Case Questions:
How has Apple developed extreme loyalty among consumers that has resulted in an almost cult-like following?
Describe the role of Apple stores as an important part of its marketing strategy.
What will Apple need to do to maintain product innovation and customer loyalty?
CASE 2
Apple’s Winning Marketing Strategy*
Few companies have been able to master the arts of product innovation, a “cool” brand image, and customer evangelism like Apple. After nearly collapsing under a cloud of bankruptcy in the mid-1990s, late Apple CEO Steve Jobs was able to save the company he created through product innovation, a masterful marketing program, and an entrepreneurial corporate culture. This case reviews Apple’s history and remarkable comeback with an eye toward the marketing strategies that created the company’s success. The case also examines many of the challenges faced by a company that continually pushes the boundaries of marketing practice to stay on top of the consumer electronics and computer industries.
Product innovation, marketing program, prestige pricing, competition, changing technology, differentiation, customer loyalty, foreign sourcing, intellectual property, privacy issues, corporate culture, sustainability
Few companies can boast that they have fans that sleep outside its doors to be the first to snag its latest products, but such is the case with Apple, Inc. In 2011, Apple surpassed Google to become the most valuable global brand, with an estimated value of $153 billion. Headquartered in Cupertino, California, Apple has transformed itself from a company near bankruptcy in 1997 (with a stock price of $3.30) to the world’s most valuable company in 2012 (with a stock price of more than $600).
Many companies have tried to copy Apple’s strategies, but none have reached the iconic status of Apple and its products. Some believe that Apple’s success stems from a combination of several factors, including the leadership qualities of late CEO Steve Jobs, a corporate culture of enthusiasm and innovation, and the revolutionary products for which Apple has become known. While every organization must acquire resources and develop a business strategy to pursue its objectives, Apple has excelled in both leadership and operations. One of the company’s most important resources is its employees, and the company has effectively recruited, trained, and compensated employees to create loyalty. Another resource is suppliers, and Apple has created a highly efficient and effective supply chain with most of its production in China. Apple has also mastered core research and development skills that have allowed the company to translate its technological capabilities into products that consumers want and are willing to pay a premium price to obtain. The capstone of Apple’s strategy is its retail stores that have become a role model for its competitors,
*Jennifer Sawayda and Harper Baird, University of New Mexico, prepared this case under the direction of O.C. Ferrell for classroom discussion rather than to illustrate effective or ineffective handling of an administra- tive situation.
The History of Apple, Inc.
When Apple Computer was founded in 1976, it would have been unrecognizable to its diehard fans of today. Apple’s first product, the Apple I, was essentially a computer kit that lacked a graphic user interface, keyboard, or display (users had to provide their own). Co-founders Steve Jobs and Steve Wozniak released the Apple I for $666.66. Jobs and Wozniak continued to create innovative products, and because the duo designed Apple’s computers from the user’s point of view, its products seemed to resonate with consumers. A few years later, Apple had more than $1 million in sales. The company was off to a promising start.
Yet, Apple’s initial success did not last. Its downturn started during the 1980s with a series of product flops and CEO changes. Steve Jobs was ousted in 1985 due to internal conflicts within the company. By the mid-1990s, the company was approaching bank- ruptcy. Dell Computer founder Michael Dell commented about Apple’s future, saying, “I’d shut it down and give the money back to the shareholders.”
The return of Steve Jobs in 1997 instituted major changes for Apple. The company successfully adopted a market orientation in which it was able to gather intelligence about customers’ current and future needs for certain features—even before the custo- mers themselves knew they needed them. Apple expanded into the electronics industry and began to release innovative products that resonated deeply with customers. For instance, the creation of the iPod and iTunes met customer needs for an efficient way to manage and listen to a variety of music on the go. This ability of Apple to recognize strategic windows of opportunity and act upon them before the competition remains with the company today.
In 2007, Jobs announced that Apple Computer, Inc. would be re-named Apple, Inc. Some perceived this renaming to be a shift away from computers toward consumer elec- tronics. However, a more appropriate viewpoint would be to say that Apple was rein- venting its stance toward computers. With the introduction of the iPad in 2010, Apple began to take market share away from top competitors in the computer industry. Sales of desktops, laptops, and netbooks began to decline after the iPad was introduced. Now almost three years since the iPad’s introduction, its sales continue to skyrocket. Apple owns a commanding 70-plus percent of the worldwide tablet market.
Although the Apple products of today are high in demand, this was not always the case. Apple went through its share of product failures in its past. Several of these failures can be attributed to a failure to accurately predict consumer behavior. For instance, even though Apple products are generally premium priced, the Apple Lisa and Cube were judged as too expensive for the mass market. In addition, the Apple Newton (a precursor to the iPad) was a great product that was well ahead of its time. Thanks to its innovative products and marketing strategies, Apple has grown into one of the most admired and successful brands in the world. To millions of consumers, the Apple brand embodies quality, prestige, and innovation.
Apple’s Products
While introducing new products is expensive and risky, Apple has reinvented the con- cept of a new product. While many Apple products provide a function that was already on the market, Apple’s products are different, distinctive, and are often viewed as super- ior to the competition. After introducing new products such as the iPod, iPhone, and
iPad, Apple has changed the products’ features, quality, and/or aesthetics on a regular basis to create a perception that consumers have to have the latest model. For example, with each new version of the iPad, Apple offered new features and benefits that effec- tively made the older models obsolete. Few companies have been able to exploit the con- cept of product modification as effectively as Apple.
Today, Apple has honed its ability to produce iconic products that consumers desire. The company’s product strategy is based on innovative designs, ease-of-use, and seam- less integration. Apple has not only created highly successful products, but also whet consumers’ appetites for yet-to-be-released and rumored products. For example, rumors continue to swirl that Apple will release a mini iPad and an Apple-branded television in the near future.
Mac Computers
Apple first made a name for itself in the personal computer industry, and even though it has since expanded into the consumer electronics industry, its Macintosh computers remain a strong asset to the company’s product mix. Many computer owners identify themselves as either Mac or PC users. Major differences between Macs and PCs lie with their processors and interfaces. Mac enthusiasts often prefer the superior video and graphic software as well as the look and feel of Macs. MacBook laptops also tend to last longer than the average 2-year life span of PC-based laptops. For these reasons, Macs are priced much higher than competitors. Apple sells two types of Macs: desktop and laptop computers. Desktop Macs include the iMac, Mac Pro, and Mac Mini, while its laptops include the MacBook Pro and MacBook Air. The Air proved to be so popular with consumers that a variety of PC manufacturers created an entire line of copycat “ultrabook” laptops running the Windows operating system.
iPod and iTunes
In 2001, Apple launched the iPod—a portable music player that forever changed the music industry. The company also introduced iTunes, a type of “jukebox” software that allows users to upload songs from CDs onto their Macs and then organize and manage their personalized music libraries. Two years later, Apple introduced the iTunes Store, in which users could download millions of their favorite songs for $0.99 each. The average price later increased to $1.29 per song. Both the iPod and iTunes became market leaders in their respective industries. Apple has sold more than 300 million iPods since its intro- duction, and users have downloaded approximately 16 billion songs from iTunes. How- ever, iPod sales have declined in recent years as consumers have begun to favor the iPhone instead. Still, the iPod remains a popular music device and has largely supplanted traditional CDs. The current Apple iPod product line includes the iPod touch, iPod nano, iPod shuffle, and iPod classic. Apple also sells the Apple TV, a device that essen- tially allows any television to connect to the iTunes store. Users can rent or purchase movies, or stream their own content wirelessly to any connected television.
iPhone
The Apple iPhone debuted in 2007 and quickly became a favorite among mobile phone users. The iPhone combined smartphone technology with a straightforward operating system, an easy-to-use touch screen, iPod features, and a simple design. Each new gener- ation is highly anticipated by Apple fans eager to use the iPhone’s newest features. For example, the iPhone 4s includes a built-in “personal assistant” called Siri. Siri recognizes voice commands and can answer with the appropriate response. The iPhone has been a resounding success: Apple has sold almost 200 million of the devices since its launch.
iPad
In April 2010, Apple introduced the iPad, a tablet computer designed for simple interac- tion with electronic media and the Internet. Sometimes described as a large iPod touch, the iPad targets the product gap between smartphones and netbooks. It has a 9.7-inch touch screen, accelerometers, ambient light sensors, speakers, a microphone, and GPS capabilities. Newer generations included technology upgrades and 2-way cameras for video calling. The iPad has been incredibly popular, with almost 60 million sold to date. In fact, Best Buy has reported that their laptop sales plunged by 50 percent after the iPad was introduced.
The App Store
The App Store was launched in 2008 to provide applications for Apple’s mobile devices. In its first year, the App Store had 1.5 million downloads and then continued to grow rapidly. By early 2012, the App Store reached 25 billion downloads largely fueled by the growth of the iPhone, iPod touch, and iPad. The App Store makes downloading applica- tions easier, which encourages more purchases. The average iPhone user has 48 apps compared to 35 apps for Android users and 15 apps for BlackBerry users. Almost 70 percent of all apps on the App Store cost less than $2.00. Independent developers can distribute their original apps through the App Store, and Apple shares profits with them. The App Store generated over $15 billion in revenue in 2011.

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