1-What are the key challenges Apple is facing, both in terms of the macro-environment and industry competition?
Key challenges based on macro-environment
Apple is a prominent technology company in the United States of America. The company is operating in different regions of the world with some remarkable mobile phone products and other product lines. The main revenue stream of the company is derived from the sales of Apple’s iPhone. This company is facing several challenges in the competitive market. For Instance, the first challenge is the availability of substitutes from different competitors such as Samsung, Huawei, LG, and Xiaomi. It has been observed that Apple is selling its products, especially iPhone at the high process as compare to other companies.
However, it seems a big challenge to sustain the development and revenues due to low-cost strategies of other rivals. For Instance, Huawei is looking to improve the mobile phone quality and come up with low prices for customers. It seems the low-cost substitute for customers, especially high-quality mobile phone lovers. Revenues of the company are sustained in a different market. However, sales of the company have been declining recently. Due to the availability of substitutes at low rates along with the sustained quality, it looks a big challenge to increase sales in different regions, especially China. Another challenge that the company usually faces in this competitive market is the business expansion in China.
According to the financial times, sales in China are not up to the mark due to developments of local mobile phone giants. The China mobile phone market contains the potential, but it has not produced results according to expectations. Apple is not in a good position in China because it is not shipping expected numbers of phones. The double-digit revenue growth last year was for a while because customers still want to pay the lowest for Smart phones. Thus, it is a big challenge for the company management to regain the growth in the Chinese market with new iPhone X. Integrating with Chinese customers in terms of values and perceptions is difficult for this company, and it is a huge factor that creates the negative impact on the company growth. Another challenge that this company is facing is trading regulations. Even in the United States of America, the firm is aiming to increase the process of phones due to high tax rates. Huawei operations in the United States are also controversial due to concerns of the American National Security Council. In response, China is also improving its infrastructure for local companies to strengthen the industry. The political tension is a big challenge for the firm in this competitive market, and it creates an impact on business expansion (Bradshaw, 2018).
Key challenges based on Industry Competition
Apart from the macro environment, some key factors in the industry are also in the limelight, which has been emerged as key challenges. For Instance, the mobile phone or technology industry is triggered by new trends such as better graphics, resolution, health feature, and water resistance. Apple is aiming to derive some cheaper models and change features to increase sales. However, it is a big challenge to keep the balance between revenues and cost. Changing cheaper models are costly, and customers are not willing to pay high prices for models. It can be said that traditional mobile and other product models cannot be aligned with modern industry trends. The industry needs new product development. It is a fact that the competition is quite high due to substitutes (Silver, 2018).
It is a big challenge to think strategically in the industry and sustain its success and dominance. For Instance, millions of pads have been sold in different regions. However, due to new customer demands, the focus of the company shifted towards on iPhone. Revenue from sales of iPads is just 9%, and it looks a big thing to worry. However, the rational reason behind this shift is the demand of customers. People prefer iPhone instead of iPads. Thus, the competitive advantage of the company looks dependent or limited in the competitive landscape. Recently, Apple has done well in sales of mobile phones. However, the local competition, especially in China, is hitting the company. Huawei has depicted the innovative culture to differentiate products in the market and put a dent in sales of Apple. Similarly, other local rivals such as VIVO and OPPO are also emerging in the industry. Therefore, business sustainability has become a major problem in different countries except for the United States.
Moreover, Apple’s attempt to make accessible mobile phones for customers is good. However, on the other hand, Apple is using its latest technology in modern iPhone. It is a big compromise on the quality and standards. Material inaccessible phones are not the same or according to the standard. Being a highly values company, the firm cannot afford to compromise on the quality to boost sales (Bradshaw, 2018).
These are some key macro environmental and industry factors, which are key challenges for the company regarding sales, revenues, and profitability. The competition or rivalry in the mobile phone market is increasing due to price, quality features. The business expansion needs a comprehensive market analysis to derive some key market insights and contain some strategic considerations. For Instance, in China, Apple has to come up differently to beat the local competition. The best strategy for the firm to minimize the local competition is to depict a strategic alliance or merger. iPhone, which is a base of revenue streams, is struggling in this market. Even in the United States, the existence of Chinese firms is a huge threat to the company, as far as customer perceptions, prices, and differentiation is concerned.
Thus, some thoughtful considerations are needed to experience a high growth rate. Pricing mastery is also a key trait for the management of the company to increase sales and revenues. However, the increase in prices is not a single solution. Besides, product line expansion, systematic product development, multiple pricing patterns, and many other strategic options can be used to make the difference. Now, it is the best time for this company to use its internal and external resources to eliminate these challenges in an effective and lucrative manner.
2-Discuss Apple’s pricing strategy according to Porter’s generic strategies. What are the strengths and weaknesses of Apple’s pricing strategy? What are your suggestions to overcome the shortcomings? Justify your answer.
Porter’s generic strategies have been adopted by many large and small businesses. Four Porter’s generic strategies are cost leadership, differentiation leadership, cost focus, and differentiation focus. The differentiation leadership has become a key marketing strategy of the Apple business. The firm wants customers to contain the perception about the brand image and the product. The differentiation leadership has been enhanced by this company to gain a competitive advantage. The differentiation is done by this company through a skimming pricing strategy.
Apple’s Pricing Strategy
After the development and at the launch of new iPhone or other related product, the firm usually depicts the skimming pricing strategy. The purpose is to depict the high process of products for customers to increase revenues and sales. The target market of apple is a group of high-income people and extroverts. They want to buy an Apple product at the high process to increase their social status. Apple Brand is triggered by differentiation leadership, as it has increased the willingness of customers to pay higher prices. Initial high prices attract this target market effectively. The pricing difference is a driver of the differentiation.
Further, the firm always wants to reduce the price just before the launch of the new model of the product. It seems to prepare customers for the new model. Interestingly, the skimming pricing strategy is triggered by superior quality, brand loyalty, strong customer recognition, and consistent promotional support. Apple justifies the differentiation of leadership by streamlining these factors, and skimming pricing is a gateway. Superior quality and extraordinary features are also differentiated by the skimming process, despite containing the threats of substitutes such as Huawei and Samsung Note series (Bradshaw, 2018).
Strengths
Apple is using the skimming pricing strategy due to several strengths. For Instance, the first advantage that and apple gain through this pricing strategy is the profitability (Frommer, 2018). The biggest strength of the skimming pricing is its support for profitability. In the internal business process, the firm aims to reduce the operational cost. It creates the profit margin. With the perspective of the business or the cost of the newly developed products, the prominent strength is covering up the developing expenses. iPhone development needs high cost, and it can be covered initially by apple. It has been observed that older versions of the iPhone and Apple’s other products are available at low prices to increase sales. It is one of the main strengths of the skimming pricing because it creates the mass market. For a while, the price seems high to target a particular customer segment. Later, the firm targets other customer segments. The strength of the skimming pricing is the creation of the status symbol (Bradshaw, 2018).
Weakness
The biggest weakness of this pricing strategy is the lack of rapidness in the sales process. Apple, no doubt, has increased sales. However, the skimming pricing is to be retained by the company to meet initial targets. The customer conversion is a big risk, and it is also a weakness of the skimming pricing strategy of the company. Many Apple users have shifted due to the availability of low-priced products. In strict legal regulations, it is tough for the Apple Company to make this price viable. Many people in the competitive market intend to wait for the possible price decline and buy products. It is a major weakness, as it hit the objectivity of the skimming pricing (Dilger, 2018).
Suggestions to Overcome the Shortcomings
However, shortcomings are in the limelight due to the skimming pricing strategy. The above-mentioned weaknesses can create an impact on revenue streams and profitability. For Instance, for new iPhone X is priced $1,000, and it caused an increase of 15 percent revenue. Interestingly, the increase in revenue is not to be happening in every county or region due to competition and perception of people. The best strategy for the company to eliminate this shortcoming is to make further customer segments. The development of 5c is a good initiative by the company, but work is to be done to make it viable. The skimming pricing makes the company dependent. Categorizing customers to provide same quality phones and related products is a good approach to have some effective and workable pricing options. For example, advanced artificial intelligence features in mobile phones can support skimming pricing. Coming up with a pertinent rationale of skimming pricing for few product segments is a key suggestion that can help to eliminate the shortcoming (Owen, 2018).
Health and water resistance are two prominent features, which are to be depicted in Apple’s Smartphone. Apart from the customer segment, it looks important to make different product segments to justify the skimming pricing strategy. Even in every model of the iPhone, the price difference is low. Now, categorizing the products with customers can help to generate multiple revenue streams. In China, the firm can initiate this strategy due to high competition. Sales and shipping are declining, and it can open new ways to hit this potential market. Competitive pricing is also a good suggestion for this company. Instead of focusing on skimming pricing in every market, the company may use competitive pricing to emerge in the competitive landscape. For Instance, if a firm enters into the market where the buying power of the people is lower than the United States, it can depict the competitive prices of products to increase sales. High end Smart phones are also good with competitive pricing. It can provide a lead to a better profit margin as well (Kharpal, 2018).
These are some key suggestions for the company to eliminate shortcomings due to skimming strategy. The skimming pricing strategy is also linked to the generic strategy, called differentiation leadership. However, it is important for the management of the company to analyze the market before applying the strategy. The intense competition has become a major problem for the management in China and other developing regions. By limiting the social status symbol for a particular target group, the management can minimize the threat and gain some key strategic benefits. Apple, despite containing the pricing mastery, must have to improvise to get a competitive advantage to obtain predictable outputs.
References
Bradshaw, T., 2018. Apple hopes its daring bet on iPhone pricing will still pay off. [Online] Available at: https://www.ft.com/content/e77a1d22-b6f4-11e8-bbc3-ccd7de085ffe [Accessed 28 October 2018].
Bradshaw, T., 2018. Apple’s Chinese future challenged by lurking threats. [Online] Available at: https://www.ft.com/content/62104788-952f-11e8-b67b-b8205561c3fe [Accessed 28 October 2018].
Dilger, D.E., 2018. Why was iPhone X so successful at $999 despite a mountain of false reporting? [Online] Available at: https://appleinsider.com/articles/18/05/02/
why-was-iphone-x-so-successful-at-999-despite-a-mountain-a-false-reporting [Accessed 28 October 2018].
Frommer, D., 2018. What’s really driving Apple’s growth? [Online] Available at: https://www.recode.net/2018/8/1/17636674
/apple-iphone-x-average-selling-price-growth [Accessed 28 October 2018].
Kharpal, A., 2018. Apple is the big tech firm most at risk from a US-China trade war. [Online] Available at: https://www.cnbc.com/2018/06/19/apple-is-the-big-tech-firm-most-at-risk-from-a-us-china-trade-war.html [Accessed 28 October 2018].
Owen, M., 2018. iPhone could be hit by incoming $500B U.S. tariff threat on Chinese imports. [Online] Available at: https://appleinsider.com/articles/18/07/24
/iphone-could-be-hit-by-incoming-500b-us-tariff-threat-on-chinese-imports [Accessed 28 October 2018].
Silver, S., 2018. iPhone XS and iPhone XR are a recipe for success for Apple stock. [Online] Available at: https://appleinsider.com/articles/18/09/13
/iphone-xs-and-iphone-xr-are-a-recipe-for-success-for-apple-stock-analysts-say [Accessed 28 October 2018].
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