The PC has a history of being immobile, and with a tablet, it is possible for a student, teacher, or businessperson to stay connected to all of his or her vital data. The PC has struggled to advance the coming cloud technology. All that is now changing. In my research paper, I will analyze the impact on the PC industry, corresponding software and OS markets and detail some of the very unique means of deploying a “go to market” strategy, and the managerial economics at work in product life cycle pricing.
I will present as the product manager for Apple’s iPad division and outline, using principles of managerial economics, the strategies at work to make the iPad the leader in the tablet market and to beat the market soundly as we continue to innovate. The Tablet PC and its Impact on the Computer Industry Introduction The Tablet PC has had a serious impact on the way we look at the personal computer in just a few short years. Today it is not uncommon to see students, executives, and reporters alike carrying a tablet in the place of the once ubiquitous notebook / laptop computer.
The Webb School in Knoxville, Tennessee is requiring students from fourth grade through twelfth to have an iPad for the school year, and we can expect that trend to continue as functionality, ease of use, and price point are all very attractive to teachers and students (Danner-Kuhn, 2011). We at Apple are proud of their choice, and intend to control the tablet market in all facets for years to come until the iPad is synonymous with the tablet. Herein we will present a review of the tablet market, our competition, the challenges we all face, and our particular go-to-market strategies.
The Tablet PC Firstly, what is a tablet PC? A tablet is a cross between a notebook PC and what used to be referred to as a PDA (Personal Digital Assistant). It is designed with a flat screen and can be loaded with applications from an online market. Content is entered into the screen much as it would be on a slate, by using a finger, or a stylus, as preferred by the customer. The main selling points are the portability and ease of use; and our latest iPad 2 comes in weighing less than a pound.
The tablet serves as entertainment on the fly for children and adults, and one of the key advantages of the tablet, besides its portability, is the compatibility with any number of peripheral wireless devices, such as printers, Smartphones, and photo cameras. A number of operating systems exist today in the market, but of course we prefer our iOS to the competition. Some other examples are those operating systems developed by the Android teams, Windows, and Symbian. Their market shares are show here in the representative graphic.
We can clearly see our iOS is leading the market, and while others appear to e far behind us, our research shows us the Android system at 17% is growing by approximately one to two percent each quarter for the last year, and is attractive to consumers for several reasons, which we as market leader, need to be aware of and to analyze (NetmarketShare. com, 2011). Consumers develop preferences for certain types of products, and applying discrete decision making practice as outlined my Michael Baye, in his 2010 work Managerial Economics & Business Strategy, come to the conclusions that make or break our shareholder’s future (p. 20).
The needs and uses of the tablet PC range from social media tool, Internet browser, gaming system, to educational tool used by students and teachers of varying applications and abilities. For some, the tablet is an easy way to check email without opening up and logging in to a larger desktop system. The applications are virtually limitless from a computing perspective. Artists can use a tablet for sketching, or full on Computer Assisted Design, and engineering and music applications are very popular, again for their ease of access and use (SolutionWatch, 2011).
While many applications are for fun and entertainment, we could very well see the replacement of the desktop PC with a smaller, more personalized, and portable unit in the near future as the consumer market faces more, and more choices due to the widespread competition in the tablet PC market. Competitive Review One thing is certain about the PC industry as a whole, and that is competition is fierce. We see from our research, the PC industry sales increased by 16% between 2009 and 2010, and given the state of the economy throughout the globe, that is astounding.
Even more astounding is the sales of notebook PCs, which saw a 40% increase. So let us look at the marketshare of our competition, and turn to each segment. Dell dominates the desktop PC market with 28. 8% (-4. 9% growth), followed by HP at 28. 8%, Acer at 6. 6%, Toshiba aligned with our beloved Apple at 5. 3 and 4. 4% respectively. Let us be clear about just a few very important points of qualification about the above figures. We at Apple have a much longer life expectancy after sale than the average PC.
Our price point is significantly higher per sale, and when revenues are compared instead of sheer volume of sales, Apple is number one, Dell is second, and HP, Toshiba, and Acer fall behind drastically. When a consumer buys and Apple, they keep it, and they buy another one, then another. Our superior technology and user experience creates loyalty and this cannot be overstated as we examine the future (ELFA, 2011). Technology as an industry has several players, as we see, but who is on top? Who is our true competition? In short, everyone is competition, but only a few are threats, and that is important to distinguish.
HP holds a great product in their hands with their own tablet, and touch screen desktop and notebook PCs. Samsung has released a formidable and worthy device in the Galaxy Tab which often ends up in the “similar’ category when searching Amazon and other online retailers (Amazon, 2011). As we released out very first iPad, the world had no idea what a tablet could be, should be, or how to use it, nor how much to pay for one. We ruled the world, as it were, for a time, and we took advantage of that position to establish a firm market foothold, while others were left to play catch up.
Going forward, we need to analyze why some individuals choose our iPad, and why others choose Samsung, HP, or some other manufacturer. Some may say our time was in the beginning and we’ve run our course, others wait for every product invent for many reasons. We at Apple feel our future is bright due to our understanding of consumer behavior. Simply, as discussed by Mr. Baye, consumers “face constraints”, such as budget, changes in income, and changes in price (p. 122). Consumers are forced to compare products and personally evaluate his or her opportunities and preferences.
As a consumer evaluates the bundles of choices they have available to them in the market, an indifference curve is established for our target consumer and we know if we are sure our product contains the things important for them, they will give up competition and come back to us time and again since we are no substitute tablets that offer everything, or bundle together, all of the desires our customer wants. As our customer finds the equilibrium, they agree we are the best choice they can make. Our competitors are not afforded the luxury, hard earned of course, of being sure of the bundles that lead to sales of their products.
We can very easily say they have no repeat customers, simple because of our history, and product differentiation. While our competitors were busy through the 1990s trying to standardize the components for their products, we at Apple standardized early on, avoiding the buying and selling of component parts which tended to create a lack of unique products on the PC side of the market. This led us to the top of the education market, and most certainly the graphic design and animation / film market (Baye, 2010, p. 256).
Today, the field may be leveling some, but our position among those original core users remains strong, and dare we say impenetrable. Economic Challenges for Tablet Industry Our position at Apple depends on consumer confidence. We need our customers to know they will always get the best product on the market and we will honor their loyalty by continuing to develop new, creative, and innovative products. In June of 2011, a survey was compiled of consumer reviews, comments, and critiques to establish which brands consumers were most happy with, and likely to purchase.
Apple scored a remarkable 48% consumer confidence rating, which is extremely high by comparison to our competition. DigitalMR measured 250 million responses and found our closest competition with a 16% share is Motorola (GadgetLife, 2011). Knowing our customer is sure of our approach to the commanders of our industry is important leverage for us when we position ourselves throughout the world, and knowing we are the most well received amongst our industry peers allows us to be more brazen when others may more tentative.
We are able to market in ways our peers are unable, yet still the tablet faces challenges in marketing which the traditional PC does not. Granted, there is no single tablet on the market that “does it all”, and the approach to marketing must be targeted carefully. For instance, one huge challenge from the marketing side of the house, for any player in the game, is the enterprise market. This market has some resistance due to concerns about security, compatibility, and depreciation issues come tax time (TabTimes, 2011).
The approach we take to reach that market should prove difficult for all in the tablet industry since the netbook never quite took off and many companies are now waiting to see how the manufacturers will adapt to make the tablet appealing to the enterprise customer. As of this writing, the difficulty in reaching out to business is the very thing that secures our market share in the personal market, confidence. Ad dollars must be spent wisely, and we must be mindful of throwing money at a sector without much hope for return.
The healthcare market proved successful for us at Apple and the approach taken there shall apply to other markets when the timing is right. Perhaps we need to be certain of our marketing strategy, and instead of channeling our dollars to a large sales team, perhaps our budget would be better spent, as we did with the healthcare industry, developing some fantastic “collateral and a specific application for the iPad specifically” focusing on solving a problem for our target (atypical thinking, 2011).
As an example, if we were to target the trucking of supply chain sector, our application might help with GPS tracking of the fleet, inventory, and manpower. Approach the marketing strategy with a free download, with available modules, which will add value, and increase consumer commitment and confidence. Having a tool our target needs, is a much easier sale, than a blanket marketing campaign that would be more than likely hit or miss. Taking the approach offered here, we are again, months, if not years ahead of our competition by entrenching our product into a new market.
The global market requires well thought out approaches to not only marketing, but also to sourcing of components, and at Apple we use some aspects of vertical integration, by which we produce internally the input of production (Baye, 2010, p. 202). Our ability to maintain those sources of input gives us a distinct advantage over most American companies, and while Dell, and HP also have, in the past, relied on vertical integration, recently those sources have been pressured due to natural disasters in countries where those inputs were produced, such as Thailand, Japan, and China (Fish, 2011).
The strategy employed by Apple to win the battle of sourcing, so far, has paid off. Tablet Market Strategy We must be sure of our strategy for dealing with new competitors in the market, and while our marketing and sourcing strategies are vital to our future success, maintaining market share is tantamount to any other tactic we undertake. Of course we understand our unique position, which tends to reach out to a wealthier consumer than the average PC owner (Shah & Dalal, 2009).
While we embrace our typical Apple consumer, we still must be sensitive to the forces at work that try to topple us from our position, who attempt to lure them away with entrance strategies often appealing, especially in a difficult economy. As more and more competition enters the market, we at Apple may see an initial reduction in overall profit due to those new entrants offering a substitute to our iPad and our Operating System. The consumer has some more choices to consider, and those products appear attractive since now available are differentiated products, offering a lower price, and appealing to a different consumer taste.
Yet, we must look forward, past the initial tide of new competition and remember our strengths, and our target consumer. We may need to rethink, as Mr. Jobs used to say, and invest in marketing our differences compared to the new products. This focus on our strengths allows us to prove how our iPad is a relatively better product. Our position in the tablet industry is no longer that of a monopoly, but still our product is setting the standard for all others in the market place, and an iPad is still the best designed product on the market.
Our industry is an oligopolistic one, and it is indeed very difficult for a firm to enter our market, so the barriers to entry are somewhat difficult to overcome. Our resources and history provide us with particular advantages in some key areas such as investing and R&D. In order to compete with us, the startup costs will need to be overcome, and a great deal of money will be required to invest in advertising, product launch, and quite honestly, to be sure the product they develop are not in violation of our copyrights.
The currently existing players in the market have copyrighted everything down to the design and screen materials in use. These obstacles are very difficult, if not impossible to manage for an entry-level firm. To take advantage of our current position in the market, we must opt for differentiation by taking advantage of the barriers to entry. We are years ahead of new competition in every aspect from R&D to financial position. As we develop new and better technology for our tablet, and continue to develop nd support specific industry applications, we put ourselves in a position of dominance until such time some competitor is able to come up with the resources and competence to copy or produce on the fringes, and sell at a lower price, thus capturing some market share. The go-to-market strategies we apply at Apple are based on a number of factors in the market at any given time, our competition, and certainly pricing is a consideration. Steve Jobs spoke in 2007 and wanted us all to understand an underlying theme in the way he saw our business, and that is we have 3 businesses, and one hobby here at Apple.
The Mac, music, and the phone are businesses, and the AppleTV was considered a hobby and our task at that time was to turn that hobby into a business. Today in 2011, we have accomplished that objective and turn our focus to the iPad to bring it into our business family (Boston University, 2011). Firstly we can draw some parallels from our AppleTV line when we consider the path forward for the iPad. For instance, we must pick a starting point, as we did with the ATV product. We must begin with the end in mind, since there are so many entry points to the strategic marketing process.
We must know what we want to accomplish and seek information about the ways we can possibly get there. And lastly, we must drive to simplicity and keep to our strategy so as not to become disoriented in the process. As we analyze our three businesses and examine our positions for the music, phones, and the tablet PC, the company’s stock is up 3,000 percent since the launch of the iPod, and 125 percent since the launch of the iPhone, and another 20 percent since the launch of the iPad. In that same period, the competition in the same market arenas – “Microsoft, Google, Intel, and Dell – have been at best, outpaced by Apple 6X” (Sigal, 2010).
Look and compare our growth charts over the past few years and see we are outperforming the competition quiet handily, and dare I say it, we are crushing the competition. Fig. 2. [pic] (Sigal, M. , 2010) We know, in such a competitive industry as ours, if firms sustain short-run losses, they will exit the industry since they are not covering their opportunity costs. Further, as firms “exit the industry, the market supply curve decreases”, or shall we say, moves leftward, thus increasing the market price, which pushes up the demand curve for our product, which increases our profits (Baye, 2010, p. 76). This ebb and flow continues until all the remaining firms in the industry are earning zero profit. We must stabilize our own course to be one of those firms thriving while others are floundering. Let us review our go-to-market strategy here at Apple, so we are all clear on our course. An important element to our success is our conduct of stellar market research. We must collect information from our market, from our current users or non-users, and from our prospective customers.
We will do this through the use of surveys, focus-groups, “ethnographic studies, and so on” (Marketing Scoop, 2010). The result of our market research will be a comprehensive list of consumer needs and wants, which we will use to shape our go-to-market activities. Next, we must identify our business requirements, or in other words, we must synthesize what we have learned from the market into a solid business requirements document we can use to define the specific service attributes and feature set of the iPad, so we are meeting the demand and functionality needed to be on top of the marketplace.
From these steps, we know our prospective customer, and what it will take from us to continue to be accepted in the marketplace, thus allowing us to align our corporate and developmental capabilities with those requirements we’ve gathered; remembering information is king, and throughout this venture, we are taking a hobby to market and making is a powerful division of our business. Can we produce what the market requires? If so, can we make it ourselves, or do we outsource certain functions? This last question is important to our vertical integration approach.
Will the needs of the market be within our reach if we continue our philosophy? We must define what specific value is derived from the iPad? We must know the true value in order to ensure concise consumer communications. Our findings must tell us if our product, in this case the iPad, is differentiated well from our competitor’s offerings. If we do not continue to offer a unique experience, we will need to adjust our product to provide something the others cannot, either an element of price, or service, or feature set.
If we do not adapt, we will be crushed, as we can see from Figure 2 above which shows what happens when innovation is not dynamic. Lastly, we will demonstrate appropriate proof, showing our prospective consumers proof of concept, design, and offering. We will provide to the public survey results, and offer demonstrations and testimonials, which are fantastic “tools that provide verification” of our claims (Marketing Scoop, 2010). Having demonstrated our service strategy, a key for us at Apple is to exploit our relationships to close sales.
Apple has name recognition, and almost every new product creates a buzz in the marketplace, and one of our biggest, most rewarding ways of announcing a product and encouraging our relationships to participate with us is through our Apple Expo we hold each year; we will continue this strategy as it has served us very well. Pricing The strategy we employed before the iPad entered into its second generation, was quite simply put, the basic rule of profit maximization.
We know at Apple we face a downward sloping demand for our products, in that by charging a higher price, the company reduces the amount we will sell. Thus, there exists a trade off “between selling many units at a low price and selling only a few units at a high price” (Baye, 2010, p. 396). In the 1990s this practice worked for us, and well up until a year or two ago, when the economy and the competitive landscape took a turn for the worse. We knew we could set output at a point where marginal revenue equaled marginal cost.
But things have changed for Apple recently, and we believe now, it is possible and even preferred to sell our products at a lower price than what our competition can afford to do, thus leveraging our war chest to invest in ourselves (Wingfield, October, 2011). While we do not necessarily exist in an exact Bertrand oligopoly, we do compete on price, and we do sell similar products as our competitors. The difference is, we rarely engage in price wars, and our profits are usually considerably higher than our marginal costs would dictate.
With the iPad, we have chosen to price the product outrageously low, starting at a mere $499. We can do this using our growing manufacturing scale and logistics network to offer our products at far more aggressive prices, which help us gain more power to influence pricing throughout the industry. Our previous releases have set us up nicely, and are justifiably credited with our resurgence under Steve Jobs, before his passing in October. We believe our pricing is part of our ability to find a large block of consumers for our products beyond those hard-core Apple devotees.
We have sold more that 4 million iPhone 4S devices over its debut weekend, and many of those are first time Apple users (Wingfield, 2011). Certainly we are not naive enough to believe people cannot find less expensive alternatives, with less distinctive, less beautiful designs to Apple products. We understand that and embrace the challenge, yet within the premium product categories where we are most at home, those alternative products do not often do better than to match or undercut our prices.
We’re not saying here that those products are cheap; merely they are not viewed as high-priced. Our pricing, which could be considered aggressive by some, reflects our ability to use our growing manufacturing scale to push down the costs for crucial parts that make up our devices. For example, as mentioned earlier, we were able to access our own resources – $82 billion in cash and marketable securities just last quarter – to exercise some big gambles by, for instance, securing supplies of parts for years, just as we did in 2005 when we entered into a 5 year, $1. 5 billion deal with certain suppliers to secure the required flash memory chips for the iPod and other products.
This tactic of buying up existing manufacturing capacity ahead of time is a strategy we are in position to do, and will continue to do. By this approach we force competitors to scrounge up any parts that may still be available, which raises costs for their products. Our pricing decisions on our MacBooks, and specifically the iPad should serve notice to our competition; we will not avoid using our supply chain as a strategic weapon.
Our initial price of the iPad, we were hundreds of dollars below what our competitors expected, and we do believe our decision shocked many in the industry. By comparison our nearest challenge came from the Motorola Xoom, but the units were forced into an $800 ticket, and that price did not include a wireless service option. Clearly, our position in the market is reasonably secured by both our clarity of vision for our go-to-market strategy, and our highly competitive pricing strategy. Conclusion This paper has detailed several strategic positions for Apple, Inc.
We have taken a look at the tablet PC industry as a whole, and outlined some key elements to help us understand the landscape of the market, including the Operating Systems available, and consumer preferences and applications for our iPad. As we examined the economic position of the competition, we have seen several challenges we all face to establish consumer confidence, and to meet our marketing obstacles. Demonstrating our strength of position to allow us to control many sources of input helps us to economically create a foundation for the strategies, which shape our future.
The go-to-market strategy we have outlined is sound policy, and sets the course for us to institute a pricing policy, which our competitors will be very hard pressed to overcome, but of course, we will not relent, and we will not be beaten. We will continue to think different.
Quality Improvement Initiative Evaluation
Quality Improvement Initiative Evaluation.
Deliver a 3–7-page analysis of an existing quality improvement initiative at your workplace. The QI initiative you choose to analyze should be related to specific disease, condition, or public health issue of personal or professional interest to you.
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