International Marketing of Apple in China

This study concerns international marketing of Apple for I Pad product in China.

This analysis is divided in three parts. First is the environmental scanning of the brand. First we propose a presentation of the company. Secondly, we have presented a strategic diagnosis with a preview of the mission, success key factors. The main tool in this part is the SWOT analysis. It allowed seeing what are the strengths and key opportunities of the company.

The second part had for aim to analyze the opportunities of the market thanks to a SLEPT and analyze of the competition.

The third and last part had for main goal to implement the strategy thanks to the marketing mix. Therefore, we developed the strategies we suggested with an overview of the new Chanel of distribution plan.

The market of new technology is one of the most important since the beginning of the century. It’s the market that has known the most important growth. Apple is very interesting as a subject because it’s a brand which has a big impact on our life. This company has created very impressive innovation that has change the way of consumption as the I Pad.

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It seems interesting to understand why Apple is so important. We discover that Apple won’t be one of the most important companies in the world if its co-founder and CEO Steve Jobs weren’t in command. He is at the origin of each innovation of the company and controls all aspect in the process.

Apple is focusing on a strategic country with China. Apple succeeded to implant itself for IPhones or IPod but it is always the same issue. Apple has to face many competitors with the counterfeiting. In fact, an existing product with the I Ped exists already in China and is making troubles to Apple because of the difference of price.

In the file, we are going to present first the company with an external and internal diagnosis. In a second step, we are going to analyze the Chinese market with the opportunities to catch thanks to an analysis of the competition. Finally, we are going to establish the marketing mix of I Pad in China.

Apple, a company in constant innovation

This first step is made in order to analyze the external and internal environment. The main objective is to extract from this analyze strategic elements. After presenting the company Apple, we are going to conduct a SWOT analysis.

Presentation of the group Apple

Historic:

Apple is a multinational American company dealing with the new technologies of information and communication. It was created in 1976 by Steve Jobs and Steve Wozniak. The company is based in California in Cupertino.

The adventure of Apple began with the first models (Apple 1) which had for main objective to be the first individual computer built to make accessible all informatics applications to everyone. It was a success and in consequence Apple had not the capability to satisfy all the orders. This is how they saw the potential of this type of product. They decided to invest all their economies and launched the Apple II which was the revolution in the computer universe.

Some figures about Apple:

Number of employees: 35000

Capital: $153 billion

Sales turnover in 2009: €25 billion

Net result in 2009: €3,28 billion

Hierarchy:

Hierarchy adapted from http://www.theofficialboard.fr/organigramme/apple

In the hierarchy of Apple, we can notice that Steve Jobs has the main role in the success story of his company because he is controlling every step. The two persons with the main importance in the company are Steve Jobs and Tim Cook. They control all the value chain.

In order to understand how environment of the company is working, we are going to set up an external diagnosis and define its major strengths.

The core business of Apple is producing and commercializing products of new technologies of information and communication.

Strategic activities areas: The Apple’s group regroups 5 strategic activities areas:

Desktops and laptops computers (MacBook, IMac, IBook)

MP3 and their accessories (IPod)

Software: Iwork suite…

Music online (Itunes)

Smartphones (IPhone)

Tablets (I-Pad): this is the new product and the strategy consists to position this product as “Star” product in front of the image of Apple.

The second step of methodology consists in analyzing the competition’s position and the potential of the company.

Keys factor of success: At the end of this first diagnostic, we can say that the key factors of success are innovation and customer relation while it is dealing with the universe of computers.

A good brand image: The Apple’s brand image is already at a well high level. The firm is recognized everywhere in the world for the quality of its products, its after-sales service and mainly its boss Steve Jobs.

Be at the top of the technology: Apple is always one of the first companies to launch new and innovative products (IPhone, Ipod and IPad recently).

A good direction (Steve Jobs) and a good team: Apple’s CEO is at the origin of his company’s success thanks to his way to lead the company and share his values.

Environmental scanning

The PESTEL analysis is also one tool of the environment analysis:

Politic:

Worldwide instability

Trade difficulties

Economic:

Economic instability

Unemployment, not constant revenues

Inflation

Social:

Increase of the population

High demand on the low-cost products

Increase of NTIC

Changes of consumption modes (Web)

Periods of consumption

Technologic:

High innovation with IPad

High R&D

Ecologic:

Laws on the protection of environment

Energy’s consumption

Legal:

Norms of security on products

Relative Market ShareBoston Matrix: The classification of activities regarding the typology allows having a synthetic image of portfolio. The aim is to take decisions in terms of politic, investments…

QUESTION MARKS

STARS

I-PAD

Market Growth Rate

CASH COWS

DOGS

We can notice first the positive factors boosting Apple’s results. The IPod is the product the most important for Apple in terms of profitability. Its growth is still important and the launch of the new Ipods will give the opportunity to stay a “Star product”.

The second Apple’s “Star product” is the Iphone which has revolutionized mobile Smartphone’s universe. It has known a real growth with a high market share unless the presence of competitors. The number of sold Iphones will again increase thanks to the opening to other operators. Concerning Itunes, it is a product situated in both “Star” and “Question mark” because unless the fact that there is a regular growth, it exists many competitors and substitutes as downloading. The MacBook is a “cash cow”.

The most important question is: where is positioned the I-Pad. As we said previously, it is a star product and it is taking the leadership over the other products. Why? It is mostly due to an aggressive communication plan as we see on TV. This media is used aggressively. It means that about every 10 minutes advertising, we will have one ad for the i-Pad.

SWOT analysis:

STRENGHTS

WEAKNESSES

Strong notoriety

High budget R&D

High level of innovation

Products diversified (corresponding to 5 senses”)

Apple’s customers loyalty

Music store (Itunes)

High price

Competition very important (Microsoft, Dell, IBM, HP)

Imitations

Major retail stores in USA

OPPORTUNITIES

THREATS

Strong potential of buyers

New form of consumption (NTIC)

Opportunity to open stores in many countries

Economic situation

Launch of Windows 7

New entrant “Google” (Smartphone)

High prices can be a threat in the future

Thanks to this diagnosis, we can say that Apple can insist on its strengths as innovation, notoriety and its CEO Steve Jobs to catch the opportunities and to be the leader. The only thing which can change the position of Apple in a bad way is the health of Steve Jobs. We can ask the question if the company will be still competitive without him.

The i-Pad

This is the new product of Apple and as for each revolution of the company; Steve Jobs is proceeding to the launch of the product. He has such an impact on people that this product is a success before its launch. Steve Jobs seen as a visionary is the key factor of success of Apple. The success of this product represents the equivalent of 20 million I Phones screens in only 6 months.

I-Pad is maybe the most decisive product in the strategy of Apple. Apple had planned a strategy on the long term. Each product completing one sense, I-Pad was the product which will bring all senses in only one product. That is why it is also important that the product has to be present in all countries and mainly in China which just became the second biggest economy of the world and which brings a huge potential. The issue is to find a way to market such a product face to the strong competition and counterfeiting problem present in China.

China, the hugest worldwide market face to a strong competition

Analysis of the Chinese market

China represents the biggest population of the world with 1, 4 billion people. This country is so huge that we have to focus on few places.

Beijing which is the historical capital of China has a population of 14 million inhabitants.

But on an economical factor, Beijing is behind the two leaders, Shanghai and Hong-Kong.

Source:http://www.chine-informations.com/photos/carte-de-chine_9X1109X1.html

SLEPT Analysis

Political

Corruption & counterfeiting are present

Signed the Kyoto protocol in 2002

Member of the WTO

Economic

Largest population of the world (more than 1 billion)

Just became the 2nd world economy

Exportations in growth

High qualified staff & employees for low costs

Social

Problems of environmental issues (storm)

Issue of poverty, regions touched by unemployment

Technological

A market with local competitors having a huge level of innovation & development of technology

Legal

Laws with restrictions regarding foreign companies investing in China

Tablet’s market and competition

Global market

The competition is very high in terms of competitors. In fact, many companies are entering this market as Android, Microsoft, and Blackberry to compete Apple. As we can see on this table, Apple is getting over 95% market shares in the global tablet market. This proves the position of the I-Pad as a star product for the company.

Source:http://blogs.computerworld.com/17273/apples_ipad_carves_95_tablet_market_competition_is_dust

Apple had already applied a strategy different from its other products. The cost of $499 is considered as a low cost for such a product. But the other competitors are offering tablets for lower costs. For example, Samsung which is the main competitor with the technology Android had launched its Samsung Tab which was reduced in term of price to be more competitive regarding the Apple’s product. In fact, the price was established at $250. Competitors as Samsung are producing their products at lower costs thanks for example to a screen at a lower quality than I-Pad.

We can analyze also the previsions until 2012 to see if Apple is going to increase or not its market share in its new market of tablets. With so many competitors entering the market it will be difficult to keep the position of leader and moreover to keep such a market share.

We can analyze the evolution in terms of shipments which represent the evolution of the market share.

Source: http://www.isuppli.com/Display-Materials-and-Systems/News/Pages/Apple-Set-to-Dominate-Tablet-Market-Through.aspx

We can see that Apple will lose about 5% market share in 2 years face to the increase of competitors but will still maintain a concrete advantage face to them. The competitive advantages that will maintain Apple as a leader is the completing factor of Apple’s products. In fact, a person who has already an Apple product will more easily choose the I-Pad. We can compare the situation of the I-Pad with the I-Phone because they have the same profile of evolution. Face to many competitors at the beginning they take benefit from the differentiation that other companies tried to “copy”. Moreover, the rarity element of Apple’s screens “multitouch” is making barriers to other companies such as Dell, Samsung or Archos to compete Apple in the same category.

PORTER 5 forces:

Competitive intensity

New entrants Suppliers power

Customers

States

Barriers power

Substitutes

Competitive intensity 4, 5/5: The computer industry knows a very high competitive intensity. There are too many competitors as Microsoft, Dell and IBM.

New entrants 2/5: The market seems closed due to the huge need of investment to enter.

Suppliers’ power 4/10: It is average because the company needs many components but Apple remains a main customer.

Customers’ power 4/5: Customers’ power is very important because there are many products in this market.

Substitutes 3, 5/5: There are many substitutes to new technologies. But the strength of Apple is to differentiate itself and the upper class.

State barriers 2/5: The pressure of States is important regarding the government

Chinese market

China’s market is very specific because this is the most difficult market to reach for Apple. The reason is that all the products are created already in the country. They have a lower level of quality but are doing the same functions. It is the case for all the products of Apple. It can be for the I-Phone or the I-Pod. Same products are present in China. There are counterfeiting of course but not only, there are products representing the same uses with the same design. The only difference is the quality and the “brand quality”.

Issues

In China, negotiations are more difficult regarding different issues:

First, Chinese operators are mostly controlled by the government and like for the I Phone, they need it for the I Pad.

The 3G solution is new in China and it must be enabling for using I Pad technology.

Competitors

Video games: Combination of big screen makes the I Pad an excellent console. The competitors in this sector are Sony with the PSP and Nintendo with the DS which have an advantage in terms of ergonomic because they are building for video games.

Books: Thanks to its iBooks app, I Pad can benefit from this advantage to compete also the sector of books.

Netbooks: This is also a recent innovation with the small laptops for low cost and Apple has directly reacted to face these types of computers.

The Chinese huge threat:

The main competitor for the I Pad is the “I Ped”, its Chinese copy. The china’s market has no more proof to give in terms of counterfeiting. They are the best in this sector. The main problem is the price. The price is uncompetitive for Apple. In fact, such a same product exists already for a price of about $100. Apple just began to sell the I Pad in China. The main difference is that the products run on another technology with Google and Android.

Marketing Plan for the I Pad in China

Objectives of entering Chinese market

Apple will benefit from a launch of I Pad in China. Being present in China will allow first to reach the largest population of the world.

Secondly, this is a way to be present in the two main cities with Shanghai and Beijing. These cities are the most industrialized of the country. Moreover, they have a huge purchase power. The objectives will be:

Reach a new record of turnover.

Complete their offer with the other Apple’s products

Increase their loyalty

Reach the Chinese middle and upper class

Marketing Mix [2] 4 P’s

To differentiate itself from other tablets, it is necessary to develop a marketing mix:

Product: I Pad have many functions. This is a complementing offer which regroups each function of the previous products. As we have seen just previously, the screen is bigger than the competition and it is composed by the hugest quality “multitouch” technology. The products have to be imported because there are too many counterfeiting issues in the country.

You can regroup all 5 senses on this product which is the aim of Apple. You can internet, music, videos, photos, e-mail… Moreover, the applications which represent strength of Apple are corresponding to I Phone’s ones. It means that both products are complementary and that Apple has also to reach its already loyal customers. Moreover, this is an international product so the language does not affect in any way the use.

As below, you can see an example of a product life cycle to show that I Pad is no more in introduction step but in growth step. It is due to emergence in many countries as China which represents the second biggest world economy and the target to reach is one of the most crucial for a company to succeed.

Price: The strategy of the price is the most decisive aspect because it is difficult to ship to China. In fact, there is an 8% tax and the price of transport to take in consideration to Hong Kong. The product is sold for $600 for its basic model. This price should decrease next months to cope to the American & European model.

This is the criteria Apple has to focus on. I Ped competitor is sold only for $150 and Apple has to insist on the differentiation factor and they can trust their image. The price which has to be applied is the same as everywhere $499 for the basic model.

Place: I Pad have to be sold in the same places than the other products. It means in official Apple stores. But in China it is not possible so they have also to be present in the biggest retail stores of the market. Strategy of Apple is also to consciously don’t produce enough stocks to show that the demand is higher than expected. It will encourage the market consumption.

Promotion: The major event which communicates on I Pad is the press conference. This is strength of Apple with Steve Jobs. All fans of Apple are following such events because of him. Everybody is here when Steve Jobs launch a new product. What is simple for I Pad is that they have to follow the same advertisement campaigns than I Pod or I Phones ones. As we see in France, Apple has to apply an aggressive communication on TV media in China. This is a country which is more and more equipped and which is a “fanatic” of IT products. Apple with its image of number 1 is differentiating itself and it will have for sure an impact on Chinese people. It is exactly the same case than for the IPhone. Counterfeiting products were launched but what is happening today? The I Phone is a success in China also.

Another successful element for Apple is to create Buzz operations. A campaign was launched which consists of a girl in bikini with an I Pad meeting people in the street and communicating for Apple. It is a sort of “glamour marketing”. The photos were published and many comments were made on the web and this was a success for the company.

3 V’s analyze of Apple

Valued customers: Who to serve? Apple is targeting same loyal peoples and peoples interested by all markets touched by Apple with this products, video games, books, internet, and mainly netbooks.

Value proposition: What to offer? The aim is to offer a tablet regrouping all needs and the 5 senses in one product.

Value network: How to deliver? They deliver their products with official stores based in China. These stores correspond to the image of the brand to attract the largest part of the target. The other way of delivering their products is the web. They use the e-shop which is already used by all companies.

Conclusion

This study we made had for main objective to find solutions for reaching the Chinese market. In fact, Apple needs a new business plan to set up new strategies. Thanks to a strategic diagnosis, we established the main strengths and weaknesses.

Apple will have a lot of troubles when Steve Jobs will not be implied anymore in the company. We are not sure that Apple will continue to have good results without him. We have seen that Steve Jobs is everything for Apple.

This business plan is answered by three. These three parts allowed concluding on the main strategies via a marketing mix to apply.

Apple is positioned also on a Blue Ocean Strategy with its Itunes program and its first concept of computer changing the market of PC’s and now by reaching the tablet market place.

We can wonder if these strategies will be successful in order to reach the objectives. Apple wants to keep their position of leader in the market but it become harder to innovate continuously. Apple has to focus on their differentiation and diversification strategies which are building the competitive advantage of the brand to compete counterfeiting and low cost competitors in China.

Recommendations

The first recommendation is to increase their differentiation strategy. Apple conducted a Blue Ocean strategy many times by entering the PC’s market with Macintosh. Secondly, they entered the musical market thanks to Itunes. They need to continue to differentiate themselves and it comes from the conferences. Steve Jobs has a very special talent to promote the products and the brand to the Medias. They will prepare the succession in a better way if managers as Tim Cook and Phil Schiller are going to have more and more time for speaking through these conferences. They have also to make aggressive communication via TV ads.

They have also to insist on the factor of complementary products between I Phone – Ipod and I Pad that other tablets did not procure.