Main MD report Essay

1) Executive Summary

 

Apple Computer Inc. is an American Computer Technology Company. Apple played a major role in the introduction of the Personal Computer (PC) in 1976, which then started the PC revolution. Being the innovator that Apple is, it introduced the first graphical user interface (GUI) to the commercial personal computer.

The release of new Apple computers using the Intel processor has allowed the company to enter into an entire new realm of needed compatibility with its desktop and portable computers. The Intel chip allows the new machines to run the Windows Operating System as well as OS X on the same drive. This development in technology now encourages users to switch to the very desirable Macintosh community without completely sacrificing the often thought needs of the PC. In addition, Apple’s unmatchable success with its iPod MP3 Player/ iPod Nano and iTunes Music Store has left many companies struggling to keep up with the new wave of giving consumers the simplicity they desire in technology.

We used several Marketing Tools such as PESTDN that analyzes the Macro-Environment of the Computer Industry. SWOT Analysis probes into the Key Strengths and Weaknesses within the Company, and the Opportunities and Threats facing the Industry. Market Segmentations and Marketing Mix are also being looked into. Porter’s Value Chain and 5 Forces Model are executed to gain an In- Depth Analysis of its Current Position. BCG Growth Matrix is applied to assess its Business Units and gauge their profitability.  These would gain a much needed insight of Apple Company.

The Financial Analysis will serve some recommendations that Apple Company can undertake to stay Competitive and Stay at the Top in this Dynamic Industry.

2) PESTDN Analysis

Political / Legal Factors

A French law obligate Apple computer to make its iPod Player and iTunes Online Store consistent with rival offerings.
The Chinese government told HongFuJin Precision Industry, a supplier for Apple Computer’s iPod, to allow more than 200,000 workers to establish a Trade Union. China did not allow Independent Labour Unions, but the Chinese government had been pressuring Foreign-Invested Companies to allow State-Sanctioned Labour Unions.
Jon Loch Johansen cracked Apple’s iTunes Copyright Restrictions, which stopped iPod users from playing downloaded music from Music Stores other than iTunes. The Copyright Protection also stopped music that had been used on an iPod from being played on a competitive Music Player.
Production and Marketing of products in certain States and Countries may subject the Company to Environmental and other Regulations. Such Laws and Regulations had recently been passed in several Jurisdictions in which Apple operates, including various European Union Member States, Japan and California. These laws could have a material adverse effect on Apple.
The European Commission had notified Apple that it was being investigated relating to the iTunes Music Store in the European Union (EU). Apple was charging more for Online Music in the U.K. than in EuroZone countries.
 

Economic Factors

Apple Computer announced that 4th-Quarter (Ending September 30, 2006) profits rose 27% to $546 million, and revenues rose 32% to $4.84 billion when compared with 2005 results.
Mac sales were up 37% to $2.21 billion. This was the eighth straight quarter that Mac sales were over a million units. Notebooks Sales were up 63% and accounted for 61% of Computer Sales. Notebook Sales outpaced the revenues for Desktop Systems including the Mac. Macs comprised 46% of Apple’s revenues, whereas iPods and music sold through iTunes accounted for 42%.
The new iPod Nano and the Video Player with Increased Storage Capacity were released in September 2006. These new products assisted in driving sales up 35.3% to 8.73 million units. Apple had a 75.6% Market Share of Music Portable Players in the United States, SunDisk had 9.7% and Creative Technology was third with 4.3%
Apple Computer sold 41,385,000 iPods, which was more than double the 2005 sales. The Quarterly Growth Rates for the iPods ranged from a low of 32% to an extremely high Growth Rate of 624.2%
Net sales of iPods raised $3.2 billion during 2005 compared to 2004. Unit sales of iPods totalled 22.5 million in 2005, which represented an increase of 400% from the 4.4 million iPod units sold in 2004.
·         Apple had a Joint Venture with Nike to produce a Nike shoe with a Sensor, and a Wireless Receiver on the iPod Nano.

 

·         Apple went into a Joint Venture with Coke, offering codes for 70 million free iTunes to German and U.K. Coke Customers.

 

·         Apple partnered with General Motors, Ford Motor and Mazda Motor to make iPods compatible with 2007 Model Car Stereo System.

 

Socio-Cultural Factors

Apple’s Management announced that iTunes Latino would offer Spanish Language and bilingual shows in cooperation with NBC Universal’s Telemundo.
Apple announced in November 2006, that it had made an Agreement with Six Airlines, Air France, Continental, Delta, Emirates, KLM and United, to install iPod connections in their In-Flight Entertainment Systems.
When iPod was introduced, it targeted the youth of the society but there is now no Age Barrier for iPod products. The gadget that was earlier just a Luxurious Item has turned into a basic component in people’s lives.
Technological

Apple introduced a redesigned iMac using a 64-bit Processor. The iMac had a Hemispherical Base and a Flat-Panel All-Digital Display. iMac failed to live up to its sales expectations.
The iPod Portable Digital Audio Player was introduced, and Apple opened its own iTunes Music Store to provide downloaded music to iPod users.
Apple relies on Sony for the battery, Wolfson for the Codec-DAC, Toshiba for the Diskdrive, and Texas Instruments for Firewire.
Demographics

The Demographic Environment itself is affected by changes in the Mix of Age Groups in the population. Apple mainly targets the Younger, Technology-Savvy and Educated population. If the population becomes older, this will lead to rising demand for Products and Services consumed by older people and a similar fall in demand for Products consumed by younger people.

 

The Demographic Environment is also affected by the Level of Education in a Country, since changes in Education have an impact on the Wealth of a Nation and the Tastes of its People.

 

 

Natural Factors

Most components essential to Apple’s business were generally available from multiple sources.
Certain Key Components (Microprocessors & ASIC) were currently obtained by Apple from single or limited sources.
Some Other Key Components, while currently available to Apple, were at times subject to Industry-Wide Availability Constraints and Pricing Pressures.
Apple used some components that were not common to the rest of the PCs and Consumer Electronics Industries, and new products introduced by Apple often capitalize on current components.
This is important to marketers as the source of many raw materials and fluctuation in supply can affect the prices paid for purchases. Furthermore, the increasing cost of some raw materials has meant that recycling of some materials has become economic.
Due to Developments in Technology, it is possible for manufacturers and consumers to cause less damage to the environment.
 

3) Market Segmentation and Positioning

Apple has positioned itself to a certain type of customer, wealthy people, innovators, people with good jobs, good lifestyle, etc. If Apple targets the poor, the trendy guys will stop buying Apple. This would hurt the brand more than the increasing sales because of lower prices, and in good times, where everybody has more money. Apple would have the problem that they cannot raise prices, because everybody expects a cheap Apple.

On the other hand, there are no really substitution products, there are no similar machines than we can buy to have the same user experience, PCs are the same competition to Apple as Ford is to Mercedes. PCs are the everyday workhorse for the masses; Apple is the elegance for the minority.

Geographics

Apple managed its business primarily on a geographic basis. The company reportable operating segments comprises of the America, Europe, Japan and Retail. The Retail segment currently operates Apple-owned retailed stores in the U.S., Canada, Japan and the U.K. The other operating segments include Asia-Pacific (Australia & Asia). Each reportable geographic operating segment provided similar Hardware and Software products and similar services.

The largest geographic marketplace for Apple is the United States as it accounted for 60% of the company’s net sales in 2005.

 

 

 

Geographic Data: Apple Computer Inc.

Net Sales

Income Operation

 

 

Depreciation, Amortization and Accretion

 

 

Segment Assets

 

 

These four Bar Charts show Net Sales, Operating Income, Depreciation, Amortization and Accretion and Segment Assets in different Geographic Locations during Years 2003 to 2005. Americas is the highest in Net Sales, Operating Income and Segment Assets and rapidly rose within Three Years. By 2005, the Net Sales of Americas jumped to over 60%. During the same period, there was a Decline in Net Sales in Japan from 2003 to 2004. The lowest improving is Other Segments. The others are all slowly increasing between 2003 to 2005.

 

Market Segmentation

One way in which a business will analyze the possible market for its product to consider the market segments at which the product may be targeted. Markets are segmented because of the variety in certain markets. Market segmentation is used to target a certain segment of the public and make them want to buy their product (Doyle and Stern 2006). Apple use carefully segmented markets to differentiate the different types of marketing to attract each segment to purchase their product. This is evident in the way they target their younger segment by selling cut-price apple machines to schools in the USA.

Target Markets

Educational Market
Apple has focused on the use of technology in education for the past 25 years. They are committed to delivering tools to help educators teach and students learn.

The effective integration of technology into classroom instruction can result in higher levels of student achievement, especially when used to support collaboration, information access, and the expression and representation of student thought and ideas.

Apple created solutions that enable new modes of curriculum delivery, better ways of conducting research, and opportunities for professional development of faculty, students and staff. They had designed a range of products and services to help schools maximize their investments in the needs for education customers. (iBook & eMac)

Creative Professional Market
This market constitutes one of Apple’s most important markets for both Hardware and Software products. This market was also important to many third-party developers who provide Macintosh-compatible Hardware and Software solutions. Creative customers utilized the company’s products for a variety of creative activities including digital video and film production and editing (Digital Video, Film Special Effects & Graphic Design).

Apple also offers various Software solutions to meet the needs of its creative customers. Apple’s Operating System, Mac OS X, incorporated powerful graphics and audio technologies and features developer tools to optimize system and application performance when running powerful creative solutions provided by Apple or third-party developers.

Benefits

Apple uses a differentiation strategy that tells the company development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Because of the product’s unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily.

4) Porter Five Forces

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Rivalry Among Existing Competitors

Competition in MP3 Player and the PC Industry is fairly intense. Apple targets USA and Western Europe. Meanwhile, iRiver and Aigo dominates Korean and China Market respectively. As the competition heats up in the Portable Audio Player Market, vendors will strive to differentiate products by offering a wide range of Price Points, Memory Capacities and Features.

With a Mixed Consumer Outlook and a Subdued Initial Reception to Microsoft Vista, the rivalry between competitors Dell, HP and Lenovo heightens in the USA. With Dell’s Direct Business Model, PCs can be sold at a lower price, resulting Apple iMac Desktop and iBook Notebook less attractive. Besides Value Chain and Business Model Differentiation,

Dell and HP have been reported to perform Aggressive Restructuring and Cost Cutting Plans to address declining Operating Margin. Amazon is a threat because of its plan to start on demand online services to purchase music.

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Threat Of New Entrants

It is not an easy path for a Potential Entrant to enter into this Arena due to the Enormous Costs of Product Development and Marketing. The Companies for Potential Threat would include Companies like Microsoft, Dell, HP and Lenovo and other MP3 related Companies would include Creative, iRiver and Samsung. Companies like Amazon can threaten because of its plan to start on Demand Online Services to purchase music.

SpiralFrog, a new Online Music Service, signed an agreement with EMI Music Publishing to authorize SpiralFrog to use EMI’s Music Catalog for Legal Downloading in the United States. SpiralFrog had also signed a similar deal with Universal Music Group.

Real Networks, Inc., the owner of the RealPlayer Music Store, introduced a new product, Harmony. Harmony would also let Customers download music from the RealPlayer Online Store and allow them to use it on any Portable Music Player.

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Threat Of Substitute Products Or Services

MP3 Player Substitutes such as CD Players and Cell Phones with MP3 Player Capabilities post as a Moderate Threat. Although these devices do not offer the identical experience of iPod (Small ; Light-Weight iPod Shuffle Targeting Sports Enthusiasts), these devices are legitimate substitutes. The illegitimate substitute which posts a Higher Threat to Digital Music Industry is the illegal Peer-to-Peer music download.

The main concern for Apple iPod is the Threat of Substitute Products Manufactured by Creative, Samsung, iRiver and Microsoft’s MP3 player, Zune. Apple needs to retain its Peak Position by providing Better Products to Consumers in terms of Quality and Services. Other Close Substitutes for Apple Corporation could include Game Consoles like Xbox and PS2.

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Bargaining Power Of Suppliers

Majority of the Components used in the MP3 Players have very little Supplier Bargaining Power because commodities require Low Switching Cost and Price is the only Determining Success Factor.

In the PC industry, the recent Shift Migrating Apple’s own IBM-Manufactured Processor to Intel Processor increases the Suppliers’ Bargaining Power. This is because the migration requires PC architecture Redesign (High Switching Cost). Besides that, Intel has High Supplier Bargaining Power in a duopoly Intel-AMD Processor Market.

IBM, Intel, Samsung are among the few suppliers of Processors and Computer Memory that can be a Threat to Apple Corporation. Whereas Disney, Pixar, Sony are among the Suppliers of Television and Movies that can be a threat to Apple.

Bargaining Power Of Buyers

The final environmental threat in the Five Forces Framework is the Buyers. Consumers sharing music using Peer-to-Peer Networks without paying for music are a threat to the firm. The behaviour and attitude of the Consumers can also be considered as a threat to Apple Corporation because Consumers may reduce spending on PCs or non-essential products like Music Players. Some Consumers continuing to use previous models of iPods and Macs rather than upgrading to new versions can also be considered as the threat to the Company.

In summary, the MP3 Player Competitive Environment is currently ideal from a Profit-Making Standpoint. This is because iPod currently enjoys Low to Moderate Bargaining Power from both Buyer and Supplier. This allows Apple to squeeze the Suppliers for Lower Price to yield a Higher Profit Margin. Although Rivalry is at Boiling Point, MP3 Players Total-Available-Market is comparatively huge for Apple to continuously grow its MP3 Player Business.

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5) Porter’s Value Chain

Producing a MP3 player requires a collaborative effort from various component providers, assemblers, and music providers. Most vendors except Samsung focus on core expertise and leave manufacturing and distribution to external parties. Apple applies the same value chain approach in its iPod product line. Their engineering team focuses on Graphics-User-Interface (GUI) and chasis designs while the marketing team implements effective marketing strategies; leaving non-core activities to subcontractors. Hence, Backward-integration is rare in Apple.

An average of 5.5 billion songs is downloaded from iTunes per day. This is possible because Apple established a complete value chain for MP3 download from Record Labels, Publishers and Digital Music Retailers to enable legal music download for customers.

Over the years, Apple made several smart business decisions to strengthen its PC Value Chain. Apple bought NEXT in 1996 to increase its company Core Operating System Design. THE other right move which Apple took was to build an alliance with Intel; migrating proprietary Apple IBM-manufactured processors to Intel processors. This provided leading edge technology, thus encourage Mac and iBook sales.

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Porter Internal Value Chain

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PROFIT MARGIN

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Primary Activities

Inbound Logistics

The components which are essential to the company’s business are available from multiple sources. Some of the key components (MicroProcessors ; ASICs) are obtainable by the company from single or limited sources.

The rest of the key components are currently available to the company from multiple sources and they are subjected to industry-wide availability constraints and pricing pressures.

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Operations

The company designs, manufactures and markets Personal Computers and related software, services, peripherals and networking solutions. The examples of products and services include IPOD Digital Music Players, XServe G5 Servers and the Macintosh line of Desktops and Notebook Computers.

Outbound Logistics

Apple basically sells its products worldwide via different channels. It is distributed through its Online Stores, its own Retail Stores, its Direct Sales Force, and Third-Party Wholesalers, Resellers, and Value-Added Resellers. The company has expanded and improved its distribution capabilities as Apple had opened 124 stores domestically and internationally as of September 24, 2005.

It has also significantly expanded the number of distribution points for the iPod product line. By operating its own stores and building them in desirable high traffic locations, the company was then able to better control the customer retail experience and attract new customers. The stores were designed to simplify and enhance the presentation and marketing of its products and services.

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Marketing ; Sales

Apple believes that sales for its innovative and differentiated products were enhanced by knowledgeable salespersons who can convey the value of the Hardware, Software and demonstrate the unique digital lifestyle solution of the Windows Platform and Network. The company also believes that providing a high quality sales and after-sales support experience was critical to attracting and retaining customers. Apple is the only company in the PC Industry that controls the design and development of the entire Personal Computer – From the Hardware and Operating System to sophisticated application.

Service

It has the ability to provide replacement parts or different technical support for its products. Apple created a good relationship with their customers by delivering technically superior products (iPods vs. other MP3 players, Macs vs. PCs, etc.), and aggressively pursuing hardware and software updates. Apple feels that providing direct contact with its targeted customers is an efficient way to demonstrate the advantage of its Macintosh Computer and other products over those of its competitors.

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Supporting Activities

Procurement

Apple has to maintain good relationships with their suppliers. They are the first Computer Software Company to negotiate with RIAA to allow consumers to legally download music online.

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Technology Development

In order to remain competitive, Apple believes that increased investment in Research ; Development (R;D) was necessary to maintain and extend its position in the markets where it competes.

Its R;D spending emphasize on delivering timely updates and enhancements to its existing line of products and services. Apple leveraged its ability through the design and development of its own Operating System, Hardware and many Software Applications and Technologies, to bring to its customers around the world compelling new products and solutions with superior Ease-of-Use, Seamless Integration and Innovative Industrial Design.

Human Resource Management

Apple had 14,800 full-time employees and 2,200 temporary employees and contractors. Their staffs are well-trained, as the company believes that knowledgeable salesperson who can convey the value of the company’s products and services, can create a high quality buying experience. This is critical in attracting and retaining customers.

Firm Infrastructure

Apple was committed to bringing the best Personal Computing and Music Experience to its consumers (Students, Educators ; Creative Professional), through its innovation, products and services. The company’s strategy also included expanding its distribution network to effectively reach more of its target customers and provide them a high quality sales and after-sales support experience.

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6) SWOT Analysis

Strength

Apple Company is a global company in the marketing and manufacturing of PCs and related Software, Service, Net-Working solutions. Apple provides solution that fit different types of lifestyles, preferences and needs of people around the world. Apple’s in-house engineers developed their own computer Software and Hardware. The design was distinct, stylish, and different from any other PC design in the market. By producing their own Software, Apple is able to offer and integrated suite of products.

Apple Company got a rich history in PC manufacturing industry and has phenomenal brand recognition around the world (Carlton 1998). This will continue to drive product sales. The company’s brand recognition helps to reduce barriers into new markets and differentiate itself among competitors. In 1976, Apple created the PC revolution with powerful yet Easy-to-Use machines for Desktops and entered the PC market.  Through innovation, strategic acquisition and an ability to quickly meet market developments and emerging technologies, Apple Company has grown from a start-up to a Company with over than $3.2 Billion in sales.

Apple Company’s success are driven by a talented, progressive team of more than 14,800 Full-Time employees and 2,200 temporary employees and contractors who see challenges and opportunities in new and different ways. Apple has many ongoing training programs for their employees to improve their communication skill and learn about customers’ responses and buying habits. This will help their employees to handle the ever changing world and adopt the styles and habits for changing customers, preferences and taste.

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Apple has a very loyal customer base and many are repeat buyers. This allows the Company to market additional products to those customers such as the iPod line of product. Apple is known for introducing, revolutionary products that would be compatible with customers existing PCs.

Weakness

Apple has faced problems of supply, price and integration issues. There have been times where the demand of Apple products such as the recently launched iPod Nano completely outstripped supply and as a result, consumers were made to wait. Apple products have been known to be priced relatively higher than other competitive brands. This could be a potential turn-off for customers not used to spending more than necessary.

Apple products has a lack of integration with non-Apple products, people could be left unsure as to whether an Apple product would suit them.

There is pressure on Apple to increase the price of its Music Download File, from the music industry itself. Many of these companies make more money from iTunes than from their original CD sales. Apple has sold about 22 million iPod Digital Music Players and more than 500 million songs though its iTunes Music Store. It accounts for 82% of all legally downloaded music in the US. The company is resolute, but if it gives in to the music producers, it may be perceived as a commercial weakness.

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Opportunities

Apple is known for its innovative thinking. They have developed a product line that is both functional and attractive. Their product line has recently expanded to another level. Their iPods will soon be able to communicate with specially designed Nike running shoes where you could receive data such as calories burned and distance ran. This project can benefit both Companies and boost the demand for iPods. Apple’s iPod line will have a clear advantage over all the other MP3 players in the market. In addition to Apple’s integration with other products, many cars models from all major Automakers have equipped their new models with iPod Connectivity.

Apple has also changed its chip supplier from IBM to Intel. This change would make Apple more compatible with other systems. It enables Apple to run the Windows Operating System, which is more integratable.

Apple has now switched its focus to the Home Consumer Market with development of products such as iPod, iTunes, iDVD, iPhoto, and iMovie. The growth now seems to be aimed at the Horizontal Market. Apple’s focus will be to improve its market share in the PC Market while still expanding the Home Consumer Market that they are controlling with these products.

Threats

Apple faces pressure from its competitors such as Dell and HP. Dell’s low budget computers have given them the largest Market Share in PCs.  According to the available data, Dell has the largest Market Share in U.S., whereas HP has largest Market Share worldwide. (Though Apple’s Stock Price is higher than both Dell and HP, the difference in Market Share and Revenues are far behind the 2 Companies).

The Substitution Effect is the second threat for the Computer Industry. Technology changes at such a rapid rate, the iPods and iMacs can be possibly replaced by other devices. This change would not result in the collapse of the Company but it would certainly change the role that Apple has in the industry. It will be forced to develop new products to keep this from happening.

If another company comes out with a better product, Apple would lose its Market Share to that company.

The Exchange Rates also can be a threat to Apple Company. Since Apple has a huge International Market, their Revenues from foreign countries are directly related to its Exchange Rates. The depreciation of US Dollars could cause a decrease in their Net Receivables. On the contrary, an appreciation in US Dollars would increase Net Receivables but decrease Future Demand since Price would increase.

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7) Marketing Objectives

Short Term (Within ONE Year)

Although it seems that Apple is not in a position where its favourable Future Outlook is threatened, it is best that Apple works on its Weaknesses so as to further increase its Sales and Decrease the possibility of losing its customers to its Competitors. Apple is known for its High Quality Products, which puts them into a Competitive Advantage.  However, some components of its products such as the iPod Batteries and the iPod Nano screens are of lesser quality. Apple must increase its R;D efforts to really minimize the number of products with faulty components.  Thus, customers would not be lost and Customer Loyalty would be maintained.

Mid Term (Within 2-3 Years)

Apple can take advantage of its opportunities by continuing its Well-Developed Marketing Plan and further develop more High Quality Products. Hence, the threat of Product Substitution and High Levels of Competition would be decreased (Carlton 1998).

Long Term (Within 3-5 Years)

Apple can definitely expect a prosperous future especially in the near future. Over the past five years, Net Sales have been steadily increasing, with almost a 150% increase from 2004 to 2005.  Correspondingly, Net Earnings have been increasing as well. Apple owns over 80% of the Market Share with its iPod product. With such favourable trends, it is reasonable to assume that Apple will continue to increase in its Sales, Earnings, and Market Share just as long as it keeps Developing and Acquiring New Strengths.

For example, Apple has established its name as one of the Leading, Innovative Forces in the Computer Industry that has a much Diversified, High Quality Products that appeal to many markets, competitors will find it very difficult to compete against Apple.

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8) Boston Consulting Group Growth Matrix

Current Products ; Services Apple Provides

1)      Macintosh Line of Notebooks ; Desktop Computers (iMac ; MacBook)

2)      iPod Digital Music Player (iPod, iPod Nano)

3)      Mac OS X Operating System

4)      G5 Server, XServe RAID Storage Products

5)      Portfolio of Professional ; Consumer Software Applications

6)      iTunes Music Store

7)      Portfolio of Peripherals That Support ; Enhance Macintosh ; iPod Product Lines

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Cash Cows hold a large share of a Low-Growth Market. The Market Shares tend to be stabilised in such markets. It is quite unlikely to encounter Drastic Changes in its Market Share. Cash Cows generate alot of excess cash since they have a High Market Share. They generate more cash than they need to sustain their Market Position. An Example of a Cash Cow is (6).

Question Marks are the opposite of Cash Cows. They have a Small Share of a Desirable High-Growth Market. Their chances of gaining Market Share are typically good since the Market has not yet settled. Competitors are not entrenched in High-Share Positions. They need a great deal of Cash to gain Market Share but generate little Cash as they only possess a Small Share of the Market. The Products and Services here may use Excess Funds. Examples of a Question Mark are (4), (5) and (7).

Stars have a High Share of a High-Growth Market. Stars generate Cash because of their High Market Share, but require just as much Cash as they earn to fend off Companies trying to gain a share in their High Growth Market. Apple has to fight hard to maintain its position. An Example of a Star is (2).

Dogs occupy the Least Desirable Position in the Growth Share Matrix. Their current position is Poor and their Future Outlook is bleak. Dogs have Low Share of Low-Growth Market. They generate Little Cash, but similarly, they require Little Cash to maintain their Position. Examples of a Dog are (1) and (3).

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According to the BCG, Gaining or Building Market Share is an Offensive or Attack Strategy and it is an Expensive and Risky Proposition. It is easiest when a Market is new and Competitors have not had a chance to establish an Impenetrable Position. Products or Service (4), (5) and (7) can seek to undertake this Strategy.

Lowering Prices
Increasing Promotion
New Product Introduction
Holding or Maintaining Market Share is a Defensive Strategy that seeks to Protect what has already been gained. It is a Strategy used by Companies that has Dominant Position in the Market and wishes to defend it. The Holding Share is targeted at Cash Cows or Stars [(2) and (6)], as they are more likely to be attacked by Competitors seeking Share Gains.

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Harvesting is more of a compromise between Holding and Divesting. The Business can still Generate Income, but the Future Prospects for the Business does not justify Reinvestment. The Company (Apple) has to consider the Future Prospects for the Product or Service [(1), (2) and (3)], and will the Product or Service face Imminent or Slow Decline.

Cut Marketing Expenditure
Reduce Research and Development
Maintain Consumer Support
Divesting is the Ultimate Choice in a Lack of Commitment to a Product or Service. The Company will seek to Sell or Abandon the Business. It is a Strategy primarily targeted towards Dogs [(1) and (3)]. A Question Mark must also gain Market Share to become a Star or risk being drop by the Company [(4), (5) and (7)]. Apple, being a Financially Strong Company, should continue battling for Market Shares and not to Divest their Dogs or their Weakest Question Marks.

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9) The Marketing Mix

The Marketing Mix includes Price, Promotion, Product and Place. These can only be right if the business has conducted Market Research and has analysed and interpreted the results correctly to produce a successful product. In recent years there has been a demand for a fifth P, Packaging this has been done because that businesses think that packaging is just as important as the other Ps (Kotler and Armstrong 2006).

Price

Price is how you expensive the product sold at. Apple generally prices its products above competitors like Microsoft. Apple employs a skimming strategy for their new products pricing them much higher than other products. This can only be maintained if Apple has a Product Leadership. The first iPod was priced extremely high nearly $400 before Apple had any competition. As the competition increases, many Companies have rival products and the price of Apple products was halved. Apple has lost its price leadership and has to lower it because of competition.

Place

Place or distribution is how and where a product is sold. Apple aims to sell its products in Upmarket Stores for a Premium Price. Apple has a Large Distribution Route.

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Product

Product is a very important because that is what you are selling to the consumer and the will not buy it if they didn’t want it. The size, shape, feel, colour, (Packaging) and Brand Image all come under Product. Apple has focused the most on this part of the Marketing Mix. The product is the Deciding Factor for the Consumer. Apple had clearly identified this fact and had responded by creating a product with the Best Possible Spec and Design, this is the main reason why Apple has gained such a Competitive Advantage at such speed.

Promotion

Promotion is all about letting Customers and more importantly Potential Customers know that your product exists, with the hope that this will encourage Sales of your product. Without promotion, even if its Product and Place is the best possible, it could be possible that the product would still be a disaster.

The reasons that people advertise include Increasing Awareness, to Increase Sales, to Increase Market Share, to Inform People and to Improve the Company Image. All of these are desirable to firms and they will pay lots of money to get them.

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10) Financial Analysis

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The Balance Sheet Statements and Income Analysis show that at the end of September 2005, Apple reported revenues of US$13,931M, an increase of 68.3% over the Preceding Year.

Net Income also increased by 383.7% in 2005 to US$1335M. Additionally, Total Assets increased by 43.49% to US$11,551M. Total Liabilities increased by 37.36% to US$4,085M, but Total Debt remained at US$0. Equity increased by 47.08% to US$7,466M.

Apple Computer also can identify possible Financial Strengths and Weakness by using both Statements to Demonstrate the Ratios.

Liquidity Ratios
2005
2004
Current Ratio
2.96
2.63
Quick Ratio
2.91
2.59
Inventory to Net Working
0.024
0.023
Cash Ratio
1.002
1.12
Liquidity Ratios attempt to measure a Company’s ability to pay off its Short-Term Debt Obligations by comparing Company’s assets that can be easily converted to Cash and its Short-Term Liabilities.

Current Ratio is the ability to meet Short-Term Debt Obligations. The higher the Current Ratio, the more Liquidity the Company is. Current Assets are two or three times the Current Liabilities, Apple has a Short-Term Financials to meet Short-Term Obligations.

The Quick Ratio is another way of determining a Company’s Liquidity and Financial Strength. Apple’s Quick Ratio is greater than one which represents its ability to pay its Current Liabilities almost exclusively with Cash and Cash Equivalents.

Current Cash Ratio is in a low state which might be a result of Slower Cash Collection as the Accounts Receivable and Sales increase.

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Profitability Ratios
2005
2004
Net Profit Margin
9.58
3.33
Gross Profit Margin
29
27
Return on Investment
11.6
3.3
Return on Equity
17.8
5.2
The Profit Margin Ratios will show us the Operating Performance Profitability of the Company. It shows Apple’s ability to Generate Earnings as compared to its Expenses and Other Relevant Costs.

Net Profit Margin Ratio will show how much money is left After Taxes and uses its Net Income instead of Total Sales.  Apple Computer has seen an increase which is very healthy.

The Return on Investment Ratios show that Apple has performed and has shown Growth in Majority of the categories mentioned above.

Return on Equity shows that Shareholders are getting Higher Returns. There was more return on the Book Value of Shareholders’ Total Investment in the Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Activity Ratios
2005
2004
Inventory Turnover
84.4
81.9
Days of Inventory
6.09
6.12
Net Working Capital Turnover
1.86
1.63
Asset Turnover
1.42
1.11
Fixed Asset Turnover Ratio
11.13
8.32
Activity Ratios help a Company to evaluate the Abilities to Effectively and Efficiently manage its Operations and Assets. Inventory Turnover Ratio indicates that more times that Average Inventory of Finished Goods was Turnover.

Days of Inventory shows the same number of day’s worth of Inventory that a Company has on hand. It also shows Most Utilization of All Company’s Asset, Most Utilization of Company’s Fixed Assets and Most Days of each on hand.

Leverage Ratios
2005
2004
Debt to Asset Ratio
1.207
1.280
Debt to Equity Ratio
1.867
2.03
L/T Debt to Capital Structure
0.08
0.06
Times Interest Earned
11
7.22
Current Liabilities to Equity
46.66
52.22
Leverage Ratios indicate that more Borrowed Funds have been used to Finance the Company’s Assets and more Ability of the Company to meet its Annual Interest Cost. The Percentage for Net Working Capital Turnover shows a Poor use of Working Capital to generate Sales Revenue. Asset Turnover Ratios tell us that there is a drop in Sales Revenue aroused from the Total Asset utilized.

Debt to Asset Ratio is performing well for the past years due to the increase in Assets Acquired. Debt to Equity Ratio reflects good news for the Shareholders as their Financial Risk is significantly reduced as their injections of investment are not subjected to High Risk compared to before whereby they might not get a single cent if the Company was to be Liquidated.

Current Liabilities to Equity shows a reduction. It refers to more Injected Funds can be properly used for Future Expansion or Projects instead of Paying Off Current Liabilities.

Due to a significant increase in Investment in Affiliates and Other Assets, it caused an improportion drop in Operating Revenue.

 

 

 

 

 

 

 

11) Strategies

Different Strategic Alliance Strategy

Along with Joint Ventures built with other Competitors in the field of R&D, Apple should give more Licensing Agreements to other Companies so that it could widen its Supply Chain and its Product Lines.

•          It would Increase the Awareness of Apple’s standards in the Computer Market, which would generate more demand for Apple’s Computers.

•          In times when Apple is experiencing high demand, it could rely on the Production Capacity of its Different Suppliers or it could enter into Subcontracting Agreements with its Product Partners to meet its demand.

•          It would increase the revenues of the Company and thereby its profitability because of royalties.

Cost Focus & Cost Leadership

•          Apple should maintain its Cost Focus Strategy via the Education Market Segment.

•          Apple should adopt a Cost Leadership Strategy to approach both its Home and Business Market Segments.

•          The Education Market is still narrow if we compare it to the other Market Segments and the Cost Focus has proven its efficiency while approaching this segment

•          Both the Business and the Home Markets are highly competitive due to the Price War ignited by different Computer Companies.

 

Allocate More Resources To Networking & Communication Product:

•          Apple should allocate more of its resources to the Networking Product Category, especially in terms of Research and Development.

•          It is the market that grows fastest and in which many needs are emerging.

Market Development

Asia & Europe.
Expand into the Asian Market over a Five-Year Period by building a Manufacturing Facility and HeadQuarters in Hong Kong and expanding Sales throughout Asia.
New Product Development

New Consumer Electronics Products.
Add more features to Current Products including new iPod, Shuffle, and Macintosh Enhancements and Power.
Recommended Strategy

Cost Focus and Cost Leadership

It is the best strategy because of its Long-Term Benefits and of its Immediate Competitiveness Efficiency. Since the Customer’s Needs started to be more similar among National Boundaries, there is an increasing need to Lower Costs and to Globalize Products. Then, Companies that positioned themselves as Cost Leadership will be better prepared to guarantee a Long-Term Survival in the Market.

 

12) Strategic Implementation

In order to have an Efficient Implementation of the Cost Leadership Strategy, Apple needs to adopt the following procedures:

Reduce Operating Costs Through Downsizing

ü  Proceeding to some layoffs would help the Company cut some unnecessary positions within the Company. This would allow the Company to make Significant Savings in its Operating Costs.

Reduce Budget Allocated To Research and Development

ü  Even if Research and Development is necessary for Computer Firms to remain competitive in the Market, Apple should reduce the Budget Allocated to this Department because Apple invests too much on it (Budget allocated is the Highest Amongst Competitors).

Hire Consulting Firm To Restructure Company

ü  Eliminating some Divisions and Adding Others.  Apple could add a Division specialized in the Internet and Mix the Marketing and Sales Department together.

Setting Standards Compatible With International Specifications

ü  This would help the Company to Increase its Competitiveness in the International Markets.

 

 

13) Recommendations

Apple can penetrate India and China Market with its matured CPU and iPod Product Lines. This Short to Mid-Term Revenue Source is intended to fuel Apple’s R&D in new Consumer Products (iPhone & Game Consoles). This is in line with Apple’s preferred business model to remain debt-free.

On the longer run, Apple can tap onto their Strength and Focus on Core Fundamentals in Product Development, Marketing Acumen and Operational Excellence. These strengths will create a Loyal User Community in the CPU and MP3 Player Segments. Apple’s Premier Brand should also serve as a vehicle to Lead Innovation Cycle ahead of Competitors, targeting Developed Countries like USA, Western Europe and Japan.

To ease User Experience in MP3 Players, Apple can incorporate Connectivity Features such as Wireless Technology. The different connectivity will ease users downloading music from iTunes through the Internet and transferring it to the iPod, thus boost both iPod Sales and iTunes music download.

Apple can expand its iTunes’ MP3 Distribution Value Chain; enabling Telecommunication (Verizon and AT&T) and Mobile Operators (Nokia & Motorola). The Complete Package of Product Design, User Friendliness and Effective Distribution Channel will make it very lucrative for Consumers to buy iPod and not other Competition MP3 Players, thus ensure Apple to continue its Leadership in MP3 Players.

 

 

In the Computer Industry, Apple should continue to invest money in the Development of Next Generation Operating System. Mac and iBook should be quoted at Market Price. To gain Additional Profit, Apple should formulate different levels on Licensing and Price Packages for Operating System MAC OS X. Apple should also consider other forms of Strategic Alliance or Joint Venture with other PC Manufacturers on a longer run. This will leverage on MAC OS X Success and Full Potential.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14) Conclusion

Apple must focus on several key aspects to continue to grow and succeed.  They must continue a stable commitment to Licensing, push for Economies of Scope between media and computers, and become a learning organization.

Apple apparently made a commitment to licensing.  Although it should continue, Apple may want to consider other forms of strategic alliances.  An equity strategic alliance may offer Apple the opportunity to obtain additional competencies.  An effective way for a company like Apple to accomplish this would be in the form of a joint venture.

Apple should continue pushing the new line of Media-Centric products.  Meanwhile, it should not lose focus on its computers.  Macintosh Computers were 39% of Apple’s sales in 2005. This very innovative company exploits its second-mover position.  In the future, they will need to continue innovating to expand the boundaries of both media and computers.

One persistent element of both competitive advantage and risk is Steve Jobs.  He is both synonymous with Apple’s success and has a large equity interest in Apple and Disney.  If he were to divest his leadership position, the reaction of both the market and consumers would be uncertain.  Given his position within the organization as well as the history of the company when he was gone, Apple must find a way to learn as an organization.  This will allow the company to withstand a departure by Jobs.

Based on the actions of the organization, we feel that the Mid-Term Performance of Apple will be strong.  This period allows Apple the time to overcome their challenges if they move swiftly.  For this reason, we feel that they will continue to succeed and will continue to outperform their peers.

15) Reference List

Bull, Richard. 2008. Financial Ratios: How To Use Financial Ratios To Maximise Value And Success For Your Business. Amsterdam: Elsevier.
Carlton, Jim. 1998. Apple: The Inside Story Of Intrigue, Egomania, And Business Blunders. New York: HarperBusiness.
Doyle, P., and P. Stern. 2006. Marketing Management And Strategy. New York: Financial Times Prentice Hall.
Kotler, P., and G. Armstrong. 2006. Principles Of Marketing. New Jersey: Pearson Prentice Hall.
Scarborough, M. E., and D. A. Scarborough. 2008. The Procrastinator’s Guide To Marketing: How To Get Off Your Butt And Develop Your Marketing Plan. Entrepreneur Press.
Winer, Russell S. 2007. Marketing Management. New Jersey: Pearson Prentice Hall.