Final Paper

Answer

Apple Watch

• Introduction (Mady)

Porter’s Five Forces Analysis (Mady)

            At the time this case was written in 2012, the Apple Watch had not been launched yet. There were two competitors at the time who had watches launched, FitBit and Garmin. FitBit launched a device in 2009 that clipped directly to a user's clothes. Although this is not a watch, it was a device that was able to help achieve fitness goals. Then, in 2013 FitBit launched their first watch that was able to connect to users' phones to track calories burned, eating tracker, sleep monitor, and steps taken. After 2013, FitBit continued to launch watches that were continually updated. Garmin also started out with an attachable step tracker and then transitioned into watches used for fitness tracking. Both of the competitors' watches can connect to phones through bluetooth where you can receive texts, calls, emails, and other notifications. That being said, when Apple would decide to join this market in 2015 there would already be competitors in the market. I do not think this would be a hard market for Apple to capture because they are able to market their watch to be compatible with the rest of their product line.

            The threat of substitutes in regards to the Apple Watch is very low. The main uses for the Apple Watch are to receive notifications more conveniently, monitor heart rate, monitor sleeping, and also to track fitness workouts. A substitute that can do mostly all of these tasks is a smart phone. You can do everything you can on a watch on the phone, and a smartphone can be used instead of the watch. Step counters can also be used as a substitute for the watch, because instead of counting steps via the watch, you can attach the step counter device to clothing and use that instead.

            Once the Apple Watch is brought into the market, the bargaining power of consumers will be low. The price for the watches will not be negotiable, therefore customers do not have a say when buying this product. There will also be cheaper options in the watch market. As with their other products, a premium price for the watch will probably also be charged. Fitbit and Garmin will then be considered cheaper options and the bargaining power will be low.

            Apple would be considered a new entrant in the wearables market, however once they established themselves, the threat of new entrants would be low. Considering that there are already two other competitors, it would be a lot of money to try and enter the market and become relevant. However, because Apple already has money invested in research and development and the technology to create watches, the cost for them to enter the wearables market will pay off. Apple’s well established name and customers brand loyalty will allow them to enter and rise to the top of the market quickly.

            The bargaining suppliers power will always remain low for Apple because of how broad their supply chain is. Because they have such a diverse product line and offer the product all over the world, they need many suppliers to manufacture for them. Having many suppliers who can manufacture these products and also always having a high level of supply, makes the power of suppliers very low.

• Value proposition (Chris)

The unique value proposition of the Apple Watch rests upon its ability to appeal to a segmented population of the iPhone user base. At the time this case was written, iPhone sales consisted of over 44% of Apple’s total revenues and competed with Samsung for the largest market share in the smartphone industry. Apple also at one point made over half of all profits despite only having a miniscule fraction of total units sold. This demonstrates how Apple can sustain growth by selling a high-cost product that differentiates itself with superior quality. In addition, it confirms the existence of a market segment that is willing to pay a premium for a product with high value. These customers are the segment that the Apple Watch will also appeal to.

With a reliable market established, their strategy must emphasize the same integration that enticed users to purchase the iPhone to begin with. The concept behind the iPhone’s value proposition revolves around its emphasis on integration and optimization for the end user. It follows that upscale buyers see this integration as preferable to purchasing multiple devices. Indeed, the Apple Watch builds on the iPhone’s selling point of being “three separate devices in one device”. A key selling point could be expanding on the underserved need for accessibility. This integration would allow for one to select music, act as a fitness/health aid, respond to calls/texts, and set alarms without ever taking their phone out of their pocket. Indeed, the Apple Watch could also package Siri, Apple’s proprietary assistive voice technology as an added feature. Overall, there is strong emphasis on the Apple Watch as an accessory that could entice upscale buyers for its premium on accessibility in situations where one otherwise cannot use their smartphone.

With regards to positioning in the market, it is imperative that Apple establishes a foothold early. As Jobs himself said, “If you don’t cannibalize yourself, someone else will.” Apple had just inked a 4-year, $15-billion agreement with Sprint to sell the iPhone in the months before this case was published. Adding a complementary device to the smartphone would not only boost revenue, but provide another bargaining chip when negotiating with cell carriers. Furthermore, it would give Apple a leg up in its unending arms race with Samsung. The two tech giants had already dueled over lawsuits contending the Galaxy S copied the iPhone’s user interface and Apple’s increasingly strained relationship with their manufacturing of the ARM processor. With their primary competitor Samsung well into developing their own smartwatch, the Gear, Apple needs to move quickly to differentiate themself within the market. If not, they would blow a golden opportunity to undercut Samsung’s market share.

Value Chain: (Justin)

While the Apple Watch had not been released yet in 2012, one can assume that it would follow a similar value chain as Apple’s other products such as the iPhone, Mac, and iPod. The value chain consists of inbound logistics, operations, outbound logistics, sales/marketing, and service. Perfecting these business operations are key for maximizing efficiencies, lowering costs, and delivering a better product so Apple can stay competitive in crowded tech markets. The value chain plays an integral role in Apple’s business model and is still being perfected to this day.

            Inbound logistics is the act of sourcing raw materials to a warehouse or manufacturing facility so they can be turned into a finished product which in this case is the Apple Watch. Keeping costs low in this operation is especially key to keeping the overall product cost low so it can stay competitive. To keep efficiencies high and pricing low, Apple outsources its manufacturing to developing countries such as China and receives its raw materials from suppliers all around the world. Suppliers such as Foxconn and 3M are just some suppliers that support Apple along with many others primarily located in Asia. These suppliers have very little bargaining power over Apple since they are such a huge contract to have and do not want to risk losing them. Apple also holds their suppliers to the highest standard of speed making them provide the absolute highest of quality. Refer to appendix to see Inbound Logistics workflow.

            Operations is also crucial to the value chain as it identifies where and how the products are being made. While Apple primarily outsources to China, it still manufactures in other smaller Asian nations as well. A tradeoff could be formulated that outsourcing could hurt Apple’s brand image, as labor issues could explode at any moment; but this seems like it is a risk apple is willing to take to keep the product cost down. As for the entire firm’s operations, Apple had just shy of 73,000 employees at the time that were all working together to bring the final product to the customer. These employees are the backbone of Apple and without them it would remain just an idea.

            Outbound logistics

Rest in revision on a word doc -Justin

• Trade-offs (Cameron)

               Due to Apple wanting to run its own race in the smart device market, it had to make key decisions about its products and operations that set it apart from its competitors. A large decision that Apple had to undertake was making its operating systems and some of their apps exclusive to Apple products only. Having their operating systems on exclusively Apple devices and making apps such as iMessage, FaceTime, and the Health app exclusive as well has its pros and cons for Apple and Apple users. A primary reason that these apps are exclusive with Apple devices is the fact that they are made with the features of Apple devices in mind. The synergy that is created when an app works seamlessly between an Apple Watch, iPhone, and MacBook is what makes the Apple experience so seamless for their users. I feel this decision is also to strengthen Apple’s brand image. Apple wants using their exclusive apps and their operating systems to be a unique and well-sculpted experience for their consumers, licensing out their OS and apps could possibly dilute their brand. One downfall to this strategy is that Apple does not make money on licensing their software. Android can profit from selling its OS to countless smartphone manufacturers but is excluded from excluded from competing with Android in this way.

            Another tradeoff that Apple took on with the Apple Watch is having unique hardware and accessories. Selling cases, watch straps, and chargers that are unique to the Apple Watch can increase their revenue and add to brand image. Apple is known for having chargers that only work with its devices, while most other smart watches and phones employ widely used power cords like micro and mini-USB.

In watch industry:

(1) Can Apple stay on top? (Rithwin)

Apple can remain on top of the market by focusing its strategies on three primary areas including research and development, marketing, and cloud computing. Apple Inc.’s management should invest heavily in research and development with the aim of ensuring that its watches provide a unique value proposition. Such an undertaking will enable the company to differentiate itself from the two existing rivals, Garmin and FitBit, as a superior quality. This achievement will then enable the company to high-cost watches by targeting the market segment that is willing to pay premiums for high quality or high value watches. Moreover, investing in research and development will enable the company to produce watches that meet various needs of customers that are currently unmet by competitors’ products including use of Siri without taking out the phone from the pocket, tracking fitness metrics, and responding to calls among others. Research and development will also enable Apple to product iWatches that are not only compatible with Apple products, but also other products, which in turn will enable the company to target a large pool of buyers including those using products from other companies. Therefore, by meeting these needs, Apple will manage to compete on high cost strategy.

 Apart from focusing on research and development, the firm’s management should focus on executing intensive marketing campaigns that highlight the unique features of Apple watches, particularly the compatibility of iWatch with other products apart from Apple products. The company’s marketing campaign should integrate imaginative ads and intense employment of social media networks including Facebook, Twitter, Instagram, and YouTube among others. Such an undertaking will contribute significantly to the creation of incredible levels of brand loyalty and brand presence, thereby ensuring that Apple stays at the top of the competition. Apple’s management should also focus their strategy on cloud computing, particularly iCloud, as step towards staying at the top of the market. Focusing on cloud computing will ensure that Apple provides users with the benefit of secure storage or backup and accessibility of vital information such as notification settings, mixes, albums, and playlists, and general systems settings among others. Nonetheless, the firm’s management should prioritize data security and synergy for it to provide users with good experience. Data encryption offers a suitable remedy for data security or privacy. 

 (2) How will it remain competitive? (Justin)

• Running their own race - having their own standards
• Keeping in mind what people can use instead of their products (using your phone to track fitness)
  • Everything you can on a watch, you can essentially do on your phone
• Galaxy Gear, FitBit, Garmin

(3) How can and should it compete in these existing and emerging markets? (Cameron)

• Maintaining brand excellence
• Customer loyalty
• Importance of brand image

 (4) What are Apple’s strategic challenges and opportunities? (Chris)

• Challenges
  • Competition outside of the US
  • Phones carrying Android OS have open-source software which appeals to those who look to personalize their user-interface
• Opportunities
  • Upgrading products - releasing updated versions of watches
  • New product development
  • Third party apps - specific to the Apple Watch

Conclusion (Rithwin)

Apple’s iWatch is poised for a success in the market with several external and internal factors favoring the company. Currently, the market has only two competitors including FitBit and Garmin with lower financial and resource capabilities relative to those of Apple. Apple’s watches provide unique benefits that are not provided by competitors’ watches including convenient reception of notifications, monitoring sleeping and heart rate, and tracking fitness workouts. As such, the firm’s products lack substitutes. Moreover, the bargaining potential of suppliers is low considering that Apple possesses a broad supply chain. Furthermore, Apple’s products are associated with high value that enables the company to target market segment that is willing to pay for premium products. The firm’s value chain also offers the benefit of low cost production, which places the company at a suitable position to generate profits and compete effectively with its two rivals. It is also vital to note that the firm has an opportunity to remain on top of the market by focusing its strategy on marketing, cloud computing, and research and development. Furthermore Apple has opportunity to excel in the market by focusing on building its brand image, maintaining brand excellence, building customer loyalty, pursuing other markets, upgrading its products, leveraging on third-party application specific to the Apple Watch, and developing novel products including making iWatch compatible to phones operating on Android. Embracing these measures will contribute significantly to Apple Inc.’s success in the market.

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