Problem Statement:
In the past, Apple has been the leader in innovation and has made a high quality product. The drastic changes in the computer industry have caused Apple to reevaluate their strategy. As a result, Apple is attempting to maintain differentiation through innovation while struggling to be cost competitive. While Apple’s revenue has increased over the past three years, profitability has declined and market share has remained stagnant.
External Analysis:
Porters Five Force analysis:
1. Threat of New Entrants:
Hardware: The threat of new entrants is low. With start up costs ranging between $5-10 million, it creates a steep barrier for entry. This upfront cost would take a company years to see a return on the investment. Existing companies have capitalized on the distribution channels and created strong brand awareness. Companies similar to Apple have differentiated themselves to consumers, a barrier that is hard for new entrants to overcome.
2. Bargaining Power of Suppliers:
Hardware: Low as Apple has a strong vertical integration. Suppliers must be competitive to ensure they can retain the business from the large computer manufacturing companies. The only area that has a limited supply base is the computer processing chips. Suppliers must adjust pricing and quality to ensure their products appeal more attractive. As a result, competition is high leaving them in a low supplier power position. Apple has reduced their suppliers bargaining power by forming an alliance with IBM and integrating Intel chips.
3. Bargaining Power of Buyers:
An existing customer has low bargaining power as the switching cost to buy a new personal computer is high. However, new customers have a high bargaining power as there are a variety of computer companies and cheaper clones to choose from. Apple's ease of use and operating system differentiation