Apple has emerged as one of the most successful companies that deal with information technology products. Many people have been wondering how Apple is able to get a bigger market share than the other companies that sell the same merchandise, considering that Apple products are less expensive than the rest. Various analysts have come forward to explain the logic behind Apple’s success, but amazingly their arguments are in conflict. There are those who believe that Apple has managed to penetrate the market because it has its own outlets whereas others believe that Apple’s success is owed to its vertical integration strategy. Therefore, Apple’s success is owed to proper management planning that focuses on product differentiation, vertical and horizontal integration, and pricing strategies.
Reasons behind Apple’s Success
Apple Company has made many people, especially its rivals, raise their eyebrows because they do not understand how this company is able to meet its needs, while it sells its products at favorable prices. This is because, by comparing the price tags with those of its competitors such as Microsoft, Apple’s products are cost-efficient. The concern is invoked by the knowledge that this company has its expenses that have to be paid for, and that is why many people do not understand how Apple makes profits from its sales.
According to Roberto, Apple has a wide variety of products, and this is what many customers prefer rather than where a manufacturer’s products do not come with a lot of diversity (1). Apple manufactures a wide range of products including computers, laptops, and pads among many others. In addition, Apple manufactures the software that is used in its products, including iTunes and the operating systems.
Apple is able to keep its customer base intact because the customers do not have to look for some items elsewhere because they are all available at Apple’s outlets; this is achieved by having a wide variety of products This convenience is very important to the customers because people do not have time to sample the shops, they simply prefer to buy products from a manufacturer who provides all the utilities that may be needed to operate the product. For instance, if a customer was to buy a laptop from Apple, and then look for an operating system from elsewhere, it would inconvenience the customer. Furthermore, there is no guarantee that the software from another manufacturer would be compatible with his/her laptop.
Similarly, Vance and Miguel explain that the concept used by Apple is called vertical integration, and it is used to retain customers by providing all their requirements under one brand name (1). In this case, all the products are sold by one entity, that is Apple. However, this concept is considered to be very costly to the manufacturer because he has to get all the resources that are required.
It, therefore, goes without saying that Apple does not share its profits and losses with any part. This is because the company has all the expertise that is needed to make the products. It is like a vehicle manufacturer that makes all the parts of a car from the wheels to the windscreens. This means that Apple saves the money it would pay to the other parties to make the products that are required for its items to be fully completed. This suggests that the entire cost of making the other complimenting products is trimmed, and this decline in the cost of manufacturing is extended to the customers. This is one area that Apple’s competitors have been unable to penetrate. Moreover, Apple makes sure that all its products can only be compatible with its software so that customers are somehow forced to be loyal to Apple products. Apple achieves this by having various units that make complementary products.
Other companies sell their products at very high prices because they have to recover the money they pay to other parties that manufacture the complementary products. Furthermore, these companies specialize in specific products such as computers, as opposed to Apple which deals in many products from mobile phones to computers, and computer accessories among others. This implies that Apple has many resources and that is why it is able to make multiple products on one platform.
The above statement suggests that Apple is cushioned from a decline in markets because if the demand for its iPads was low, the company would be kept afloat by the profits earned from the sale of other products such as mobile phones and mp3 players. In such a case, the profit margins are regularly distributed among the products. Consequently, vertical integration allows Apple to have control over its customers in different markets. This is expressed as forwarding integration because it entails making products that are related so that the organization can sustain itself when the competition becomes stiff. Through this strategy, Apple has been able to blend with manufacturers who make related products (Roberto 1).
Furthermore, Young and Simon argue that the competitors of Apple have not been able to overcome the hurdle of integration, and that is what puts Apple Company ahead of the game (45). The initial cost of exploring a given resource may sound expensive, but then the money is later recovered by developing many products that depend on that resource. For instance, all Apple products are operated by applications derived by the same company.
Another argument that has been used to explain Apple’s success is its marketing strategies. Apple is said to own quite a number of outlets that sell its products, and therefore the company benefits from not having to share the profits with retailers. This is because, if the company was to sell its products through resellers, it would have to set prices that would enable the resellers to also make profits: this is what causes the price of commodities to rise because at every point the seller must make a profit.
Therefore, Apple sells its products at lower rates because it capitalizes on the profit margins that would have been made by resellers. The competitors of Apple, on the other hand, do not have their own outlets, and thus have to market their products through resellers. That is why at the end of the distribution the customers are made to pay for the expenses incurred by the resellers. Perhaps if Apple did not have this advantage, its products would be sold at high prices like those of its competitors.
From the article being analyzed, the previous argument has been criticized by Brian Chen because he feels that if this was the reason behind Apple’s success, all the other companies that deal in similar merchandise would have established their own outlets. Chan states that this is not possible because the money that is used to fund the establishment of the outlets is drawn from the pockets of investors who own shares in a company, and they give out their money when they are sure that they will recover their money from the company investments. Critics argue that establishing company-owned outlets does not amount to cutting back on expenses because as common sense dictates, those outlets must require labor that has to be paid for, along with other expenses such as electricity bills that have to be paid by the same entity.
More importantly, understanding Apple’s vertical, forward and horizontal integration is important because this will enable its competitors to identify the strategies that can help them overcome the challenges they are going through. This is because in the business world, you cannot simply slash your commodity prices, just because your competitor has slashed his. This implies that, as business entities, the competitors should identify what Apple does and advance it further so that they can break its monopoly of Apple in the industry. For instance, Apple applies horizontal integration by making other related products to include new items such as Apple TV. The competitors should come up with a more advanced strategy instead of worrying about the issue of prices.
In essence, the competitors of Apple would be better placed if they observed the environment and identified what is needed, but lacking. For instance, they can capitalize on the weaknesses of Apple, and make products that beat the specifications of Apple products. It is said that our surroundings are full of opportunities that are yet to be exploited, and that is how Apple was able to introduce other products such as the iPad and iPhones.
Apple was able to penetrate the market by having many products under common ownership. In addition, having its own outlets was among the strategies that were meant to help the company cut back on its operational costs. The cutback on expenses has been implanted without compromising the quality of goods manufactured by Apple. The competition between Apple and other manufacturers benefits the customers because after the battle of prices is over, the customer gets products that are of high quality at the most affordable prices. The competitors should also consider establishing their own outlets, but then they must be prepared to cater to the expenses that come alongside the outlets. This means they have to face the risks involved head-on because the fear of losing will keep them constant.
Roberto, Michael. “Why the iPad can Sell at $ 500.” The Archway. 2011. Web.
Vance, Ashlee and Helft Muguel. (2010).”Apple Passes Microsoft as No.1 in Tech.” The New York Times. Web.
Young, Jeffrey and Simon William. (2005). Icon Steve Jobs: The Greatest Second Act in the History of Business, Hoboken, NJ: John Willey & Sons. Print.