Apple’s Competitive Strategy

Thinking Outside of the Apple Box. When Steve Jobs launched the iMac in 1998, he was quoted as saying, "these new product lines give people what they want most, a lightning fast laptop and a striking new consumer Macintosh." Is Jobs correct in this assessment? Is speed, look, and brand really the main drivers for consumers? Did Jobs' strategy to capture market share in the personal computer industry focus on the right aspects? This paper will venture to say no and suggest the following alternative strategy: Apple should build a new business in "Wintel" PCs, while continuing to sell Macs to the design and publishing segment of the market. In order to support this conclusion, Apple's competitive advantages and industry forces must be analyzed.

Apple has been in business since 1976, and has built a number of competitive advantages along the way. Four such differentiations are brand loyalty, innovative hardware design, dedicated market shares, and ease of use. What Jobs recognized in 1998 is that consumers did want a Macintosh. Apple's brand commitment is strong, and has been since the 1970's when Apple user communities were founded to bond enthusiasts. A key component to this is Apple's ease of use. "Adding extra hardware and software to a Mac was almost as easy as plugging speakers into a stereo system." Because of this loyalty, Apple was able to form a tight knit relationship with its customers, particularly within the education and design & publishing industries, which accounted for 80% of Apple's market position in 1998 (Exhibit A). Furthermore, the 1998 "Think Different" campaign propagated Apple's image as inventive and trendy. It enabled Apple to become a substitute based on design alone, giving it a particular edge over its khaki-clad competitors.

Albeit these advantages, Apple still managed to lose a large amount of profit, and its market share dwindled from 8% to 3.4% from 1995 - 1998 (Exhibit B). The company also slipped in the education sector during this time by as much as 14% per year. In order to understand why Apple was losing so much ground, we must look into the power of suppliers and buyers in the industry. Most notably on the suppliers' side are microprocessors and operating systems, where Intel and Microsoft are the dominant names. Because of their quasi-monopolies, which enable them to control commodities and manipulate pricing, these two suppliers have tremendous influence. Buyers, who also have strong influence because of the wide array of products available, were drawn to the Intel/Windows package ("Wintel") because of the brand names, lower costs, and the wide proliferation of the products. Apple, however, chose to implement a PowerPC/MAC OS combination over the standard "Wintel" package. The main fallacy in Jobs' outlook was following this proprietary strategy. As a result, Apple's reach to customers diminished. In 1998, Macintosh's operating system market share was at 5% compared to Microsoft's dominance of almost 90%.

Continuing to package Apple's hardware with a microprocessor and operating system that lacks familiarity and popularity is problematic. The only reason to do so would be to exploit the one market where the PowerPC/MAC OS combination has been overwhelmingly successful. In 1998, within a $300 billion industry, 85% of U. S. graphics professionals used a Macintosh. In fact, U. S. graphics professionals selected Mac over Wintel 3:1 when purchasing new computers. Taking advantage of a rather inelastic demand curve due to preferences, Apple should focus Mac sales solely on the design and publishing industry and gain from the deep pockets and high profit margins that exist there. On the consumer end, however, Macintosh has lost the battle in the operating systems war and needs to acknowledge that and move on. Apple's competitive advantages lie elsewhere. Combining their design, brand name, and ease of use with a "Wintel" standard will help the company aggressively compete for and attract market share. Furthermore, this strategy can aid in the foreign arena, where Apple has the recognizable brand name and "Wintel" is the dominant platform. With analysts predicting the largest increases in growth rates through 2005 to be in the Asia/Pacific and the "rest of the world" , Apple will have a greater outlook for global success.

Overall this strategy calls for Apple to focus on their competencies and move away from inefficient practices of the past. Allowing themselves to think outside of their proprietary boxes will no doubt increase their abilities to see ahead on the road to profitability.




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