Strategic Management: Competing With Apple
Product Differing (consider calling it Product Differentiation)
Strategy Description: Proposed strategy for differentiation; Apple will continue to use one basic model for its products that customers are already familiar with and in addition, the products will continue to be priced reasonably. By doing this when a customer is looking for a new mp3 or a new cell phone, the Apple products will not be lost among the masses. By doing so, Apple will continue in making an effort to make the customer service experience an easy one. Despite low costs, consumers want the latest in technology, or what they perceive to be the latest most special piece of equipment. By using mass marketing techniques to flood the consumers mind of a new product before it is actually launched, the consumer will perceive the product to be a “must have.” We will reintroduce the Mac to the market and give the customers the option to build it to their specifications and even have a choice of color scheme or design. This strategy not only allows Apple to eliminate the distributor, but save the customer money by avoiding after market mark-ups. If Apple continues to keep its products similar and different from the rest, they will be able to lower the amount of competition from competitors (Deephouse, D., 1999).
Apple continues to struggle with managing its partnerships with digital content providers (Murray, Goode, Di Muro, 2010), as they fear what happened to the music industry will happen to them. As a result, the lack of partnership cooperation on the part of digital content providers has left open a wide area of the Apple iTunes ecosystem for competition. The iTunes ecosystem is shown below, and generates nearly 30% of all Apple top-line revenue as of the close of their latest fiscal year. Apple is re-vamping their iMac and Apple TV products as of 2010 to further solidify and protect this ecosystem.
Source: (Apple Investor Relations, 2008)
The one weakness however that the iTunes ecosystem has however is the lack of differentiation offered to content providers, as the pricing on the existing iTunes site, at 99 cents for the majority of songs, is considered to be one the primary catalyst for driving profitability out of the music industry. Video content providers are crucial, and in fact represent the future of Apple going forward. In highly competitive markets the use of partnerships and alliances can serve as an even more powerful differentiator than products or pricing (Berling, 1993). Earning and keeping the trust of video and digital content providers of all types, from large, diverse networks to start-ups is critical for Apple to have the content base to fuel the sales of their future products. However the lack of stability in these partnerships is a major weakness for the company today. In 2008, Apple released the following graphic illustrating just how pervasive they believed video-based devices would be, which clearly makes the value of digital content providers critical to their future business model.
Market Assessment of Video-Capable iPods
source: (Apple Investor Relations, 2008).
Implementation: Apple will need to work closely with their research and development team to see what Apple is bringing to the table. Despite the success of the iPod and the iPhone, Apple should continue making products that are familiar to the customer but more user friendly. By doing so Apple can offer their customers products at a lower cost. In addition, Apple can also cut costs by using outsourced research and development teams.
Implementing a competitively featured product relevant to Apple then needs to take into account a business model that reflects the needs of digital content partners and their differentiation while also factoring in how unique and distinctive Apple’s customer base is as well. The following graphic provides insights into their customer base and its unique attributes.
Source: (Cuneo, 2003)
The implementation of any series of competitive products must take into account these attributes and seek to create them in the proposed company’s customer base as well. Specifically focusing on innovativeness and communicativeness of the proposed products, along with showing how digital content’s value can be retained over time is critical for establishing and sustaining differentiation. This can be accomplished by having a broader structure than the Apple iTunes ecosystem, getting away from the proprietary nature of how music and digital content is distributed by Apple today and making a more open architecture for anyone to use music or digital content on any device.
The ramifications of creating a more equitable partner ecosystem that respect the needs and profit requirements of digital content providers will serve to create greater differentiation faster than products (Berling, 1993). Apple’s innovation has been driven at the product level, yet they are faltering in the areas of partnerships (Abel, 2008). What is needed are products that compete with Apple at a functional level yet have a more open architecture that allows content providers to retain their margins and profitability.
In evaluating the performance of the differentiation strategy the metrics associated with content use and transfers which Apple relies on heavily (Casadesus-Masanell, Hervas-Drane, 2010) need to be added to with profit per partner as well. Only then, will an open
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