Business strategy of Apple Inc.

| July 3, 2019

Question:

Must find 3-4 objectives, analysis and solve this 3-4 objectives. Must use some research method questions.

Answer:

Title: Business strategy of Apple Inc.

Abstract

This aim of this paper is to determine the level of success of Apple Inc.’s business strategy. A qualitative case study research method is used to explore how Apple Inc. has pursued the product differentiation strategy and why this strategy appears uniquely appropriate for this technology company. Data is gathered from a wide range of sources and analyzed descriptively in order to explore this phenomenon from different perspective without losing track of the core issue.

The study’s main finding is that Apple’s product differentiation strategy has largely been successful. In most of its product lines, particularly laptops and computers, not many competitors have managed achieve a similar level of success. However, Apple Inc. still has a long way to go before it can achieve product differentiation in areas where it has little experience, namely mobile communications and television.

 

Contents

Abstract 2

Chapter 1: Introduction. 4

Overview of Apple Inc and scope of study. 4

Objectives of the study. 5

Research questions. 6

Hypothesis. 6

Statement of the problem.. 6

Chapter 2: Literature Review.. 8

Competitive advantage. 8

Product differentiation. 9

Chapter 3: Methodology. 20

Chapter 4: Data and analysis. 27

Chapter 5: Conclusions. 37

References. 39

Chapter 1: Introduction

Overview of Apple Inc and scope of study

Apple Inc. is a US-based company that specializes in the design, manufacture, and marketing of personal computers, mobile communication devices, and portable digital music devices. The company is also involved in the design and marketing of related software, peripherals, computing solutions, and network architectures. Apple Inc. has a sales network across the world. This network comprises of retail stores, third-party wholesalers, online stores, resellers, and direct sales force. The company is famous the world over for its innovative products that have won many loyal customers, making Apple a distinguished brand.

Some of the products that are synonymous with the company include Macintosh (Mac), iPod, iPhone, iMac, and iPad. Prior to 1997, the company was only engaging in the personal computer market. After 1997, Apple Inc. started venturing into the world of phones and digital music players (Ashcroft 2011, p. 85). This is the move that led to the launch of the iPod, iPhone, and then the latest one, the iPad. Additionally, the company has been selling products that are compatible with these products, including software, storage devices, printers, headphones, speakers, and other peripherals (Spartanski 2008, p. 35).

The company’s market comprises of consumer, education, business, creative professional, and government customers. This market base has enabled the company record astounding success in recent years. This success has been achieved on the heels of the best personal computing, mobile communication, and portable digital music experience that businesses, educators, consumers, and government agencies receive from the company. Moreover, this experience is always being continually enhanced through the introduction of innovative software, online support services, and peripherals.

Apple’s business strategy is based on the company’s ability to develop a unique operating system, application software, hardware, and support services (Moritz 1984, p. 18). This ability is critical in providing customers with new products and technical solutions characterized with seamless integration, ease of use, and innovative design. This business strategy is founded on the belief in a continuous process of investment in research as a critical step towards the development of new innovative products and solutions.

The business strategy also involves overhauling the customers’ experience with computers, peripherals, and related solutions. This is why the company has in recent times been focusing primarily on the convergence of the three main components that drive today’s information age: personal computers, mobile communications, and digital consumer electronics. This convergence is evident in the company’s latest range of products: iPod, iTunes Store, iPhone, and Apple TV. In this strategy, there is also an element of a continually expanded distribution network as a way of targeting new customers.

This aim of this paper is to explore various aspects of Apple Inc.’s business strategy. The study explores this business from different dimensions, including market share, distribution, competitive advantage, innovativeness, product differentiation, financial performance, research and development, and innovation.

Objectives of the study

  1. To identify the main elements of Apple Inc.’s business strategy.
  2. To assess the success of the company’s business strategy.
  3. To explore the obstacles, barriers, and challenges that the company has faced or continues to face in the execution of the business strategy.
  4. To evaluate the applicability and relevance of the business strategy in the company’s operations in the future.

Research questions

  1. What are the main components of Apple Inc’s business strategy?
  2. Has the company’s business strategy succeeded in bringing about product differentiation and competitive advantage?
  3. What role has the company’s leadership played in the overall market strategy?
  4. What is the future of Apple’s business strategy?

Hypothesis

This paper is based on the hypothesis that Apple Inc.’s business strategy has been largely successful and it will continue to steer the company to greater heights in the areas of personal computers, mobile communications, and portable digital music market.

Statement of the problem

In today’s business environment, companies face a lot of competition in all their areas of operations. The case has not been different for Apple Inc. The company has been facing competition since its establishment. The founders were aware of this reality, and this is why they came with a business strategy that emphasized on uniqueness in terms of design, manufacture, and marketing.

Just like it is normally the case with most small start-ups, Apple Computers, as the company was initially known, did not have an elaborate business strategy. With time, however, the business values on which it was founded contributed to the enhancement of the business strategy to become what it is today. Incidentally, today, unlike at the start-up days, competition is global in scale, meaning that it is more intense than ever before.

Incidentally, the company has made far-reaching steps in enhancing and redefining its business strategy. Today, Apple Inc. has a global presence, which is credited to the elaborate distribution network comprising of resellers, wholesalers, cataloguers, national retailers, and regional support centers. The distribution network has further been enhanced by sales of third-party products in the company’s major markets, most of which are sold directly to consumers, businesses, and education customers.

Even with such astounding success, the level of competition in today’s globalized world is so intense that Apple Inc. is not guaranteed to retain its existing markets in the foreseeable future. The main areas of specialization for the company, that is, personal computing, consumer electronics, and digital music devices, continue to undergo drastic changes every now and then. These areas of business are highly dependent on advancement in information and communications technology. Incidentally, this is arguably the most dynamic area in the contemporary world of innovations and inventions.

In such a business context, it is imperative that any business operating in a highly competitive environment evaluates its business strategy to determine whether it should be redefined or not. This is a problem that Apple’s strategists must feel the need to address. Similarly, in the context of the present paper, it is an issue that is worth exploring in greater detail from an empirical perspective.

Chapter 2: Literature Review

Competitive advantage

Today, Apple Inc. operates in a context of stiff competition from both established computer companies and relatively new ones. In this business environment, rapid technological advances are taking place in the areas of both hardware and software. These changes have led to a situation in which new products are being introduced all the time, most of which come with more competitive prices and features that guarantee improved performance.

A core component of business strategy for many companies is normally on price (Barney 1991, p. 106). Competitors normally reduce prices drastically as a strategy of wooing the customers of their competitors. They also lower their product margins with the hope that they are going to maintain their existing market share. These pressures have undoubtedly led to persistent downward pressure on gross business margins across the industry.

The main factors relating to competition in the electronic, computer, and mobile communication industries include product features, price, relative performance, reliability, innovativeness of design, product quality, corporate reputation, software availability, support and services, and marketing ability (Simpson, T, 2004, p. 21). In all these areas, a unifying factor is the increased reliance on the internet. Most of the service and support operations of Apple Inc, for instance, are carried out through online retail centers.

Regarding online availability of products, Apple Inc. has in recent times been facing increased competition from many other providers of online digital music. Most of these companies are those that provide peer-to-peer content services, with regard to both digital music and videos. Nevertheless, there is a strong conviction among the company’s strategists that Apple Inc. still has a competitive advantage because of the superior innovation upon which its products are modeled. This competitive advantage also has something to do with the integration of a wide-ranging solution, comprising of hardware, software, and a content distribution platform. The hardware is in the form of the iPod and the personal computer. The software is in the form of iTunes while the distribution network is sustained by the availability of both iTunes and the Wi-Fi Music Store.

However, some competitors appear willing to offer these same services at a low profit or even at a loss with the core aim being to compete with the offerings of Apple. Rather than focus on competition of this nature, the company is keenly assessing new market opportunities, particularly in the area of mobile communications devices. In this market, competition is still high, and there are many well-established competitors. Moreover, there are companies that have been attempting to imitate the iPhone model in the design and manufacture of their own smart phones. In such an industry environment, the survival of the company is highly dependent on a carefully thought-out business strategy. In such a strategy, it would be helpful to think about ways of improving the existing hardware and software platforms based on industry dynamics.

Product differentiation

Apple is known for being a company whose path to success was charted on the foundation of innovation. As the company started moving towards financial success, increased emphasis was put on innovation (Shepherd 2000, p. 104). Apple pioneered many new products in the computing industry, including the personal digital assistant, the iMac, and the iBook. When it ventured into the digital music and mobile communications industry, it introduced such innovative products as the iPod, the iPhone, and the iPad.

In the early 2000s, the innovative approach of the company’s co-founder the late Steve Jobs helped the company come up with a complete ‘product matrix’ (Linzmayer 2005, p. 139). In this product matrix, Apple had both a portable computer and a desktop in both consumer and professional segments. In the professional segment, there is the Power Mac G3 desktop and the portable Powerbook. In the cosumer segment, there was the iMac desktop and the portable iBook.

The introduction of iTunes was another important aspect of product differentiation. The launch of iTunes was an indication of Apple’s intention to become a leader in making digital lifestyle a hustle-free phenomenon. This phenomenon was reinforced with the opening of an online digital music store. However, as one would have expected, many local Apple retailers complained, arguing that the company was engaging in cannibalistic behavior. Their concerns were somehow justified, considering that many people would rush online for digital music solutions instead of going to the traditional local stores.

The emergence of flat-panel Liquid Crystal Display (LCD) desktops has also been associated with Apple’s activities, just like in the case of notebooks. A key element in all these developments has been improvements in digital creations. These improvements have been taking place against the backdrop of the need to enhance the digital lifestyle experience for Apple’s customers. It was for this same reason that Apple sought to improve the efficiency of iTunes by seeking collaboration with the five biggest music companies in the world: Sony Entertainment, EMI, BMG, Warner, and Universal. This collaboration was fruitful since Apple was able to bring in some 200,000 songs into the iTunes Music Store, which Apple’s customers had ready access to at any time as an introductory offer.

While making significant developments in the area of digital music, Apple has not been neglecting the area of personal computers. The launch of the fastest personal computer in 2003, the Mac G5, proved just that. This is perhaps an excellent indicator that it is possible to succeed in product differentiation in radically different market segments. This success has contributed to the improvement in Apple’s product mix, product features, and subsequently, the company’s overall reputation.

When products are highly differentiated, it becomes easy to deal with the threats that arise in both internal and external environment (Lawson 2001, p. 386). For a product to be highly differentiated, many costs are involved. These high costs are a hindrance to many new entrants, who would otherwise pose a major threat to a company. Apart from meeting standards business operation costs, a new company eyeing differentiation as a strategy has to bear the costs of overcoming the product differentiation that is already inherent in the incumbent leader.

Whichever way one looks at the issue, a highly differentiated product tend to be more attractive in customers’ eyes and this reduces the threats posed by substitutes. In the case of Apple, one would be hard press to come up with a substitute. Sometimes, suppliers increase the price of components, forcing a company to pass on the cost to the customer (Insinga, 1999, p. 64). This is exactly what has been happening in the case of Apple. The high cost imposed by suppliers, together with the high cost of research, development, and innovation, is passed on to the customer. This makes Apple’s products more expensive than other products that fall within the same range of functionality.

The impression created by this scenario is that Apple continues to operate in a quasi-monopolistic environment. This monopolistic environment, it appears, is the one that the company’s strategists are looking up to in their continued pursuit of the product differentiation strategy. Going forward, a seemingly critical challenge is that of ensuring that a competitive advantage is maintained in all future product differentiation efforts while at the same time maintaining or even surpassing the existing economic value. Emphasis here is on keeping the product rare enough to make it virtually impossible to imitate.

In the contemporary industry environment, few firms are dedicating their energies on differentiation (Grant 1996, p. 381). This is what makes Apple’s strategy rare. For this reason, the products become difficult to imitate, and it is not possible to think about any substitutes in the current market. No one can tell with absolute certainty the extent to which this situation will remain unchanged in the future. It would be imperative if empirical studies were done on the future of Apple’s product differentiation strategy.

At the company level, the main dilemmas arise from the organization structure. For instance, in terms of functions, when there is too much collaboration, innovation is slowed down, while little or no collaboration means that there is no learning, and therefore implementation becomes difficult (Dougherty1996, p. 1129). With regard to market vision, too much foresight makes it difficult for innovation to take place. In the absence of foresight, however, the company may fail to take advantage of the lessons that have been learnt during its operations in the past.

Indeed, the connection with the past is crucial for the success of a differentiation strategy (Arping 2008, p. 119). Yet too much preoccupation with history can decelerate the innovation process. On the other end of the dilemma, too little historical insight makes employees lose direction in the innovation process. A similar dilemma exists in institutional control, whereby bureaucracy impacts negatively on flexibility, particularly in uncertain markets. The opposite of this scenario is easy to predict: without institutional control, chaos ensues and the innovation process stalls.

The solution in these dilemmas lies in the establishment of an idea organizational structure. When Steve Jobs returned to head the company in 1997 after being ousted in a dramatic boardroom coup 12 years earlier, he undertook to dismantle the vertical organizational structure he believed was derailing the process of innovation (Butcher 2009, p. 53). In the newly established context, Jobs could communicate directly with employees and share innovative ideas with them at any time (Jauch, 2009, p. 522). Similarly, he was more accessible to employees, and the two-way communication greatly improved the much-needed process of innovation.

An alternative solution is offered by Arping (2008, p. 6) who suggests the pairing of product differentiation with corporate leverage. However, Arping provides three conditions that must be met for this strategy to work. First, customers should be the ones to value product differentiation. Secondly, managers should take it upon themselves to be disciplined, particularly through the existence of debts. Thirdly, there is need for liquidation to be made costly for customers, particularly in situations when the products of a company are highly differentiated from those of competitors. Arping argues that whenever there is need for leverage on the basis of the existing managerial problems, firms tend to have no alternative except to position their products in such a way that they are closer competitors as a way of reducing deadweight costs that customers incur during the liquidation process. Arping (2008, p. 23) goes ahead to provide evidence for his argument from the Apple Inc. case study.

The argument that Arping (2008, p. 34) makes is based on circumstances under which Apple Inc. was operating during the early and mid 1990s. During this time, the company was going through severe financial difficulties that led to accumulation of record losses. The difficulties also brought about internal turmoil and the debt rating of the company was significantly downgraded. The problem was so serious that Apple’s long-term viability started being questioned. Companies that were contracted to make software for the company being worried about the survival prospects of the company. These concerns made software providers to redirect their energies and resources to the development of software that could be used within the larger Windows Market.

Nothing short of a well thought-out business strategy could have pulled Apple off the financial crisis in which it had sunk. To illustrate this point, it is imperative that Apple’s financial predicament is explained in greater detail. First and foremost, it was clear that the company’s exit from computer market would undoubtedly make its customers incur substantial costs. For instance, software developers would have refused to develop any more software for Mac users. Moreover, customers would never have another opportunity to make Mac purchases in the future. This would mean loss of returns on the current software-related investments.

It is not surprising, therefore, that the company’s financial crisis led to loss of confidence among its loyal customers. This explains why the company’s share market shrunk considerably in spite of drastic reduction of prices. Things turned from bad to worse when Apple announced that it had recorded a $69 million loss in the first quarter of the fiscal year. The loss of this magnitude made many Apple’s customers to stop perceiving any future directions for the Mac.

The circumstances in which Apple found itself can befall any corporation in the contemporary society. From these circumstances, it is possible to make certain general conclusions. First, the financial troubles of a company can repel future purchases from erstwhile loyal customers (Floyd 1990, p. 61). This is particularly the case with companies that manufacture durable equipment for which there is an expectation of upgrades, spare parts, and technical service from customers. Apple’s customers found themselves in such a situation.

In efforts to reduce the likelihood of a mass exodus of customers, Apple Inc. had to look into the company’s organizational structure with a view to change it. The best way out was to bring in new leadership at the top. This is how Steve Jobs was considered the best man for the job of CEO. The main advantage for Jobs was that as the company’s founder, he had the best understanding of its business strategy. Even after an absence from the company for more than a decade, he understood the company’s business strategy in ways that even the contemporary insiders of the company did not.

Indeed, the institutional control dilemma that Apple was going through at this time should not be ignored. It influenced the way its products were being differentiated. Most importantly, the way this dilemma was resolved marked a turning point for its future business strategy. The product differentiation strategy that was unveiled under the new top management continues to be experienced even today. This leadership change had all the characteristics required for the innovation process to take place. The ideal institutional leader in a context of innovation ought to be a critic, sponsor, mentor, and entrepreneur, all rolled into a charismatic character. The organizational structure that is established under the watch of such a leader brings about the right environment for innovation to take place. The presupposition here is that innovation is the bedrock of product differentiation. This brings a lot of sense in Apple’s decision to bring Steve Jobs back to the company he co-founded.

It is not surprising, therefore, that the company’s success in whichever business strategy it has been pursuing has been credited to excellent institutional leadership. Through this type of leadership, Apple has managed to create the soft of organizational structure that is suited to different types of innovative design, manufacture, marketing, and distribution. As critics, the top leaders of the company have been at the forefront in challenging goals, investments, and progress. As entrepreneurs, they have been quite successful in the management of a wide range of innovative units. As sponsors, they have been able to procure, advocate for, and be champions of organizational excellence. The element of mentoring involves coaching, advising, and counseling, and this has exactly been the case at Apple.

In an environment where a company understands the sort of leadership required for success to be achieved, the impression created is normally a positive one, both internally and externally (Hamel 1998, p. 9). In many ways, this goes a long way in influencing the overall business strategy. This is exactly what happed in the case of Apple Inc. The search for a new chief executive was a public affair that caught the attention and imagination of many observers, customers, commentators, and policymakers. This attention proved beneficial to the company’s future. By following the process of hiring the new CEO with keen interest, customers could look forward to some changes in the company’s future operations. On the overall, this created a positive image as opposed to the negative one they had gotten used to during the crisis.

Throughout his reign as Apple CEO, Steve Jobs has managed to ensure consistency in product segmentation efforts. This is evident in the way he has been resolving a wide range of innovation dilemmas, starting with the bold decision to venture into the mobile communications and digital music market. Steve Jobs realized that for the product differentiation strategy to be sustainable, strong leadership was required at all levels of the company’s organizational hierarchy.

Other than innovation dilemmas, it is important to focus on improve customization of the today’s highly globalized marketplace (Simpson 2004, p. 12). Apple’s managers seem to understand this because of the way knowledge on various product families has been utilized to determine the platforms that will be used in product development. Simpson (2004, p. 13) points out that through this categorization, it is possible to not only increase variety but also reduce costs. It also facilitates a seamless process of design and production, such that lead times are reduced significantly.

It is imperative that a product family is successfully identified. Once the right product family has been identified, a product platform will have been established. On this platform, it is possible to carry out very many activities that constitute the innovation process. During these activities, some modules may be added, others substituted, and others removed. In other words, the same platform may be scaled in different dimensions to target different market segments. This field of engineering has been growing very rapidly, and it appears to be one that is most favored by Apple’s engineers.

During the product design stage, there is always a flurry of activities, such that mistakes will no doubt be made before the final product becomes ready for mass customization (Green & Krieger 1991, p. 30). Although there is scanty literature on this process in the context of Apple Inc., there is no doubt that the rigors of innovation are pursued to extreme levels before the final product is obtained. This is particularly important for a company such as this one, which prides itself with being a leader in quality, innovative computers, mobile devices, software solutions, and peripherals.

Mapping the design process into the platform of a specific product family can be a challenging task. How a company goes about this process greatly determines the level of success that will ultimately be achieved. The designers have to possess the right techniques for the identification of platform leveraging strategies. This entails continual review of metrics through which product quality and effectiveness are evaluated. The ideal approaches of optimization also have to be put into consideration. These approaches may entail the use of artificial intelligence and web-based systems. There are many more examples of approaches together with the merits and demerits of each of them. It would be interesting to assess the criteria that Apple uses in determining which approaches are suited to specific product families. Similarly, there is need for an in-depth analysis of how Apple establishes the need for a new product family and the business viability of pursuing the strategy of product differentiation with regard to each of these products.

Interestingly, since 1997, Apple appears to have succeeded in not only differentiating all their products but also maintaining its price-making power. This was no mean feat considering the context in which the company operates. This context, particularly the laptop market, is characterized by a few large companies that are always embroiled in stiff competition to increase demand. In recent years, Apple has managed to not only differentiate the product range of its laptop computers but also that of mobile devices, software solutions, and peripherals.

A case in point is the continuous improvement of the MacBook to make it stand on top of all competitors’ products. The MacBook, which was recently launched, is the thinnest and lightest laptop computer of its kind in the market. This laptop caused a huge buzz in the world of technology. This buzz caused millions of customers to switch from the products of competitors to those of Apple Inc.

It is clear that there are very many ways through which the goal of product segmentation can be achieved. In the end, a company that succeeds in this undertaking gains immense market power. This power is normally inherent in increased demand for specific products. When this increased demand is sustained for some time, brand loyalty is achieved. For some companies, product differentiation is a type of non-price competition.

Apple’s business strategy of non-price competition in the pursuit of product differentiation has enabled the company achieve its financial goals without compromising on brand loyalty (Liu 2005, p. 638). This is unlike the case would be if the company embarked on simply lowering prices compared to those of competitors. In this case, more products would be sold but the profit level would be lower. Moreover, this may shift attention from quality to quantity, making the products lose their attractiveness. In such a scenario, the company may also lose brand loyalty. The uniqueness of products makes them not only attractive to different customers, it also reduces demand elasticity. The lack of demand elasticity makes Apple keep holding onto the price-making power in the global laptop computer market.

Chapter 3: Methodology

This chapter focuses on a critique and then justification of the use of the case study method in the present dissertation. There are many studies that explore the merits and demerits of this methodological approach. However, some studies tend to reinforce stereotypes surrounding this method, creating the impression that the findings generated through this approach are not viable (Yin 1981, p. 99). This chapter highlights the research trend on case studies as part of the justification process.

According to Yin (1989, p. 101), case study is a research strategy worth employing in any inquiry into business issues. Yin expresses his concern for stereotypes surrounding the use of this method. He notes that some researchers create the impression that the case study ought to be used only during the exploratory stage, while others are convinced that the conclusions derived are always impossible to confirm (Yin 1989, p. 99). Yet others consider case study as a research method of last resort, thereby making it look bad.

The main study areas where the case study is typically used include management studies, innovative projects, economic development, and community studies. This approach is also commonly used in studies that require programs to be evaluated. In all these areas, case studies have been employed to derive important findings. Moreover, Yin’s study helps prove that these stereotypes are all wrong, and that the case study method is an important research design.

Despite these stereotypes, the case study method boasts of a respected history in management literature (Perren 2004, p. 83). This respect arises mainly with regard to the philosophical foundations of this method. This philosophy has been elaborated on in many standard texts, therefore no ambiguities exist. Perren argues that this is the reason why it is one of the qualitative methods that are receiving widespread acceptance in contemporary business research.

However, not much has been researched on with regard to the philosophical outcomes of findings of various case studies. This is perhaps one of the main reasons why the stereotypes have continued to prevail. For the paradigm that has already been established to be safeguarded from future stereotyping, there is a need to put more emphasis on philosophical conceptions.

In relationship marketing, the case study approach helps in discussions on various variables within different theoretical frameworks (Lewin 1997, p. 36). Some of these variables include relationship orientation, level of trust, mutual cooperation, and information exchange. Using the case study method, it is easy to analyze the relationships between these variables in the context of specific companies (Kettinger 1997, p. 59).

Problems sometimes arise when the right procedures are not used in the way case studies are designed and carried out (Chetty 1996, p. 172). This is not to say that there is deficiency of literature in this regard. In fact, this issue has been discussed in detail, from both local and international business perspectives (Ghauri 2009, p. 112). A case in point is the case study by Goffin (2001, p. 279) where focus is on the way products are configured in mass customization environments. In this study, the main issues addressed include manufacturing costs, product differentiation and cost of design. In order to ensure that the best industrial design processes are adhered to, designers refer to case studies of other manufacturing settings.

At this juncture, it is imperative to discuss the case study method in greater detail. A case study can either be qualitative or quantitative (Kiernan 1996, p. 54). Focus here is on qualitative case study since it is the one that is preferred in the present study. A case study is best understood from a bi-polar perspective: both as a process through which a researcher learns about the ‘case’ and as a product of this learning process. When choosing a case, a researcher hopes to understand more about a specific phenomenon. In business studies, case studies are used to offer a greater understanding of an issue, a new theory, or a management problem (Dickson 1992, p. 75). In the present study, the issue under analysis is product segmentation as a business strategy of Apple Inc. Other examples of topics that have in the past been addressed through case study include international business ventures, relationships between subsidiaries and headquarters, and transnational joint ventures (Nonala1991, p. 81).

In each of these areas, the case study method has been an integral part of the theory-building process (Garsten 1994, p. 169). However, one of the challenges of this conception of the role of this approach with regard to the theory-building process is that has contributed to negative stereotyping (Gillham 2000, p. 60). The solution to this problem no doubt lies in strengthening its philosophical foundation so that it can be used to test theories without any need to refer to other research methods. In the current practice, a variety of epistemological positions tend to be used in combination with case studies as a way of strengthening the arguments made.

In qualitative case studies, like the present one, the researcher has to search for data from a variety of sources, including personal interviews, websites, written organizational reports, direct observation, operating statements, financial and market competition reports, as well as archives. This complementation of information sources translates into great depth in the analysis of a phenomenon. It is not surprising, therefore, that the resulting case is always unique from other case studies that may have been carried out before on the same subject. In such a case, researchers are always quick to pick on similarities found in such cases as frameworks for theory-building (Ortoleva 2011, p. 914). The uniqueness of each case study is indeed one of its most important strengths. It indicates an integrative research power, whereby a phenomenon is studied from different dimensions before a cohesive interpretation is obtained from the various elements.

The other important aspect of the case study method is that it is appropriate when ‘why’ and ‘how’ questions need to be answered (Peteraf 1993, p. 112). Another phenomenon is when the researcher does not have any control over the events under analysis. There is also another scenario, whereby the phenomenon under analysis occurred or is occurring in the real life. In the present study, the phenomenon under analysis is the business strategy of Apple, with specific focus being product differentiation. The questions to be answered in this regard are how and why product differentiation is an appropriate business strategy for Apple Inc. In this phenomenon, the researcher has absolutely no control over the events being analyzed. Moreover, Apple’s events are real-life situations. All these factors clearly show that the case study method is best suited for this analysis.

Other than these conditions, case studies are the most preferred research design whenever there is theoretical inadequacy in the area being studied. Indeed, not much has been contributed theoretically regarding business strategy, specifically product differentiation. Therefore, any study dwelling on this issue must contribute to the scholarly goal of theory building. In this sense, there is always a need for a fresh perspective, which becomes useful in more advanced levels of knowledge development. This makes this method suitable for descriptive, exploratory, and explanatory studies.

A particularly appropriate area of focus is international business research (Roberts 1995, p. 48). In this area, cross-cultural and cross-border perspectives are targeted in the data collection process. In this context, it is possible to adopt a longitudinal approach, such that a researcher can keep asking the right questions until the context threshold is achieved. Once this threshold is achieved, the researcher is able to make up for the inability to analyze the situation in its natural setting.

The best way of understanding the issue of context in relation to case studies is to offer various examples of past studies of this kind. One such example is that of case studies that were done to establish the relationship between industry-level and macro-environmental factors on the one hand and firm decision making on the other. In this example, the variables under analysis are clearly defined, making it easy for the researcher to maintain focus throughout the study. It also becomes easy for the researcher to address the phenomenon from many different points of view without losing focus.

Such consistency in focus was achieved by Kotabe (1990, p. 396) in his study on the relationship between product and process innovations in the context of global competition. In this study, Kotabe addressed the issue of various forms of international sourcing with regard to the process of innovation. Foreign multinational firms were selected to constitute the case study. Apart from the issue of consistency of theme and thesis, this study is relevant because the issue being studied (innovation) closely resembles the core components of Apple’s business strategy. Moreover, the issue of international sourcing is of great relevance in the contemporary environment of stiff global competition, particularly considering that Apple increasingly relies on international suppliers in the design of various product components.

The only major difference between Kotabe’s study and the present one is that in the former, the scope of the case study is much wider. Kotabe’s case entails an analysis of many foreign multinational firms while the present one focuses on just a single multinational company. In both studies, a single issue is highlighted and studied in greater detail. Moreover, a qualitative approach is used, whereby most of the analysis is done from a descriptive perspective. This is a typical trend in the design of case studies as a research methodology.

It is also possible to use the case study in a sector-wide empirical analysis (Utterback 1994, p. 49). This is exactly what Hortacsu (2003, p. 15) did in his study of the S&P 500 Index Funds, which highlighted, among other things, product differentiation. The study analyzed the relationship between the information frictions and differentiation of non-portfolio fund on the one hand and industry characteristics on the other.

Boyer (2002, p. 179) also did a case study that is compared to the present one. The case study addresses the ways in which e-services can be used at Sothebys.com to increase customization of services while at the same time improving the service delivery efficiency. The case study also helps in the analysis of benefits as well as challenges of e-services in the context of specific industries.

In literature, the case study method is considered a field-based method (Hamel 1994, p. 183). This is because of the way it facilitates the analysis of field conditions from a real-life perspective. This is in spite of claims that it lacks in objectivity (McCutcheon 1993, p. 246). This skepticism may stick around for a while even though this method appears to continue gaining relevance particularly in business-related disciplines. As stated previously, there is a lot of work to be done in areas of design, data analysis, and most importantly, philosophical rationale for this research methodology.

In McCutcheon’s (1993, p. 246), there is persistent reference to different case studies that illustrate arguments in favor of using this research methodology. In this reference McCutcheon uses research purpose as a criterion for the classification of different studies appearing in operations management journals. The main finding was that regardless of their research purposes, there was need for research to be carried out in a manner that guaranteed maximum reliability of measurement and validity of theory. Furthermore, the study went on to suggest some of the activities that should be undertaken to ensure objectivity and rigor in a study. In conclusion, McCutcheon argues that the case study method has all the qualities of a scientific research methodology.

In view of all these arguments, this study will employ a qualitative case study methodology. In this methodology, a descriptive approach will be used to explore the business strategy of product differentiation as used by Apple Inc. A wide variety of sources will be consulted for data just as it is the norm in case studies. This means that this phenomenon will be investigated from different perspectives. The main questions to be answered will be the ‘how’ and ‘why’ of product differentiation from the perspective of Apple Inc.

Chapter 4: Data and analysis

It is clear that it is expensive to undertake to develop a new product. It is even more expensive to differentiate a new product from that of a competitor, especially in a business environment such as the one in which Apple Inc operates. Yet the company has chosen product differentiation as a core business strategy of maximizing profits in the design, manufacture, and distribution of new computers, peripherals, and digital music solutions. This chapter addresses how and why Apple went about embarking on the business strategy of product differentiation. the aim is to highlight the business of embarking on aggressive product differentiation strategy.

To start with, at Apple, the product differentiation strategy comes with the launch of unique manufacturing processes. One of the revolutionary design decisions that the company has already undertaken is to start using a unibody aluminum enclosure for its MacBook. While explaining the rationale for the new design, the company’s business strategists stated that previous portable computers were made using discrete components, each of which added significantly to the weight, size, and many opportunities for failure. It is interesting that the strategists did not talk about cost implications. This is because there are more far-reaching implications surrounding product differentiation in relation to premium brand cost, and this will become clear in subsequent discussions. Discrete components tend to add significantly the cost of a notebook. After redesigning the Macbook, its unit marginal costs were reduced while the same price levels were maintained (Al-Rubaie 2010, p. 95). On this account alone, the business strategy made a lot of economic sense. The fact that the price levels were maintained is an indication that this was a strategic move.

Apple is known for having average margins that are higher than industry average, something that greatly enhances profitability (Tidd 1997, p. 196, Teece 2010, p. 172). There is a strong relationship between this trend and the decision to enhance product differentiation. In this product differentiation strategy, the company positions its brands as premium products that call for premium prices. This strategy enables the company to have price-making power and to promote barriers for new entrants into the premium product market. Incidentally, this also happens because of the intimate way in which the company’s history is entangled into the philosophy of product differentiation, particularly in the computer market (Neumeier 2001, p. 179). This philosophical legacy has been implanted in the other areas into which the company has decided to diversity.

Other than the MacBook example, there are many other instances of recent product differentiation efforts at Apple. One of them is the launch of digital lifestyle applications for the Mac OS X operating system, which is popularly referred to as the iLife suite. Makers of competing operating systems, such as Microsoft, are yet to make a component that can compete with iLife. This component comes with the ability to integrate the Mac operating system with the mobile application known as Mobile Me. This strategy is part of Apple’s integrated approach to hardware and software solutions.

Still on integration, the company has put in place the iSight camera and integrated it into the Mac portable computers as well as the iMac desktop. With this component in place, it is possible to undertake seamless integration with various Mac OS X applications. This aspect of differentiation is modeled on the creative idea of integrating personal computer systems with those of mobile devices. In Apple’s terminology, this integration takes place between Mac and Mobile Me. In this regard, a customer can synchronize across Apple Macs, devices, and even windows. For example, one can integrate iPhone with the Mac OS X in terms of feature sharing and interoperability.

From broader perspective, Apple’s product differentiation strategy is about premium brand positioning. Apple positions its products as premium brands that attract a premium price. The idea of a premium brand that is attached to a premium price is based on the notion of being different from competitors. However, this strategy has attracted criticism from customers, competitors, and even the press. Microsoft, Apple’s main competitor, uses the term ‘Apple tax’ in reference to the high prices that are charged just because one has chosen the Macintosh product.

On being different from competitors, Apple does not seem to be relenting any time soon. For many years, the company has been using the slogan ‘Think Different’ in its numerous marketing campaigns. This slogan has helped shape the way consumers perceive Apple as well as the representation of the internal activities of the company. Although this slogan was last used in 2002, the company’s business strategy continues to be aligned with its meaning. It has become an integral part of the company’s organizational culture. The result of this is that the resulting products are designed in such a way as to make them very easy to use and integrate across many platforms. In this regard, product differentiation occurs across the product range of the company. It is applied in the same way on iPod as in the iPhone and all their accessories and software.

A particularly important aspect of this strategy is the target customers. This company almost exclusively targets customers who are less price-sensitive. Products are differentiated with the customers’ needs in mind. The rationale for this approach is that there are some customers out there who will readily pay a premium price as long as the product is of high quality and is at the top of its class in terms of prestige and reputation.

At Apple, product differentiation is slightly more than a business strategy; it is part of the company’s culture. The company was founded on the ideals of doing things differently by being creative and innovative. In a way, this makes Apple seem to have been held hostage by its own heritage. For instance, any attempts to dismantle the product differentiation strategy would through all its internal activities into disarray. The saving grace in this case is that such a move would also entail lowering product prices in order to attract all customer segments, eroding premium brand image in the process. This is something that the company’s executives would never want to see happen.

Apple Inc appears to apply the trade-off approach in maintaining loyalty among customers in spite of offering the products at higher prices. In the example of Macintosh, the product line has always been modeled on premium positioning. Whenever a revision is made on a new Macintosh product, product features are improved. This improvement comes with an increase in price. Therefore, essentially, the product revision tends to come as a justification for a higher price.

In reference to the criticisms that have been lodged against Apple for failure to reduce Mac prices, it should be noted that the failure to act has to do with strategic business considerations. In this case, the company prefers to differentiate products and target only those customers who are willing to pay the high price instead of targeting customers of different categories, each with specific price sensitivity. Moreover, once prices have been reduced, it would be difficult to reverse this trend. Therefore, it would be easier to emphasize on quality and ask customers to pay for it than to reduce prices, misalign internal operations, and at the same time heap financial pressure on the company because of unrelenting expectations of quality among customers. Moreover, such a move would make Apple lose its position of distinction in quality standards by embracing a strategy that all the other computer and mobile device manufacturers are pursuing.

It is interesting that even after the radical organizational shift that was undertaken by the company in 1997, the business strategy of product differentiation was not abandoned. This indicates how intricately the strategy has become intertwined into the company’s internal structure. After 1997, the company shifted attention from computers by producing iPod, a smart digital music player. Later on Apple designed and produced the iPhone, a smartphone. This was followed by the recent launch of the iPad, a revolutionary tablet computer. In each of these innovations, quality has been at the forefront. For instance, iPod revolutionized the music listening experience in the digital era while iPhone was the first smartphone, and the first mobile phone to have a touch-screen. Today, the iPad is leading the way in the integration of computers and mobile devices.

Apple Inc. has been keen in not just executing the business strategy but also protecting the unique position that facilitates its execution. An analysis of the company’s mode operations shows that there is an active, continuous pursuit of protectionist measures. First, by diversifying into the mobile communications and digital music market, the company makes it more difficult for competitors to assume company’s position or to imitate the strategy. Secondly, the company is endowed with financial resources. At one time in 2011, Apple’s cash balance surpassed the operating cash balance of the US federal government (Mittan 2011, p. 11). When a significant proportion of these resources are channeled towards product differentiation, it becomes nearly impossible for competitors to reposition themselves in response to subsequent market dynamics. This makes Apple to appear to be operating in a quasi-monopolistic manner, in a higher-level business league.

However, competitors have been working hard to try and push their products towards the premium status. They have been endeavoring to do without alienating any of the existing customers through price changes. This scenario poses a major threat to Apple’s business strategy. In the meantime, Apple’s business strategists count on two variables that work against these competitors: cost and time. It has taken Apple decades to build its brand image for it to be what it is today. The brand image is build around the spectacular history of the company. All other competitors have had their business models and brand image built around other concepts. In terms cost, they fail to match, or worse still, surpass Apple’s war chest, which at times surpasses the cash reserves of the US federal government.

Therefore, no competitor is going to be able to outsmart Apple’s brand image overnight, even if one considers the impact of the company’s co-founder, charismatic leader, and mentor, Steve Jobs. Such an undertaking would require the competitor to dedicate a lot of time to design, marketing, and laying down a distribution network. The cost implications and elaborateness of issues such as advertising campaigns and rebranding would make the process a long and protracted one, perhaps lasting several years. In the globalized marketplace of today, this does not seem like a feasible undertaking.

However, the risk of new entrants tends to vary depending on the product under analysis. For instance, the highest risk appears to exist in the music service and player business. In the area of music players, the biggest threat is large, established companies that have specialized in consumer electronics. Examples here include Toshiba and Sony. In music service, online companies such as Microsoft and Yahoo command tremendous influence on global online music experience. In this area, the markets are highly attractive and barriers to entry are low. Moreover, the concept of brand image does not quite apply in the music business, particularly in online settings. Indeed, without any accompanying hardware, it becomes extremely difficult for Apple to differentiate the music services.

Apple’s product differentiation efforts in the mobile communications sector is are faced with a significant risk of competitors. The company’s experience in mobile communication is traceable only to the introduction of the iPhone as recently as 2007. This indicates a lack of heritage in brand image, hence the need for further differentiation. It would be interesting to see the sort of direction the next smart mobile device will take. Many people look up to Apple to lead the way in this respect, although it would not be surprising if a new, little-known company rose to position of prominent with a revolutionary gadget. As Apple’s strategists ponder over the next move for the mobile communications sector, they must be concerned about the likelihood of being surpassed by competitors.

The iPhone industry is highly competitive, as there are many other smartphones, some of which have at one time being more attractive to the consumer market segment. An good example here is the Blackberry, a smartphone designed and marketed by Research In Motion (RIM) a Canadian company. RIM managed to differentiate its smartphone by making it the ultimate mobile communications tool for business. The company also managed to create a huge, loyal, global following that by far rivaled that of Apple’s own iPhone.

Moreover, apart from the wealth of experience of competitors in the mobile communications sector, price sensitivity is stronger in the market than in the case of laptops and personal computers (Gemser 2001, p. 31). Moreover, in this market, rivalry is much fiercer. For many years Motorola has been the market leader. There is also a key challenge mainly because of the aggressive pricing strategies that competitors use. Other factors that are crucial in determining the actual level of risk include frequent introductions of new products, frequent changes in technologies and product designs, and a fast pace in the adoption of new innovations by competing companies.

In this realm, the top executives at Apple Inc. are no sure that no new entrants are going to alter the mobile communications market. The example of RIM is enough to demonstrate the ability by new entrants to challenge Apple’s stronghold and contribute to the existing rivalry. Moreover, the fact that both the iPhone and Blackberry were successful ventures may trigger other innovators into attempting to commercialize the innovative ideas they may have already developed. Moreover, the dynamics of network-related agreements translate into unpredictability in the market. For instance, although Apple has entered into an exclusive agreement to use the AT&T network, this does not prevent this network provider from entering into potentially destructive agreements with competitors. If such a thing were to happen, it would put a large dent on Apple’s product differentiation efforts.

The issue of experience in the mobile communications sector is also playing out in the area of television, which Apple is trying to enter through Apple TV. This market has its own complications, considering the many segments that have to be explored, including video downloads, and mobile media. This situation poses many management challenges, and this should be a cause of concern especially in the absence of Steve Jobs. These challenges, if not addressed in the right manner, may lead to the loss of the company’s competitive edge. In the film distribution business, there are many platforms and numerous competitive market segments. Some customers are used to receiving downloads through mail while others are used to rental and subscription offers. Other options include manufacturing-on-demand and set-top box options.

The position of Apple Inc. in this area may continue to be weakened if experienced competitors enter into powerful partnerships. All that these competitors would require is sufficient financial resources to pursue their joint innovative efforts. Such a scenario presented itself when the five top global movie studios entered into a partnership, forming Movielink. Currently, Movielink continues to operate as a subsidiary of Blockbuster. With the necessary experience, Apple’s competitors are highly to outsmart the company in issues such as protection of content rights. On this very issue, the chances of success of Apple TV will be limited unless the business strategy used facilitates the maximization of value of each release as well as the achievement of all distribution objectives.

If the successor of Steve Jobs is able to borrow on his control abilities to maximally exploit Apple’s relative power in the contemporary music industry, the company may succeed in building resistance to film producers who have persistently been maintaining content control. In a way, the company may be able to take on competitors such as NBC (National Broadcasting Company) and Amazon-TiVo. Recently, these two companies entered into a contract in efforts to maintain a stronghold in the film and television industry. This is an indication of the level of independent-mindedness that exists in this industry. This independence is a likely to cause long-term obstacles to Apple’s product differentiation strategy if proper mitigation efforts are not made.

It is rather disappointing that Apple has not yet been making any significant reference to the experience gained in the relatively successful iPod/iTunes business model with a view to apply it in the television and film industry. This organizational failure has contributed to a scenario where even new market participant such as Vudu are posing too much of a business threat to Apple TV. Furthermore, this goes a long way to reveal the high level of dynamism that exists in the television and film market. Moreover, with regard to Apple TV, the company is yet to choose one market segment and make it the basis of an aggressive product differentiation strategy. The main factors that could be put into consideration include delivery of immediacy, offerings on video-on-demand, broad access, affordability, direct delivery, selection, and viewing devices. Whichever the competitive edge, Apple must enter into business relationships with content providers in order to achieve a competitive edge.

Chapter 5: Conclusions

It is clear that Apple’s business strategy has largely been successful. However, there are many obstacles that should be expected on the way as the company prepares to diversify into areas of business that are being impacted heavily by the combined factors of globalization and technological developments. Product differentiation is an excellent business strategy, and this is clearly evident if one considers the extent to which it has enabled Apple maintain a premium-brand position and price-making power in the design, manufacture, and sale of laptops, personal computers, peripherals, software solutions, and mobile communications devices. This strategy has also enabled the company integrate hardware and software solutions, and in the process winning many loyal customers, particularly the less sensitive ones.

The business strategy of differentiation has largely entailed adding new features in all product revisions while increasing the price of the product in the process. This is clearly evident in the case of the Mac and the iPhone. Apple has also seized the opportunity of the lack of premium brands in the computer and mobile device business. It is on this basis, the company has embarked on a product differentiation strategy, which incidentally is culturally intertwined into the company’s corporate history. Indeed, some of the main reasons for product differentiation at Apple include the company’s internal activities, organizational culture, market dynamics, and the need to establish a competitive edge.

Nevertheless, like any other company operating in today’s globalized marketplace, Apple faces some critical barriers in the pursuit of the business strategy of product differentiation. One of these barriers is criticism from customers, media, and competitors because of high prices. Another barrier is the tendency by some competing companies to push their products to the premium-brand category without necessarily alienating the existing customers. Lastly, the company lacks experience in many areas relating to mobile communications, such that one cannot rule a situation where the iPhone will be overtaken by a competitor’s product as the most preferred premium-level product. A similar challenge exists in the Apple TV market, where there many independent-minded, more experienced competitors pose a major business threat. In these areas, it may take the company some time before complete product differentiation has been accomplished.

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