Apple’s ability to compete successfully and maintain attractive gross margins is heavily dependent upon its ability to ensure a continuing and timely flow of innovative and competitive products and technology to the marketplace. As a result, the Company incurs higher research and development costs as a percentage of revenue than its competitors who sell Windows-based personal computers. If Apple is unable to continue to develop and sell innovative new products with attractive gross margins, its results of operations may be materially adversely affected by its operating costs structure.
Apple has also been lacking in their business marketing strategies and distribution networks. With regards to the personal computer industry, the familiarity of the Apple software is not there. The original goal of teaching on an apple computer has been over shadowed by Microsoft. Education is now geared toward a version of Windows which is not compatible with Apple hardware. The most important hardware developed by Apple has been the iPod that is capable of downloading mp3 files to a device.
Many of Apple’s products are manufactured in whole or in part by third-party manufacturers. While outsourcing arrangements may lower the fixed cost of operations, they also reduce the company’s direct control over production and distribution. This diminished control will have negative effects on the quality or quantity of the products manufactured, or the flexibility of the company to respond to changing market conditions. Apple’s key business marketing strategy in the company’s early years was to market heavily on the educational market.
Their assumption was, if students learned computer applications and techniques on Apple computers in school, they would demand Apple products in the business environment, therefore they could migrate their products through assimilation into the business environment. Although Apple was and is successful in penetrating the educational environment, the residual demand for their products in the business environment did not materialize. The development of Microsoft’s “windows” interface made the conversion from Apple products to Microsoft based products relatively easy.
Apple has become unable to effectively penetrate the business market. Financial strength and stock price performance has also hindered Apple’s competitive position within the computer industry. As of March 12, 2004, Apple’s stock closed at $27. 56 after opening at $27. 32. The stock’s 52 week high was on March 10, 2004 closing at $28. 14 followed by its 52 week low of $12. 72 on April 17, 2003. Compared to its competitors, Apple’s stock is not performing as well as it needs to be to stay competitive.
Although Apple is having some success in controlling their internal operations relative to responding to their weakness, they should not be satisfied with being average in this highly competitive business environment. Every company’s main goal is to establish a competitive advantage over other firms, and Apple has plenty of room for improvement. Apple needs to identify ways to improve their operations to gain this competitive advantage. Strategic Alternatives and Recommended Strategies: In concluding the strategic analysis, we propose that Apple Inc. follow the subsequent recommendations.
Since one of the company’s weaknesses is absence of effective research and development, they need to focus on expanding their current R&D efforts. The company’s success depends heavily on the ability to produce new and innovative products and technology. In an industry were competition is fierce and the chance that a product may become obsolete is great, Apple can no longer cut their research and development budget. Apple is known for developing innovative products and bringing them to the market first. Without the proper R&D these products will become out-dated and quickly become overshadowed by a competitor’s product.
The iPod has been a tremendous success for the company, partly because the hardware is compatible with all operating systems. It is important for the company to develop hardware products that bear the Apple brand name, but are now compatible with all software. Another suggestion that Apple Inc. should take advantage of is to better position them selves in the market. Apple currently is the only company in the PC market whose systems do not run a Microsoft operating system. They make an operating to run with their systems. The “war” for the operating system was lost long ago, Microsoft dominates the market.
It is our recommendation that they adopt the Microsoft Operating Systems. Ninety six percent of the market knows how to operate windows and not Mac OS X. The Macintosh would be more attractive for their customers but it could also pull potential customer over the barrier of purchasing an Apple computer. Having the Microsoft software will enable users to install software that would not have been well-matched with Apple software. In edition, software developers would be more willing to produce software for Apple computers, because there would now be a larger market for it.
Apple distribution centers are few and far between. The current retail stores are costly but are an asset to the company. They allow the customer to test and use Apple products. The solution to this problem would be to align with stores such as Circuit City, Best Buy, and Wholesalers to distribute higher end products. This would greatly reduce costs but still allow customers to experience their products. Apple should improve its distribution channels by promoting internet and telephone sales, as Dell has done. Posting advertisements on websites such as yahoo. com and netscape. com.