Michael Porter 5 Forces

- Consumers continue to demand for devices at a lower costs and there is a rapid changing in buying behavior.

• The number of substitutes

• The switching cost of buyers

• The uniqueness of the product

• Buyers’ price sensitivity

• There are numerous number of substitutes for Apple. iPhone vs Samsung Galaxy SII, HTC etc…iPad vs Samsung Galaxy Tab, Blackberry Play Book etc..iOS vs Google’s Android, Microsoft OS, Symbian OS etc…Personal Computers / Laptop vs HP, Dell, Asus etc…

• More choices of products and very limited differentiation of those products.

• Therefore, buyer has more leverage with the seller. The threat of buyer become greater.

•The switching cost of buyers is relatively low.

• Thus, buyer can switch easily to alternative sellers. The threat of buyer is high.

• Apple Inc. successfully differentiating its products from those of the competition by choosing to focus on quality, design elegance, and superior customer service, while outsourcing actual manufacturing to trusted original equipment manufacturers.

• Thus, customer loyalty is high. The threat of buyer will become lower.

• Smartphone market is rapidly changing, with constant product introductions, quickly evolving technology and designs, short product life cycles, aggressive pricing, rapid imitation of product and technological advancements. Thus, buyers are tend to be highly price sensitive.

• The prices for substitutes are lower.

• The threat of buyer is high.

Moderate!!!

- Substitutes refers to competitors’ products or services which allowed the consumers to meet their same needs.

- Substitute can be direct and indirect.

Direct substitutes refer to products and services with similar functions which lie between the same market. For example, Apple’s iPhone and Samsung Galaxy S2, Apple’s iOS and Google’s Android, etc…

Indirect substitutes refer to products and services with similar functions which are from different market. For Example, Apple’s iPad and Sony PSP, Apple’s ipod and Sony Hi-Fi.

Determinants of substitution threatNumber of substitutes in the industry

Relative price and performance of substitutes

Switching cost of buyers

Buyer propensity to substitutes

Number of substitutes Apple SubstitutesSmart phones

Samsung, RIM, HTC, LG, Motorola, SonyEricsson, Nokia etc…

Tablets Samsung Galaxy Tab, Blackberry Play Book

Personal

Computers /

Laptop

HP, Dell, Acer, Asus, Toshiba, Lenovo etc…

Mac OS / iOS

Microsoft, Linux, Google's Android, Blackberry OS, Symbian OS

Apps Store / iTunes

Android Market, Nokia Ovi store

High number of substitutes in the industry.

This will likely increase the power of buyers.

Price and performance of substitutesPrice of substitutes products are relatively

lower.

Competitors are providing similar or better satisfactory to consumers in terms of functions and quality.

Smartphone, tablets, and OS IndustryIn terms of operating

system, Google’s android is currently a major competitor of Apple iOS.

Widely used on variety hardware such as smartphones and tablets.

Buyers switching cost

Low switching cost

Variety of choices

Consumers are free to switch to another product easily.

Buyers propensity to substitutes

Buyers propensity to substitutes is low.

Strong customer loyalty.

There is always a long queue whenever Apple launching its new products.

High!!!

Apple uses a large variety of suppliers for manufacture of its computers, iPhone & iPad.

Apple’s Macintosh Computers(Variety of Suppliers)

Supplier of Graphic Card :

Supplier of Storage Devices:

Portable Music Player(Variety of Suppliers)Supplier of TV and Movie:

Summaries: Apple’s suppliers with less bargaining power concerning

PRICE in most cases.

BARGAINING POWER OF SUPPLIER

THE REAL EXCEPTION

THE REAL EXCEPTION (IMPORTANT)

Impact of Switching to Another SUPPLIER

Replace with secondary supplier: Risk involved, Take times, Low quality, high price/high cost.

MICROSOFT SUPPLIER-SOFTWARESupplier of office for Mac. ( THE ONLY

SUPPLIER).

Microsoft develop office software for the Mac.

If Microsoft’s contract with Apple runs out, Mac office would suffering.

Moderate!!!

Among Existing Competitors-In Technology Industry

Determinants of intensity of RivalryNumber of competitorsIndustry growth Product differentiationDiversity of StrategiesBrand IdentitySwitching Costs

Number of competitorsMany competitor are in equal size.Apple are facing several major market player

such as Samsung, Google, Microsoft, HP, Dell etc.

The intensity of competition is very high as they are fighting in becoming the market leader.

Industry GrowthTechnology sector is in the fast growing

stage.Short product life cycle.Products got obsolescence very fast. Apple must continually introduce new

products and technologies and stimulate customer demand in order to grow or retain its competitive position.

Industry GrowthProducts Release Date

iPhone iPhone 4 June 24, 2010iPhone 3GS June 19, 2009iPhone 3G July 11, 2008iPhone June 29, 2007

iPad iPad 2 March 11, 2011iPad April 3, 2010

MacBook MacBook pro Unibody with Thunderbolt & quad core processors February 24, 2011MacBook Pro Unibody with non-removable internal battery January 14, 2009MacBook Pro Unibody October 14, 2008MacBook Pro January 10, 2006

Product differentiationProducts are nearly the same in terms of

functions.Apple’s products are maintaining its

uniqueness in terms of design, features, operating system, software and applications.

However, some user claim inconvenience on apple’s devices.

Diversity of StrategiesPrice war

Use low price to attract customersNew technologies

Attract customers with new technologiesAdvertising campaigns

Attract customers by using creative advertisement

For Example, involving artist or well-known people as spokesperson, media, internet etc.

Brand IdentityRefers to the customers perception of the

strength of the brands in your industry.Brand identity in technologies industries is

quite strong. For example, when choosing printer, you will

think of Epson, Brother, HP etc… Apple had also build a strong brand identity

on its products.

Switching CostsLow switching costMany substitutes products in the industryUser can easily switch to other productsHowever, Apple’s user do not switch to

competitors’ products easily.

High!!!

- The barriers to entry is loosen but players in the market has increase the barriers whether it is in the form of direct or indirect hindrance.

• Economic of scales and capital requirements

a)Many incumbents had the cost advantage.

b) Incumbents able to reduce price.

c) Potential of emergence between the few players.

d) Huge fixed costs to be bear at the beginning of entrance.

e) Uncertainties during the introduction phase.

Brand % Operating profit

Nokia 30.7

Apple 36.4

Samsung 13.3

RIM 15.4

LG 4.2

HTC 5.1

Motorola -0.1

Sony Ericson -0.1

Parts and components are commoditised

a) Components and parts are readily made available in large quantities.

b) Operating systems are available for licensing.

c) External features determines the product differentiation but difficult to achieve with.

• Intellectual Property (Legal Barrier)

a) Hardware, designs and software are all protected by patents.

b)Strong financial backings for patent or copyright lawsuits.Example: -Apple and Nokia

c) Entering with existing sources which involved huge costs and time consuming. Example: - Google acquires Motorola- Google acquires Android

a) First example, ever since entering into the smartphone industry in year 2008, Apple Inc. has been the most sued technology company

b) Second example, when Samsung enters into the tablet market with Samsung Galaxy Tab, it has been sued of copying the IOS feel and look as well as copying the physical look of iPad

A smartphone might open to a quarter of a million patent claims – Google.

• Brand Loyalty

a) Consumer might choose another brand if there is a comparable feature.

b) Incumbents has develop loyalty on to the consumers by:- improving services- consumer lock in

- advertising campaign

c) Incumbents has its own brand identity and confidence.

Moderate!!!