Apple Inc. is an American transnational enterprise, which headquartered in Cupertino, designed in California; consumer electronics , computer software, and personal computers are the primary service of this company. Its best-known products include the iPod , the iPhone (now available for sale in over 90 countries), and the iPad.( CrunchBase,2012)

The Competitive Environment of Apple Inc.

In this report, a Porter Five Force will be analysis in details of threat of new competition threat of substitute products or services, bargaining power of customers, bargaining power of suppliers intensity of competitive rivalry, as shown in Figure 1:

Threat of new entrant

High Fixed Costs

According to Apple Inc.’s 2012 annual report, there was an increase in spending on the field of research and development, the number of employees has also increased by about 12,000 people, advertising expenditures of $1 billion. (2012) That is why Apple’s products are highly priced while made significant market share. Not just any emerging or smaller enterprises have the ability to invest so much money in product development, sales and advertising.

Business Network

The biggest reason behind the success of Apple products, perhaps, is the Apple commercial ecological system of the construction effort. For example, some of the fashion brands, including Louis Vuitton, Gucci, Swarovsky, and Chanel, already have cooperation with Apple Inc. for iPod case and accessories. Apple Inc. locate the parts production in Asia, due to Asian high population and low labor, so to a large extent reduce the cost of products.

Distinctive image

Marketer Marc Gobe.,, author of Emotional Branding and principal of d/g worldwide , said Apple’s brand is the key to its survival.(Kahney,2012) Apple has always projected a human touch — from the charisma of Steve Jobs to the notion that its products are sold for a love of technology. In terms of product design and advertising, Apple Inc. has shown a unique visual and verbal vocabulary.

Bargaining Powers of Suppliers

The 1st category like, memory, disks, drivers and chips, these kinds of products have to be standard, so the quality is essential for Apple. As there are many companies such as Samsung and Intel, that bargaining powers is low. In the other hand, the 2nd category like microprocessors and the operating systems are few like Intel and Microsoft, these products providing by the companies are standardized and had no substitute, for the suppliers it is profitable, to Apple, the bargaining powers is high.(Apple,2010)

Bargaining Powers of Buyers

The Mac and iPhone are unique-designed, also definite brand are very commerciogenic to consumers. Otherwise many suppliers like HP, Dell, Sony and HTC could provide the similar functioning product with lower price, consumers are able to choose different products according to their own purchasing power.( Huzefa,2009)

Competitive Rivalry

In terms of operating system platform, Microsoft would be the biggest competitor of Apple Inc. For personal computers, the existing rivalry in the market would be Dell, HP, IBM, Sony, and other computer manufacturers.(Nicole,2010) Iphone is one of the most successful products produced for Apple Inc, iPhone 4 created a sales miracle in Smartphone history in 2010(Apple Inc. Annual report,2010) However in the autumn of 2012, Samsung Galaxy S3 surpassed a version of iPhone5 in global sales(CBC News, Nov 8, 2012); the Samsung, which similarly producing large screen and excellent operating systems become the biggest enemy of Apple Inc. in the Smartphone market.

Key Resources and Capabilities

The CEO of Apple Inc, Steve Jobs, could be the Apple’s most important resources. The Apple’s designers, programmers, and engineers leverage their unique ability to design and develop its own operating system, hardware, and application software, which are the key capabilities for Apple. (Masi,2009)

Steve Jobs was a precious resource for Apple Inc. His unique thought patterns and approach to business established Apple as an industry leader in the past a dozen years; Under his guidance¼Œ Apple became the world’s most valuable company with a market value of $350 billion.(The Wall Street Journal,6 Oct 2011)

Apple’s innovative design teams leading by Jonathan Ive, senior vice president of industrial design, functioned of extraordinary industrial design capability. This combination makes Apple outstanding among competitors and hard to imitate. Apple’s most important capability is those unique software which runs on their owned developed hardware. A combination of the design teams, software development teams, and hardware engineers employed by Apple determine this capability. (Masi,2009)

There are two main types of competitive advantage. Cost advantage and differentiation advantage. Apple pursues a differentiation advantage strategy. Apple has always been a very innovative computer manufacturer. Its total control of software and hardware, marketing, digital asset management, retail strategy and product differentiation consist its competitive advantages. (Anti Essays,2012) Apple is organised as one company and manages products, not categories. Apple has one R&D base that is common across most products, and looks at one P&L. All Apple products and accessories are compatible with each other, which bring consumers a brand new experience.( Ragnetti,2011)

A recent article(Mootee,2011) states that “Apple has built a truly sustainable competitive advantage and is definitely worth the current valuation premium.” Apple’s R & D achievements in apps, OS and devices, are hard to beat. Apple has a very strong defense force in the field of product/services/experiences integrated supporting, it is difficult to break it. Apple truly sustainable competitive advantage is built on the basis of the horizontal & vertical integration strategy, horizontal integration strategy across devices and channels, while vertical integration strategy Including software and hardware retail.

SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats. Using SWOT analysis could provide a good framework for reviewing Apple’s strategy, position and direction.

Strengths:

iTunes is a diversified source of revenue, it has both its own brand player-iPod; also isaccessible in other major operating systems (such as windows).

Apple is particularly good at produce straight software(e.g.Mac OS) for their hardware(e.g. iPhone and Mac)

Apple products are rich in friendly humanistic design design, simple and practical.

Apple provides original services and products, so people are always interested in Apple.

Weaknesses:

Microsoft is Apple’s biggest competitor in the operating system market, Microsoft can be run on other mainstream brand PC, while Apple system usage is much lower than Microsoft.

Apple product life cycle is extremely short, which means that it must maintain the production and development of new products and services at all times.

In recent years, almost every new generation of Apple products have flaws (e.g. iPhone 4 signal problem iPhone 5 map issues)

Opportunities:

The laptop market is highly growing, therefore producing more types to meet the increasing demand

Increasing bonds and partnerships with other companies

Growing population leads more and more potential users of Apple products.

Threats

In the electronic market, Apple is in the very high level competition

Apple products are higher than the average price of the products with similar function in the market.

Window’s 7 developed by Microsoft, gaining more and more market this content share.

iPod users download pirated music from the music website, reducing revenue of iTunes

PEST Analysis

The PEST can analyze the status quo of Apple Inc., identifying potential influences of the political, economic, social and technological sectors; and helps to predict the future trends of the Apple.

Political Influences:

Apple now has 372 stores, 123 outside the U.S.(Lunden,2012), The war and the instability of international relations have a negative impact on the international business; these events are all force majeure, the company is difficult to predict and control. Apple lower operating costs by outsourced its product manufacturing. Many of these third-party manufactures are located in China,(Chan, JAN 22, 2012) the multiple political events could interrupt these manufacturing or logistics in China. For consumers and retailers, this event is detrimental to the company’s good credit and image.

Economic Influences:

The world general economic situation was beyond optimism, The rising grain and oil prices lead to inflation, so that the decline in the purchasing power of consumers. People suffer from economic pressure, as a result they had to extend the use of their existing mobile phone and computer. This will affect Apple’s retail business.

In modern society, more and more companies will be more considering health safety and environmental protection when developing their business. Certain products involving defects may lead to health problems. According to reports, the improper use of iPod may result in injury to the hearing.( The Econommic Times,2011)

Social Influences:

Technology plays an important role in the globalization, Apple has been in walking in the forefront of technology, because of its quality and design. In addition, over the last decade, iTunes developped by Apple have always been the biggest virtual media store in the music industry(Harris,2011); currently pirated music might be a great threat, fortunately this was related to the punishment of law and government. Overall, Apple is not just technology products, but also a modern individual’s lifestyle. From a social perspective, Apple produced a positive impact.

Technological Influences

Mobile phones and computers accounted for a large share in the market of technological electronic products competition is fierce in these areas. Technology developing rapidly, while tproduct life cycles are getting shorter.In Research and Product Development, Apple is the market leader, regarding innovative products. Competitors always immediately following the footsteps of Apple, however, Apple is always ahead, because innovation is the core of the Apple brand.

Suggestions base on the SWOT and PEST analysis for Apple Inc.

iTunes Store eBook distribution: Apple should add eBook with reasonable price that can be used to any media player through iTunes store, compatible with all Apple devices.

Design innovation: Rational allocation of internal resources, and put more emphasis on the design of software and hardware, to create higher value. Jonathan Ive( senior vice president of industrial design at Apple Inc) believed that “consumer is not a penny-pinching moron nor a brute philistine.” (Waugh, 20 March,2011) Apple’s persuasive financials show that consumer is a perfectionist, and they are willing to pay much to buy the products that flatter by their pristine beauty and sparkly intelligence.

Quality checks in OEM factories: Despite working closely with OEM partners, Apple should focus maintain its enterprise image of producing high-quality products. Implementing random quality check sampling can identify problems in product defects at early stage, preventing the latter part of the product recall, to reduce losses. that Apple’s OEM partners stay honest with their own quality control processes. Apple should be optimized software under Windows system, improve their compatibility in ordinary PC environment; launch different priceing Mac models at the same time, add more different consumer groups.

Expansion of Apple stores: The Time(2012) states that “Apple’s customer service and stores represent the gold standard for selling and supporting tech gadgets.” Apple offer great customer service and in-store experiences that “easy to use” and “kind things simple” these two key figures make Apple ahead of the competition for at least two years.

Create a differentiation strategy: As the PC market is a huge cake, product diversification expands consumer choice. For example, give two same configuration computer in the market, if ignored branding factors, consumers will tend to be cost-effective party, while causing a downward pressure on prices, which weaken the company’s profitability

Develop close relationships with suppliers: in PC manufacturing, only a small number of specific suppliers produce key components, therefore, it is very important to maintain close contact with these suppliers. This is not only to find low-cost suppliers, more critical, to maintain a long-term cooperation and commercial relations. This will not only mitigate the power of suppliers, but also to stabilize the price of key components.

Emphasize value for consumer dollar: Apple brand equity intimate with products are higher quality and use higher quality components, that is why Apple having overly high prices compared with competitors, however iProducts are popular on-line. Therefore, Apple should continue to maintain its high-quality products and service standards, and maintain innovation that enables the company to sustain the pricing that is at a premium to its competitors.

Focus on differentiated lifestyle branding: Apple’s brand identity embodies a kind of differentiated lifestyle, apple’s production in differentiated products appear more attractive compare with the alternatives, thereby reducing the threat of substitutes. With Porter’s five forces reduce; apple might see economic value from a product differentiation strategy. Apple must maintain proper management of innovation dilemmas, and keep five with leadership roles in the process of innovation to, to proceed with product differentiation strategies (MBA Knowledge,2011)

Continue iPhone Myth: Since 2007, apple introduced a revolutionary mobile phone – iphone (to 2012 has launched the fifth generation iPhone), it has achieved great success in the smartphone market. However, the current good situation can not guarantee Apple can still continue create miracles in the next few years. Apple must make a change: make major changes in the design, (eg like Samsung Galaxy S3 as portable plastic shell); introduced greater scalability operating system, make software available in App store; developing new and cheaper materials to lower the cost of accessories; when launch new products, pricing with same or even lower price.

Potential strategic responses for iPhone

In the smartphone and tablet market, the arising of Samsung is the biggest threat to Apple. Samsung had to develop their own hardware (eg screen, CPU, RAM), and Samsung transform a price strategy into a value strategy; Samsung’s design emphasizes individuality, and closed connect with fashion. Samsung develop the mobile phones with various functions at different price for different target costumers. the biggest competitor of iPhone 5 is Galaxy S3, then reference to the site of Carphone Warehouse, iphone 5 contract handset (free phone) 39 pounds monthly, while the Galaxy S3 just 26 pounds, also Note 2 is 5 pounds cheaper each month than iPhone 5, which launch almost the same time with iPhone 5, however Note 2 is high-end in the hardware configuration and screen.

This report will outline the two feasibility strategic responses for Samsung, due to Samsung has a significant price advantage compared to Apple, therefore Apple should adopt a strategy of product differentiation, to compete with Samsung.

Independent research and development, reduce cost and dependence on Intel. Samsung take efforts on memory chips, panels, logic chip and wafer foundry, which have gradually control the entire electronic industrial chain. In the area of memory chips, Samsung occupy 40.8% of the global share, while the flash segment is 37.4%, sales profit first. (VentureData,24 Aug,2012) Such a result has caused a tremendous pressure on Apple’s market share and retail sales. Apple should learn a lesson from the long-running patent lawsuit with Samsung (Bora,August 25 2012),abandon reliance on Intel chips, using Apple’s own chip design, invest unused cash in R & D department of chip. Today, the shipments of iPhone and iPad are in the 10 million level, so Apple can self-designed chip. (Sina Tech, 2012-11-12) Moreover, the larger shipments are, the lower share of R & D costs are. Of course, Apple can still maintain cooperation with Intel, taking a customized strategy, which means chip designed by Apple, Intel is responsible for production.

Change existing stand-alone strategy, multi-line layout. Samsung Galaxy S series updated their smartphone every year, that this company launch dozens Galaxy series smartphone while Apple only released 6 iPhone. Today, a very strong competitor like Samsung, who takes a slightly larger move, will attack Apple.(MadTech. 13 Nov,2012) Apple should shorten product update cycle, release more the one iPhone version within a year, and different pricing to target consumer groups with different purchasing power. Nowadays, mainstream trend of Smartphone market include: large-size screen, multi-core processors, operating system with high compatibility and battery with long standby time. Apple should also launched new iPhones with a bigger screen (iphone 5 just lengthened the screen), and configure a quad-core processor, according to circumstances, that innovative but following the mainstream market at the same time. iPhone system compatibility is to narrowl for the user without jailbreak, they are not able change set the system’s display and function according to their preferences. According to the data from UMeng, a firm that gathers statistics for Chinese mobile developers, 34.6% or one of every three iPhones in China is jailbroken.( Tan,3 May 2011) compared to Samsung who equipped with Android system, a large number of powerful software can not run on iOS devices, Apple should modify its iOS, so as to give users greater choice in the use of the software.