Apple Inc. proved that a good idea in the right hands assures unsurpassed results as the company elaborated and implemented a seemingly unrealistic idea of creating smart machines. Originated in the minds of the two friends, Apple Inc. became one of the best-known and most successful corporations in the world. The company’s computers made a revolution by laying the foundation for the innovative future.
However, Apple Inc. is not the only corporation in the field of computers. In this connection, it is necessary to analyze the competitive advantage forces of Apple’s computer industry such as the threat of new entrants and the bargaining power of buyers in the framework of Porter’s model.
Each force in Porter’s model involves a particular aspect of competitiveness, two of which are represented in this paper. Porter (2008) claims that these elements of the market are the driving forces of market competition. The competitive analysis by Porter helps to determine the intensity and extent of the competitive forces in the industry finding a position, in which the company will be maximally protected from the impact of competitive forces. The golden rule of Porter’s model is the following: the weaker the influence of competitive forces, the more opportunities to obtain high profits in the industry.
Bargaining Power of Buyers
First, Apple Inc. bargains power of buyers, who have an impact on the competitiveness of the company as they are, in fact, consumers of goods and ensure the market existence. To support and develop the force of the bargaining power of buyers, Apple utilizes the strategy of differentiation that distinguishes its products from the rest of the industry. Yoffie and Kim (2010) explain that “the goal was to differentiate the Macintosh amid intense competition in the PC industry” (p. 4). However, differentiation requires a certain increase in costs. Companies conducting differentiation strategy should have the best design products.
They need to provide high-quality and often use expensive raw materials. They need to make large investments in customer service and to be prepared to give up some market share. Although everyone can recognize the superiority of the products and services offered by companies that are going to differentiate their strategy, some consumers are unable or unwilling to pay for it. Headed by Jobs, Apple was following such a strategy for the entire history of the company. It has positioned its products as unique ones. However, it is considered that product differentiation is a viable strategy.
The commitment of consumers to the specific brand serves as a protection from competitors to a certain extent. The originality of the goods or services offered by Apple remains a sufficient obstacle to new competitors. Moreover, the high impact created by differentiation protects suppliers, since it allows having financial reserves to search for alternative sources of resources. It is also quite difficult to find a replacement for the goods and services of the company due to the adherence to the strategy of differentiation. Consequently, consumers have limited choice and limited ability to bring the prices down. Although this strategy has its flaws, generally, I believe it allowed Apple to stay afloat for so long.
Consumers are tightening the competition using a higher quality of computers and the level of service requirements putting pressure on the price level. Higher requirements for the product make industry manufacturers improve the quality of the product produced by increasing the costs that might involve higher-quality raw materials, additional conditions of service, and others. In its turn, it might lead to the reduction of profit level.
Ghemawat and Rivkin (2006) confirm the sustainability and high impact of the marked force by pointing the following statement: “broad scope in an industry tends to be advantageous when there are significant economies in of scale, scope, and learning, when customer’s needs are relatively uniform across the market segment” (p. 17). Customers can get more benefits forcing sellers to reduce prices or demanding better quality and quantity of services provided, which leads to increased costs. The buyers are powerful when they have a strong market position about other subjects of the industry, especially if they are sensitive to prices. Therefore, Apple chooses those customers, who are less influential on the market.
The threat of New Entrants
Second, the threat of new entrants force proposed by Porter is also utilized by Apple to increase its competitiveness. The threat of new competitors in the industry always remains an important area of companies’ concerns as “strategic decisions of leading competitors often have a major impact on the threat of entry” (Porter, 2008, p. 11). The computer industry is quite closed to the entry of new firms that weakens the competition in this industry.
Among other things, some entry preventing factors such as economies of scale already established in the market, for example, might affect the computer industry as well. Nevertheless, Apple, being a well-known brand company and forming the loyalty of consumers over time, might switch costs between competitors’ products. To remain competitive, the corporation carefully monitors the demand for the digital market and the ability to quickly present the consumer what he needs.
Taking into account the above-mentioned peculiarities of the force, I consider that its impact is high as it can essentially influence both customers’ loyalty and costs. It is of great significance to point out the sustainability of the force. Hill and Jones (2012) claim that “threats arise when conditions in the external environment endanger the integrity and profitability of the company’s business” (p. 56).
New competitors entering the sector convey the ability and need to win the market share that influences costs, investments, and prices required to compete. In particular, when new competitors are diversifying from other markets, they can use for themselves the existing capabilities and cash flows to undermine the competition. The threat of new entrants sets the ceiling for the potential profitability of the industry.
To prevent new rivals, the existing ones have to keep their prices low and increase the investment. The threat of new competitors in the sector depends on the level of current entry barriers and the expected response from the existing industry participants. If barriers are low, and the new entrants do not expect a serious response from the entrenched competitors, there is a high threat of new competitors, and the industry’s profitability might be reduced. The very threat of entry regardless of whether it would occur or not restrains the profitability. However, experience shows that Apple is doing everything possible to minimize the competitors’ impact on the industry.
Key Strategic Objective
Due to specific product positioning of Apple Inc., computer labs and computing appliances broke free from the corporate framework, and hundreds of thousands of dreamers and schemers got in their hands a powerful means of expression. By 1980, the company has dominated the computer market becoming a leading manufacturer of personal computers. To address the mentioned force, Apple marks its mission as follows: the company offers the highest quality computers for all people worldwide.
According to Reeves and Deimler (2011), “the goal of most strategies is to build an enduring (and implicitly static) competitive advantage by establishing clever market positioning or assembling the right capabilities and competencies for making or delivering an offering (doing what the company does well)” (p. 4). In this connection, the Apple Inc. strategy model aims to adapt to the competitive environment. More precisely, Apple’s marketing company philosophy stands on three pillars including understanding the feelings and needs of buyers of products, maximum focus on the company’s affairs, and the idea, that is, the primary role of the new product presentation. Apple sells personal computers while its corporate slogan summarizes what consumers buy: customers’ dreams.
To conclude, the paper reflects two key forces that shape Apple’s strategy helping it to remain one of the most recognizable and successful computer corporations all over the world. Such competitive advantages of the company as the bargains power of buyers and the threat of new entrants were identified and discussed in detail. As a result, it was stated that both mentioned forces are sustainable and efficient in achieving the goals established by Apple as the mission of the company is to provide people high-quality products with perfect design and service.
Ghemawat, R., & Rivkin, J. W. (2006). Creating Competitive Advantage. Harvard Business School, 1-21.
Hill, C. W., & Jones, G. R. (2012). Essentials of strategic management (3rd ed.). Mason, OH: South-Western Cengage Learning.
Porter, M. E. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review, 1-18.
Reeves, M., & Deimler, M. (2011). Adaptability: The New Competitive Advantage Strategy. Harvard Business Review, 1-9.
Yoffie, D. B., & Kim, R. (2010). Apple Inc. in 2010. Harvard Business Review, 1-25.