1. What should Apple do to sustain its position?
Case Apple
What should Apple do to sustain its position?
Klaus Castrén, Somayyeh Jaferi, Saara Sulonen

2. Agenda Issues and Background Current initiatives and available choices
Our recommendation for way forward
Reasoning

3. Despite growing sales, Apple has some issues to address
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
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

4. Apple’s strength is the ability to design compelling total offerings – simplicity and convenience through ecosystem
AppStore
iCloud
Apple Pay
Service ecosystem layer
Apple X?
iTunes
New Markets?
Mac Computer
iPad
iPhone
Apple TV
Apple Watch
Product portfolio
The ecosystems leverages Apple’s design capabilities and complementarities to build superior offering for target segment

5. 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
Price
iPhone
Samsung S7
Samsung
MacBook Pro
iMac
Macbook
Dell HP LG
Windows
Sony
Toshiba
Fujitsu
Huawei
Acer Travel Mate
Lenovo Idea Pad
Illustrative
Motorola
Illustrative
Benefit
Benefit

6. Agenda Issues and Background Current initiatives and available choices
Our recommendation for way forward
Reasoning

7. 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

8. Apple’s future actions must consider value comprehensively: what, to whom and how to deliver?
The Three V’s*
Main strategic implications for Apple
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?
What is the Value Proposition Apple wants to deliver?
To which Valued Customer does Apple want to deliver this?
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?
What is the ideal Value Network for delivering?
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.

9. Agenda Issues and Background Current initiatives and available choices
Our recommendation for way forward
Reasoning

10. Our recommendation Don’t go downmarket!
Develop smartwatch in two phases:
make compatible to properly leverage Apple ecosystem,
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

11. Agenda Issues and Background Current initiatives and available choices
Our recommendation for way forward
Reasoning

12. The current premium segment is where Apple should be
Industry gross margins
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
33.5%
21.8%
Apple
Computing industry average

13. Smartwatch leverages all of Apple’s strengths and may resolve the dent in profitability
Apple needs to be a market driving company
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
As a replacement for iPhone $$$$
Smart Watch
High volume, high margin product?
As expensive replacement for watches $$

14. 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
Power
Macintosh
Macbook Pro
New iMac
iPod
iPad
Mac Powerbook
iMac
iTunes
iPhone
Apple Pay
Apple Watch
Macintosh
AppStore
1984
1989
1991
1994
1998
2001
2003
2006
2007
2010
2014

15. 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

16. 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

17. Steps forward 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

18. Appendix

19. Apple’s sales improvement spectacular despite lowering margins and return on assets