Apple was founded by Steven Wozniak and Steven Jobs in 1976. The company was founded by releasing the first successful mass-produced personal computer. Steve Wozniak designed the Apple I design was his addition to the success of Apple. Steve Jobs recognized the potential market for the personal computer. Their combined talents created the successful start of the company. The technology market is fast paced and Apple has shown growth and innovation to stay at the forefront of this market. The company has expanded from the Apple I and desktop computers to mobile computers, PDAs, MP3 players, and most recently the mobile phone market. Innovation has been a key role in the success of Apple
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As a business strategy, Apple “leverages its ability, through the design and development of its own operating system, hardware, and many software applications and technologies, to bring to its customers around the world compelling new products and solutions with superior ease-of-use, seamless integration, and innovative industrial design.” This strategy has worked well for the company since it first opened. Apple has been able to create brand strength by focusing on a limited number of products ensuring that they are high quality. They have focused on their innovative strength playing up the release of their product by keeping them behind closed doors and when ready Steve Jobs announces and demonstrates the product which creates an excitement in consumers waiting to see what the latest and greatest technology will be. Apple has also built a customer loyalty not seen in its competition. With the recent releasing of the “i” products, iMac, iPod, iTouch, and iPhone loyal consumers have been referred to as icustomers due to their loyalty to the brand. Apple has used the “i” product to create a Halo effect for its other products. Using the lower cost products like iPods to show the ease-of-use and high quality of products that Apple produces to create a selling point for higher end products like their desktops. The Apple Company has also created partnerships with their competitors which has strengthened the company. Rather than use time researching and developing some products like Google maps and YouTube, Apple has incorporated the already market saturated applications in their products. The time and funds are better served researching and developing the next product that will wow the market.
Apple’s overall financial standing is forward moving and shows good growth. Net income has constantly increased each year with an average 38.1% growth over the past three years. In 2004 Apple eliminated the $300 million of long-term debt it had outstanding resulting in no long-term debt reported from 2003 to 2007. This debt was eliminated without funding reduction in other areas of the company.
Apple is the market share leader for MP3 players and smart phones, but is far below the market shares of its competitors in computers. Apple held only 8.5% of the market share in the second quarter of 2008 compared to Dell Inc at 31.9% and Hewlett-Packard at 25.3%. In 2007 Apple held only 6.4% of the market compared to Dell Inc at 27.9% and Hewlett-Packard at 25.8%. Apple’s sales have been made up of an average of 46% of their total net sales from 2004 to 2007. When the market share dropped in 2007 sales still increase for the overall but was due to increases in iPod sales and other music-related products and services that had significant increases that year. The low market share in 2007 can be explained by the economic recession. Consumers in a weak economy look towards the less expensive options available which shifts the market towards Apple’s competitors Dell and Hewlett-Packard.
Apple’s products do have some degree of cannibalization. Each product line has offering for different cost based markets and the differentiation of products has started to blur. iPods serve a low price market, iTouch serve a midrange market and the computers represent a high price market. The technology market fluctuates very strongly with the economy, so with a down turning economy iPods would cannibalize the sales of the iTouch product. iPhones also incorporate a music player eliminating the need for both the mobile phone and music player. Still sales of each item have shown an overall growth each year in the market with exception to computers. Below is a table representing the percent increase of sales that Apple has in desktops and laptops. The overall growth percentage of sales has fluctuated but comparing years with similar percentages of growth, 2005 and 2007 show that laptops have cannibalized desktops. In 2005 desktop sales had a 35.5% growth by units from the prior year and laptops only increase by 7.3%. In 2007 desktops growth per units sold was only 10.3% and laptops increased 33.8% from the prior year. Apple will see a common trend for iPods in relationship to iPhones and other products that incorporate music players in future years.
% Unit Sale Increase from Prior Year
Another weakness Apple has is issues that have surrounded new product releases. In 2001 when the first iPod was released it was criticized for its short battery life which lead to lawsuit filed for misrepresenting the battery life. Again in 2005 with the release of the Nano customers complained about the devices reporting that they would freeze up, stop functioning, and that the products casing was very susceptible to scratches. Despite the poor product releases the iPods consumers still found the product to be a quality product and iPods still held the top market share of MP3s. In 2007 the second generation of iPhone was released and the price was lowered to $399. This was described as larger-than-normal price drop in a short period of time and had consumers speculating that Apple had unfair pricing. These issues that Apple has faced with product releases show that there is a flaw in Apple’s research and development process. If Apple was to experience a recall on its products or continues to have issues like these for its new products their products will no longer be seen as high quality and will create a fear in consumers to wait to purchase Apple products until they know that it doesn’t have any issues.
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The final weakness that Apple has is its reliance on Steve Jobs as CEO. It wasn’t until Steve Job’s returned with his “expanded role” with Apple that it started showing consistency in the forward successful movement to achieve the company’s strategic objectives. Between 1981 and 1997 Apple was under the direction of six different chief executive officers. In 1997 Steve Jobs was given an expanded role and in 2000 became the official CEO. Starting in 1997 Steve Jobs made many changes including, a new board of directors, initiated aggressive advertising campaign, created an alliance with Microsoft ending their legal dispute, start an e-commerce for consumer direct sales, and releasing the iMAC a product for the lower-end consumer market. After 2000 and the official announcement that Steve Jobs would be Apple’s CEO he continued to expand on the successes releasing the iPod which opened up the music industry to the company and many additional opportunities over the next years. Apple needs a leader like Steve Jobs to keep the company on a forward moving path using its strategic plan. The other CEOs that Apple has had have not been able implement the strategic plan like Steve Jobs who co-founded the company.
Apple’s low market share exists due to its higher price and software compatibility. In 1997 Steve Jobs started to close the software compatibility gap by creating an alliance with Microsoft who agreed to make Windows available to Mac users. Apple will not reduce its price, at least not enough to compete with Dell or Hewlett-Packard, the products price is part of the brand image as a quality and innovative product. I would recommend Apple attempt to keep their market share at 8% or higher for the computer market. To achieve this Apple should use smaller price reductions that would not effect product perception. Other than price reduction the only way for Apple to increase market share would be to create a new innovative product related to the computer market.
“Pretty much, Apple and Dell are the only ones in this industry making money. They make it by being Wal-Mart. We make it by innovation.”
– Steve Jobs
In relation to Apple’s products and the potential for cannibalization between them I would recommend research and development of a software product that can allow you to share files, music, and applications between the products. Currently Apple offers MobileMe for a $99/year fee for a service that can be accessed through applications on a consumer’s iPhone, iTouch, or Mac that provides 20 GB of off site storage. Verse this option that is competing with free versions like DropBox I am recommending a wireless sync between products so files can be moved quickly and conveniently between the products with a simple touch. Moving music, presentations, or pictures between the devices with easy would help build value in owning multiple products in similar markets.
My next recommendation would be to assess Apples research and development process. The release problems that Apple has experienced show an effect on sales and effect the high quality brand name that Apple has worked hard at maintaining. Currently Apple only uses 3% of net sales for research and development. I would suggest taking more time and using more funds in necessary to ensure that the products they release will not continue to this trend of negative product releases.
My last recommendation would be to lay the ground work for Steve Jobs replacement. I would recommended using someone already working for Apple that understands the strategic plan and foster a mentorship for this person for a few years to create a smooth transition. I would recommend if a all possible for Steve Jobs to not just exit the company but remain in an advisor position as part of the company’s board to ensure that his successor remains on track to achieve the strategic objectives that have make Apple a successful company.
Amazon opening Droid application store
Apple announced a few days ago, Bertrand Serlet, a senior software engineer at the company since the return of Chief Executive Officer Steve Jobs in 1997 and a main architect of the Mac operating system was leaving Apple
2007 around the same year of the iPod release and iTV Apple dropped “Computers” from company name.
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