Apple’s competitive strategy is differentiation across the industry. Apple prides itself on innovation more than any other company, and is known for their unique top of the line products. Using differentiation as their main source of competitive advantage, they have succeeded to the top of their industry, while retaining higher than industry average profit margins. This innovative attitude is the source of long-term success throughout the history of Apple. For example, Apple pioneered the PDA market with the Newton in 1993, and the easy-to-use iMac in 1998.
Apple first used product differentiation by integrating hardware and software. This made Macintosh computers different from other PC manufactures that just make the hardware, and rely on Windows operating systems to run it. This set Apple apart from the competition and gave them complete control creating the user experience. Another historic example of Apple’s differentiation strategy is the launch of iTunes in 2001. This was the beginning of Apple’s new strategy to make the Mac the hub for the “digital lifestyle. Now Apple was not only a software company, but a digital asset management company because they owned the iTunes content. They opened their own stores, and with iTunes became the largest digital retailer in the world. Then Apple introduced the iPod which revolutionized the way people listen to music. Apple’s superior design quality differentiates its products from its competitors. They first developed a public association with high quality design with their first home computers, which were easy to use for their time.
The line of iMac computers was the first to omit a floppy drive which was considered mandatory. The success of the model proved that Apple products were designed to be ahead of the curve. Their design philosophy is based on minimalism and creating the best user experience. Using differentiation to advance their products, Apple has established a reputation as an innovator by offering an array of easy-to-use products that cover a broad range of segments. Apple’s design philosophy and product differentiation create higher profit margins than their competitors.
Apple products are unique and difficult to imitate allowing them to target high profit margins. Apple does not compete on price like its competitors with small profit margins. New product development is expensive, so when launching a product Apple uses higher prices to enhance its profit margin. The design quality and uniqueness of their products allow them to do this successfully. Apples product differentiation strategy addresses Porter’s Five Forces in the following ways: Threat of new entry: The cost of Apple’s product differentiation acts as a barrier to entry, reducing the threat of new entrants.
Threat of substitution: Product differentiation is used as a defensive against substitutes. Its unique products are hard to imitate, which reduces the threat of substitutes. Competitive rivalry: Apple pursues niche markets, reducing threat of rivalry among industry players. Buyer power: Apple’s products compete within an oligopoly as well as a niche market, which reduces the threat of buyers. Supplier power: If suppliers were to increase their prices, Apple’s product differentiation strategy enables them to pass that costs to its customers, therefore reducing the threat of suppliers.