Apple's Strategic Assessment

Apple Strategic Assessment

Strategic Assessment

п‚ Economic features (Computer Market)

o Size: $800 billion worldwide

o The US market is controlled by five main companies, Dell, HP, Gateway, IBM and Apple. These companies control 64% of the US market and 40% of the international market. Apple only controls 2% of the international market. The markets have experience a substantial growth in recent years but are predicted to slow down to 8% unit sales growth from 2006 to 2009 in the US and European markets while continuing to grow in Asia. The PC industry has its 10th consecutive quarter of double digit growth (2005)

o In 2005 Apple had approximately $13.9 billion in sales with about $6 billion of that coming from computers and almost $4.5 billion from the sales of iPods.

o The need of the buyers is changing. Consumers are now looking for customized personal computers that can be taken anywhere and are moving away from the standard desktop computer. Need for mobility, consistent access and reliability are becoming more and more important for the consumer. As long as Apple is able to keep up with buyers demands they will continue in their market growth.

o There are five main competitors in the market that are each trying to differentiate themselves and create their market niche. Dell, which is the industry leader, had a net revenue of $50 billion in 2005. 40% of that revenue came from the sale of desktop computers. HP’s biggest revenue producers are its accessories, servers, and consulting services. Its Personal Systems Group made up for half of its net revenue growth between 2003 and 2004. Gateway was able to originally set itself apart by selling its products through proprietary stores that allowed customers to test out the products but by 2004 they had done away with this service.

o The main difference between Apple and the PC’s is the operating systems. Technological advances are allowing computers to work faster, have more memory, and provide better protection to their users. Improvements to existing products and new innovations are essential to the growth of the company and its continued success. Since 2002 Apple has realized that computer market and the digital electronic market are merging and that consumers are starting to demand that the two be more smoothly integrated.

o It has been projected that Apples best opportunity for growth is based on the halo effect that is coming from the popularity of the iPod. The success of the iPod is creating a brand loyalty that is causing consumers to look to Apple for their next computer purchase.

Economic Features (MP3 market)

o The MP3 market is a very young market with the Apple iPod being at the forefront of the pack. By the end of 2004 Apple had 83.7% of the market in hard disk MP3 players and 46.3% of the market in flash disk MP3 players. Apples closest competitor, HP, had 3.6% of the market. In 2003 Apples net revenues were $6.2 billion and its net income was $6.9 billion. Apple has always been known as one of the most innovative companies in the market but has always struggled with maintaining its share in each product line.

o The MP3 market is a rapidly growing industry that had sold 27.8 million units by 2004 and estimates to sell 150 million units in 2010. With the growth in popularity of music downloading programs such as iTunes and Napster, MP3 players are quickly becoming considered as essential as a cell phone. The technology required for obtaining MP3s is becoming easier to access and understand. In 2004 only 11% of the population owned an MP3 player but that number seems to have increased dramatically since.

o People in the market for MP3 players range from all ages and all income, with the majority coming from Generations X,Y, and even the baby boomers. iPods and other MP3 devices are coming with the technology to hold not only music but contact lists, calendars, pictures, videos, games, appointment scheduler, stopwatch, and world clock. All of these features are allowing customers to keep the information they used on their PDA’s on the same machine that holds their music.

o A 2005 survey by PC Magazine rated iPods significantly higher than the competing brands of MP3 players based on reliability, ease of use, sound quality, and overall quality. Apples simplicity makes the iPod more attractive than other brands. Creative Labs Dell, iRiver, RCA, Rio, SanDisk and Sony all offer similar products to the iPod that range in all prices and features. No brand really stands out as the low cost provider in the MP3 market. There isn’t a whole lot of differentiation between the products.

o Creative Labs products allowed users to slow down songs while not changing the pitch, record music straight from the radio, and had FM settings.

o Dell also offers recording capabilities. Dell has a price advantage and flexibility of where consumers could buy their music. Dell is the cheapest of all the products.

Rio is no longer even in the market.

o Analysis: MP3 players are a growing economic market that will continue to expand based on the rate of technological advancements. Because of the decline in the economy there might be a set back in sales of MP3 players but will probably be offset by the rate of innovation.

o It has been projected that Apples best opportunity for growth is based on the halo effect that is coming from the popularity of the iPod. The success of the iPod is creating a brand loyalty that is causing consumers to look to Apple for their next computer purchase.

п‚ External Forces

o Target audience: students, educated people, affluent users, upper-middle class

o The MP3 market has a wider demographic than the PC market.

o Values and Lifestyles: creative people, value innovation and design, education, forefront of new technology. Apple supports a very large amount of R&D

o Consumers are always wanting to have the latest in technological trends and the rapid rate of innovation has the market continuously offering new and improved products.

o Deals with automobile companies to introduce MP3 adapter as a standard feature in new cars.

o Other companies such as Bose, and Sony are creating accessories such as speaker docks and car adapters that allow them to incorporate