Case Apple
What should Apple do to sustain its position?
Klaus Castrén, Somayyeh Jaferi, Saara Sulonen
Agenda
• Issues and Background
• Current initiatives and available
choices
• Our recommendation for way
forward
• Reasoning
Despite growing sales, Apple has some issues
to address
Net sales by product category
Symptoms:
• Declining sales in Mac and iPad product categories
• Gross margins declining 44%  39% during last
two years
• RONA decline 24%  18% during last two years
120000
100000
M$
80000
60000
40000
20000
0
2002 2004 2006 2008 2010 2012 2013 2014
Mac
iPod
iPhone & related products
iPad
Gross Margin %
50
40
30
20
10
0
1997
2000
2003
2006
2008
Gross Margin %
2010
2014
Reasons:
• Overly reliant on iPhone
• Assets in form of retained profits increased
significantly
• Blockbuster products launched long ago, are in a
more mature phase of lifecycle
• Margin erosion can be expected to continue
• Competition in new products and markets
Product portfolio
Service ecosystem layer
Apple’s strength is the ability to design compelling total
offerings – simplicity and convenience through ecosystem
iCloud
AppStore
Apple Pay
Apple X?
iTunes
Apple TV
Mac
Computer
iPad
iPhone
Apple
Watch
The ecosystems leverages Apple’s design capabilities and complementarities to
build superior offering for target segment
New Markets?
Apple has a strong position in the premium
segment with highest margins
• Some remarks, for instance apple generates most of the personal
computer industry’s profits with only a small market share
Price
Lenovo
Thinkpad
iMac
Macbook
Toshiba
Fujitsu
Acer Travel Mate
Lenovo Idea Pad
Price
iPhone
Samsung S7
MacBook Pro
LG
Sony
Dell
HP
Samsung
Windows
Huawei
Illustrative
Motorola
Benefit
Illustrative
Benefit
Agenda
• Issues and Background
• Current initiatives and available
choices
• Our recommendation for way
forward
• Reasoning
Apple’s current action points are insufficient
• New market segment of enterprise apps through partnership with IBM
• Apple Watch and Apple Pay introduced
• Licensing Apple brand for 3rd party accessories manufacturers
These actions help in increasing sales, but
• sustained impact on profitability is questionable
• the actions are not sufficient to maintain Apple’s position
as a premium brand driving the market with innovative
products and services
Apple’s future actions must consider value
comprehensively: what, to whom and how to deliver?
The Three V’s*
Main strategic implications for Apple
•
What is the Value Proposition
Apple wants to deliver?
To which Valued Customer does
Apple want to deliver this?
What is the ideal Value Network
for delivering?
•
•
•
•
•
Should Apple continue emphasizing superior convenience, design and
performance in the future?
What kind of portfolio maximizes the value – how should the products and
services interact?
Does Apple want to continue targeting the premium segment in the markets it is
active in?
Are there new markets and segments Apple should aggressively explore?
Does Apple need more control in the value chain for ensuring its value is
delivered?
Could partnerships yield access to capabilities that can improve the competitive
position?
*From Kumar, Nirmalya. 2004: Marketing as Strategy: Understanding the CEO’s Agenda for Driving Growth and Innovation. Harvard Business Press.
Agenda
• Issues and Background
• Current initiatives and available
choices
• Our recommendation for way
forward
• Reasoning
Our recommendation
• Don’t go downmarket!
• Develop smartwatch in two phases:
1. make compatible to properly leverage Apple ecosystem,
2. invest in technology to see if it can become a true replacement for smartphones
• Continue building convenience through ecosystems around the products observe developments in the market and react with rapid
development/acquisition of future ”app stores”
• Expand Apple Stores’ network for ensuring perfect customer experience
and control of brand communication
• React to Intel’s superiority in microprocessors – explore partnership
opportunities for developing Mac technology to the next level
Agenda
• Issues and Background
• Current initiatives and available
choices
• Our recommendation for way
forward
• Reasoning
The current premium segment is where Apple
should be
• Going downmarket can be shown
irrational by just looking where
the fiercest competition and
tightest margins are
• It would also potentially dilute
Apple’s brand
Industry gross margins
33.5%
21.8%
Apple
Computing
industry average
Smartwatch leverages all of Apple’s strengths
and may resolve the dent in profitability
As a replacement
for iPhone
$$$$
Smart Watch
Apple needs to be a market driving company
High volume,
high margin
product?
As expensive
replacement for
watches $$
• Smartwatch may transform mobile
communication forward from the phone
• Opportunity for starting a new product
lifecycle and associated large profits
• Possible cannibalization of iPhones
• Introduction that is strategically a smart
move
• Wearable technology
• potential IoT control point
Appel Pay is a good move towards more
integrated digital Apple hub
• Apple’s historical huge success has been from innovative products
and software that complements it, no reason to belive future will be
otherwise
• Apple has ability to draw developers to doing cool things that others
lack
Apple products over time
Macintosh
Portable
Mac
Powerbook
Macintosh
1984
Power
Macintosh
1989
1991
iTunes
iMac
1994
Macbook Pro
New iMac
iPod
1998
2001
2003
iPad
iPhone
AppStore
2006
2007
2010
Apple Pay
Apple Watch
2014
Build the brand by bringing Apple to cool
places
• Apple’s huge following is perhaps its most significant asset : users
actually love the products
• Identify what drives this – potentially Apple’s new and hip image
Expand Apple Stores’ network:
• Apple has 450 Apple stores in only 14 countries, but these stores
generate 12% of Apple’s revenue
• Apple can control and build the brand image through Apple stores
• Control over customer experience remains with Apple and they
receive instant feedback through customer interaction
Apple should explore partnership opportunities with Intel to
improve power position and build technological differentiation
• In 2008 and 2010 Apple acquired microprocessor companies for higher control of
mobile phone supply – this move was apparently successful
• Intel, the leading-edge microprocessor company, is one of the most powerful
companies in the industry with a 88% market share and a 20,9% return on sales
(2014)
• A minority equity stake in Intel should be financially feasible with Apple’s current
cash reserves of $ 155 bn
• Possibility for developing semi-proprietary ”Intel for Apple” microprocessor
Apple would benefit from differentiating the Mac also by its
core technology – for this an equity partnership with Intel
could yield an advantage
Steps forward
1.
2.
3.
4.
5.
Stay in the premium market
Develop Apple Watch and Apple Pay further
Secure Apple’s brand image
Open more Apple stores
Investigate possible joint ventures
Appendix
Apple’s sales improvement spectacular despite
lowering margins and return on assets
Apple Sales, Net income and profit margin
RONA and Cash & Cash equivalents
200000
30.0 %
180000
180000
30%
160000
25.0 %
160000
25%
140000
140000
20.0 %
120000
20%
120000
100000
100000
15.0 %
15%
80000
80000
10.0 %
60000
60000
10%
40000
40000
5.0 %
5%
20000
20000
0
0.0 %
1
2
Net Sales
3
Net Income
4
Profit margin
5
0
0%
1
2
3
Cash & Cash equivalents
4
Return on assets
5