Importance of customer-centered strategies for companies to achieve

Apple Incorporation Essay - part 2

Introduction

Today’s market is characterized by highly competitive organizations which are all vying for consumer’s loyalty (Samie and Kendall, 1992). Firms are faced with the challenge to maintain their own competitive edge to be able to survive and be successful. Strategies are carefully planned and executed to gain the ultimate goal of all: company growth. However, external factors are not the only elements which influence growth. Today most companies find that it impossible to create any kind of sustainable competitive advantage based on product alone. It is common knowledge that every one of the successful companies sought and found a precise understanding of how it could create a customer-centered competitive advantage.

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Along with the changing business world, customers change as well, becoming more demanding and knowledgeable than before (Palmer, 1995). In turn, company management had shifted their focus on their clients or customers so as to stay successfully in business. This transition meant that organizations have to completely reformulate their conventional business aims and purposes from being process-focused to customer-centered. Hence, in order to bring out exceptional customer services within the company operations, the management should employ fine-tuned organizational restructuring. Moreover, employing proactive customer commitment involves the consideration on culture and infrastructure (Lowenstein, 1997).

Organizations that capitalize on customers' active participation in organizational activities can gain competitive advantage through greater sales volume, enhanced operating efficiencies, positive word-of-mouth publicity, reduced marketing expenses, and enhanced customer loyalty (Lovelock ; Young, 1979; Reichheld ; Sasser, 1990). Rather than going after every potential source of revenue, companies eliminate useless assets that do not add value for customers’ satisfaction. Business organizations implement bureaucratic policies and procedures for the benefit of the staff, customers and the company in general. According to Bowers, Martin ; Luker (1990), if consumers somehow become better customers -- that is, more knowledgeable, participative, or productive -- the quality of the service experience will likely be enhanced for the customer and the organization.

INDUSTRY ANALYSIS

In analyzing the competitive strategies of Apple Inc., Porter’s five forces will be used (Porter, 1998):

Competitive rivalry: Very strong

The rivalry between Apple,Inc. and their competitors is considered to be the strongest and most important force in Porter’s model (Porter 1980). It represents the presence and number of companies competing in the Consumer Electronics industry for each other’s economic profits. The level of rivalry within the fast Consumer Electronics industry can be described as high. This is mainly due to the presence of several competing companies of similar sizes like IBM, Hewlett-Packard and Dell. Moreover, rivalry level increases because of product and service differentiation inadequacy. As IBM, Hewlett-Packard and Dell offer similar products like Apple Inc. (e.g. desktop computers, laptops, palm tops, mp3 players, mp4 players, pod etc), the level of competition is naturally increased. The companies operating within the industry are also very aggressive in making fresh moves so as to increase sales and market share because of the following factors: Domestic demand is growing slowly, Competitors often rely on price cuts to boost volume, and low switching costs for consumers.

Also read about Apple differentiation strategy

Threat of Entry: Relatively Weak

The threat on entrants is highly dependent on the presence of factors known as barriers of entry (Hamel and Pralahad, 1996). Basically, barriers to entry could increase or decrease the chances of Apple, Inc. offering products that could rival those produced by existing companies. Naturally, the threat on entrants will be low due to risks of decreased market share potential. There are several examples of barriers to entry. For the Consumer Electronics Products Industry where Apple, Inc is a member, the entrant factor can be considered as low due to a number of reasons: Economies of scale allow preservation of margins during price cuts, relatively unattractive market with slowing growth, competitors are working to build brand loyalty through new menus, increased efficiency, and improved service and existing competitors have accumulated expertise in marketing and efficiency

Competition from Substitutes: Very Strong

As mentioned, the Consumer Electronics Products Industry is very competitive; Apple Inc and its competitors are operating in a business environment where several major companies are producing and offering similar products or services (Thompson et al, 2005). In addition, the target markets of these companies are similar as well. The consumers then have several product options to choose from, making the level of substitutes high for this industry because buyers view the substitutes as satisfactory in terms of quality

Bargaining Power of Suppliers: Weak

Similar to buyer power, the power of the suppliers with Apple Inc is high as well (Owens et al, 1998). This is because supplier concentration for raw materials is low. Apple Inc can deal with other suppliers for its production. If the establishment is a multinational type, other suppliers will be very willing to supply goods to such company (Palmer, 1995). However, major electronics suppliers should also note that healthy relation with suppliers is as important as those with its customers. So as not to affect the quality of its products, it is imperative that the company refrain from changing one supplier to the next (Howard, 1999):

Bargaining Power of Buyers: Moderate to strong

According to the Apple Inc 10-k report, the bargaining power of customers establishes how much customers can compel demands on margins and volumes (Lowenstein, 1997). Customers normally have comparatively moderate to strong bargaining power in the electronics market. This stems from some important characteristics of the market: in particular because of the industry operates with high fixed costs, consumer tend to be price-sensitive, and consumers are well-informed about sellers’ products, prices, and costs

Value Chain Analysis

In order to better understand the activities leading to competitive advantage, it can begin with generic value chain. In order to evaluate the strengths and weaknesses of Apple Inc, the company uses the value chain, this allows them to improve on their performance (Karp and Schlessinger, 2002). As Porter (1998) described "value Chain", into primary activities (that create, transfer or support something of value) and support activities (that assist the primary activities by providing resources or infrastructure). Apple Inc understands the linkages between activities can lead to more optimal make-or-buy decision that can result in either a cost advantage or a differentiation advantage. (Owens et al, 1998). The objectives of Apple Inc in implementing the value chain are: first, the goal of an integrated supply chain is to enhance end-customer value. Second, the focus, at the same tie, still greatly remains on the cost-efficiency targets throughout the whole supply chain. Furthermore, the scope, obviously, is not restricted to a single value chain in one company, but also covers a number of value chains within a value system that makes up the inter-organizational supply chain for the end-customer (Markides, 1996). Furthermore value chain is the management of upstream and downstream relationships with suppliers and customers to deliver superior customer values at less cost to the supply as a whole.

Apple Inc.’s  Porter’s Generic Strategies

In order to reach its current business status, Apple Inc. employed Porter’s generic strategies. These strategies are cost leadership and product differentiation. These two strategies are actually introduced by Porter (1980) as the generic strategy. According to him, these two strategies are applied in all industries, which in turn lead to above average rates of return and competitive advantages.

The cost leadership and differentiation strategies of Apple Inc. were applied primarily to enhance their aims of expanding globally. For instance, Apple Inc. applied cost leadership in its global operations by adjusting its product prices based on economic status of its foreign consumers (Kay, 1993). In order to integrate this strategy, Apple Inc. opted to adjust the serving portions of its items. In its operations in some Asian countries, Internet users are usually smaller as compared to their western counterparts (Thompson et al, 2005). This strategy does not only help balance production costs with product prices, but it is also an effective means of attracting Asian consumers.

The second type of strategy is Porter’s Generic Strategies.  This strategy was developed by Michael Porter who argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus. These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent (Moncrieff, 1996).

Target Scope
Advantage
Low Cost
Product Uniqueness

Broad
(Industry Wide)
Cost Leadership
Strategy
Differentiation
Strategy

Narrow
(Market Segment)
Focus
Strategy
(low cost)
Focus
Strategy
(differentiation

However, Apple Inc. despite being the dominant in the Consumer Electronics Industry yet to contain market competition as other companies such as Hewlett-Packard continues to share a large chunk of consumers that Apple Inc. also targets (Porter, 1998). In fact the statistics below proves that Hewlett-Packard have kept up with the competition by substantially sustaining the gap between the market leader. All of whom had been strategically positioning themselves in the market to get a bigger share of the market.

Rank 2000
Company & Operations
Sectors
Sales 99/00
Sales 98/99
Sales 97/98
1
Apple Inc. Plc
Consumer electronics
16,958,000
15,835,000
14,971,000
2
Hewlett-Packard Plc
Consumer electronics
13,570,000
13,184,500
12,682,000

Thus, while Apple Inc. dominates the market, it does not have the capacity to control the marketplace because of the close competition that the other companies offer (Adler,  1998). Moreover, the ability to cut back prices to deter competition may only be possible if the rival companies are small. In terms of size, the other companies are actually on a head to head contest with the other corporations.

Competitive advantage would thus be fought in the ability of the companies to provide high-quality products on cheaper prices without compromising profitability. Thus, importing raw materials on countries that can provide it at a much cheaper price would provide the optimum advantage for Apple Inc. in terms of lowering the cost in the supply chain (Porter, 1998).

SWOT Analysis

The goal of the SWOT analysis is to identify critical strategic factors and then to build on core strengths; eliminate undermining weaknesses; take quick advantage of significant opportunities; and circumnavigate or mitigate threats.  There's no point to a half-hearted or cosmetic SWOT analysis; that only reinforces the status quo. SWOT is a tool for questioning assumptions and thinking outside the box (Morrison 2003). SWOT analysis gives the company information on the strength and weakness it has and matches it with the competitive environment it engages in. It also helps a company create strategic plans that can counter any problem or threat from competitors. SWOT analysis tends to help companies determine what aspects they excel in and what aspects they have problems in. It also helps companies determine its status against rivals.

Strength

To be considered as a leader in the Consumer Electronics Industry, Apple Inc. encompass different strengths. One of its strength is its ability to anticipate the demands of the customers and its ability to provide high-quality and innovative features of their products such as desktops computers, laptops, palmtops, mp3/mp4 players and software which in return make their customers become loyal of availing all their services and products. Technologically speaking, the company can also be considered to be strong in this aspect because of the technologically advanced facilities it uses.

Weaknesses

The only weakness that Apple Inc has is its weak ability on gaining loyalty from its target consumers. Other companies like HP and IBM are doing its very best to make their products be more appealing than other competitor and Apple Inc must importantly give emphasis in improving their product differentiation so that their consumer will be more attracted with their products and be loyal to their cards.

Opportunities

Because of the strategies that Apple Inc has implemented throughout the years, the company has many opportunities ahead.  Since most nowadays are becoming more conscious about their time and convenience. With this, the company has a great opportunity to stay in the market place.   In addition, the innovativeness of the company can also be a vital factor on making it have more opportunity to become the number one company in this industry.  In addition, Apple Inc has also an opportunity with in terms of competitiveness in the international market, since many people from different countries are more conscious about the significance of timeliness and convenience.

Threats

Apple Inc. is one of the many industries in this kind of business; hence, the company is facing many threats which they have to overcome.  One of the threats that the company may face is the entrants of new company that will produce more innovative products than what the firm is providing.  Since, there are many people who are becoming experts in terms of these product lines, Apple Inc may be threatened in a way that they might be left behind by the technological advancement that these companies will have. In addition, another threat for the company is the loyalty of the consumers.  It is mentioned that the company has a strong approach in branding, however, due to the existence of other multi-national and large companies in this kind of business, there is a threat that their consumer will tend to use other cards which they think meet their demands more than the electronics products offered by Apple Inc.

General Environment Analysis

Apple Inc. has a complex environment. Due to this complexity, the department is considering all the factors that affect its task environments (Dahlgren and Whitehead, 1991). Some factors such as political-legal and economic climates are encouraging to the growth of the department. However, the socio-cultural climate is posing a challenge. Nevertheless, Apple Inc. is generally having a stable environment.

The political-legal climate of corporations globally has been generally encouraging. This is especially for Apple Inc. in which it reciprocates the government’s trust on the company by sharing 30 percent of its shares to the government. Likewise, the economic climate globally has seen the growth of systems of wealth production, distribution and consumption (Fitfeld, 1998). However, inflations and recessions affect the operation of Apple Inc... These are the factors over which we have little control.

The socio-cultural climate represents the attitudes, values, norms, beliefs, behaviors and associated demographic characteristics of the population within which an organization operates (Daft 1997, p. 78). In operating and managing Apple Inc. applications that support users, we have to consider our customers’ values and beliefs. To do this we conduct studies to identify the concerns of our customers

The technological climate includes scientific and technological advancements in the production of goods and services (Dahlgren and Whitehead, 1991). Technology for Apple Inc. is of particular importance because it has been and continues to be the main source of increases in productivity, which means it can either provide a competitive advantage to organizations that can use it effectively, or pose a threat to those that lack it (Reicheld and Sasser, 1990, Beiman, 2003). To remain competitive therefore, it is important that we need to understand current technology developments affecting their ability to offer desirable products and services.

The pace of change in that industry, of course, is accelerating, and its scope and impact are widening. Spectators of the technology can trace that change from the earliest antecedents of Apple Inc., to the most recent developments (Hume, 1991). Spectators can also scan the entire Apple Inc. continuum from the 19th century to the 21st or pinpoint, year by year or decade by decade, but the focus of this paper will only be from 1998 to 2003. These are the years and key events that have led to the Apple Inc. of today and it has shown through the use of the company’s corporate strategy.

It is said that people are living through an era in which organizations within industrialized societies are experiencing a prolific growth in the development and  deployment of information and communications technologies. The development of an IT-strategy discourse has thus been partly the result of technology developments. The rapid growth of the information technology has been able to established great impacts in the society. One of its influences is with regards to the education system. Through the use of information technology the society has been able to implement rules allowing information technology to be used in the educational system so as to help the staff, teachers, faculty, parents and most especially all those students (Jain, 1989).  Educational system has been able to maximize the use of the information technology for improving student’s performance.

Moreover, the use of information technology has also impacted the society by means of the internet.  Through the internet, many people have been able to be knowledgeable and intelligent.  The internet has made it easy for the society to access the information they are searching provided with graphical interface, still images and motion pictures and sounds. In addition, through the on-line marketing many people had been able to search for the best company that could offer the quality services and products that would satisfy them (Miller and Dess, 1996).  Most importantly, these new information technologies also involve new deployment strategies that will bring broadband internetworking applications to the domestic mass market. As part of these new methods of interactions between humans and computers, more individuals have been dependent on the electronic creation, storage and transmittal of personal, financial and other confidential information which demands highest security.

Conclusion

Apple Inc is well on top of the Consumer Electronics industry. Apple Inc is now an international brand. The continuing upsurge of other technologies and the emergence of strong competitors, Apple Inc needed the help of Porter in improving their strategic management and corporate strategy. The company implemented Porter’s Generic Strategies which targets a broad market and aims to present customers with products at a high cost for a given level of quality. The industry sells its products at higher industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses.

Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time.  Although, Porter provided Apple Inc a comprehensive strategic management model to serve as a guide in achieving the company’s goal in being the largest retailer globally, Porter’s model can still be considered limited at some extent: (a)Consumers, competitors and suppliers are not similar therefore they should not interact and may contradict each other. (b) Barriers might be created because the source of value is structural advantage. (c) Letting participants inside the market plan for the behaviors of their consumers might result to low performance and uncertainties in the market.

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