Swot Apple Case Study

SWOT Analysis.

A SWOT analysis is a situation analysis, which involves an in-depth assessment of forces in the external and internal environments that can impact the success of the company’s strategy over time. The method of the SWOT analysis is to take the information from an environmental analysis and separate it into internal (strengths and weaknesses) and external issues (opportunities and threats).

Strengths * Largest market share: 70% of the digital music market. The closest competitor to Apple’s iPod had only 8% of the market share. * Focus on innovation as a competitive advantage. * Product sales of $100 million * Strong sales growth: 35% growth in total net sales by operating segment and 35% growth in total net sales by product. * iPod as the “profit machine” as it tends to produce a 50% profit margin per unit. * Relationships and partnerships: iTunes has agreements with all five major record labels: BMG, EMI, Sony Music Entertainment, Universal, and Warner Bros. as well as more than 200 independent labels. Apple also reached agreement with major movie studios: Twentieth Century Fox, The Walt Disney Studios, Warner Bros., Paramount, Sony Pictures Entertainment, MGM, Lionsgate, and New Line Cinema. * Marketing Strategy: In 2003, Apple was awarded Advertising Age’s Marketer of the Year for its upbeat, original, and memorable advertisements for both its iPod and iTunes. Apple has been acknowledged as one of the best marketers by many different sources and has had a reputation over the years of being a brand that can gain customers through well-thought-out and carefully executed marketing strategies. * Apple’s approach of differentiation=innovation. While competitors do everything they can to keep costs down, Apple does what it can to make its products different. In 2007, for the third year in a row, Apple was named as The Most Innovative Company by BusinessWeek. * Strong leader. CEO Steve Jobs is “a legend for his design sense”. He is essential to the promotional aspect and public relations of Apple, especially when it comes to the iPod. He is the “public face and champion of the brand”. He is also an expert when it comes to talking with the press, maintaining relationships with magazine editors, and creating new relationships. Jobs has the ability to think of ideas that he is extremely passionate and energetic about and is always ready to share that idea to gain exposure. * Customer relationships (responsiveness to customer feedback). This ties into Steve Jobs’ strong leadership as he takes action in response to customer feedback to show that the brand is listening and concerned. * Brand Exposure. Part of Apple’s marketing strategy is its retail stores. Apple has opened more than 200 retail stores located worldwide. Apple’s retail stores contributed an estimated $200 million, 15 to 16% of its profits during the past two years. The reasoning behind the stores is the belief that the more people can touch an Apple product and see what it can do with their own eyes, the greater the potential market share. The stores also offer free group workshops, personal training, and personal assistance for Apple customers. * Strategic partnerships with well-known brands: Apple has created marketing agreements with Volkswagen of America, Burton Snowboards, Nike and Starbucks. This ties into consumer confidence as well as exposure through marketing partner advertisements. * Product design and features. Products that show superior qualities, that are easy to use and that have a high quality format, but mainly that show a clear product differentiation. * Strong financial performance: strong sales and potential growth, strong cash flows, an increasing net income, decreasing debt and controlled inventory.

Weaknesses * Profit per song is low: Even though iTunes is simply used as a means to boost the sales of iPods, iPhones and Apple TVs, Apple makes only approximately 10 cents per song. * Unpopular Apple TV features: users are not able to download a movie from iTunes directly to their TV; they have download it to their PC first. Apple TV requires a HDTV, but the movies that can be downloaded are of such low resolution that the picture looks fuzzy and old-fashioned, and lastly, it has no DVD drive. * Hard time finalizing contracts with move studios because of pricing disputes. * Struggle with maintaining good supplier relationships. Many companies have expressed frustration working with Apple because Steve Jobs is very clear on his vision for his products and can tend to be controlling. * Incompatible software in computer and digital music format. * 1% of the global cell phone business.

Opportunities * Brand exposure through retail stores. * International growth and expansion. Apple is pursuing opportunities to sell the iPhone globally. It already has partnership agreements with cell phone carriers in France, Germany, and Great Britain. It has also entered the Middle East and Africa regions, ranking fifth next to Nokia, Research In Motion, HTC, and Motorola. Apple is also trying to penetrate the Japanese market since it is one of the world’s largest and most demanding mobile phone markets with almost 100 million mobile phone users. * Expansion in product line. Apple is trying to expand its product line to include media and software in addition to hardware. * Expansion in customer base. Apple is also trying to reach many different consumers rather than its traditional of tech-savvy consumers. * Improvements in compatibility. * Improvements in strategic partnerships. Apple needs to search for more strategic partnerships and better its relationships with its suppliers so effective agreements can be reached. * Growth in new user segments

Threats * Competitors’ threats. RealNetworks sought a price war with Apple by dropping the price to $0.49 per song and $4.99 per album compared to Apple’s price of $0.99 and $9.99 respectively. RealNetworks also launched technology called Harmony, which allows RealNetworks users to translate songs purchased from RealPlayer Music Store into a format that can be played on an iPod. It also allows RealNetworks music to be played on Microsoft formats.
Wal-Mart launched its own online music store and is currently the number one music retailer in the nation, followed by iTunes. * Technology and entertainment industries are constantly and rapidly changing so Apple has to find a way to keep its reputation related to innovative design. * Threat of start-up companies and competitors. The risk of new entrants is high in the player and music service businesses as well as in the mobile phone market, particularly from large, established consumer electronics companies, such as Casio, Sony and Toshiba (for players) or from on-line companies like Yahoo and Microsoft or retailers like Virgin Music (for downloads). Given the attractiveness of these markets, new competitors are likely to enter because of low barriers to entry.
The notable acceptance and profit made by RIM's Blackberry demonstrate the potential of new entrants to increase rivalry. Due to the success of the iPhone and the Blackberry, other producers will undoubtedly attempt to imitate their appealing features and functional applications in order to create customer value and compete effectively with their own smart phones. In addition, Apple's exclusive use of Cingular/AT&T does not prevent the phone service provider from entering potentially harmful agreements with the company's competitors, such as its threatening relationship with rival Palm. * Apple's dominance and relative power in the music industry (as well as Jobs' reputation for control) may build resistance among film producers who are accustomed to maintaining their own levels of control over content. * Price sensitivity. The company's entrance into the mobile communications industry with the introduction of its iPhone has placed Apple in another highly competitive industry, where several large, well-funded, and experienced competitors operate. Price sensitivity on the part of consumers is very strong, and rivalry is especially fierce in this market. * A close look at Apple's competition reveals that the company is confronted by aggressive opposition in all areas of its business. The markets for consumer electronics, personal computers, related software and peripheral products, digital music devices and related services, and mobile communication devices are intensely competitive. They are characterized by rapid technological advancements, which have substantially increased the capabilities and use of PC's, digital electronics, and mobile communication devices. As a result, a variety of new products with competitive price, feature, and performance characteristics are being introduced into the marketplace. Price competition in Apple’s main product markets has been particularly fervent. * Continuous downward pressure on Apple’s margins as it is common for competitors selling personal computers based on other operating systems to aggressively cut prices and accept lower product margins to gain or maintain market share. * Other than price, key competitive factors in the computing market include product features, relative price/performance, product quality and reliability, design innovation, availability of software and peripherals, marketing and distribution capability, service and support, and corporate reputation. As the industry and its customers become more reliant on Internet connectivity, alternative (even substitute) devices are becoming increasingly smaller, simpler, and less expensive than traditional PCs. These devices compete for market share with Apple's desktop and laptop computing products. * Potential collaborations between competitors and content providers to offer integrated solutions that produce more value or exclude Apple from access to content.