Case Study – Apple iPhone

Apple was launched in 1976 and was incorporated in 1977. It was initially named Apple Computers Inc. which was later changed to Apple Inc. The company got success in the field of computers but its defining moment came with the launch of iPod, its portable digital music player. It went on to become a highly successful product. It was positioned as an inspirational music player in the market with many more companies following its lead to launch similar music players in the market.

In 2007 the company announced its foray into the market of mobile phones with the introduction of its first mobile phone which was appropriately named “The iPhone”. With this Apple transformed its image from a computer manufacturer to a full-fledged manufacturer of consumer electronic goods.

Prior to the launch of the iPhone the Age on convergence of electronic goods had set in. Apple was quick to realise this radical change and hence quickly announced the launch of iPhone. The iPod launched by Apple was becoming increasingly vulnerable to competition from mobile phones as it did not possess the ability to play and share its media either with similar devices or anything external. Mobile phones were filling this gap as they were branded as the ultimate communication tools. This brought about the launch of Apple’s new mobile phone, the iPhone.

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The foundation of the development of the iPhone was laid down by the CEO of Apple, Steve Jobs in 2003 at an executive conference where he declared that the future of communication and information exchange lay in the hands of mobile phones. He also believed that although the market for mobile phones was a competitive one with players like Nokia, Samsung, Motorola already at the top of the charts, it was also a lucrative one if handled with proper planning and adequate strategy.

For the launch of its mobile phone Apple had to rely on its experience of developing the iPod and the iTunes software to develop a new generation mobile phone. It knew that in order to compete with giants like Nokia and Motorola it had to come up with an innovative product that possessed various new features.   It came up with a technology that had never been used before. It developed a future generation touch screen mobile which was way ahead of its times. It developed a multi touch screen for easy user interface in the iPhone. Its other innovations included the Safari browser from Apple which provided easy internet access on the iPhone. With such an innovative technology and various new features Apple launched its first iPhone in the U.S. markets in June 2007.

Question 1

• What, according to you, was the reason for such a huge amount of buzz being generated around the launch of iPhone? Discuss the advantages and disadvantages of the strategies adopted by Apple in launching iPhone

The iPhone generated a huge amount of buzz in the national as well as the international markets. The announcement regarding the iPhone was made in January 2007 almost six months before its actual release in the market in June 2007. The time gap of nearly six months between the announcement of the launch and the release date coupled with the usual enigma surrounding Apple’s new products created wide speculation among the people. The Internet provided the required platform for it as a lot of discussion was done on the iPhone in blogs, chat rooms etc. The limited amount of information released by the company further fuelled the speculations.

The Launch date of iPhone was  called “iDay”, the much awaited day in the history of consumer durables when people formed queues outside the  Apple stores to buy one. Apple sold around 500,000 to 1,000,000 units in the first two days which did not happened on its own. Behind the success story of the ‘Jesus Phone’ is branding, promotion and successful launch of an innovative product.

There are many reasons which may be attributed to such a huge amount of buzz being generated around the launch of iPhone.

Apple did not go with a very expensive and extensive promotional campaign for iPhone as expected. Instead they opted for a low key promotion. It started with a teaser ad campaign which did not mention the brand name. It showed various actors answering a call with iPhone of John Appleseed ending with the message ‘coming in June’. Lack of information aroused curiosity among the viewers. Apart from maintaining a low key marketing strategy they also ensured that product itself was never out if focus. Advertising itself was not let to come in way of the product.

Also Apple was smart enough to spread its promotional activities along a time p of 6 months. This gap of six months between the announcement of the launch and the release date of iPhone coupled with the mystery due to lack of information created a wide speculation among the people. It generated more publicity for iPhone before its launch than any other product. During this period of 6 months approximately 11,000 articles were written. This also helped in spreading word of mouth publicity which is more trusted rather than a very high decibel promotional campaign.

Apple has a very loyal set of enthusiastic customers that advocate the brand. The success of iMac and iPod had created a strong base of brand loyal customers. These Apple fans also helped in creating a huge hype regarding the iPhone. The urge to look cool compelled the fans to increase the excitement before the release.

One of the biggest platforms which contributed to the phenomenal buzz was internet where a lot of discussions and speculations happened in blogs and chat rooms etc. It is estimated that search for iPhone resulted in 69 million hits on Google search engine. This helped in continuously keeping alive the speculations.

Along with the promotional strategy, Apple also adopted a unique strategy to market its new product iPhone. Apple focused on markets such as US, UK, and Japan where the company already had a strong base. Such a powerful Customer loyalty means that Apple not only recruits new customers, it retains them. This also meant that they need not spend too much in attracting new customers. But it also meant missing big numbers in unexploited sales in areas where there is a huge market to tap in Europe.

Apple made a mistake concerning marketing strategies in Europe, to be precise only in 3 countries: UK, Germany and France. In each of these country with the company adopted the same business model used in the US. Since each geographic location varies in the kind of customers and their thought process, buying behaviour and needs, hence a company needs to modify its marketing strategy according to the local customs and needs rather than following the same strategy to all the markets.

The company decided that the iPhone would be sold through 2,000 retail outlets and in addition to it through select retailers such as Best Buy Co. where Apple employees were to be present at the point of sale to ensure the same standard of service to customers as Apple retail outlet. Going for a select distribution channel ensured that they had a good control over the entire process of their product release. Apple has got a very strong branding. This way they could rest assured of their company’s image and quality promise will not be let down.

Along with the benefit this also had a disadvantage. Going for a select number of distribution channel meant a large part of the channel left untapped. Thus market penetration capacity of Apple got limited. The reach of iPhone to customers was limited to these outlets only.

Apple spent around an estimated amount of US$100,000,000 on the launch of iPhone but went for a teaser advertisement campaign rather than a very high decibel promotion without even the mention of brand name. They relied more on word of mouth publicity which is considered more trust worthy form of information channel than other sources by customers. Hence they succeeded in gaining customers genuine curiosity. On the other hand it meant that the spreading of the information about the product was slow.  Extensive marketing would ensure a greater coverage of the market and a greater number of people being aware of it. This slows down the flow of information and hence misses out on more prospective customers.

Apple took a time gap of six months between the launch and release of the product. This helped in creating a wide speculation and curiosity. Internet gave the biggest platform to fuel the speculation and increased amount of attention. These strategies coupled with the fact that the company released a limited amount of information drove people crazy and created the biggest ever hype for any product.

But around this hype floated a big question that whether the product will be able to live up to the expectations of the customers. Too much hype increase expectations and customers would be disappointed if the product does not live up to the expectation as the saying goes “Nothing Killed a bad product worse than a good advertising.” Also the hype during the launch may not necessarily transform into good sales at the later stage.

To launch iPhone into the market, Apple entered into a two year contract with AT&T Wireless Services Inc. Whereby the iPhones could only be used only with the AT&T network. It also announced some service plans for those who opted for the iPhone. So the customers could enjoy almost the features without any hassles’.

Entering into the partnership limited the market and its reach. Almost 67% of people interested in buying iPhone, according to a report, were subscribers to other mobile network service providers. This strategy slowed down the sales of iPhones. Also the Phone was priced very high which made it limited to higher segment. High price coupled with the two year contract with AT&T made it one of the most expensive mobile phones in terms of initial expense and maintenance thus automatically excluding the lower and middle segment customers.

Question 2

• Prepare a note on what should be Apples strategy for iPhone in Europe and Asia (except Japan), considering that Europe is a relatively mature market for mobile phones and Asia is largely an emerging market.

After its launch in USA Apple derived a strategy for its launch in Europe and Asia considering the fact that Europe was a relatively mature market where as Asia was an emerging market.

Europe has an estimated 620 million mobile phone users which is thrice that of US with 213 million users. Mobile communications saw advancement in the technology mostly lead by European companies which led to the standardization of the mobile technologies. Hence the mobile market in Europe is a mature market.

To market and sell a product in a mature market, manufacturers must compete in three areas. One is improvement in products such as the quality and features. Apple fared quite well in this area. Apple had come out with the future generation of touch screen used in iPhone. iPhone used Safari browser from Apple which provided complete internet access on the iPhone. iPhone used Mac OS X as its operating system which is larger than operating systems used in other phones. iPhone boasted of a high memory capacity and automated features. It had a sleek and stylish design which helped it differentiate its product from the various other products available in the European market. Hence it had the power to appeal to the customers with its highly differentiated features. It is estimated that Apple had filed more than 200 patents relating to the technologies developed for iPhone.

Apple was very quick to realize the potential of convergence of electronic devices and the effect it would have on the sales of music players. Stunning design and powerful branding helped it to grab people’s attention.

The second is an improvement in the overall market. The features of iPhone made it equally suitable to a rebelling teenager as well highly sophisticated business personnel. They tried to break the notion of the consumers that high-end mobile devices, which converged services of other devices, were only meant for business use. Hence simultaneously it could cater to the customers who liked music and films along with the business class which is more in need of communication and data transfer device.

A third approach is an improvement in sales and marketing, including introducing innovation or increasing efficiency in promotion. Apple communication is sober, intriguing, simple, clear, minimalist and clever. They went for a teaser advertisement campaign rather than a noise promotion. They did not let the advertising come in the way of the product. The product itself was innovative enough to create excitement. They extended the brand image of iMac and iPod to iPhone. The company was entering into a new market which was already dominated by experienced players. Hence a differentiated product helped them to gain people’s attention. There was a trend in favour of converged-function handsets in the mobile phone market thus becoming the ultimate device of aspiration for consumers all over the world.

Apple tried to encash this opportunity which helped it overcome the entry barrier prevalent in a saturated market. They did not enter into the PDA segment as market for it was not big enough. The company used its experience of developing iPods and iTunes to develop a new generation mobile phone thus using prior know-how to its maximum advantage. They relied on word of mouth publicity for its product. They also released their phone with partnership with AT&T as the sole service provider for iPhone. This strategy was adopted to ensure that iPhone owners were able to use all the key features of the phone by subscribing to special offers only for them.

Apple adopted a different marketing strategy for Asian subcontinent. Asia is an emerging market where a large part of the market is still untapped. Here the competition is also less as compared to a mature market. Since the market can easily accommodate new players these reasons account for lesser entry barrier into the market.

 The psyche and buying behaviour of customers in an emerging market is totally different than that of a customer in a mature market. In an emerging market the customer is not comfortable in buying a product about which they do not already have information or market report. The customer is not willing to spend a big amount on a product about which it does not have proper knowledge. The phone was introduced into the Asian market almost next year in 2008. By this time the company was expected to cross the hurdles in the mature market which is more competitive than an emerging market. A good market report in other markets resulted in an increased demand for iPhone in the emerging market as it supported the credibility of the product.

By the time the iPhone was launched in Asia, the company had launched more advertisements which answered the customers’ queries regarding the features and of the product. By the time iPhone reached the Asian market it already had written a success story and had become an icon in the phone segment. There was a huge time gap between its launch in the mature markets like US, UK and Japan where it already had a strong brand loyal customer base and the Asian market where it was yet to create a customer base. Hence the phone which was being sold at a premium price of $499 & $599 in the mature market was sold at much lower price. The customer here did not have to worry about a very high price.

After the launch of iPhone the analysts believed that the innovative features of the iPhone were the main reasons for the enormous hype generated by the product in the market. The success of iPhone was related to the success of the iPod as a customer got the chance to use both the iPhone as well as the iPod in one device. This was the biggest advantage that the iPhone possessed. Along with its advantages it also had certain drawbacks.

The iPhone did not possess the 3G and GPS technology that some of the other smart modern mobile phones possesses. Moreover the battery of the iPhone was not replaceable by the customer and had to be send to the Apple Service Centre in USA. Although it wasn’t much of a problem for its users in the U.S. it was a cause of concern for its other users worldwide. Again the non-availability of a removable memory card was a huge hindrance for the progress of the iPhone as most mobile phones were now availing this feature.  It also did not have a physical keyboard for its users and had a low resolution camera when compared to other latest mobile phones. Lastly as Apple was tying up with various specific operators its non- availability for the other operators was causing several problems for the growth of the iPhone.

Henceforth although there was a severe buzz regarding the launch of the iPhone it has not captured the market to a great extent. Though it possesses several unique features and innovative technology, it still has a long way to go in terms of customer satisfaction.

References

1. Philip Kotler, Marketing Management, Eleventh Edition, Pearson Education Publishers, Delhi, 2003
2. Marketing Management, Icfai Center for Management Research, Reference No – 508-014-1
3. www.media.corporate-ir.net/media_files/irol/10/107357/APPL_10K_FY07.pdf
4. “Lessons from Apple,” www.economist.com, June7, 2007
5. http://www.vertygoteam.com/apple_marketing_strategy.php
6. http://www.vertygoteam.com/iphone_marketing_strategy.php
7. Glen D, “Analyst Reveals iPhone Marketing Game Plan,” www.apple.qj.net, May19, 2007

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