Question

Using Porter's Five Forces Analysis, provide a brief analysis of Apple's market position relative to the Five Forces. What are their major advantages, what are their vulnerabilities? two paragraph response

Answer 1

Answer –

Using Porter's Five Forces Analysis, provide a brief analysis of Apple's market position relative to the Five Forces, including their major advantages, what are their vulnerabilities –

Apple in the Marketplace from a Five Forces Perspective

Through its Macintosh computers and operating system, the iPad, iPhone and other products, Apple, Inc. (NASDAQ: AAPL) has achieved massive success as a company despite going through a number of up and down cycles since its founding in 1976. Apple has succeeded to become a dominant competitor in the industry under the leadership of Steve Jobs. In 2014, Apple achieved the notable distinction of being the first U.S. company to ever attain a market capitalization greater than $700 billion. Apple's success is attributed largely to its ability to innovate and bring unique products to market that have engendered substantial brand loyalty. Its product development and marketing strategies reveal an awareness of the need to deal with the major marketplace forces that can impact Apple's market share and profitability.

This Five Forces analysis gives insights about the external factors influencing the company’s success. Michael E. Porter’s Five Forces framework is a strategic management tool for evaluating the five forces affecting the business organization: customers, suppliers, substitutes, new entrants, and competition. A Five Forces analysis of Apple Inc. sheds light on what the company does to ensure industry leadership despite the negative effects of external factors in the competitive landscape of the computer software and hardware, consumer electronics, and online digital content distribution markets, which involve firms like Microsoft, Google, Amazon, Walmart, Samsung, Dell, Sony, and Lenovo.

Five Forces Analysis of Apple Inc. – Brief Overview

Apple’s strategies are partly based on the need to address forces in the external business environment. These forces can limit or reduce the firm’s market share, revenues, profitability, and business development potential. This Five Forces analysis, based on Porter’s framework, points to the following strengths or intensities of external factors in Apple Inc.’s industry environment:

1. Competitive rivalry or competition: Strong force
2. Bargaining power of buyers or customers: Strong force
3. Bargaining power of suppliers: Weak force
4. Threat of substitutes or substitution: Weak force
5. Threat of new entrants or new entry: Moderate force

Considering the five forces, Apple must focus its attention on competitive rivalry and the bargaining power of buyers. This external analysis supports the company’s current position of continuous innovation. Through rapid and continuous innovation, Apple effectively addresses the five forces in its external environment, although much of the company’s effort is to strengthen its position against competitors and to keep attracting customers to Apple products. An applicable recommendation is to intensify research and development for innovation to develop novel products that will complement the iPhone, the iPad, and other existing products.

Bargaining power of buyers Bargaining power of suppliers Threat of substitute products or services Threat of new entrants Rivalry among existing firms

Industry Competition / Rivalry

Apple is in direct competition with companies such as Google, Inc., the Hewlett-Packard Company, Samsung Electronics Co., Ltd. and Amazon, Inc. All of these companies expend significant capital on research and development (R&D) and marketing, just like Apple. Thus, the competitive force within the industry is strong. One thing that makes the industry so highly competitive is the relatively low switching cost. It does not require a substantial investment for a consumer to ditch Apple's iPad for an Amazon Kindle or other tablet computers. The threat of marketplace competition is a key consideration for Apple, which it has dealt with primarily through continually developing new and unique products to increase and strengthen its market share position. All these factors intensify the competitive rivalry between the big technological brands. The Porter’s Five Forces analysis model determines the intensity of the influence that competitors have on each other. In Apple’s case, this influence is based on the following external factors:

• High aggressiveness of firms (strong force)
• Low differentiation of products (strong force)
• Low switching cost (strong force)

Bargaining Power of Apple’s Customers/Buyers

The element of low switching cost referred to above strengthens the bargaining power of buyers as a key force for Apple to consider. There are essentially two points of further analysis within this force: the individual bargaining power of buyers and their collective bargaining power. For Apple, individual bargaining power is a weak force, since the loss of any one customer represents a negligible amount of revenue for Apple. However, the collective marketplace bargaining power of customers, the possibility of mass customer defections to a competitor is a strong force. Apple counters this strong force by continuing to make substantial capital expenditures in R&D, enabling it to keep developing new and unique products such as the Airpods and the Apple Watch, and by building significant brand loyalty. The Porter’s Five Forces analysis model determines how buyers’ purchase decisions and related preferences and perceptions impact businesses. In Apple Inc.’s case, buyers’ strong power is based on the following external factors:

• Low switching cost (strong force)
• Small size of individual buyers (weak force)
• High buyer information (strong force)

Bargaining Power of Suppliers

The bargaining power of suppliers is a relatively weak force in the marketplace for Apple's products. The bargaining position of suppliers is weakened by the high number of potential suppliers for Apple and the ample amount of supply. Apple is free to choose from among a large number of potential suppliers for component parts for its products. The industries of its parts suppliers, such as the manufacturers of computer processors, are themselves highly competitive. The switching cost for Apple to exchange one supplier for another is relatively low and not a significant obstacle. Plus, Apple is a major customer for most of its parts suppliers, and, therefore, one its suppliers are very reluctant to risk losing. This strengthens Apple's position in negotiating with suppliers, while conversely weakening their positions. The bargaining power of component parts suppliers is not a major consideration for either Apple or its major competitors. The Porter’s Five Forces analysis model indicates the influence of suppliers in imposing their demands on the company and its competitors. In Apple’s case, suppliers have a weak bargaining power based on the following external factors:

• Moderate to high number of suppliers (weak force)
• Moderate to high overall supply (weak force)
• High ratio of firm concentration to supplier concentration (weak force)

Threat of New Entrants to the Marketplace

The threat of a new entrant to the marketplace that could seriously threaten Apple's market share is relatively low. This is primarily due to two factors: the extremely high cost of establishing a company within the industry and the additional high cost of establishing brand name recognition. Any new entrant to the marketplace of personal computing or smartphones needs to have a massive amount of capital just to spend on R&D and manufacturing to develop and produce its own product portfolio prior to ever bringing its products to market and beginning to generate revenue. Such an entrant faces the already identified strong competition within the industry that exists between Apple and its major competitors, all of which are large, well-established firms. The Porter’s Five Forces analysis model indicates the effect and possibility of new competitors entering the market. In Apple’s case, new entrants exert a moderate force based on the following external factors:

• High capital requirements (weak force)
• High cost of brand development (weak force)
• Capacity of potential new entrants (strong force)

Although it is possible some new company, perhaps a Chinese firm with financial backing from the government, might eventually challenge Apple's position within the industry, for the immediate future, the likelihood of such a challenger arising is remote.

Threat of Buyers Opting for Substitute Products

Substitute products, within the framework of Porter's Five Forces Model, are not products that directly compete with a company's products but possible substitutes for them. In the case of Apple, an example of a substitute product is a landline telephone that might be a substitute for owning an iPhone. This market force is relatively low for Apple due to the fact that most potential substitute products have limited capabilities compared to Apple's products, as in the example of a landline telephone compared to an iPhone that has the capability to do much more than just make telephone calls. The Porter’s Five Forces framework determines the strength of substitute products in attracting customers. In Apple’s case, substitutes exert a weak force based on the following external factors:

• Moderate to high availability of substitutes (moderate force)
• Low performance of substitutes (weak force)
• Low buyer propensity to substitute (weak force)

References –

Analyzing Porter's Five Forces on Apple by J.B. Maverick

https://www.investopedia.com/articles/investing/111015/analyzing-porters-five-forces-apple.asp

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Apple Inc. – Form 10-K.

Apple Inc.’s E-commerce Website.

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Apple Inc. Five Forces Analysis (Porter’s Model) by Edward Ferguson

http://panmore.com/apple-inc-five-forces-analysis-porters-model-case-study

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Apple Porter’s Five Forces Analysis by John Dudovskiy

https://research-methodology.net/apple-porters-five-forces-analysis-3/

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Porter’s Five Forces Analysis of Apple Inc. by Abhijeet Pratap

https://notesmatic.com/2017/02/porters-five-forces-analysis-of-apple-inc/