Table of content

INTRODUCTION……………………………………………………………………….2

STRUCTURE-CONDUCT-PERFORMANCE………………………………………….2

PEST ANALYSIS………………………………………………………………………..4

PORTER FIVE FORCES………………………………………………………………..8

SWOT ANALYSIS……………………………………………………………………...12

CONCLUSION………………………………………………………………………….17

REFERENCES………………………………………………………………………….21

Introduction:

On the Nov 9, 2007, Britons got their hands on the iphone. Apple’s iphone had been

widely extolled as a breakthrough due to its dynamic touch panel user interface, effective

web-browsing and multi-media capabilities. Apple’s CEO, Steve Jobs, had described the

iphone as a “revolutionary and magical product that’s literally five years ahead of any

other mobile phone.”(Apple’s iphone ---,)

Structure-Conduct-Performance(SCP):

According to Sloman, J., 2003.

Structure: refers to market structure defined mainly by the concentration of market

shares in the market. (Number and size of firms, Industry concentration, Technological

and cost conditions, Demand conditions, Ease of entry and exit)

Conduct: behavior of firms - competitive or collusive. (Pricing, advertising, production,

choice of technology, entry barriers,)

Performance: social efficiency: mainly defined by extent of market power

(Greater market power =lower efficiency). (Profitability and Social welfare)

Apple entered the market with a totally new and innovative hand phone that had features

not yet available in any of its competitors (as mentioned earlier). Apple had a

competitive advantage over its competitors in the market. Now, In a market structure like

the mobile industry (oligopoly Structure), all the members’ decision are influenced by

other members of the same market . Apple introduced a new idea at the beginning, the I-

phone, gaining good deal of shares in its markets, and then after competitors introduced

their smart, innovative and new devices, Apple lowered its prices on the 8GB version

(model) by 200 $ and phased out the 4GB version (model).

The relationship between industry structure and performance has maintained a central

role in UK, US and EC competition legislation. The structure-conduct-performance

(SCP) paradigm predicts that the structure of the market in which a firm operates will

determine its performance.

In the case of the Apple introducing the I-phone, it performed well at the beginning and

for a period of time, and what helped Apple is the market structure it chose (mobile

phone market), selling one million units in a record of 74 days, because of the features of

the new product i.e. the I-phone.

Particularly in markets that are oligopolistic strategic behaviour may shape, or reshape,

the competitive environment. It may cause structural change, or it may alter conduct

without directly altering the structure of the market. In many cases this will stimulate

competition by causing other market participants to respond in ways that benefit

consumers, that is through lower prices, product innovation, product differentiation, and

the like. In other cases, however, strategic conduct may damage the competitive process

and so must be taken into account when undertaking a competition analysis.

Apple has a market structure of Monopoly in which he was the only supplier of iPhone

in market. When Apple launched iPhone there was no substitute threat for apple from its

competitors because no other companies were able to replace iPhone. As Apple was

expert in its own software and hardware development, there was no barrier for apple to

enter the mobile phone market. So, Apple acts as a monopolist firm who sets its own

price for iPhone. But in the long run Apple will be no more in monopoly market because

of many large firms who are in competition to apple coming with new phone which can

be substitute to iPhone. Apple will no longer earn profit in market because of the

competition . Apple will have to improve their conduct and performance in innovation,

pricing policies, advertising, research to give better competition in market structure to its

competitors. Apple management must perform effectively to increase their iphone sales.

According to Begg et al (2001) The Market structure is a description of the behaviour

of buyers and sellers in that market. it is important to study the different structures of the

market for apple industry .There are many events that will influence the Apple Company

to move from Monopoly market to Oligopoly. When more firms producing the same

products enter into the markets it increases the competition in the market. According to

Sloman, (2003), whenever firms enter the market, increasing the competition, selling

products with low prices it is understandable that the profit margins are to reduce. On the

basis of above theory, Apple is not an exception to competition. This competition will

influence its markets structure, conduct and performance.

PEST Analysis:

Political:

One of the main political barriers for the iPhone is the existence of gray markets.

Gray markets are created when so called "store owners" import goods from a foreign

country at a cheaper price and sell it at their store front at a price that is usually cheaper

than what is being given at authorized retailers. iPhone is not a global commodity and is

currently only being sold in a select few countries, those being the United States, United

Kingdom, Germany, France, Ireland, and Australia. Gray markets are considered legal

and are very commonplace in many countries, such as Hong Kong, China, Brazil, etc.

Through these gray markets, the iPhone is being distributed and opens the market for the

iPhone prematurely and without the approval and consent of Apple. This poses a large

problem for Apple because they lose a lot of the sales and revenue they would get during

product launch into new markets. Also, introducing such a high tech phone into foreign

markets will generate imitators and bootleggers who can and will mimic its technology.

Another political issue of iPhone is the single carrier contracts that so far iPhone

has signed in each of the countries that it has been introduced. With USA, iPhone's sole

carrier is AT&T Mobility, for UK O2, and so forth. This Simlock for the carrier's

company has sparked a lot of controversy over whether a company should be allowed to

do so. In Germany, a company is not allowed to lock the SIM card to itself, but in

December 2007, a German court granted exclusive rights to T-Mobile which enabled

them to sell the iPhone with the SIM card locked, under the condition that after the

customer's contract expires, T-Mobile will unlock the iPhone. Despite the people's

objections towards iPhone's single carrier policy, Apple has continued to do so. However,

since gray markets already provide unlocked iPhones and the existence of these gray

markets are so widespread and so readily available, it would seem that this single carrier

policy would no longer be an effective strategy. In the United States, AT&T has a history

of letting the government spy on its phone networks on top of the long history of

government regulations on phone networks, and since one of the major components of

the iPhone is its music playing abilities, copyright laws will come into the question. It is

unclear what the government will do with the iPhone but for consumers, the idea of a

locked phone that can only run pre-approved software carried by a pre-chosen phone

network that is subject to government surveillance will definitely hurt its market

performance.

Economical:

As a high end product, it is geared towards the middle to upper class. Therefore,

its price is a major obstacle to its success. iPhone is currently launched in countries with

some of the highest income per capita in the world. With its high price tag, iPhone must

search for markets which has the highest potential for consumer demand coupled with

buying power. Second and third world countries are practically automatically excluded

which limits viable market for the iPhone. However, economic growth must also be taken

into concern to evaluate future market potential.

Social:

One of iPhone's greatest selling point is its sleek design and strong brand image.

Apple's product design has always been adored by the trendy and many of the time, price

will not be an issue to the innovators. Being in a category of its own, the iPhone has no

true competitors and is considered the choicest gadget. For countries such as Hong Kong,

cell phones are replaced on average in a semi-annual basis for a more technologically

advanced or aesthetically appealing phone. iPhone in markets such as these would be

immensely successful, fulfilling both categories for technology and aesthetics. In

America, where phones are replaced less often, utility and product life is much more of a

concern for consumers. Since Apple is widely recognized nationwide its strong brand

image comes into play. iPods and iBooks have been coveted by many and with the

introduction of the iPhone, Apple adds another tool in its arsenal to appeal to the trendy.

Also its technological superiority places its utility value high above most if not all

competitors.

Technological:

The iPhone was announced as the best invention of the year for 2007. Although

Apple did not invent the touch screen, iPhone utilizes the touch screen capabilities to

such an efficient degree that it seems it as though this was the first and foremost touch

screen user interface gadget. Some of the major barriers of entry for a lot of technologies

are the existence of major competitors as well as the learning curve of consumers for the

new product. As mentioned before, there are currently very few to no true competitors to

Apple’s iPhone that can cause any major problems to its market performance. iPhone was

launched into the phone market, but with such high capabilities it would seem more

fitting in the PDA market, or even in a new category of its one: the first of its kind.

However, being the forefront in the market, the iPhone is highly susceptible to copycats

and competitors that can backwards engineer their technology and implement it for their

own products to market. The other issue, just like with computers, is that many of the

older generations have difficulty understanding and transitioning into many of the

functions and capabilities of iphone.

Porter’s Five ForcesNew entrants

Bargaining Power of

customers

Bargaining power of suppliers

Threat of substitutes

Rivalry within

industry

PORTER’S FIVE FORCES:

According to Michael Porter (1979), industry is being influenced by five forces. The

strategic business manager planning to develop an advantage over rival firms can use

this model to better understand the industry plans in which the firm operates.

Source - Porter ME, (1979), 'How competitive forces shape strategy', Harvard Business

Review.

Competitive Rivalry (Growth and Competition)

Barriers to Adoption of iPhone

As iphone is offered by single networks such as O2 in UK , customers of other networks

will have to wait until their contract expires, or pay an early cancellation fee (typically

$200). The average duration of a cell phone contract is 2 years, which means that 25% of

consumer’s plans will expire in the next 6 months. Since a $200 switching fee makes the

iPhone very expensive.(Apple’s iphone case study)

Growth Potential

It is likely that future releases of the iPhone will not be restricted to any single network

for example AT&T in US. This would increase the potential market for the iPhone. It will

also reduce the problem of growth in market share.

Pricing Policy

Pricing:

Model Price

4gb model 499 $

8gb model 599 $

Source - By Michael S. Rosenwald (2008), “The Financial Lobe”, Putting Prices Into Focus, www.washingtonpost.com

Apple introduced the device at high price for early adopters to earn abnormal profits and

it slashed down iPhone price by 50% for rest of market segment. For Reference, In US

When it reduce the price from $599.99 to $399.99 consumer were force to deal with the

mobile carrier AT & T mobility, in service package ranging from $59.99 to 99.99 per

month. But in UK, low amount of inclusive minutes was not competitive. For reference,

O2's iPhone deal allowed 200 inclusive minutes for pound 35 versus competitors that

offers of 750 minutes in addition to a free phone. Apple reduces its prices or introduces

new models for price-sensitive consumers, and its sales could expand considerably.

Distribution:

Unlike iPods, which are available through many retail channels, the iPhone will only be

sold through Apple stores and single network stores. For instance, iPhone was available

through 1300 Apple, O2 and Carphone warehouses shops in UK.

According to Michael Porter, (1985)

When a firm sustains profits that exceed the average for its industry, the firm is said to possess a

competitive advantage over its rivals. The goal of much of business strategy is to achieve a

sustainable competitive advantage.

Michael Porter identified two basic types of competitive advantage:

cost advantage

differentiation advantage

Differentiation advantage for Apple (Product differentiation strategy)

For other device manufacturers getting into this market may be important. The problem is that

they have to try to develop a product that not only matches the iPhone but give competition to

it. This is where competitive advantage comes in. Features such as touch-screen capability,

internet access, large memory capacity and, crucially, design are all things that the iPhone has

been well known for. For other manufacturers to come up with something better takes time,

research and funds - simply copying the iPhone is not that easy. The features are what give

Apple the competitive advantage, and the fact that it is not easy to reinvent those features

quickly is what makes the competitive advantage defensible. Apple has managed to create a

Macintosh computer with mobile phone capabilities, bundled within an Internet enabled PDA

and an iPod body. The iPhone combines smart phone capabilities with a simple to use graphical

interface projected on a large ‘multi-touch’ display with Wireless Internet Communication

Device.

Style-conscious cell phone consumers who would like to browse the Internet and enjoy

entertainment t, the iPhone is a smart phone that combines a web browser, email, iPod and

personal computer into a single, fashionable, easy-to-use device.

Cost advantage for Apple (Price based strategy)

Apple’s plan of slashing down the price of iPhone by $200 after few months of its release. So

what's strategy behind the price drop? Is it a long-planned strategic move to pick up a second

category of customers following those early adopters for whom price was no object. Here the

company target the price sensitive market segment. When it reduce the price from $599.99 to

$200, now US consumer were force to deal with the mobile carrier At & T mobility, in service

package ranging from $59.99 to 99.99 per month.

The iPhone - Sustainable Competitive Advantage

What could give an iPhone an edge over its rivals? The question is that Apple Company is going

to sustain with this competitive advantage forever or not?

Smart phone – software and applications of Apple are highly reliable and have good

brand identity and are user friendly.

Hardware invented by Apple is fashion trend and style-conscious cell phone.

PC Expertise – As software and hardware are owned and developed by Apple, they are

expert in the applications introduced for iPhone.

Apple has a brand identity and loyal customers.

The Apple store and complete security for handset build goodwill for company.

Even if Apple’s competitors produce copies of the iPhone, they will struggle to compete

because of Apple’s first mover advantage that will likely cause consumers to ssociate

similar products with the iPhone (similar to what has happened with the iPod)

SWOT ANALYSIS:

Apple entry into the mobile sector market will make a grate impact on the industry structure. As

we saw in the introduction of the company apple is a very well known company in the market it

has already repudiated name the mind of the consumer. And when it comes in the sector of

mobile telephone, I comes with the unique product which is extremely different from the

products already exist in the market. That’s mean apple created a greater competition in the

market. Because with it’s unique product apple is earning the abnormal profit for the company.

After seeing the abnormal profit of the company other companies are being attractive towards

that particular segment (iphone).its mean in the 3-5 year the industry will be very competitive.

We can see that with the help of SWOT Analysis by MC gee et al (2005),

Strengths Weaknesses

Opportunities Threats

Style/Brand Sensors

Rich UIUser base

Hype

First mover

No UMTS High price / high end

Limited distribution channels

Missing featuresUnsafe for

corporate use?

Port existing apps

Migrate people to Apple

New social device

Distribute iTunes content

Similar devices

Highly developed market

SWOT ANALYSIS

A. Strengths

The iPhone has several features that add to the strength of the product. These include its

unique look and feel accompanied by a mobile operating system. It has phone sensors that

work with the multi-touch screen, which is a new patented technology. These new features are

presented to a large and loyal user base that Apple has accrued over the years. Finally, the fact

that the company is first to deliver in this arena of computer phones is one of its greatest

strengths. The iPhone is significantly different than its competitor’s product. Apple also has a

certain amount of protection through the strength of its brand identity. iPhone launch was

extremely different technology from other mobile companies. But to keep product

differentiation consistent in long run would be challenge for Apple.

B. Weaknesses

Like every new product, there are is a set of weaknesses. The iPhone is not a 3G device and will

not work in technologically advanced countries such as Japan and Korea. All of their phones are

3G compliant. Several of the iPhone features are also not particularly impressive. These include

the fact that it has a sub par camera, standing at about 2 mega pixels as well as its memory not

being removable. The phone is priced around 500 to 600 dollars and surveys have shown that

consumers are happy with their current mobile device; essentially, this phone is geared towards

the high end consumers. Apple’s choice of distribution channel has also been construed as a

weakness as they’re limiting it to only Cingular and Apple retailers. Finally, its purpose is to be

questioned – does the phone fulfill corporate duties or is it just an entertainment system. Since

iPhone is only offered by single networks such as O2 in UK and AT&T in US, customers of other

networks will have to wait until their contract expires, or pay an early cancellation fee (typically

$200). The average duration of a cell phone contract is 2 years, which means that 25% of

consumer’s plans will expire in the next 6 months. Since a $200 switching fee makes the iPhone

very expensive.

C. Opportunities

There is quite a demand for a better mobile computing experience. The iPhone tries to combine

both powerful computing as well as entertainment into one system. People have also noted

that the Mac OS applications for desktop can be seamlessly adapted for the iPhone. Also, this is

the first step towards an Internet Protocol-based network. The emergence of Wi-Fi networks is

pushing for there to be visitor fees instead of having a provider lock in users. It is likely that

future releases of the iPhone will not be restricted to any single network for example AT&T in

US, O2 in UK, and T-Mobile in Germany and Orange in France. This would increase the potential

market for the iPhone. It will also reduce the problem of growth in market share.

D. Threats

The majority of threats come from other companies including Nokia, Sony, and Google with

their respective products. Smart phones are one popular example that stands to compete

against the iPhone. The iPhone mainly distinguishes itself from competitors over its user

interface which is driven by a multi-touch screen. Apple claims various patents relating to this

technology. However, it is still likely that other players in the market will soon be able to deliver

similar products. Synaptics and LG have already disclosed details of coming products which

feature touch-screen interfaces, as well. In case of Apple the buyers of the iPhone are price

sensitivel. Substitution reduces the demand for particular class of a product as customers switch

to the alternatives even to the extent that this class of products or service becomes obsolete.

The demand of the iphone might be reduce in the future because of the availability of the

substitutes Given the relatively high price of the iPhone it remains to be seen whether

consumers will pay a high price for Apple iPhone features when their needs may be equally met

by cheaper alternatives. However, the iPhone’s compelling mix of features makes it attractive to

a broad set of cell-phone consumers. The iPhone’s market is limited by two factors: 1) the high

price ($499 for 4 GB) and 2) Apple’s exclusive US carrier agreement with Cingular. (For example

AT & T, O2)

Summary

In the next 3-5 year if we see the industry would be more competitive than today. So many firms

will be competing in the market and new firms will be try to come in the market for taking the

advantage of profitability, which would reduce the profit of the firms. Consumer will have more

choice because of substitution, and they can force the companies to reduce the prices of their

product. And the supplier will have the power to raise the price of the raw material because of

the high demand on the same time.

Evaluation

If we see the above theories, author said that if the organization wants to have sustainable

competitive advantage than its product must be less imitable but in the case of iphone, the

biggest rival of the company LG, SAMSUNG have already announced their touch screen

phones as a substitute of iphone.

If the company want to sustain on the bases of price based strategy then it would not be

possible for the long time, because iphone will have to face the competition, so the

company will have to spend more money on the advertising for selling it’s product which

will increase the cost and one possibility is that supplier can raise the prices because of

the more demand of the raw material.

Conclusion:

From the above discussion and analysis the following can be made regading the

sustainability of iphone in the present competitive market.

1.Apple should innovate in such a way that it continues its market sustainability with the

launch of new products.

2.Apple should reduce the price of the product so that it can increase the sales and get

more profits.

3.Apple should increase its distribution and launch in many other countries so that it can

increase its market share.

4.From the Exhibit 1 the basic configuration of iphone has been easily implemented by

the other companies like Samsung,LG in affordable prices with wide range of

distribution.

5.According to exhibit 2 these are the market share of different mobile companies until

2007 .By using product distribution strategy the apple can improve it sharehold in the

mobile industry which is shown in exhibit 3.

Mobile Handset Market Shares

Worldwide M obile Terminal sales to End -Users in 2006 (Thousand of Units )

Company 2006 sales Market share 2005 sales Market share

Nokia 3,44,915.90 34.80% 2,65,614.80 32.50%Motorola 2,09,250.90 21.10% 1,44,920.40 17.70%Samsung 1,16,480.10 11.80% 1,03,753.60 12.70%Son Ericsson 73,641.60 7.40% 51,773.80 6.30%LG 61,986.00 6.30% 54,924.60 6.70%

Benq Mobile 23,558.10 2.40% 39,692.30 4.90%Others 1,61,029.80 16.20% 1,55,883.40 19.20%Total 9,90,862.50 100.00% 8,16,562.90 100.00%

Source: http;www.gartner.com/it/page.jsp?id=501734

Global Mobil Shipments and Shares as of Q3 2007

Vendor Q3 2006 Q2 2007 Q3 2007

Nokia 88.5 100.8 111.7Samsung 28.9 37.4 42.6Motorala 53.7 35.5 37.2Sony Ericsson 19.8 24.9 25.9LG 16.8 19.1 21.9Others 46.4 41.3 45.7Total 253.8 259 285

Vendor Q3 2006 Q2 2007 Q3 2007

Nokia 34.90% 38.90% 39.20%Samsung 11.40% 14.40% 14.90%Motorola 21.20% 13.70% 13.10%Sony Ericsson 7.80% 9.60% 9.10%LG 6.50% 7.40% 7.70%Others 18.30% 15.90% 16.00%

Source: Strategy Analysis. http://www.itfacts.biz/index.php?id=p9112

Worldwide Total Smart Mobile Device Market . Market Shares Q4 2006 , Q4 2005

Vendor Q4 2006mshipments % share Q4 2005 shipments % share

Total 22,124.40 100.00% 1,70,53,930 100.00%Nokia 1,11,14,630 50.20% 92,68,410 54.30%RIM 18,29,260 8.30% 11,85,340 7.00%Motorola 14,63,090 6.60% 7,77,580 4.60%Palm 12,11,930 5.50% 15,63,680 9.20%Sony Ericsson 11,37,360 5.10% 1,08,710 0.60%Others 53,68,130 24.30% 41,50,210 24.30%

Features

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