MARKET-LED MANAGEMENT

UNIT CODE: 5G4260

PROF. TONY HINES PROF. GILL WRIGHT

APPLE S iPHONE CASE STUDY ASSIGNMENT SEBNEM KAVCIN MSc INTERNATIONAL CREATIVE ADVERTISING ID: 10975608

Q1. Using the strategic analysis toolbox, evaluate the context in which O2 decided to distribute this product. Being the innovative force in consumer electronics, Apple is a very successful company. With its extraordinary sale rates in three four years time (2003-2007), the company has increased its net income from $57 million to $ 35 billion. After iPod and Motorola ROKR, Apple introduced iPhone on January 9, 2007, feeling the right proud of creating the smartest of the smart phones. SWOT ANALYSIS FOR iPhone SWOT analysis is a useful tool that enables to evaluate and analyse the current environment to identify the benefits and weaknesses in Apple s iPhone. Strengths The iPhone mainly distinguishes itself from competitors being the first to deliver in this arena of smart phones. It has a unique look and special features which includes new patented technology, such as a 3.5 inch multi touch glass screen, EDGE and Wi-Fi wireless technologies, full iPod functionality for music and video playback etc. Apple has a large and loyal customer profile that has been accrued over years. So if it is Apple, people know that whatever product the company introduces is a successful result of an innovative thinking. Weaknesses There is a set of weaknesses besides its strengths. Some of the features of iPhone are not particularly impressive. It has a short battery life, non-removable battery and one year life expectancy, browser s not being able to handle Java or Flash and not encouraging thirdparty software developers to create applications, leaves question marks over minds. In addition, one of the 4 P s of marketing; price, is high. When it was first launched in the UK, iPhone was priced 269 (US$ 538.80) which was even exceeding the US price and then, the Apple officers claimed that VAT charges were higher in the UK. Moreover, the customers were worried about whether new coming models will leave them with an outdated phone till the time that their contract due to finish. Apple s limited distribution channel was also another weakness since Apple chose only AT&T and Apple retailers in the US and O2 in the UK, T-Mobile in Germany and Orange in France. Opportunities The technology is developing and customers are demanding for a better mobile experience. The iPhone is combining both computing and entertainment stuff into one system. So although the prices are high, the customers feel satisfied with what they get. It has been reported that Apple achieved to sell one million units in only one full quarter while for RIM it took 22 quarters to reach a million.

Apple s iTunes music store has been developed for the phone.

Threats In every business there are very obvious threats associated which can be from local competitors or change in the consumer preference. Although iPhone is quite alluring with its brand new technology, design, technical features, prestige as a brand, there are several threats coming from other competitors such as Nokia, Samsung, Motorola, Sony Ericsson and LG. The smart phones that these companies produce are competing against the iPhone with their similar features for cheaper prices. For instance, Vodafone and Nokia announced new mobile music download services prior to iPhone s UK launch. Moreover, in Europe smart mobiles which are competitors of iPhone grew by over 30% in 2006 a year before iPhone s UK launch. The bigger market leads to the more challenging environment. On the other hand, economic downturn is still at an assertive dimension which prevents customers spending exorbitant sum of money. What s more, technologies are changing fast. New ones replace the older easily. Thus, it is harder to retain the competitive position for a company in a competitive market environment. SWOT Analysis for O2 Strengths Being the leader amongst the top five operators in the UK is the most significant strength for O2. At the end of 2006, top five operators had these shares: Telefnica s O2 (27.3%), TMobile (24.1%), Orange (22%), Vodafone (21.1%) and 3UK (5.5%). It also has a strong international presence operating in different countries. Additionally, O2 is providing broadband services to the customers and businesses in Europe. Weaknesses High price perception is one of the O2 s significant weaknesses. Since other competitors are offering tempting prices for similar products, it constitutes an impediment over customers choices. For instance, many UK customers already have 3G functionality and inclusive minutes in the fixed lines are not competitive since O2 s iPhone deal includes 200 minutes for 35 while competitors offer 750 free minutes plus a free phone for the same price. Long- time contract periods are creating worries on customers since they might end up with an outdated phone when their contracts end.

Opportunities In 2007, O2 rolled out the EDGE network to cover 30% of the population in the UK since the company didn t have a UK EDGE network. The company reached more customers introducing an innovative phone which is a revolutionary internet communications device at the same time; iPhone. Threats By the development of technology things are changing hugely. Although Apple s iPhone is seen as a breakthrough for its touch panel user interface, web-browsing and multi-media capabilities, competitors developed similar products patterning themselves after Apple. Considering that iPhone with O2 s price is higher than the other fixed lines . Although it is iPhone, it might not be that charming when customers can get similar product for a cheaper price. Interest in fixed lines and emotional appeal might decrease after some time.

PEST ANALYSIS PEST analysis is another useful tool to unde rstand the implications of the environment which a company is operating in. How the market responds in a country needs to be understood before entering in. So it is easier to adapt the environment; how they operate and how opportunities can be maximised and how the threats can be minimised. Macroenvironmental factors which are political, economic, social and technological are specific to a country. Since Apple is a US company, a PEST analysis needs to be performed for the other countries of interest. Political & Economical Being a major influence on government decisions, economic conditions are influenced by political and government policy. UK is a European Union country which uses its own currency. So exchange rates can also affect the prices. When iPhone was first introduced in the US, it was priced around $500 - $600. However, in the UK the entering price was 269 (US$ 538.80). The company officers explained that it is due to the country s higher tax rates policy. So the price differs from one country to another according to VAT charges of the countries. Social Social environment includes demand and tastes. In the US iPhone purchasers were mainly male, 35 years old or younger with a university degree. Being a phone with the latest technology, iPhone mainly appeals to young generation who were born into a technology

era. In the UK young population constitutes the biggest portion 1. So the demand will be high to an innovative phone which brings close entertainment and technology together. Technological Competitive operators in the UK were using different scemes to gain customers. The most popular tactic was giving high quality handsets to customer s signing up for a monthly plan which resulted in increasing involvement in handset design . iPhone s design was attractive enough to place itself to the top amongst the other handset designs. Since 1999 3G functionality had been in use and by 2006, 40 million 3G wireless customers were already reached. Competitiveness in European telecom companies incre ased with the continued convergence between fixed and mobile telecommunications and yielded many entertainment products. Prior to the iPhone s UK launch, T -mobile partnered with Sony Ericsson and re-launched its Music Jukebox. On the other hand, Vodafone a nd Nokia announced new music download services. These two steps were significant in terms of increasing the competitiveness in the UK market. Q2. Identify the marketing challenges, say how these challenges were addressed and say if the proposed solutions have been effective? Increase in market competitiveness: Nokia and Motorola dominated European market. The average value of a mobile phone was between 100 and 110 and over half of European countries had penetration rates over 100% which means many indivi duals owned more than one phones. Moreover, smart phones grew by over 30% which increased the competition. Nokia was placed in the top in smart phone devices with 50.2% global market share followed by Research in Motion (RIM), Motorola, Palm and Sony Erics son. 3G technology entered Europe in 1999. Mobile phone operators had spent over 100 billion on 3G licences and high-speed devices equipment. 3G wireless customers increased extraordinarily year by year. The growth of 3G networks contributed to the conti nued convergence between fixed and mobile telecommunications. Telecom companies offered services such as fixed, mobile, internet and TV for one monthly fee. Within this competitive environment O2 made an exclusive arrangement with US technology company Apple which has impressive satisfaction ratings in the US. Apple s triumph for innovative products and penetrations to new markets creates an overall brand satisfaction and this is very well known by people in all over the world. Company s new breakthrough , iPhone is created with newest technology and meets almost all expectancies of customers apart from very few unattractive features which can be improved later on. Tactics to gain customers: In the UK telecom companies were trying different tactics to gain customers. One was mobile music downloads . Mobile operator company T-Mobile

partnered with Sony Ericsson and re-launched its Music Jukebox. Sony Ericsson had a button linking to the site where customers can choose and download from 500.000 songs for 99p. Orange UK gave a chance to download 250.000 music and a similar amount of games per month. Lastly, right before iPhone s launch, Vodafone and Nokia offered new download services to the customers. According to this offer, customers could make unlimited downloads from Omnifone s 1.2 million selections for 1.99 per month. Moreover, Vodafone s MusicStation was compatible with 13 handsets . Nokia Music store was also compatible with Nokia N81 and N95 handsets wh ich are recently released and millions of songs were available for 80p each. On the other hand; Apple is the company which introduced the first mobile with iTunes. Customers could transfer up to 100 songs from their computers. Using iPhone, iTunes could be synched directly with a PC or Mac. In 2007, Apple launched the iTunes Wi -Fi Music Store and also disclosed specialized ringtone downloads. That was an attractive mobile feature to compete with the other handsets. Price matters: In the UK iPhone price was exceeding the US price. It was 269 (US$ 538.80). It was claimed by the Apple officials that price differed due to the UK s higher VAT charge. Monthly contracts cost 35 for 200 minutes, 45 for 600 minutes, 55 for 1200 minutes. The handset was more expensive than the others and less minutes were given comparin g to the other mobile operators; with O2 s iPhone deal customers were allowed 200 free minutes while competitors offer 750 inclusive minutes plus a free phone for 35. Moreover, the UK customers had already have 3G functionality since 1999. So they might have thought if it was worth it for a mobile with some unattractive features like non -removable battery and limited battery life? Besides, customers had some worries like being left with an outdated phone for the duration of their contracts if their iPhone was replaced by a 3G model the next year. Although price was high and inclusive minutes were less than other competitors , 69% growth in sales within a year was achieved and this proved that pleasures are priceless . Q3. Did O2 choose wisely? Yes. Customers know Apple from company s innovative products. iPod and iTunes are extremely popular in all over the world. It is certain that Apple knows what customers want and delivers high quality products and since they are innovative all the time, there is a positive prejudgement that if it is an Apple it is worth b uying. Thus, the Apple brand already has an emotional contact with customers. That s why, price does not matter and some unattractive features can be negligible. Importantly, customers know that when there is a problem with the product, a solution will be found quickly since it is a big brand. Whatever other competitors manufacture, will look like an imitation since Apple is the first company to create that technology. Jeffrey Parkhurst, Vivaldi's managing director of valuation, explains why the company is doing so well: "Apple also has tremendous resilience - they seem to

have this ability to reinvent themselves every few years. That's what keeps them hot and relevant to their consumer base."2 O2 is the market leader in the UK and has an international pre sence operating in European countries. In a way, this exclusive arrangement is like giants coming together. Although O2 was criticised by some analysists that the cost of rolling out the EDGE network was high and that was a retrograde step than a forward one, O2 s negotiation with Apple s iPhone was the right move. Sales rates proved that within a year. Metaphorically, O2 set a sprat to catch a mackerel. iPhone has become a product almost like a solitaire diamond ring making an excellent present, an excellent reason to save money, an excellent award to be offered in campaigns or an excellent gift to spoil yourself. Being the first to deliver such a breakthrough product, O2 made a right move.

References
1

Unknown. (2010). Ageing. Available: http://www.statistics.gov.uk/cci/nugget.asp?id=949. Last accessed 10th

January 2011.
2

Mag. My Hue McGowran. (2005). Apple's innovative products make it the fastest-growing brand worldwide. Available: http://www.newsfox.com/pte.mc?pte=050614038. Last accessed 10th Jan 2011

Q2. Identify the marketing challenges, say how these challenges were addressed (n.b. you may need to select only a small number for your discussion) and say if the proposed solutions have been effective? Q3. Did O2 choose wisely?