Apple Newton started out as an idea, by two college dropouts, but has now grown to be one of the leading firms, in the computer industry, worldwide. This has been attributed to products that satisfy the needs of the market. However, there are real threats that face this firm, and this paper analyzes the problems facing Apple Newton, in relation to the marketing mix and their solutions.
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Apple was founded by Steve Jobs and Steve Wozniak, in 1976, both of whom, dropped out of college. The innovation began many years earlier, when Wozniac started designing boxes that would be used to make free long-distance calls. The two of them sold several of those boxes and later began working on Apple 1, which was a computer that did not have power supply or a keyboard. They sold their possessions to raise money for their company, which proved to be a worthy gamble, according to Joia (51-70). This is because they sold many such computers to local retailers as well as to computer hobbyists.
Later, Wozniac started working on Apple II, which was created in such a way that its appeal went beyond computer hobbyists to the wider market. Jobs used high school computer enthusiasts, in designing software and assembling circuit boards. He planned to house the computers in fancy beige plastic containers.
Jobs then planned to transform the company to a large entity by selling a third of it to Markkula, a retired engineer. Markkula paid $250,000 for the share and an aggressive marketing strategy saw it reach the $1 million target in annual sales. The company also prided itself with building the first micro-computer that uses a television set for a screen, as well as having colored graphics. The growth saw more innovation and soon, the Apple II disc was reputed to be the cheapest and fastest disk, that was manufactured, then. This disc led to the development of Apple II software, which signaled that the previous goal of expansion beyond hobbyist markets, was being realized. In fact, by the beginning of 1979, Apple's products were being sold by over 100 dealers and the company ranked among the fastest growing, in the US.
In 1980, the company underwent an IPO and its 4.6 million shares offered were bought within minutes. A subsequent offering, in 1981, saw the same trend being observed. The company worked on creating a successor, for Apple II, which would run the Apple II software, as well as provide expanded graphic capabilities and memory. According to Rotfeld (32-43), things started going wrong when the company pressured Apple III designers for fast completion, although Apple II sales had doubled. Apple III was received quite well, when it was launched and most people believed that it would upset IBM's firm grip on the market.
However, after the release, several units were defective due to insufficient testing. The problem was addressed, after halting production, but the units sold never matched Apple II's sales and production was discontinued, soon afterward. In spite of these problems, Apple grew and was the first PC company to hit the sales mark of $1 billion. In 1984, the company unveiled Macintosh computers, which sold 70,000 units within the first three months of release. Apple continued its strategic marketing plan and a new Macintosh was developed in 1984. the company offered people free testing of the computers for 24 hours, which saw over 200,000 people do so. This computer proved to be very popular for organizations, due to the benefits involved, and 70 percent of sales between 1986 and 1987 was attributed to organizations.
Further innovation of software that was compatible with IBM systems led to rapid growth of Apple, which recorded sales and income of $4.07 and $400 million respectively, up from income and sales of $1.09 billion and $217 million respectively. An inaccuracy in forecasts made Apple purchase millions of memory chips, at high prices, in expectation of an imminent shortage but that did not happen. End of the shortage and lower prices made customers go for less expensive computers, since Apple had increased their prices.
Mismanagement in the 1990s.
According to Luther (63-71), the company entered the 1990s with the knowledge that market conditions had changed and this necessitated a change in its corporate strategy. The company came up with a strategy that produced cheaper and smaller model,s for instance LC and Classic, which were received very well by the market and by 1992, Apple controlled 19% of the market share. Apple's 1990s downfall began with the replacement of the CEOs. For instance, the CEO in 1994, Michael Spindler, licensed Apple's technology to other firms. This led to an influx of clones, which reduced the profits that Apple realized. In yet another case of failure to correctly predict the market trends, Apple underestimated demand for the Power Macingtosh computers in 1994. This was related to an earlier overestimation of the demand for the PowerBook laptops. This underestimation resulted in unfilled orders estimated to cost $1 billion, and the market reacted by fall of 15% in value.
According to Bhide (89-97), this mistake led to the replacement of the CEO, and the incoming CEO, Amelio, also made fatal business decisions. He reduced operation costs and laid off a third of the employees, compensating them with an inadequate compensation package. He was also unable to relate with the corporate structure that had seen Apple grow, during the past decade. This led to losses amounting to $1 billion and reduction in share of price. In 1997 Amelio was ousted and Jobs returned to head the company, in an interim position. He made radical reforms that saw among other things, the licensing agreements were revoked. He undertook further job cuts and a launch of cheaper computers and by the end of 1990s, Apple was on its way to making profits again.
Problems in marketing mix for Apple Newton and their solutions.
The marketing mix combines four elements, that are considered when marketing products. The four elements are place, product, promotion and price. They are also referred to as the four Ps. The first element is product, and in marketing, the product should be able to sell itself thorough the benefit that it gives the consumers. In the event that the products of the competitors offer similar benefits, price and quality, the product should be differentiated. This is done through changing the design, increasing its safety, making it 'green' or improving the packaging.
In the case of Newton, some products it produced did not satisfy the needs of the customers. According to Schroeder (43-58), some products did not work, while others were simply too bulky and slow. Since the customers' needs were not met, they could not go on buying those products, leading to a fall in profits of the company. This also dented the reputation of Newton and made it lose potential clients. For instance; Apple III was introduced to the market before completion, leading to shortcomings of certain features that it possessed. One complaint that consumers had was that Newton was very slow. Some actions, for example scrolling the message pad, were very slow and experts attributed this to its software and operating system, which run through a virtual machine. The decision to use lesser flash memory, by Apple, increased its elegance, at the price of affecting system performance. Another problem that Newton experienced was that Newton was very bulky and large.
The original MessagePad, had been designed to use a system of handwriting that recognizes whole words, as opposed to letters. This was in line with the research findings on market needs, prior to manufacturing of Apple. The research indicated that the focus group preferred recognition of whole words, so as to deter people who write curse words. However, the system ended up making a mistake and it picked valid words, different in meaning from the intended words, thereby creating ridicule and hilarity. Newton tried to deviate from the usual Graffiti, that was common with PDA markets, and this is what experts attribute to the mistake in handwriting recognition. This proved to be a costly mistake, that was rectified later, but the damage had already been done. Apple had lost its credibility.
The first solution to this shortfall, is to fully research the effectiveness of a product before releasing it to the market. Research is very expensive and once started, it should not be rushed, since it makes no economic sense to spend millions on research, and then abandon it midway. Apples Newton should have given enough time for researchers to work on Apple III, and not pressured them to release it half-baked, even though Apple II was making huge profits. Apples should also have given enough time to test the product before releasing it to the market, since if released and it proves ineffective, the company would lose its reputation and many customers would never trust its products again. Apples should also have tested the product with its target group to see whether all its input, had been addressed by the company.
According to Allen (22-37), in future, the company should address the needs of the target group, since it is the ultimate consumer of the product. In an interview, one of the Apple's managers admitted to not carrying out research for some of its products, for the reason that, most customers do not know what they want. He further said that such customers have to be presented with something, before their demand for the same rises. This is a dangerous approach since it is a gamble and if a product is created and the market does not react very well to it, this will mean that the company has wasted its resources in creating the product.
The second element of the marketing mix is place and it refers to the avenues used in reaching the customer. This entails knowing where customers are likely to be present and making sure that the product reaches them. There are three main distribution channels; the first is selling to retailers, the second is selling to the customers and the third is selling to wholesalers. The distribution channel used depends on the type of product being dealt with.
Other shortfalls that Apple faced are attributable to the electrical system. Usage of wireless ethernet cards presented problems to third parties. For instance, use of Xircom cards used so much power, that regular batteries could not cope with them. This necessitated the need for rechargeable batteries, which also had their own shortfalls. These batteries would not last more than two hours, when using these wireless cards. The batteries did not have external chargers and some customers complained that the batteries came in weird shapes.
Apples had a fairly good distribution system since most of its products were sold by retailers all across the United States. However, there were a few flaws in the distribution system that were attributed to errors in predicting the market trends. These flaws saw a shortage of $1 billion worth of computers, at one point, due to unforeseen demand by customers. This is a fatal mistake that should not be repeated. The management should be able to predict the future demand using the current market trends.
The third element that is in the marketing mix, is price. In marketing, the price fixed is determined by the profile of the target group. There are three strategies that can be used in pricing. According to Asthana (31-36), competitive pricing strategy is used in differentiating similar products and involves selling them at the least cost. This strategy can only be used when high volumes of products are produced at lower costs. The second strategy is the cost plus strategy, and in this case, the profit desired is added to the production cost. The third strategy is value pricing and involves basing the prices of products on the value delivered to customers. It is mainly used in pricing luxury items for example expensive clothes and jewelery.
Newton set prices which were exorbitant and were aimed at differentiating its products from Macingtosh. This was a fatal error, since instead of increasing the numbers of consumers who use the product, it ended up alienating them. The customers tended to go for cheaper products, either created by Apple, or its competitors. For instance, in 1988, a mistake in prediction of market trends, made Apple buy millions of memory chips at high prices, passing on their costs to consumers. Subsequent lower prices due to the end of the shortage of memory chips, made Apple's Macingtosh more expensive than the competitors' products. This led to consumers buying other cheaper brands from Apple or the competitors.
The other problem was unrealistic sales expectations by Apple. This can be illustrated using the sales units for related products. Apple II was considered a big success, after selling 16,000 units. Mac was also viewed as relatively successful, after selling 60,000 units. However, Newton was considered a 'flop', after selling 100,000 units. Clearly, this was a very ambitious sales expectation.
When setting the prices of products, the Apple should be aware of the market trend. The company should use the appropriate economic tools when making decisions so that errors that occur, relating to prediction are minimized. The company has made such errors in the past and they have proved to be very costly. The prices should be reasonable and should be set according to the target group. For example, expensive software and hardware products targeting high end consumers may be priced using the value pricing approach. This is be calculated according to the value added to the customers. The company should also have realistic sales targets in future, to avoid demoralizing the employees, even in times of high sales figures.
The fourth element is promotion and its function is to manipulate the customers' behavior, in a way that they purchase the product. It involves three topics; advertising, public relations and sales promotions. Advertising should; focus on reaching the customers, have adequate frequency and be creative enough to arouse interest. Public relations involves convincing customers to buy products through use of public speeches and other public means. Sales promotions are linked to coupons, fair trades, discounts and others.
According to Luther (63-71), Newton failed because of a major flaw in the marketing strategy. The company announced Apple III to the market, way before it was ready. This forced the company to hurry and release the product, before its completion. The consequences were adverse, and product failure led to the withdrawal of Apple III from the market. This decision was corrected, but it had damaged the reputation of Apple, as a producer of good quality products.
Another poor decision in the marketing strategy, was seen in 1994, when the successor to Scully, the CEO, licensed the technology that Apple possessed to other firms, in a bid to promote the technology in the market. This turned out to be a mistake since the influx of clones made customers purchase them, at the expense of purchasing original Apple products, reducing Apple's profit margins.
Another major flaw, that is observed in a variety of Apple's products is that Apple released products that are 'one off'. This means that after introducing these new products to the market, Apple abandoned them half way and did not market them aggressively, or follow through their impact on the market. Such products include Virtual User, Macintosh TV, Newton bookmaker, Apple Dylan, among others. Apple should have made promoted the products aggressively, so that there was a constant demand from the customers.
Apples Newton should aggressively market products, even after launching them in order to sustain the demand for the same. The company should however be careful not to market products that are not yet ready to hit the market, since the company will be forced to release half-baked products to the market. This should prevent a repeat of the situation that was observed in the early 1980s. In summary, the management should consider long term effects of various promotion strategies, to the company, before implementing them. This will also deter a repeat of the 1994 incident, where the CEO gave license for outsiders to sell Apple technology, which resulted in huge decrease in profits.
Recommendation and Conclusion
Newton's failure was a result of a combination of many marketing mistakes, but one of the main flaws was in execution of the hardware; that is turning the idea to a workable product that the market can have confidence in. Apple's downfall was that it created a cool product, but it had major flaws that made it impractical to use. Apple did not adequately test all its the products, before releasing them to the market, resulting in damage to its reputation, especially in the 1980s. Apple Newton's major undoing is the failure to read the market trend and fully adjust, on time. This has occurred on so many occasions, that it is now worrying. It has also adversely affected the company, in terms of loss of reputation and reduction of profits.
The management should do adequate research on the current market trends, as well as needs of the target group. After that, it should create products that satisfy the needs of the customers in relation to these two factors. Aggressive marketing and proper pricing might make Apple Newton the biggest company in the computer industry in future.
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