Read Case 1-3 Apple versus Samsung: The Battle for Smartphone Supremacy Heats Up on page 37.
Write a 700- to 1,050-word paper in which you discuss the key elements of Apple’s innovation strategy until 2014 and answer the following questions:
Cite at least three outside references in addition to your textbook.
Format your paper consistent with APA guidelines.
Table 1-1 Product/Market Growth Matrix Product Orientation Existing Products New Products Market Orientation Existing markets Market penetration strategy Product development strategy New markets Market development strategy Diversification strategy To get some practice applying Table 1-1, create a product/market growth matrix for another global company. IKEA, LEGO, and Walt Disney are all good candidates for this type of exercise. Companies that engage in global marketing frequently encounter unique or unfamiliar features in specific countries or regions of the world. In China, for example, product counterfeiting and piracy are rampant. Companies doing business there must take extra care to protect their intellectual property and deal with “knockoffs.” In some regions of the world, bribery and corruption are deeply entrenched. A successful global marketer understands specific concepts and has a broad and deep understanding of the world’s varied business environments. He or she also must understand the strategies that, when skillfully implemented in conjunction with universal marketing fundamentals, increase the likelihood of market success. And, as John Quelch and Katherine Jocz assert, “The best global brands are also the best local brands.” That is, managers at global companies understand the importance of local excellence.5 This book concentrates on the major dimensions of global marketing. A brief overview of marketing is presented next, although the authors assume that the reader has completed an introductory marketing course or has equivalent experience.5John Quelch and Katherine Jocz, All Business Is Local (New York: Portfolio/Penguin, 2012).
Case 1-3 Apple versus Samsung: The Battle for Smartphone Supremacy Heats Up when Steve Jobs died in October 2011, the world lost one of the towering figures of the modern business era. Apple, the company Jobs cofounded, was a pioneer in the consumer electronics world; key product introductions included the Apple II (1977), the Macintosh (1984), the iPod and iTunes (2001), the Apple Store (2001), the iPhone (2007), and the iPad (2009). At the time of Jobs’s death, Apple was the most valuable tech company in the world. By September 2012, Apple stock had soared to record levels, briefly rising above $700 per share. In addition, Apple had amassed more than $100 billion in cash, most of it held abroad as foreign earnings. Meanwhile, once-dominant tech industry giants such as Nokia, Sony, Dell, and BlackBerry were struggling. Despite strong 2012 sales for the iPhone 5, however, industry observers began to wonder whether Apple’s hot streak of hit product introductions was starting to cool. Apple’s reputation was based on its proven ability to disrupt existing markets (e.g., the music and telecommunications industries) and create new markets with technical and design innovations. However, some viewed the 2012 launch of the iPhone 5 as an evolutionary step rather than a revolutionary breakthrough. In fact, many consumers opted to buy the slower, cheaper iPhone 4 or 4S rather than upgrade to the iPhone 5. Without Jobs, considered by many to be the heart and soul of the company, were Apple’s best days behind it? The Competitive Threat As growth in the key smartphone sector began to slow, Apple’s most formidable competitor was Samsung Electronics, a division of Korean industrial giant Samsung Group, whose products range from semiconductors to household appliances to smartphones. Samsung’s popular Galaxy series of phones are powered by Android, an operating system developed by Google. Some Galaxy models, including the Galaxy Note (also known as a “phablet”), have larger screens than the iPhone, a point of difference that has helped drive sales. The rivalry has been heated, with the two sides squaring off in court over alleged patent infringement. Exhibit 1-14 Apple cofounder Steve Jobs wore many hats during his illustrious career, including inventor, entrepreneur, CEO, and visionary technologist. He was also a master showman, a storyteller, and marketing genius. His appearances at product launches are the stuff of legend, and under his guidance Apple’s must-have products—including the iPod, the iPhone, and the iPad—were, simply put, the epitome of “cool.” Source: Paul Sakuma/AP Images. China and Europe are two of Samsung’s key markets; in 2012, Samsung launched the Galaxy S III in Europe. In 2013, Samsung staged a lavish event at Radio City Music Hall in New York to launch the Galaxy S4. Why the change? As J. K. Shin, the executive in charge of Samsung’s mobile business, noted, “We’re a global player in the smartphone market and a global company, and the U.S. is an important market for us . . . I’m not satisfied with our U.S. market share.” In many developing countries, there is strong demand for inexpensive mobile phones. Some Android-based models from Samsung and other companies sell for much less than the iPhone 5. For many years, Apple did not offer a lower-cost version of the iPhone. In the United States, wireless carriers such as Verizon and AT&T usually subsidize the price of the iPhone for consumers who sign a multiyear service contract. That’s why an American iPhone 5 sells for $199. By contrast, in other countries consumers pay the full, unsubsidized price of the iPhone but are not tied to a contract. Moreover, the iPhone 5 was the same in every world market. By contrast, Samsung makes several versions of the Galaxy S4—using different processors, for example—to suit the needs of different regions. Not surprisingly, smartphone makers are setting their sights on China, India, and other emerging markets. For example, Greater China, which includes China, Hong Kong, and Taiwan, is now Apple’s second-largest market. While Apple currently commands almost a 50 percent share of the market for phones selling for $480 and up, CEO Tim Cook is not satisfied. Distribution is critical, and Cook is aggressively expanding the number of outlets in China that sell iPhones. In 2013, Cook announced that China Mobile, the largest carrier in the region and the world’s largest carrier overall, would begin selling the iPhone. As growth in China and Europe slows, India, the number 3 smartphone market, is becoming increasingly important. Here, however, Apple lags far behind Samsung in terms of smartphone shipments. Samsung offers an Android phone for about $100; by contrast, Indian consumers pay $500 for an iPhone 4 and about $850 for the iPhone 5.Famously, Steve Jobs downplayed the importance of formal market research, saying that consumers don’t know what they want. By contrast, Samsung Electronics relies heavily on market research; 60,000 staff members work in dozens of research centers in China, Great Britain, India, Japan, the United States, and elsewhere. Samsung designers have backgrounds in such diverse disciplines as psychology, sociology, and engineering. Researchers track trends in fashion and interior design. Also, Samsung spends more on advertising and promotion than Apple. For example, Samsung has a major presence at the SXSW Interactive, Film, and Music conference held each March in Austin, Texas. In 2013, Samsung sponsored the TechSet Blogger Lounge and presented a concert showcase by Prince; Samsung users got preferred access to tickets. Although many SXSW attendees use iPhones and iPads, Apple had no visible corporate presence at the conference. The Post-Jobs Era Begins In the months following Jobs’s death, Cook made a number of key strategic decisions. For example, Cook authorized the introduction of the iPad mini, a product that Jobs had opposed. It quickly became a bestseller. In fall 2013, in conjunction with the launch of the iPhone 5s and iOS 7, a long-rumored lower-priced iPhone model was unveiled. The iPhone 5c featured a plastic case and was available in several colors; the price was about $100 lower than the new iPhone 5s. The 5c was designed to appeal especially to consumers in emerging markets who could not afford a top-of-the-line smartphone. China in particular represented a major opportunity; estimates of the market’s potential were tempered by the rapid emergence of low-cost handsets from Chinese manufacturers such as Xiaomi. As Cook noted in an interview with Bloomberg Businessweek, “We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and a great experience, and we figured out a way to do it at a lower cost.” Cook made key personnel decisions as well. Scott Forstall, the executive in charge of iOS mobile software, was fired. In his place, Cook named chief designer Jonathan Ive and software executive Craig Federighi. Going forward, Ive, who had been Senior Vice President for Industrial Design, will be responsible for the “look and feel”—in other words, the user interface—for iPhone and iPad. When Cook, Ive, and Federighi appeared together on the cover of Bloomberg Businessweek in fall 2013, commentators noted that Steve Jobs would have never shared the spotlight in this manner. In another key appointment, Angela Ahrendts, the highly regarded CEO of Burberry PLC, was recruited to take over Apple’s retail operations. In 2014, Cook announced that Apple was acquiring Beats Electronics for $3 billion. The deal brought two more key personnel into the Apple fold, namely hip-hop star Dr. Dre and music mogul Jimmy Iovine. The two had founded Beats in 2006 to market premium headphones; by the time the deal was announced in May 2014 the duo had also launched an online music streaming service, Beats Radio. Both Dre and Iovine were added to the roster of Apple executives; it was expected that their close ties to the music industry would be an asset. Moreover, the deal reflected the growing importance of wearable technology; many believed that “fashion electronics” products such as Beats’ $399 headphones were poised for explosive growth. Apple’s Marketing Communications Problem, finally, Cook and his team addressed the issue of Apple’s marketing communications. It was widely reported that Phil Schiller, Apple’s Senior Vice President for Global Marketing, was concerned that Apple’s advertising had lost its edge. Apple had a long-standing relationship with a single agency; Los Angeles-based Chiat/Day had created the legendary “1984” television spot that launched the original Macintosh. In the 1990s, the agency, now known as TBWA/Chiat/Day, created the iconic “Think Different” campaign. However, a “Genius Bar” campaign timed to coincide with the 2012 Olympics was deemed a failure. In a subsequent e-mail to TBWA, Schiller admitted that he was impressed by arch-rival Samsung’s 2013 Super Bowl ad; by contrast, he noted, Apple was “struggling to nail a compelling [creative] brief on iPhone.” The marketing issue was pushed to the forefront during the Academy Awards broadcast in spring 2014. Oscar host Ellen DeGeneres took a star-studded selfie (featuring Bradley Cooper, Jennifer Lawrence, and Brad Pitt, among others) with a Samsung Galaxy phone and posted it on Twitter. The post then made social media history after being retweeted more than 3.5 million times. It turns out that DeGeneres is an iPhone owner; however, Samsung had paid $20 million to sponsor the broadcast. Although there was some disagreement among industry insiders about the monetary value the publicity the stunt generated, most agreed that Samsung had gotten the better of Apple. Writing in Advertising Age, Mark Bergen summed up the situation bluntly when he noted, “Samsung is simply out-innovating its archrival when it comes to marketing.” Spurred into action, Cook and Schiller authorized the formation of an in-house advertising agency at Apple. The company is hiring top talent from some of the ad industry’s best agencies to staff it. The in-house team has been tasked with creating new ads; the team will compete against TBWA/Media Arts Lab, as TBWA is now known, in a process known as a “creative shootout.” Schiller has also beefed up Apple’s roster of agencies that specialize in digital marketing. CEO Tim Cook Asserts Himself By early 2014, it was clear that CEO Tim Cook was stepping out of the shadow of his legendary predecessor. In a move designed to make Apple’s common stock more affordable to investors, Cook authorized a seven-for-one stock split. Simply put, if an investor held 50 shares of the stock at a price of, say $500 per share before the split, after the split the investor would have 350 shares of stock priced at $71.43 per share. Source: Justin Sullivan/Getty Images. By mid-2014, word began circulating that Apple was preparing to launch several key new products. In September, CEO Cook and his team introduced the iPhone 6 and iPhone 6 Plus; both featured larger screens than earlier iPhones. Apple Pay, a key feature of the new devices, promised to usher in a new era of secure mobile payments. Cook also announced that a new wearable device, the Apple Watch, would be introduced early in 2015.
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