I. Industry Environment The industry environment is the set of factors that directly influences a firm and its competitive actions and competitive responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors (Hit, Ireland, and Hoskisson, p. 40). In this case, Apple is just one of the many competitors in a saturated markets offering both hardware and software for personal computer systems.
Intense players such as, HP/Compaq, Dell, Gateway, and Microsoft all take substantial market share in the industries Apple is competing with. Today in the computer hardware industry there is intense competition and the only way to gain market share is to take customers away from the competition; Dell, Gateway, and HP/ Compaq. Dell runs a direct-to-customer business which offers consumers lower prices, increased customization, and outstanding customer support. Gateway offers a service similar to Dell, but complements it with brick and mortar locations where customers can interact with sales representatives. HP/Compaq plans to focus on innovation in order to keep the large customer base they have already attained.
In the software sector, the competitor base is rather different where one company, Microsoft, has substantial market share on PC based machines. However Apple offers its own operating system on its own Apple computers, the software is not compatible with PCs. It can be said the market share in the software industry is directly proportional to how many hardware units it sells, and also how well it can get consumers to upgrade to their new OS X operating system. Apple with 6 percent in the desktop market and 10 portable has been fighting a losing battle for market share in the education market to companies like Dell. Apple is hoping to find new markets to enter with its i Tunes, i Pod, and i Mac products. II.
Porter's Five Forces Model 1. Threat of New Entrants: In the software industry barriers for entry are extremely high; Microsoft and Apple hold access to the distribution channels and the large capital requirements needed to enter. Also as new entrants try to enter the market both companies would retaliate in order to hold on to their market share. In the hardware industry newer firms can revolutionize a industry causing others to catch up. When Dell began offering computer online reduce their cost while also offering value to the customer while companies such as HP/Compaq are unable to offer the same product and service. 2.
Bargaining Power of Suppliers: In the computer industry there are plenty of suppliers that offer complementary products. Therefore it does not have to increase its prices in order to recover for cost increases. Apples also offers its' own software that comes standard with every computer. 3. Bargaining Power of Buyers: Recently Apple has received tremendous growth when it introduced the Apple i-Pod, a new product that allowed users to download music to a portable player. Being first to market allowed Apple to enjoy a temporary competitive advantage allowing no bargaining power of consumers until other competitors began offering similar products.
Apple also offers unique products in its software and hardware designs that offer different goods than Microsoft or Dell. 4. Threat of Product Substitutes: In today's society being first to market is one of the best ways to obtain market share and it forces competitors to catch up while you continue to innovate. Apple was successful at doing this with the i-Pod, where competitors are just finally catching up although they might be too late. The computer industry was completely saturated with substitute products Apple found a new industry to compete in which allowed it to diversify itself. 5.
Intensity of Rivalry among Competitors: There is intense rivalry with its competitors; forcing them to differentiate their products anyway they can to gain a strategic advantage. Apple was losing market share to Microsoft driven PC based machines, so it launched a switch campaign to show users how easy it was to switch over to Apple. It was also losing market share in the education sector to Dell, so it created it e-series of computers. Finally when it offered its' i-Pod competitive firms such as Dell began offering their own substitute products. III. Internal Capabilities Capabilities are the firms' capacity to deploy resources that have been purposely integrated to achieve a desired end state (Hit, Ireland, and Hoskisson, p.
81). In the case for Apple the firm's unique marketing abilities, engineering skills, creativity, and R&D. Apple's distinctive core competencies lie within their ability to provide quality products through their vertically integrated inbound activities. Not only are Apple's finished goods differentiated by quality, they are innovative and cutting edge. Innovation is driven by consistent investment in R&D. Apple has also shown competencies in building brand reputation and generating buzz for its products.
Their marketing campaigns have been successful and remain a value added activity. One of Apple's key capabilities comes from co-founders, Steve Jobs, who has effectively manage to steer Apple into a new market and gain new market share. Apple has effectively integrated its supply chain and distribution channels with the installation of SAP R/3. It now offers built to order machines that can compete with Dell. Apple also has become a key innovator with products such as the i-Mac and i-Pod each has effectively boosted Apples sales. Apple also has brand recognition as being one of the oldest hardware manufacturers.
Software and hardware integration allowed Apple products to be more "versatile," reliable, and superior in performance, and it allow Apple to have complete control over the products. IV. SWOTStrengthso Ease of use - products are still regarded as the easiest to use in the marketplace. o Established in the personal computer market, the oldest hardware manufacturer.
o Control over the product. Apple is unusual in the computer market today in that it is a manufacturer both of the computers themselves and also the operating systems which they run. This enables Apple to deliver a tightly coupled, integrated product. o Innovation, Apple was the first large personal computer company and the first company to develop a graphical based computer. Offers new i-Pod and music serviceWeaknesseso The ease of use of the machines has led to an image problem, with some business people regarding the Macintosh as a toy.
o Prediction of demand and the ability to deliver enough machines to satisfy demand in a short period of time. o Not IBM compatibleOpportunitieso Creating new software markets and selling the hardware into these markets. o Education sector. In both higher education and schooling the Macintosh ease of use and low maintenance costs are attractive. o Online entertainment; i-Tunes, i-Photos, and i-DVDThreatso Microsoft has recently launched Windows XP, a modern high performance operating system. This addresses most of the weaknesses of the DOS/Windows combination.
Coupled with Intel's new Pentium processors and the support already expressed by major developers for XP it appears that Apple OS X will have a new operating system to contend with. o Dell, Sony, i-River has all begun to offer product similar to the i-Pod which many stumble Apples growth in that market. Assumption so Competitors are unlikely to launch any new products this year. Microsoft has just launched a new operating system and will spend its efforts on supporting that product. Competitors are now offering similar products and services to compete with i-Pod. V.
Summary The two major forces that have affected market share loss are the misconception that Apple computers are incompatible with available software for Window machines and buying one will result in losses in functionality. This can be overcome with aggressive marketing campaigns in which Apple has demonstrated value added competencies. The second major factor contributing to Apple loss in market share is the unmatched price erosion from the PC market. Apple has just finally been able to narrow the gap after fixing its operational inefficiencies. If Apple can narrow this price gap and overcome the negative software perception, it will undoubtedly regain market share. I argue that during this time, management should have realized that the company's true value was bringing to the market a highly differentiated product based on form, features, design, and quality.
Although this has taken some time, I believe Apple has finally arrived at this conclusion and its strategy today incorporates the company's core competencies and value added benefits. Apple adopted a competitive strategy that vertically integrates these complementary products that include the i Pod, digital cameras, PDA's, and wireless devices. In an effort to gain market share, Apple is pursuing several growth strategies. Obvious to this pursuit is international market expansion into the explosive Asian and European markets.
Domestically, Apple is focusing on three variables concerning its growth strategy. Firstly, it must convert nonusers before they choose a competitor. Secondly, they need to enter new markets such as server based and mainframe computers. Thirdly, they are trying to win their competitors' customer base through aggressive advertising and promotion. Works Cited Hitt M. , Ireland D.
, Hoskisson R. (2005). Strategic Management: Competitiveness and Globalization, Ohio: Thomson.