Porter’s Five Forces Analysis of Apple Inc.

Apple Inc, one of the most valuable companies in the world, manufacture and supply all hardware and software as well as its own operating systems. Established in 1976, Apple has succeeded to become a dominant competent in the industry. Therefore, Porter’s Five Forces model can be applied to the Apple Inc to understand its position within its industry and how it compares to the competition. This type of analysis reveals that, Apple is still in a strong market position but faces several threats to its dominance. Apple’s generic strategy aligns with the company’s intensive growth strategies, especially in maximizing the use of the organization’s competitive advantages. In particular, the intensive growth strategy of product development is key to fulfilling this generic strategy and supporting the long-term growth and success of the company’s technological goods and services. This alignment between generic competitive strategy and the intensive growth strategies provide support for fulfilling Apple’s corporate mission and vision statements.

1.2.Porter’s Five Forces Model

Michael E. Porter’s Five Forces framework is a strategic management tool for evaluating the five forces affecting the business organization. The model aims to examine five key forces of competition within a given industry. The main force examined by Porter’s Model is the level of competition within an industry. A person could even argue that the Model is essentially an analysis of the competitiveness or non- competitiveness of an industry.

The other focussed forces considered in the model, impact the level of the competition. They include the threat of new entrants to the marketplace, the threat of consumers operating for substitute products, the bargaining power of suppliers within the industry, and the bargaining power of buyers or consumers within the industry’s marketplace.

1.3.Application of Porter’s Five Forces Framework to Apple Inc.

A Five Forces Analysis of Apple Inc. will reflect upon what the company has to do 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. Based on this Five Forces analysis, the company can address the competition and the bargaining power of the buyers, which are the most significant external factors impacting the business. through its Macintosh computers and operating systems, the iPad, iPhone and other products, Apple Inc. has achieved massive success as a company despite through a number of up and down cycles since its founding in 1976(Apple Computer Inc, Library of Congress Business Reference Service). In 2018, Apple achieved the notable distinction of being the first US company to ever attain a market capitalization greater than $1 trillion(CNN).

Bargaining Power of the Customers

Apple’s success is attributed largely to its ability to innovate and bring unique products to the market that  have engendered substantial brand loyalty(Cell Phone Brand Loyalty Survey, 2019). 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. Apple releases a few versions of one great computer and then offers a new software that could easily integrate with the other software. For this reason, Apple has only been able to gain supplies from a limited set of suppliers, leaving Apple in a vulnerable position. However, their competencies could be the design which they come up with, fun looking and professional looking machines and the size and the colour of the machine.  This has made it inevitable to have the Five Force’s analysis, which would give insights to the external factors influencing the company’s success.

A Five Forces analysis of the position of Apple in the technology sector shows the industry competition and the bargaining power of suppliers, the threat of buyers opting for substitute products, and the threat of new entrants to the marketplace are all weaker elements among the key industry forces.

Porter’s Five Forces Analysis on Apple Inc.

1.Competitive Rivalry

Apple faces a strong competitive rivalry from its competitors. This component of Porter’s Five Forces determines the intensity of the influence of that the competitors exert on each other. With respect to Apple Inc., this influence is based on three external factors such as:

ØHigh Aggressiveness of firms

ØLow differentiation of products

ØLow switching cost.

2.Bargaining Power of the Customers

The force of Bargaining Power of the customers has a strong impact on the Apple’s business. this component determines how the buyer’s purchase decisions and related preferences and perception impact businesses. With respect to Apple, the buyer’s strong power is based on the following external factors:

ØLow switching cost

ØSmall size of individual buyers

ØHigh buyer information.

Customer satisfaction is essential for the success of a business, as customers can change their brands with ease. On the other hand, each buyer’s purchase is small as compared to the company’s total revenues. However, the collective bargaining power of the customers, the possibility of mass customer defections to a competitor is a strong force. Thus,  Porter’s Five Forces framework indicates that this condition makes customers weak at the individual level. However, the availability of detailed comparative information about the competing products’ features empowers the buyers to shift from one provider to the other. Thus, the analysis of this force shows that Apple must include the bargaining power of buyers or customers as one of the most significant strategic variables in the business.

Bargaining Power of the Suppliers

Apple can tackle with the bargaining power of the customers by building a large customer base, which in turn will reduce the bargaining power of the buyers and also provide an opportunity for the firm to  streamline its sales and production process. By rapidly innovating new products, not only attracts the customers but also will reduce defection of existing customers of Apple Inc. to its competitors.

3.Bargaining Power of the Suppliers

This component of Porter’s Five Forces analysis model indicates the influence of suppliers in imposing their demands on the company and its competitors. With respect to Apple Inc, the suppliers have weak bargaining power based on the following external factors such as,

ØModerate to high number of suppliers

ØModerate to high overall supply

ØHigh ratio of firm concentration to supplier concentration.

4.Threat of Substitutes

This component of Porter’s Five Forces framework determines the strength of substitute products in attracting customers. With respect to Apple Inc., the substitutes exert weak force based on the following external factors:

ØModerate to high availability of substitutes

ØLow performance of substitutes

ØLow buyer propensity to substitute.

There exists large number of substitutes in the market for Apple. For instance, instead of iPhones, people can use digital cameras to take pictures and Samsung and other competitors have come up with better quality camera products that can compete with the iPhone. However, these substitutes exert moderate pressure, as that have lower performance, features and the goodwill attached to them as compared to that of Apple products. Many customers would rather use Apple products based on the convenience and advanced functions, thus making the substitute to have weak impact on the company’s business.

Also, the buyers have low propensity to consume the substitute. For instance, customers would rather use smartphones rather going for a digital camera owing to the hassle of buying and maintain a digital camera, a cellular phone and other devices. Therefore, this analysis shows that, Apple does not need to prioritise the threat of substitution, specifically in management decisions in business processes like marketing, market positioning and product design and development.

Apple can tackle the threat of Substitute product by being service oriented than just product oriented, it should understand the core needs of the customer rather than what the customer is buying.it should also increase the switching cost for the consumers.

5.Threat of New Entrants

This component of Porter’s Five Forces analysis model indicates the effect and possibility of new competitors entering the market. In the case of Apple Inc., new entrants exert a moderate force based on the following external factors:

ØHigh capital requirements.

ØHigh cost of brand development

ØCapacity of potential new entrants.

Establishing a business to compete against firms like Apple Inc. require high capitalization. Also, it is extremely costly to compete with a large company like Apple, which results in making the new entrants weak. However, there exists large firms which have the capacity to enter the market. For instance, Google has already done so through the products like Nexus smartphones. Samsung can also be considered in this aspect as a new entrant, which shows that there exist companies who have the potential to emerge as a competitor to the Apple. Therefore, through this analysis the Apple must maintain its competitive advantage through innovation and marketing to remain strong against new entrants’ moderate competitive force.

building capacities and investing on research and development, the new entrance is less likely to enter a dynamic industry where the established players like Apple Inckeep defining the standards regularly. It significantly reduces the window of extraordinary profits for new firms thus discourage new players in the industry.

Nonetheless, it is important for Apple to continue strengthening  its competitive position through new product development and building brand loyalty to place any potential new entrants to the industry at a larger competitive advantage.

2.ANALYSIS

By focussing on the five forces, Apple can have focussed its attention on competitive rivalry and the bargaining power of the buyers. The strategists could gain a complete picture of what impacts the profitability of the organization in Electronic Equipment Industry. They can identify the game changing trends early on and can swiftly respond=d to exploit the emerging opportunities. This external analysis can also support the company’s current position of continuous innovation, which can turn help them in achieving a competitive advantage.