Purpose of SWOT analysis
The main purpose of the SWOT analysis is to identify the most significant factors that affect a company and its market both internally and externally (Hooley, G. 2004). This analysis provides Apple with quick, executive keys by looking at strength and weaknesses alongside opportunities and threats. It’s designed to help the company’s strategy formulation. The company will be able look at which strengths should be developed and best deployed, which weakness will be the most vulnerable to market change and competitor action and which relevant future strategy for building new strengths will be most profitable in the market.
Strengths
Apple is a company, which manufactures a variety of products including computers, operational software, mobile phones, portable digital music and related accessories. The brand is well known for high quality products, which help differentiate them from competitors. The company owns one of the top brand names in technology worldwide with 54% of their profits coming from foreign markets (Apple Annual Report, 2006).
As highlighted by Everett M. Rogers, customers are always interested in trying the latest and up to date pieces of technology. By understanding customers and knowing how to fulfil their wants, Apple’s products are created with a unique design with hi-tech capabilities, attracting the attention of their target audience. As a result, market share is continually increasing.
The company operates on the purpose of developing new products which offer an easier and more efficient way of using technology. The final products always appear at the most convenient and easy to use in the market.
Apple is a worldwide leader in harnessing a portfolio of product diversification. With its product lines, the company targets a wide ranging audience in almost every technological market. Moreover, with such a large customer base, the company has a large network of corporate and commercial buyers who are loyal to the brand, even though sometimes the price paid is higher than alternatives in the market.
The Apple Annual Report, 2007, announced a profit of $1.58 billion during its fiscal first quarter. Apple sold 2.3 million Macs and 22.1 million iPods during the holiday shopping season. For the quarter ended December 31, Apple reported a profit of $1.76 a share on revenue of $9.6 billion. Apple’s quarterly earnings beat the estimates of Wall Street analysts. According to Thomson Financial, analysts expected Apple to earn $1.62 a share on sales of $9.47 billion.
Figure 1: Apple Inc Revenues and Projections
In the personal computer industry, the company has one of the highest stock prices. Apple is financed mostly by its equity; the company does not have any debts, as a result investors would be at less risk by holding Apple’s stocks. The company is loaded with extra cash that is ready to acquire any firm that could help enhance the value of the company. The company cash flow went up rapidly from $90 million to $2,220 in four years from 2002-2006 which ensure a healthy financial performance as well as abilities for future expansion and growing plan.
Weaknesses
It has been documented that Apple has had some problems with its product quality control; for example, at the beginning of the iPod era, there were problems with the faulty battery, after that there has been reported screen faults with the iPod Nano. The company has accrued high replacement costs because of the need to replace faulty items.
With its most recent and highly advanced product: The iPhone, there are still disadvantages such as the device not being 3G compatible. The phone is also inaccessible in countries such as Japan and Korea. Several product features of the iPhone are also not particularly impressive when compared to market alternatives. These include a camera which has a meagre capacity of two mega-pixels as well as its immovable memory. Moreover, the iPhone is priced at around £300 with a limited choice of distribution channels, this high cost and lack of choice has been met with strong scepticism by segments of the market.
Being able to achieve and retain market leadership in a fast changing industry, Apple has to concentrate a large amount of its resources on product research and development, which means it’s unable to remain competitive in areas such as operations and retail strategy. The corporate strategy of continuous innovation means Apple has to invest an increasing amount of revenue every year, for its research and development purposes.
According to Apple’s revenue for 2007, the company seem to be strong financially; its lack of debt may also be considered a weakness. Apple is very vulnerable to major stock acquisitions by other companies. In addition to the debt/equity issue, Apple has not issued any dividends to its shareholders for many years, which may eventually lead investors to lose their confidence in the company, should it encounter the same downfall it went through in the early 90’s.
Opportunities
Apple is well known for its innovative thinking, they have developed a product line that offers good functionality and attractiveness. Joint ventures, such as the operation with Nike, where both companies are working on a project that combines an iPod with Nike running shoes is an indicator of Apple’s drive to do whatever it takes to create an innovative product.
Podcasts are downloadable radio shows that can be downloaded from the Internet, and then played back on iPods and other MP3 devices at the convenience of the listener. The listener can subscribe to Podcasts for free, and ultimately revenue could be generated from paid for subscriptions or through revenue generated from sales of other downloads.
In the purpose of providing a better computing experience for the customer with the iPhone, Apple tries to combine both powerful computing as well as entertainment. People have also noted that the Mac OS applications for the desktop can be seamlessly adapted for the iPhone. This is the first step towards an Internet Protocol-based network. The emergence of Wi-Fi networks is pushing for there to be visitor fees instead of having a provider which locks-in its users. It is very likely that the device fees and pay-per-view system will take flight, eliminating monthly subscription fees.
Threats
In the desktop computer market, Apple faces a great threat from its major competitors which include Dell and Hewlett Packard (HP). By offering low cost personal computers, Dell has secured themselves as a company with the largest market share. According to the available data, HP leads the industry with gross revenue of 88.89 billion USD but Dell has the highest net income. Even though Apple’s stock price is higher than both Dell and HP, the difference in market share and revenues are far behind them.
Figure 2: Desktop Computer Market Share Comparisons 2007
Apple Dell HP Microsoft Industry
Market Cap: 54.05B 57.24B 92.04B 241.97B 640.18M
Employ¬ees: 14,800 65,200 150,000 61,000 1.80K
Qtrly Rev Growth (yoy): 34.40% 6.20% 4.60% 13.30% 13.60%
Revenue (ttm): 17.31B 56.74B 88.89B 42.64B 4.09B
Gross Margin (ttm): 28.60% 17.50% 23.76% 83.40% 17.50%
EBITDA (ttm): 2.39B 4.63B 8.39B 17.51B 66.28M
Oper Margins (ttm): 12.27% 7.45% 6.56% 38.69% -0.16%
Net Income (ttm): 1.73B 3.40B 3.17B 13.47B -195.51K
EPS (ttm): 1.982 1.417 1.097 1.262 N/A
P/E (ttm): 32.06 17.51 29.66 18.80 32.06
PEG (5 yr expected): 1.40 0.98 1.16 1.51 1.40
P/S (ttm): 3.16 0.99 1.03 5.68 0.66
In the mobile phone market, the majority of threats come from other companies including Nokia and Sony with their respective products. Smart phones are one popular example that stands to compete against the iPhone. The fact that these phones run on the 3G network also puts iPhone behind in the capability race.
Although the US economy is no longer in its volatile stages, the release of the iPhone is still in a time where people are cautious of spending money.
Another threat for Apple would be the exchange rates which can cause changes in supply and demand. Since Apple has a huge international market, their revenues from foreign countries are directly related to exchange rates. The depreciation of the US dollar could cause a decrease in their net receivables. On the other hand, an appreciation in the US dollar would increase net receivables but decrease future demand since prices would increase.
Products and Portfolio Management
Apple has an expanding range of products and services ranging from computers, music player, music and video downloading services and recently moved into the phone industry. The companies major products are the:
– iMac
– iPod
– iTunes/iTv
– iPhone
As of the end of the second week of January, 2008, the iTunes store has sold 4 billion songs, accounting for more than 70% of worldwide online digital music sales. To present Apple has 88% market share of the legal mp3 downloading from the internet.
The iPod has successfully positioned itself in the market place as the market leader of mp3 players through efficient and continuous marketing strategies. The iPod has come a long way from since the launch of the 1st generation iPod in 2000. Apple was criticised for false advertisement for the iPod’s battery life, and through a settlement in court gave a $50 credit to customers to replace the battery complementary. This helped win consumers confidence and gave brand recognition after Apple continually developed and improved the iPod year by year. The 5th generation iPod; the iPod touch features wifi capabilities, downloading music through Apple’s online store, and allows access to YouTube.
The iPod has reached a stage where it is moving from the growth period and curving towards the maturity section. We can say this as the Apple iPod is reaching its peak with its innovative technology and functions.
We can say the iPod is in a star position within the Boston matrix as it has dominated the market since the launch in 2000. (see appendix 1) It has maintained its position by updating with new features and changing its design to become more sleek and functional with features. However the Apple iPod growth is beginning to slowing down as the market matures. Being a market leader for over 5 years with a substantial share of the mp3 player market, Apple has dominate this industry for a while and will need to keep the customer satisfaction continuously high in order to prevent the iPod from loosing market share and increasing the brand loyalty.
Apples iTunes store is the market leader with legal mp3 downloading service and is rapidly growing through the last coming years. Since the launch of iTunes in April 2003, iTunes store features over 6,000,000 songs, and by the end of January 2008 the store has reported to sold over 4 billion songs. The iTunes Store also accounts for 70% of all legal worldwide digital sales. At present Apple’s iTunes store has 88% market share of all legal mp3 downloads from the internet.
Within the Boston matrix, the iTunes store has successfully positioned itself from problem child to a star. We can see this through the ever so high sales, with in the first year iTunes store had sold over 70 million songs. iTunes has increased its brand awareness, and market share through opening new doors to the UK, and the rest of Europe and Asia.
Apple is always trying new innovative ideas on how it can improve its service available to its customers, and has new features such as downloading feature length files which are supported on IPods. ITunes store can now be identified as having moved from a problem child to a cash cow and recently becoming a star.
Drucker (1973) indentified seven types of businesses that still find resonance today:
1. Today’s Breadwinners :
2. Tomorrow’s breadwinners
3. Yesterday’s breadwinners
4. Development
5. Sleepers
6. Investment in managerial ego
7. Failures
According to Drucker, today’s breadwinners are described as “the products and services that are earning healthy profits and contributing positively to both cash flow and profits”. The Apple iPod, iTunes Store and iMac come under Drucker (1973) today’s breadwinner as they have successfully positioned themselves in the position of market leader within their targeted segment of the market.
The Apple iPhone, comes under tomorrow’s breadwinner’s as it’s defined as “investments in the company’s future. Products and services that may not yet be making a strong financial contribution to the company, but that are in growth or otherwise attractive markets and are expected to take over the breadwinning role in the future, when today’s breadwinners eventually fade.”
Innovation and Branding
Further to Apples continued rise in the technology industry is its operational marketing strategy of brand promotion and continued innovation which are paramount to success. During the late 1980s and early 1990s it was a marketing executive from Pepsi, John Sculley, who turned Apple into the biggest single computer company in the world, with $11 billion in annual sales. Sculley invested heavily in brand marketing at Apple, boosting the advertising budget from $15 million to $100 million.
The Emotional Brand
Apple Computers Inc is the archetypal “emotional brand” (Gobe, 2007). It’s not just intimate with its customers; it is loved. Other examples are automaker Lexus, sportswear giant Nike and entertainment firm Disney. The Apple company is perceived as being about imagination, design and innovation. Emotional brands like Apple’s allow their businesses to go beyond commerce.
According to Gobe, emotional brands have three things in common:
• The company projects a humanistic corporate culture and a strong corporate ethic, characterized by volunteerism, support of good causes or involvement in the community.
Apple, comes across as profoundly humanist. Its founding ethos was power to the people through technology, and it remains committed to computers in education.
• The company has a unique visual and verbal vocabulary, expressed in product design and advertising.
This is true of Apple. Its products and advertising are clearly recognizable. The monochrome Apple brand is understated yet distinct. It is viewed as much more than a logo but a status symbol.
• The company has established a “heartfelt connection” with its customers.
This can take several forms, from building trust to establishing a community around a product. In Apple’s case, its products are designed around people: Using the iPhone as an example, it brings an emotional, sensory experience to communication.
People are drawn to brands such as Apple because they are selling their own ideas back to them, “they are selling the most powerful ideas that we have in our culture such as transcendence and community — even democracy itself, these are all brand meanings now” (Klein, 2007)
Innovation
Innovation and product development have become a key strategic focus for today’s most successful companies, particularly in the technology industry (Doyle, 2006). Continuous innovation is perceived as the only way of sustaining above average growth and profitability. Apple Computers Inc have found that aggressive, low cost competitors make it increasingly difficult to maintain profit margins on current products. This is why Apple have taken the marketing strategy of combining continuous innovation and branding to translate to continually updating their products, adding new ones and broadening their range.
In an era when most technology companies have restricted spending to adapt to a slower-growing market, one company stands out for forging ahead on innovation: Apple Computers Inc. By combining technical expertise with a new concept for how to sell music online, Apple’s iPod music player, for example, has become the most influential technology product in years. At the same time, Apple has maintained its reputation for making the most elegant, easy-to-use desktop computers.
Today Apple is an iconic company. Some of the power of its brand comes from the extraordinary story of a computer company rescued from near-collapse by its co-founder, Steve Jobs, who returned to Apple in 1997 after years of exile, reinvented it as a consumer-electronics firm and is now taking it into the billion-unit-a-year mobile-phone industry. But mostly Apple’s gusto comes from the brand reputation for inventiveness and innovation.
Innovation remains an imperative at least, for businesses that expect to retain their competitive edge, achieve growth and ensure their brands stay fresh and relevant in anticipating and meeting customer needs (O’Donnell, 2007).
Successful Innovation can be an important driver of organic growth and a powerful differentiator that adds substantially to a brand’s value (AUTHOR, YEAR). Apple are a prime example of this as their business and brand power have soared on the strength of its demonstrated excellence at innovation.
A key component to Apple’s success lies in the fact that senior management realise innovation can arrive externally as well as within the company. In fact, its real skill lies in stitching together its own ideas with technologies from outside and then wrapping the results in elegant software and stylish design. (The Economist: Network Innovation 2007)
Apple illustrates the importance of designing new products around the needs of the user, not the demands of the technology. Many technology firms think that clever innards are enough to sell their products, resulting in gizmos designed by engineers for engineers. Apple has consistently combined clever technology with simplicity and ease of use.
To remain innovative you need a very product-oriented culture, especially in a technology company. According to Apple CEO Steve Jobs “Lots of companies have a large pool of talent with gifted engineers and intelligent management, but ultimately, there needs to be some gravitational force that pulls it all together. Otherwise, you can have illustrious pieces of technology in existence but in an unstructured and unmanaged way, which holds no benefit.”
Conclusion
Innovation is not strictly either art or science. Room must be made for both analytics and intuition, and the mix has to be managed. When the process and approach are skewed too heavily toward science, creativity is stifled, breakthrough ideas rarely emerge and innovation is, at best, incremental. Skew too heavily toward art, and ideas are often “off strategy,” operationally infeasible or commercially unviable.
Brand-building goes beyond reputation management to give a firm a sustainable point of competitive difference from its rivals, based on rational and emotional values integrated into the firm. Because a brand is tangible (consisting of carefully managed associations in the mind of the target audience), a corporate brand can be built around a firm as readily as a product brand around a product
Apple’s brand strength is unmatched among its competitors, because it pays attention to people’s needs, people return that attention with money and emotional (sometimes illogical) devotion. This emotional brand connection helps the company overcome some of its problems. That emotion helps customers forgive Apple when it screws up and buy anyway. Simply put, Apple understands people. It knows that people make emotional decisions, then use intellect to justify those decisions.
BIBLIOGRAPHY
Blythe, Jim. Marketing strategy / London : McGraw-Hill Education, 2003
Doyle, Peter and Stern, Philip. Marketing management and strategy / Harlow : 4th Edition – Financial Times Prentice Hall, 2006.
Gobe, Marc. Emotional Branding: The New Paradigm for Connecting Brands to People – New York : Allworth Press, 2001.
Hooley, Graham J. , John A. Saunders, John A. Piercy, Nigel F. – Marketing strategy and competitive positioning. 3rd ed. Harlow : Financial Times Prentice Hall, 2004
Klein, Naomi – No Logo – Flamingo; New Eng edition (2001)
JOURNALS
Kevin O’Donnell – Countering The Innovation Backlash – Marketing News – (Branding) Viewpoint 09/01/2007
The Economist: Network Innovation Lessons from Apple – 07/06/2007
WEB BIBLIOGRAPHY
www.Apple.com/hotnews/iPodreport/
(accessed 07/02/2008)
www.Appleinsider.com/articles/08/02/06/report_Apple_cuts_iPod_iPhone_and_macbook_orders_again
(accessed 07/02/2008)
http://www.macobserver.com
(accessed 08/02/2008)
http://www.macobserver.com/podcast/2008
(accessed 08/02/2008)
