Iphone Vrio Model

Apple Inc. Case Study # 1 iPhone [pic] Professor Chug-Shing Lee BUSA 499 Capstone October 1, 2008 Analysis Conducted By Apex [pic] Ryan Boykin Ashley Fiorini Lance Tanaka Matt Webb Executive Summary Apple has demonstrated that innovation can lead to market dominance with products like the iPod. With products such as this, Apple has developed a brand that has built a customer base with astonishing loyalty. According to Business week, Apple was thirty third for top brands in the world. (Businessweek. om, 2007) Since they have developed innovative products with intuitive designs it has helped establish it as the premiere business for handheld electronics.

Over the past few years Apple turned its eyes on the cellular phone market which created some issues that our team has been able to identify. Team Apex discovered that the current price did not appear appropriate for the target market. At present the current marketing for most of Apple’s products seems to be for a more youthful and technologically advance demographic.

It is difficult to imagine the target market being able to afford the iPhone. This demonstrates that Apple’s target market may not be the right one for the current iPhone. Apple has had success over the past few years with mass production of electronic devices and would appear reasonable for them to exploit their brand to its full potential by developing new products. Currently Apple creates immense value for their consumers by offering products that are difficult to imitate.

Unfortunately, this will not stop current and possibly new companies from copying Apple’s success by developing similar products and launching similar target methodologies.

Get quality help now

KarrieWrites

Verified

Proficient in: Company

5 (339)

“ KarrieWrites did such a phenomenal job on this assignment! He completed it prior to its deadline and was thorough and informative. ”

+84 relevant experts are online

Hire writer

One way Apple has continued to be successful is by staying ahead of their competition and keep up on a constant stream of new products. When entering the cellular phone market Apple is facing numerous competitors and must offer a product that is unique to those counter parts. After analyzing Apple’s new product, the iPhone, it seems that there are a few courses of actions that could be taken.

When addressing the issues we have identified it seems that Apple should continue with the theme of developing multiple versions of the same product. Team Apex would suggest that Apple create a cheaper version of the iPhone more suited for business professionals and would be primarily used for phone calls, e-mail and web-browsing. This phone would have less memory then the current iPhone allow them to charge a lower price. This would in turn increase the volume of iPhones being produce and allow Apple to charge lower prices for all of their phones.

This case study has helped our team discovered new aspects about business that we never believe to be good courses of action. Apple has demonstrated to us that if you are not reaching the right market creating a new product specifically designed for that market. Looking at Apple’s line of iPods it seems almost ridiculous the amount and variety they have developed but when looking at it with the insight from the classes we have taken it can see that Apple has developed a digital music player for almost any type of consumer.

In the long term that is what our team would like to see happen with the iPhone. We also found that using strategic analytical tools such as Porter’s Five Forces and VRIO models, can help determine key issues a company faces while determine how they can create a competitive advantage. Developing these competitive advantage has been a key to Apple’s success and they must continue to determine how to sustain in order to stay dominate in the electronics.

In our analysis of Apple Computer, now known as Apple Inc. , we will unveil the company’s intricacies and how Apple has successfully positioned themselves within the communication industry. Apple Inc. esigns, manufactures, and sells computers, music players, and now mobile communication devices. Apple Inc. has always been known by its users as a revolutionary and innovative company that never fails to deliver quality products that make you say “wow”; the iPhone is no exception. With its introduction to the public at the Macworld convention in 2007 the vision for the iPhone was introduced as a bold, risky, and amazing concept with the focus on revolutionizing handheld devices and their total package capabilities. The ultimate goal for Apple Inc. s to transform and dominate the handset industry. In this study we will use proven industry testing methods such as Porters 5 Forces Model and Strategic Analysis to show the strengths and weakness of the corporation. Both methods will help us understand how Apple Inc. is currently functioning within the communication industry and where its real impact is on the structure of the $11 billion dollar a year mobile phone market. 2. Background Apple Computer Inc. was founded by Steve Jobs and Steve Wozniak in April 1976. It began as a computer software and hardware manufacturer. Apple Computer Inc. s noted as having one of the largest and most loyal customer bases that have helped solidify consistent growth for the company. In 2007 Apple Computer Inc. became Apple Inc. to reflect its expansion into the consumer electronics market while still maintaining its traditional focus on the personal computer. Apple Inc. has metamorphed from being known as strictly a computer company into a diverse technology company that is known for its art, video, graphics, and always pushing the envelope as a content creator. CEO Steve Jobs is not only the company leader he is one of it principal visionaries.

Jobs latest creation is the iPhone. He refers to it as a “magical device that will change the world. ” 3. Mission and Objectives 3. 1 Apple Inc. Mission Statement Apple Computer is committed to protecting the environment, health and safety of our employees, customers and the global communities where we operate. We recognize that by integrating sound environmental health and safety management practices into all aspects of our business, we can offer innovative technological products and services while conserving and enhancing recourses for future generations.

Apple Inc. strives for continuous improvement in our environmental, health and safety management systems and in the environmental quality of our products, processes and services. (Apple) 3. 2 Issues & Problems With careful analysis of Apple Inc. ’s current market positioning we have collectively agreed that there are two major criteria that Apex strongly suggests Apple Inc. re-evaluate in regards to the manufacturing, marketing, and selling of the highly recognizable iPhone. The first problem that the group identified is the current pricing of the iPhone.

Cost is extremely high and not within the budget of its target market. The second problem is the target market. To date Apple is focusing on the younger “techno” crowd. Though these consumers do covet the phone few actually have the resources to actually purchase it. 4. Strategic Analysis 4. 1 Porters 5 Forces Model v > ^ ^ 4. 1. 1 Threat of Entry Apple Inc. not only had to face a number of barriers to entry in the development of the iPhone but they must also worry about potential competitors overcoming them as well.

Although Apple currently has an advantage with its innovative products it must always be aware of the ease that a competitor can copy its products, especially in the extremely competitive field of cellular phones. However those new companies to the market will not only have to compete with the strong brand that Apple Inc. has built but will also have to face barriers more strenuous then what Apple had to face. 1. Economies of Scale Apple Inc. had an existing experience in manufacturing mass-market consumer electronics devices, many of which share similar components of the iPhone; so Apple Inc. was not negatively affected by this barrier.

Since Apple Inc. had the production lines and personnel to make advance electronic products such as, the iPod and their line of computers, it wasn’t difficult to develop a production line capable of mass production of the iPhone. New entrants may not have that comfort as the cell phone market is almost defined by its mass-market environment. A new company entering this market would have one of two choices available: 1) They sell their product at a higher price to make up for the fact they can’t sell the same volume as a company like Apple Inc. and must hope that the consumer sees the higher price as a indicator of better quality.

Or 2) They sell their product at a lower price probably occurring a loss per unit in hopes of selling a high volume and banking on sales of applications that can be purchased for the phone. In either situation it is extremely risky as both could lead to the company’s collapse. 2. Access to Distribution Channels Although Apple Inc. has had success with the distribution of its products it does face issues with this barrier due to the limited retailers of the iPhone and the fact that there is currently only one service provider. The iPhone is only available through a limited number of distribution channels those being Apple Inc. nd AT&T stores and auction websites, like eBay, and it is only supported by the AT&T network. A future entrant to the market could create an advantage by make their product more available for multiple carriers and multiple retailers. 3. Product Differentiation In general this trait is favorable for Apple Inc. because the iPhone is significantly different than most of its competitors. First and foremost, the iPhone 3G is a revolutionary phone with a high call quality as its main point of parity. A list of the iPhone’s highlighted features includes the iPod, Internet tool (Wi-Fi, 3G and EDGE network).

Apple Inc. also has a certain amount of protection through the strength of its brand identity. The problem with cell phones is product differentiation can be emulated, to a certain extent. Cell phones are pretty uniform in functionality and use and not overly differentiated between each other. However, recently LG with Verizon have just release the Dare, an iPhone like product, in hopes of attacking some of Apple’s market share. Not to mention companies like, Samsung and Nokia, have released designs and plans to develop their own versions of an iPhone. 4. Capital Requirements Since Apple Inc. ad already been successful with their computers and the iPod they had an advantage with having the capital required to start mass production of a new product. Apple Inc. also has experience with developing software and hardware, which gives them another advantage as they do not need to spend as much time and money in the research and development stages as a new phone manufacturer would. So, to most effectively compete with the iPhone they will need to invest significantly in certain areas. Apple Inc. itself did not face much resistance with this barrier because of their experience creating both software and hardware.

Companies looking to enter this market with have difficult barriers to overcome in order to compete at the same level as Apple Inc. and unless a company has experience in developing consumer electronics it seems very unlikely that they can experience similar success. 5. Government Policy Any company looking to enter this market has two governmental factors they must consider before entering the market: 1) the strength of current manufactures patents and 2) the regulatory obligations and approval requirements of the FCC (Apple Insider, 2007), which governs communication technologies in the United States.

Apple has gained another advantage by acquiring a patent and FCC approval for the IPhone. This will make it more difficult for competitors to copy the iPhone but we are sure will not stop companies from developing their own versions of this successful product. 4. 1. 2. Threat of Substitutes Porter’s five-force model validates that all forms of communication devices threaten the mobile phone industry as a whole. The iPhone’s top priority is to provide its customers with a complete solution in the mobile phone industry with added features and benefits.

Quoting Steve Jobs “the original iPhone, it combines three products in one — a revolutionary phone, a widescreen iPod, and a breakthrough Internet device with rich HTML email and a desktop-class web browser” (Steve Jobs, 2008). Examples of substitute industries include landlines, pagers, walkie talkies, computers, fax machines, and snail mail. If the mobile phone industry cannot meet the needs of its customers at a reasonable price, then substitute products play a key threat.

Landlines are evolving to be more of a direct competitor to the mobile phone industry, but they still provide its services at a different vantage point. Landlines are non-wireless receivers that are offered at a much lower cost than mobile phones. Computers (notebook and desktop) offer numerous options in the communication sector, which include electronic mail, live chat, and communication software. Collectively, fax, snail mail, pagers, and walkie talkies make up a small portion of the market share, but still pose a threat for unsatisfied customers in the wireless industry. . 1. 3. Threat of Buyers The buyers market consists of a large amount of individuals or corporations that own one or multiple cell phones. Due to the large market, the lost of a buyer is not a key threat. When a buyer is purchasing a new cell phone, the process at times is overwhelming due to the wide variety of differentiated products. Buyers play an important role in the strategic pricing for a new cell phone because they have no obligations in purchasing a cell phone from a single supplier.

Buyer’s spending habits will change accordingly with the economy’s position. For example, if economic profits are high then buyers are willing to spend versus saving their disposable income. Mobile phones have become integrated as a point of parity in the American lifestyle, and economic profits will determine the price a buyer is willing to pay for a cell phone. 4. 1. 4 Threat of Rivalry The number of competing firms within the mobile phone industry is increasing, while a few firms make up the majority of the market share.

Provided by CNET is a list of suppliers that operate within the same industry as Apple’s iPhone, and a count of their product offerings. [pic] Direct competition includes all mobile phones that can be subcategorized as a basic, smart, camera, mp3, or videophone. The industries large selection of mobile phone manufacturers creates a strong threat of rivalry. The iPhone has made its debut as a smart phone targeting the higher-income demographic, but this does not eliminate the fact that all subcategories of cell phones contribute to the strengthening threat of rivalry.

According to CNET Senior Editor Kent German (2008), the editor’s top cell phones include the LG Dare, RIM BlackBerry Curve 8320, Nokia N95, Samsung Instinct, Sony Ericsson W760i, and the newest edition of direct competition comes from Google introducing the T-Mobile G1. 4. 1. 5. Threat of Suppliers There are several suppliers of component parts in the mobile communication industry; therefore, manufacturers are able to make preferable purchasing agreements, allowing their manufacturing cost to then be reduced.

The low cost from suppliers puts pressure on manufacturing to in turn pass on the savings to the end consumer. Other suppliers offer specific applications to be used on mobile phones, including the use of digital games (Electronic Arts, 2008). Employees also are a key component as they supply knowledge and expertise to the development of mobile communication products. Without their skills, innovation would be limited, an imperative factor for survival in this industry. Research and development in this industry is vital to the success of a mobile communication product.

Suppliers in this industry are fundamental to a product’s successful development and its competitive advantage. 5. Assessment for Competitive Advantage 5. 1 Internal Strengths and Weaknesses A firm strives to achieve a competitive advantage in the marketplace to maximize value, and this is achieved using the VRIO framework. The VRIO framework consists of four questions that are used to analyze a firm’s internal strengths and weaknesses that determine its current situation. Provided by Barney, J. B. , and Hesterly, W. S. (2008) is a compiled list of the VRIO framework’s four questions, 1) The question of Value: Do resources and capabilities enable a firm to exploit an external opportunity or neutralize and external threat? 2) The question of Rarity: Is a resource currently controlled by only a small number or competing firms? 3) The question of imitability: Do firms without a resource face a cost disadvantage in obtaining or developing it? 4) The question of Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources? 5. 1. 1 VRIO Model VRIO | | | | |Value |Rarity |Imitability |Organization |Competitive Implications | |Brand |Yes |Yes |Yes |Yes |Sustained Competitive Advantage | |Design |Yes |No |Yes |Yes |Temporary Competitive Advantage | |Logistics |Yes |No |No |Yes |Competitive Parity | |Marketing |Yes |No |Yes |Yes |Temporary Competitive Advantage | Apple Inc. relies heavily on its brand’s reputation to sustain a competitive advantage in the marketplace no matter what product or service is being sold.

They are recognized as a top performance firm because they have learned to exploit the brand name into the marketplace creating a high-perceived value by customers, which are not easily imitated. The question of rarity defines the iPhone’s highest internal threat because other firms are able to share this field of expertise, which include its design, logistics, and marketing. The iPhone’s design and functions are unique, and the bar is set high for competing products. The question of imitability has allowed the iPhone as an emergent product to have a temporary competitive advantage, until firms were able to launch its competitive products. Depending upon the imitation product, the value detracted from the iPhone is strengthened as a variety of direct and substitution products are developed. Apple Inc. apabilities in exploiting their resources and capabilities to its fullest have landed the firm a spot as the seventh contender in Fortune’s top 20 most admired American companies of 2007. Provided below is eight key attributes in scoring brand reputation (Fortunes, 2007). [pic] 5. 1. 2. Resources and Competencies In the resource-based view, the resources of Apple Inc. , the developer of the iPhone, include both tangible and intangible assets.

The corporation’s tangible assets are its numerous factories and equipment, and its iPhone brand product (along with the Macintosh Computer and iPod). Another tangible asset of Apple, Inc. is its distribution system which consists of online retailers including Amazon. om; the Apple website; Apple stores; major retail stores including Wal-Mart, Best Buy, and Circuit City; and through cellular providers (Klazit, 2007). An organizational resource is its reputation among customers. Apple is known for its creativity and innovation which is an intangible asset. An effective capability of the company is its superior development of innovative products. Human resources are imperative to the success of Apple Inc. ’s iPhone, as every employee provides innovation, experience, intelligence and important relationships. 6. Industry Trends The wireless industry has experienced a tremendous growth in both its suppliers and buyers.

According to Plunkett Research, “There were more than 3 billion global cellular telephone subscribers by mid 2008, including more than 260 million in the U. S. alone” (2008). The mobile phone industry exploits its product’s lifecycle that continuously update its technology between the growth and maturity phase. This sequence has allowed for numerous amounts of technology to enter the mobile industry’s boundless lifecycle. The increasing competition in the wireless industry has plummeted pricing strategies for manufacturers and service providers. Cellular phones are becoming a necessity in today’s demand for immediate communication. Previously mentioned is the growing numbers in wireless subscribers, and there is a large market opportunity in potential buyers hat include first time subscribers and those who are ready to upgrade in technology. Quoting Plunkett Research (2008), “new cell phone handsets have been selling at a rate of more than 1. 2 billion yearly-making the cellular phone the fastest-selling single item of consumer electronics by far. ” The following statistics do not reflect Apple Inc. ’s target market for the iPhone, but its does demonstrate the industry’s increasing demand. According to the Cellular Telephone Industries Association (2008), “today, approximately 79% of all teens (17 million) have a mobile device – a 26% increase since 2005, and most teens have a conventional cell phone while about 15% own a smart phone. Economic variables will affect consumer behavior in purchasing a cellular phone, but it is inevitable that mobile communication devices have become integrated into the human lifestyle. 7. Strategic Development & Recommendation 7. 1 Strategic Option 1 The first option that we think Apple Inc. can implement helps cover both of the dilemmas we have identified. This option would to develop a new marketing campaign that would start to target business professionals. This would consist of dual advertising with one set of ads directed to the consumers who want an iPhone for personal use and media aspect of Apple Inc. ’s products, such as music and videos.

The other advertisements would be directed to business professionals with a stronger emphasis on more business useful applications like web browsing and e-mail. 7. 1. 1. Disadvantages of Strategic Option 1 However, there are advantages and disadvantages to this option. The first and largest disadvantage would be the capital and resources required to develop this new stream of marketing. Since Apple Inc. has had great success with their products, thanks to intelligent marketing campaigns, it seems that this would not be a major issue for them. Another disadvantage of undertaking a duel marketing campaign is that it could dissuade one of their target markets.

One of the markets could start to feel that the iPhone is not a good product for them because of advertisements suggesting that the product is more suited for business professionals or media users. The last disadvantage we have identified is that with any new marketing there is a chance of failure which could lead to a loss of capital for Apple Inc. 7. 1. 2. Advantages to Strategic Option 1 One advantage of this new campaign would be that Apple Inc. could tap into the professional market and create a new source of revenue. This would also allow Apple Inc. to being to receive a portion of the market share that Blackberry has over business professionals.

Another great advantage is that Apple Inc. could begin to create corporate accounts; these would be a lower price per unit to companies willing to buy a large volume for employees. By offering lower prices to companies purchasing mass quantities not only creates incentives for businesses but could also lead to a lower price across the broad for the iPhone. Due to economics of scale if Apple Inc. could begin to sale a large volume of iPhones they could eventually drop the price for all consumers. This could also allow Apple Inc. to start building more relationships with corporations and begin to interest companies into building their IT departments around Apple Inc. roducts. Currently Dell is the largest retailer to corporation as a majority of businesses have developed their computers systems around Dell personal computers. If Apple Inc. could build on relationships established by accounts for iPhones they could possible create incentives for business to convert to their line of computers. 7. 2 Strategic Option 2 The next option our team discussed and believes would work best for Apple would be to approve the research and development of a new iPhone. The new product would be specially designed for the business professional while leaving the current iPhone for a more youthful or media oriented consumer.

Our team believes that Apple could design an iPhone with better business applications and wouldn’t require the memory and storage the current iPhone needs for media options. An idea our team had was to develop an iPhone with which a professional user could possible view a power point while taking a call so that person could view and hear a presentation anywhere. 7. 2. 1. Disadvantages of Strategic Option 2 The disadvantages here are even more severe then the first option as the money and time required to develop such a product would be great. This also gives time to the competition that are already targeting business professional to strengthen their grip on that market.

Other disadvantage are similar to our first strategic option as consumers might choose a different brand if they feel they can’t get all the options they are looking for with either iPhone. Apple Inc. could also end up spending a great deal of money on an unsuccessful product as they not only would have to create this new product but again would need to create marketing for it as well. 7. 2. 2. Advantages of Strategic Option 2 One advantage would be the ability to offer this new iPhone at a lower price than the current one. Since the new iPhone would not have to have as many applications and storage space as the current one, they could sell it at a lower cost to the consumer.

Again building corporate accounts could be another benefit of developing this product and businesses could have more of an incentive for this product as they would feel that it is a product built for business uses. Apple could also begin to sell a large number of this new product and could lead to them being able to offer both iPhones at a lower cost and take control of both markets. Apple Inc. could also become more actively involved with corporations and could again work on building relationships to interest companies in purchasing computer systems by them. 7. 3 Measurement The strategy chosen will be measured in a number of ways. One way that the results will be measured is through Apple Inc. ’s market share of the mobile communication industry.

This will be calculated as a percentage of the total market share in sales. Another way the strategy will be measured is through an increase of sales. Taking into consideration external forces including competition, the economy, and other influences, an increase of sales may indicate whether the implemented strategy has been successful. 8. Strategic Implications 8. 1 Managerial Implications Evaluating the mobile phone industry as a whole, we better understand the difference between root causes and symptoms when analyzing Apple Inc. The issues we have identified in this case helped instill the fundamentals of obtaining a sustainable competitive advantage.