apple case
differentiation strategy
- A differentiation strategy is the set of activities that a firm performs to create benefits (embodied in products or services) that customers perceive as distinctively valuable to them—compared to benefits from rivals—and are therefore willing to pay a price premium for the distinctiveness.
What are the key resources used to create, deliver, and monetize the benefits?
- Integrated and proprietary hardware and operating system - Vertically integrated backward into designing its own CPU chips - Crowdsources apps for its iPhones - Streaming digital content directly to users - Vertically integrated forwards into building and running its own retail distribution stores - Building and usage of brand equity to create perceived benefits for customers and more - Licensing intellectual property to others for a fee - Outsources manufacturing of its products to low-cost but high-quality producing countries - Producing products in high volumes enables Apple to also lower its costs through economies of scale and scope
How does Apple create and deliver these benefits to customers?
Research and development Manufacturing Marketing and branding Distribution of physical products Distribution of digital content Licensing
How does Apple create and deliver these benefits to customers? Licensing
This includes the licensing of its patents and its other intellectual properties to other companies. Helps to protect its intellectual property from infringement. Key activities include: - Getting Google to pay $9B in 2018 and $12B in 2019 to remain the default search engine on Safari.
What are Apple's key resources?
- Silicon Valley location - Strong brand equity - Superior industrial design knowhow (clever, innovative, appealing chassis design, packaging, and even the Apple Retail Stores - Intellectual Property: Apple's patents, trademarks, look and feel of software, proprietary software, etc. - Intellectual Property: Apple's patents, trademarks, look and feel of software, proprietary software, etc. - The ecosystem of Apple products - The ecosystem of complements (apps, music, videos, etc.) - App Store: Where app developers load their apps so people can download the apps they want - Retail stores - Financial Resources: As of 2020, Apple's cash reserves were $192.8 billion.
How does Apple create and deliver these benefits to customers? Distribution of digital content
Activities include selling music, movies, and apps through its iTunes and App Store platforms. Key activities include. Streaming digital content directly to users Generation of significant revenue streams and, importantly, increasing the number of people who buy iPhones
How does Apple create and deliver these benefits to customers? Manufacturing
Apple designs its products in-house but relies on contract manufacturers (e.g., Foxconn) to produce them. Its manufacturing activities include choosing suppliers, and coordinating production processes in different locations. Key manufacturing activities include: - Apple outsources manufacturing of its products to low-cost but high quality-producing countries. For example: iPhones outsourced to Foxconn. - Producing these products in high volumes enables Apple to also lower its costs through economies of scale and scope
How does Apple create and deliver these benefits to customers? R&D
Apple invests heavily in R&D to create and deliver products and services that customers perceive as distinctly valuable to them. It's R&D activities are in hardware, software (iOS, etc.), services, and artificial intelligence. Key R&D activities include: - Apple keeps its hardware and operating system (OS) proprietary and integrated. Contrast with Google which makes its Android operating system (OS) free for phone manufacturers. Microsoft does not make PC hardware but sells its Windows operating system to PC makers - Vertically integrated backwards into designing its own CPU chips ("Jobs bought two ARM microprocessor companies between 2008 and 2010") - Crowdsources apps for its iPhones, enabling firm to obtain crucial apps and also revenues, $50B in 2019 alone.
What is the firm's strategy?
Apple pursues a differentiation strategy. However, Apple got to where it is today by innovating and moving on to another innovation before someone else had innovated: Apple I, Apple II, MacIntosh, iPod, iMacs, iPhone, and iPad. Without major innovations, it might be difficult to sustain these types of profits and market valuations
How does Apple create and deliver these benefits to customers? Marketing and branding
Apple's marketing activities are focused on developing compelling advertising campaigns to promote the perceived elegance of its designs, exceptional user experience, and superior quality. Key marketing and branding activities include: - Brand building - Usage of brand to create perceived benefits for customer and more
Why does high rate of technological innovation and obsolescence make it difficult to sustain a differentiation strategy?
Because competitors will take advantage of technological progress to come out with new products and render Apple products obsolete. Therefore Apple has to be careful. The same fast-growing technological innovations that Steve Jobs used to make incumbents obsolete can make Apple obsolete if Apple does keep running.
What are the key benefits that Apple offers customers?
Ease of use and customer loyalty Powerful brand --> Don't want to be seen with another product Elegant design, superior quality, and exceptional user experience Complete solutions: - For computers, complete desktop solutions that included hardware, software, and peripherals (printers) that allowed customers to simply "plug and play." ---> "The majority of IBM and compatible users 'put up' with their machines, but Apple's customers 'love' their Macs" - In smartphones, the iPhone has everything that you need in the palm of your hand to communicate, so Apple claims. Ecosystem of Apple products that use the same OS and that work together seamlessly Ecosystem of complements (apps, music, videos, etc.) Network effects from large installed base of customers?
How does Apple monetize these benefits?
Monetization is the conversion of customer benefits into money or other legal tender. Product sales: - iPhone: Sales of iPhones were $142.381B in 2019 (Exhibit 1b). Started out by having a revenue-sharing agreement with phone carriers (eg. AT&T), but later renegotiated to have carriers subsidize phones - iPad: Sales of iPads were $21.280B in 2029 - Mac: Mac sales were $25.740B in 2019 - Wearables, Home, and Accessories were $24.482B in 2019. These include Apple Watch, AirPods, and HomePod, other wearables. These products complement Apple's ecosystem and are designed to work seamlessly with iPhone, iPad, and Mac. Services (Were $46.291B in 2019): - App Store sales: Apple collects 30% of sales of apps by app developers - Licensing: Google paid Apple $9B in 2018 and $12B in 2019 to remain the default search engine on Safari. Many services generate some revenues but are designed to get more people to buy more iPhones at premium prices: - Apple music, AppleCare, iCloud and iTunes, Apple Pay, Apple TV+, Apple Arcade, Apple News+, Privacy-as-service, Self-driving cars
How does Apple create and deliver these benefits to customers? Distribution of physical products
This is about getting information to and from consumers, and delivering the finished product to them. Key physical distribution activities include: - Vertically integrated forwards into building and running its own retail distribution stores (Apple Stores). Apple Store's sales of over $5,500 per square foot in 2020 far surpassed those of any other retailer
Is Apple's strategy difficult to imitate?
This strategy is very difficult to imitate because of the firm's powerful brand equity that is constantly reinforced, large installed base of customers, ecosystem of products, ecosystem of complements, ability to integrate hardware and operating systems, design know-how, etc.
