Apple’s encouragement of differentiation between product designs and its promotion of secrecy around new product launches heightens the Apple mystique. These create the Apple “halo effect,” where a buyer of one Apple product has a high probability of returning to Apple for other products as well.
Apple’s has emphasized its unique retail stores through design for several of its flagship locations as well as tailoring the retail experience to include product “test drives”, classes and workshops geared teaching users about its products. With relatively light presence in lower-margin, higher-growth geographic areas, Apple will experience less of its halo effect and reduced product/brand recognition, lowering sales potential. With China and India estimated to make up about 66% of PC market growth through 2010, this could be a significant challenge for Apple.
Competition Against the Mac: Apple’s position is improving in the worldwide PC market; the Mac still represents a small fraction of the overall PC market. Apple enjoys a unique advantage of having something of a niche market without needing to compete directly with Hewlett-Packard Company (HPQ) and Dell (DELL) and Microsoft (MSFT) operating systems for enterprise endorsement.
Against the iPod: Although Apple remains the industry leader in PMPs, the competition is making significant gains. The popularity of flash-based PMPs is problematic for Apple, which has much stronger market presence in hard-drive based (HDD) players. To combat this, Apple may release a new flash-based line of players.
Apple in the Living Room Apple’s iPod and iTunes are a powerful combination that fosters a network style of increasing returns. By selling iPods, Apple increases the consumer demand for music from iTunes. By placing more musical choices on iTunes there is more demand for iPods. Apple is shooting for the digital living room of the future. For example, Apple just released a “boom box” portable version of the iPod. This comes with a remote control. Apple is clearly trying to develop a stronger core competency in the entertainment area.
Style at a Premium Apple’s products are trendy and stylish. After Jobs returned in 1997, Apple retained a special designer called Jonathan Ive to differentiate their computers. Ive’s design of the iMac included clear colorful cases that distinguished Apple computers. Apple positions its Macintosh computers as higher quality and higher price. HP, Dell, and other PC manufacturers are pricing many systems. Although the Mac Mini is a base model with few features, it comes in a very small and distinctive package. Apple portrays this computer as “Small is Beautiful”. (Apple) Likewise, the iPod Shuffle was Apple’s first entry of flash-memory-based portable music players.
Apple and the Digital Lifestyle Apple not only dominates the music player market, its iLife suite provides consumers with easy-to-use software for music and video composition. With “podcast” a household word, Apple’s Garage Band application makes the recording of podcasts and music very easy.
Operating Segments Apple breaks its sales into five “operating segments”. The chart below shows the sales by segment for each year 2002-2005. On a percentage basis, only the retail segment appears to be outperforming the others.
Differentiation Apple pioneered the PDA market by introducing the Newton in 1993. Later, Apple introduced the easy-to-use iMac in 1998, and updates following 1998. In 2001, Apple hit another important historical point by launching iTunes. This marked the beginning of Apple’s new strategy of making the Mac the hub for the “digital lifestyle”. Apple then opened its own stores, in spite of protests by independent. Then Apple introduced the iPod, central to the “digital lifestyle” strategy. Philip W. Schiller, VP of Worldwide Product Marketing for Apple, stated, “iPod is going to change the way people listen to music.” He was right.
Apple continued their innovative streak with advancements in flat-panel LCDs for desktops in 2002 and improved notebooks in 2003. In 2003, Apple released the iLife package, containing improved versions of iDVD, iMovie, iPhoto, and iTunes. Apple continued its digital lifestyle strategy by launching iTunes Music Store online in 2003, In 2003, Apple released the world’s fastest PC (Mac G5).