japan and Asia. The effort was initiated to

better address customer needs (Apple, 1995).

Apple seems to have evaluated and addressed some important aspects of operational

excellence. Developing new products and software platforms continues to get full attention.

However, a focus on IBM compatible software should have happened much earlier. With a

focus on the customer, the company has attempted to restructure and align the business units and

divisions to create smooth transactions, consistency and reduced cost in the value stream.

Apple contributed to product leadership by developing items that helped people be more

effective in life. More powerful Macs and professional peripherals were developed. The

company added to the product mix by developing mobile computers, or notebooks, PDA’s, on-

line services with a mail exchange and networking and connectivity products.

Evidence of customer understanding was shown through the reorganization of the

company to align with customer needs and support as well as the development of products,

which allowed people to become more organized, effective and efficient.


Apple’s positioning strategy was to strengthen the current position of personal computers,

peripherals, applications software and to reposition into on-line services and networking

products. The expanding market the seemingly endless uses for computers drove Apple to create

faster, more user-friendly products. To compete with Windows-based programs, the company

also needed to be compatible with Microsoft products, which they did not begin until the end of

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this era. The world wide web presented many opportunities for computer and software

companies. To those with the capital and technical knowledge, on-line services were proving to

be profitable. Extending the product portfolio to include the on-line service and networking

products could possibly create a stronger platform for Newton mail and other Apple software

applications, developing a competitive advantage.

The product differentiation strategy was still to provide user-friendly items, which gave

people information solutions, continue to build an image of quality and reliability. The customer

support structure had changed back to utilizing third part retailers who could service the product,

with the addition of mass-merchandise stores, computer superstores and consumer electronic

outlets (Apple, 1995). Unfortunately, the products were not as compatible as they should have

been with Windows-based equipment, which became a huge disadvantage.

The market segmentation for Apple had changed in this era to include a few more market

groups. The product mix was increasing to provide Macs to higher and lower price ranges to

capture more market share by income range. Networking and connectivity products and on-line

services were developed to assist existing Mac users in information sharing and to attract new

consumers wanting to navigate the internet with ease. The firm also began contracting with

government services (Apple, 1995).

Apple’s attempt to develop a broader differentiation of market segments, combined with

the extended product mix may have caused the company to lose the grasp of core competencies.

Some firms lose strategic direction and have difficulty recovering. However, the company states

the strategic intent is to maintain and expand market share and develop and expand new related

businesses, which would require attention to new products and markets.

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A well known and respected brand, which was associated with superior quality,

continued to be strength for Apple. Reorganizing and aligning company assets with business

strategy would help set up a foundation for better customer responsiveness. The development of

new products was triggering additional innovation and possibly new markets.

The closed architecture Apple had early in this era did not allow information sharing

across software and equipment. Businesses had high maintenance costs to keep Apple platforms,

which would not work with all equipment or software. Therefore, it was high risk that firms

would utilize Windows-based platforms (McCune, 1996). Though Apple began licensing with

Windows-based partners, the move came after significant losses. Finally, innovations to

Microsoft Windows had decreased the product differentiation of Apple’s operating system and

left no motivation for consumers to see it as a value.

This period saw Apple change CEO’s several times. John Sculley reigned from 1983 to

1993, when he was replaced by Michael Spindler. Three years later, Michael was replaced by

Gil Amelio (McCune, 1996). Leadership problems often degrade employee and shareholder

loyalties. When a company is rotating CEO’s, followers begin to wonder what is wrong with the

company, and possibly leave the company, fearing it is bound for failure. Fostering inspiration,

communicating strategic vision and being a change agent is difficult for short time leaders.

(Thompson et al., 2012).


With the increased use and competition of PDA’s, Apple should continue to utilize

research and development departments to further innovate in that segment. Cain (2003)

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complains PDA browsers are not as powerful, the screens are too small and difficult to view, and

it is difficult to write notes using the stylus. However, Cain goes on to tell the many benefits of

the PDA, citing the advantage of size, instant on and off and long battery life. A strong PDA that

could overcome the challenges set forth by Cain could dominate the market.

Strong competition in the company’s market segments will need evaluated for strategic

offensive or defensive movement. Especially as it pertains to Apple’s compatibility with

Windows-based equipment. To regain market share, a strong offensive strategy may be needed

to convince makers of Windows-based software and hardware to license with Apple for

compatibility.

The next CEO will need to be a focused leader capable of making tough decisions to steer

Apple in a stronger direction. Shareholders and employees alike have lost confidence. The next

action would be creating a winning strategy that is profitable.

Era: 1997 – 2011

Competitive Forces

Competitors in the same industry until 2001 are similar to those late in the previous era,

with little change in status (Apple, 2001). Microsoft and Apple signed licensing agreements to

allow the other manufacturer’s operating software be installed on their computer platforms and

available for use. Apple acquired software developer NeXT in 1998 (Apple, 1999). Microsoft

and other manufacturers of Windows-based computers had taken the differentiation out of Mac’s

once dominant user-friendly operating system. When products are weekly differentiated, rivalry

between competitors in the same industry will be strong (Thompson et al., 2012).

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Apple must have recognized the weakness, and, with Steve Jobs being elected CEO in

1997, began a repositioning strategy by introducing the iPod in 2001 (Apple, 1999).. Other

manufacturers of music players were in the entertainment industry, such as Sony, Phillips and

Samsung. These competitors manufactured compact disc players, which were bulky, heavy and

difficult to operate while on the go. The iPod was created specifically to hold 1,000 songs in

someone’s pocket (Isaacson, n.d).

With success of the iPod and iTunes, and further development, Apple spurred the

creation of the iPhone, iPad and iCloud, sometimes referred to as iProducts. As history repeated

itself, the company was once again a leader of innovation, combining the iPod and phone

technologies bringing a product to the table, which initiated a high demand. Competition

followed quickly, with Samsung, Phillips, Sony and SanDisk developing similar players, but

without the ease of use of iTunes. There is competition for the operating software on iPhone

from Google, known as Droid, which is generally installed on the products other than Apple.

Apple still maintains a strong presence in the personal computer industry, with desktop

computers known as iMac, and several notebooks, known as Macbooks (Apple, 2011).

Competitors of these products are Hewlett-Packard, Sony, Toshiba, Samsung and Acer.

Supplier bargaining power at the beginning of this era had decreased in strength, and in

2001, began to strengthen. Apple’s market position was weak as lost sales forced reductions in

resources and production, causing less demand for supplied product. The previous contractual

agreements with a few suppliers by Apple would have also been weak due to the decrease in

demand for supplied product, which would create abundant supply (Thompson et al., 2012).

Later in the era, however, supplier bargaining power would strengthen. As iPads, iPhones and

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iPods increased in popularity, supplier products would have been quickly used and critical to

production, resulting in supplier strength in bargaining power.

In the early years of this era, buyer bargaining power was strong due to Apple’s weak

position within the market. With more supply than demand, and because products were no

longer differentiated, buyer bargaining power was increased. Apple’s iProducts were introduced

and highly differentiated; buyers were numerous and willing to pay extra for the good quality

product and, therefore, buyer power became weak

Examples of substitutes for iProducts, which were not in the industry, would be landline

telephones, handheld GPS systems, gaming systems, books, music compact discs and movie

rentals. The Apple iPhone combined into one product many tools, of which many phones were

not capable.

The threat of potential new entrants was strong due to a growing buyer demand and a

group of potential entrants with the resources to conquer high barriers to entry. This allows

newcomer’s to the industry to easily swipe profits without much revolt from established

companies.


In 1998, Apple finished the final phase of realigning the organization to the business

strategy it had started in 1996, helping create a more efficient operation with a focus on the

customer. A reduction in resources had been performed to decrease overhead and cost in light of

the decreased revenues. Two manufacturing plants had been closed and others re-tooled for new

products (Apple, 1999).

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In the beginning of this era, Apple had developed the iMac, which was an improved

notebook with new capabilities to help users be more effective than ever before. Innovation had

always been strong point for Apple, and this era was no exception. The iPod, iPhone, iPad and

iCloud were launched, all with great success. These products allowed users to utilize wi-fi

technology to enable them to browse the internet, listen to music, watch movies play games and

even transfer money on-line through their bank website from anywhere. Apple again created

products with high differentiation, which were attractive to consumers due to the value created.

Apple has proven its concern for the customer by continuing to develop these products,

adding more features, supporting new applications and striving to make them faster.


As in the last era, Apple performed a strengthening of its current position concerning

personal computers, but also worked on repositioning itself into the entertainment market by

focusing on mobile communications and media devices. Fortunately, for Apple, these devices

were a major success. The product differentiation and high barriers to entry in getting similar

products to market held off competition for some time.

The product differentiation strategy concerning the mobile communications and media

devices was aggressive and offensive (Ferrell & Hartline, 2012). Apple has developed many

iProducts, since the iPod, which all can link or work together, making synchronizing and

working across devices convenient for the user.

Market segmentation strategy changed in this era for Apple. The company moved from a

differentiated strategy, which marketed to groups, mainly Generation Y, to a mass marketing

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strategy with the intuitiveness of the products. All the consumers in the market can benefit from

the iPod, iPad, iPhone and their related products and applications (Ferrell & Hartline, 2012).


Apple is in a strong position at the end of this era financially and with its product mix.

The strategies the company has employed, from the foundation created at the reorganization in

1996 through 1999, and the repositioning of industry and focus on innovative products has

allowed Apple to continue its leadership in the electronics industry. Apple has increased net

sales from nearly $43 billion in 2009 to $108 billion in 2011 (Apple, 2011)

Apple must continue to monitor supply. With millions of devices being produced, and

most of them produced by third party vendors, control is more limited than when Apple retained

its own manufacturing sites. With proprietary software and massive sales, antitrust litigation is

high risk. Competition will claim litigation in order to create a competitive advantage.

Steve Jobs death had left the world wondering what is next for Apple. There was much

debate on whether the company has the necessary vision to move forward and remain profitable.

The image of Apple was in danger. Since Jobs death was foreseen, he was able to position those

whom could carry out his vision and strategic plans. Jobs did not create the devices himself; he

had great designers working for him. He fostered the creativity. The great minds were still in

place and Apple would still be able to create great products (Green & Edwards, 2012).


Apple must continue to monitor vision and strategy. As a company tries to maintain a

major increase in sales, vision and strategic focus can be lost. The firm must be diligent about

financial and operations measures, continual improvement, employee relations and customer

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satisfaction. Apple should also monitor the current global economic situation as it could have an

impact on revenues, through not only sales, but also supply risk and financial risk due to changes

in export fees or tariffs, exchange, and interest rates as countries wrestle with their budgets and

try to take care of their people.

Era: 2011 - Current

Competitive Forces

Rivalry continues to intensify with the same competitors as at the end of the previous era.

The personal computer market, the mobile communications and media market, the online

services market and the applications market have seen significant and quick changes to products

to gain competitive advantage. According to Apple’s Form 10-K annual report (2012) to

shareholders, competitors utilizing Windows-based and Google-based platforms have forced

downward pressure on market prices. Some of the competitors have a large amount of resources

and participation experience and could provide comparable products for a time with no profit

margin to weed out weak firms. Apple continues to provide new products to market, launching

the iPhone 5 in September of 2012 (Apple, 2012).

The company continues to see supplier bargaining power increasing. Apple is competing

with other firms for material and components, which increases supplier bargaining power and

puts the company at risk for price fluctuations. The firm has tried to mitigate some risk by

entering into supply agreements, but they are short term and do not guarantee continuation at

expiration (Apple, 2012).

Buyer bargaining power is still strong, but decreasing. When Apple introduced its

iProducts, they were highly differentiated. Since then, Google has introduced an operating

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system very similar, with some advantages and some disadvantages. The iPod and iPad are less

differentiated than before and are at risk of the same fate as the Macintosh computers of the early

1990’s. Without differentiation, the cost to consumers will not meet the perceived value and a

loss of sales will occur.

Substitutes to the Apple products continue to be landline telephones, handheld GPS

systems, gaming systems, books, music CD’s and movie rentals. However, landline telephones

are being replaced in households by full time cell phones, GPS systems are being replaced by

integrated maps in cell phones, games are easily downloaded as apps on cell phones and books,

music and movies are all easily downloaded or streamed to cell phones. Therefore, there is a

decreased threat of substitutes.

With the heated and fierce competition as well as the need for seamless design to market

processes and downward pressure on prices, threats of new competitors entering the market are

decreasing. Although the maturity of the products should show decreased costs, the downward

pressure on prices continues to offset the cost savings. Therefore, new entrants may not be able

to purchase supply at a cost low enough to provide profit margin.


Apple continues to strive for operational improvement and perfection. Third party

vendors supply most of the components. The company has outsourced all but one manufacturing

facility in Cork, Ireland. Apple uses an online store, third party resellers, direct distribution to

educators, third party cellular network carriers, wholesalers and value added resellers for their

distribution channels (Apple, 2012). Combined and global, these distribution channels allow all

markets to be provided for.

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APPLE

Continued focus on product development has allowed Apple to introduce the iPhone 5 in

September of 2012, with upgrades to enhance the customer experience. Apple has also launched

a third and fourth generation iPad and an iPad mini. A company so focused on innovation

should be able to stay ahead of the market. However, if significant changes are not made, the

iPad could be taken over by a competitor’s tablet or even larger cell phones.

The focus in the last decade to make Apple products compatible with Windows products

lets the consumer know the company is listening. The effect of not listening to the customer was

felt years ago and Apple should never forget. The company should always strive to place a high

value on customer feedback.


The company has repositioned successfully into the mobile communications and media

markets. Apple continues to strengthen current position within the personal computer markets.

Product differentiation is slowly decreasing. Without significant changes or upgrades,

this will continue due to the nature of competition. As other products upgrade operating

systems, they will incorporate changes to make them more like Apple product when necessary to

create a competitive advantage.

The market segment strategy continues to be mass marketing strategy due to the

bandwidth of applications available on Apple products. Almost everything has an App. There is

no market differentiating elements of Apple products. Though there is a price sensitivity for

many buyers, many buy the Apple products because they have a perceived value greater than the

price.

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APPLE


Apple products are fun. The company has provided stable products with stable support

mechanisms and provided apps that benefit end users, both individual and professional. Strong

and user-friendly third party apps and software are a necessity to providing value to the physical

products. Renewed confidence in a well known brand name and image, paired with product

quality, good supply and distribution supports, should allow Apple to remain stable in the future.

Decreasing differentiation is the weakness. Just as Apple learned twenty years ago,

ignoring competitors when they continue to build similar product can cause devastating effects.


The challenge for Apple is to force itself to provide a differentiated product or service

again. Apple should be working on a breakthrough product, a repositioning strategy or a blue

ocean strategy. The leadership and designers at Apple must find a way to shake loose of

competitors through innovation and change the world again.

Impact on Author’s Own Understanding

A few situations stand out which caused Apple pain, but would have been difficult to

detect, even for seasoned leadership. During preliminary review of the research, it was assumed

when Jobs left, none of the other CEO’s could be the visionary he had been. It seemed the

reason for Apple’s loss of sales and subsequent, company initiated reorganization, was due to

lack of creative ability by the leadership. After all, when Jobs was reinstituted as CEO, he

developed extraordinary products and brought the company back to profitability. Though a lack

of vision and creativity could have been a contributing factor, John Sculley seemed to be doing

some things right. He was cleaning up the supply chain and distributorship channels, as well as

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APPLE

placing manufacturing closer to the distribution channels. He was developing new products,

software and services, which were beneficial to the consumer. So why did Apple suffer from

1985 through 2001? One contributing cause would have to be Jobs visionary style of developing

products. Companies generally develop products after quizzing the consumer and finding out

what they need. This may have been how Mr. Sculley felt he needed to developed products.

However, Steve Jobs developed products people did not know they needed. A good idea would

pop into his head and he would pursue it, inspiring others to journey with him and help make it

perfect (Isaacson, n.d). The root cause of the troubles at Apple was the lack of correctly

upgrading the flagship product. The operating software that was so user-friendly and everyone

loved, died an undifferentiated death. Competitors all but copied it, and then improved upon it

over the course of 20 years. Mr. Sculley missed seeing the lack of differentiation and the affect

it was having on the company while he was at the helm.

There were some positive take-a-ways from the viewing of Apple’s history. The first

break-through product was the graphical user interface that got Apple out of the gate early. IBM

and other computers struggled with DOS software, struggling to type codes to accomplish things

while Apple users were dragging and dropping. The second break-through product was the iPod.

This amazing little device broke the ice for the iPhone and iPad, which are again, user-friendly

enough people two years old to 102 years old can use them. Not every company is going to

develop products this amazing, but the same principles of competitive advantage will apply.

The work John Sculley was doing to “grease” the value stream set up the foundation for

a quick recovery upon Steve Jobs return. CEO’s Michael Spindler and Gil Amelio played a part

in that foundation as well. Though he was not the CEO when he left Apple in 1985, Jobs had

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APPLE

some influence on the leadership. As he returned in 1997, he was more mature and was able to

call out a strategy, which allowed for an astonishing, blue ocean product that could be followed

with multiple income streams and more astonishing products. Without the foundation of a clean

value stream in place, Jobs may have spent more time cleaning up the house than developing a

break-through product.

In moving forward in a career, the competitive forces must be evaluated. At an

established company, checking on the history of the company and looking for trends in

competitive strategy, marketing strategy, strengths and weaknesses should be done as quickly as

possible. Product differentiation is more important than imagined and needs to be at the

forefront of any leader’s mind. When a lack of differentiation is found, a strive for

differentiation has to be forced quickly. In addition, continued development of the value chain is

necessary. Timely design to market processes in certain industries is not an option, it’s a

necessity for survival. The risk of single source supply is more prevalent than originally thought.

When single source supply is all that is available, a risk evaluation matrix should be done with a

team and action taken to mitigate the risk.

Conclusion

As Steve Jobs and Stephen Wosniak formed a fledgling company together around a

product with a small market, they could not have been aware of how their lives would be

influenced. As the company grew leaps and bounds due to products representing quality and

reliability, Jobs continued to use creativity to create products more beneficial to the end user than

he could imagine. After eight years of growth, and a slight downturn and a few failed projects,

Apple unexpectedly struggled for market share. John Sculley was appointed CEO, then Michael

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APPLE

Spindler and a turn-around specialist, Gil Amelio. None could right the listing company, though

they were able to plug some of the holes causing Apple to struggle. As Jobs came back on

board, his creativity was able to set the ship sailing once again with seemingly no end in sight.

However, Apple is at the same fork in history again with a risk of product differentiation

competing with innovation. The old Mac operating system became undifferentiated and was no

longer more valuable than Microsoft Windows. Likewise, the iPhone and iPad are becoming

undifferentiated, and will no longer be more valuable than Google’s Droid or the Amazon Kindle

Fire. Tim Cook, the current CEO must take a close look at where his next blue ocean product or

service is going to come from, or he will find Apple struggling to survive in a sea of similar non-

differentiated gadgets and software from his competitors as John Sculley was drowning in.

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