Case 2 Consumers Take a Shine to Apple, Inc.*

Synopsis: Few companies have been able to master the arts of product innovation, a "cool" brand image, and customer evangelism like Apple. After nearly collapsing under a cloud of bankruptcy in the mid-1990s, late Apple CEO Steve Jobs was able to save the company he created through product innovation, a masterful marketing program, and an entrepreneurial corporate culture. This case reviews Apple's history and remarkable comeback with an eye toward the marketing strategies that created the company's success. The case also examines many of the challenges faced by a company that continually pushes the boundaries of marketing practice to stay on top of the consumer electronics and computer industries.

Themes: Product innovation, marketing program, prestige pricing, competition, changing technology, differentiation, customer loyalty, foreign sourcing, intellectual property, privacy issues, corporate culture, sustainability

Few companies have fans who sleep outside its doors in order to be the first to snag its newest products, but this is common at Apple Inc. For instance, 30 minutes after the release of the Apple Watch, most models were sold out. Headquartered in Cupertino, California, Apple went from near bankruptcy, with a 1997 share price of $3.30, to having a share price of $130 a share in the first half of 2015. Apple is one of the world's most valuable companies and has a cult-like status among tech enthusiasts. In 2015 it became the first $700 billion company in the United States.

Many companies have tried to copy Apple's strategies, but none have discovered what it is that makes Apple such an icon. Some believe Apple's success stems from a combination of several factors, including the leadership qualities of former CEO Steve Jobs, a corporate culture of enthusiasm and innovation, and the revolutionary products for which Apple has become known. While every organization has to acquire resources and develop a business strategy to pursue its objectives, Apple has excelled in its management. One of the company's most important resources is its employees, and the company has effectively recruited, trained, and compensated employees to create loyalty. Another resource is suppliers, and Apple has created a highly efficient and effective supply chain with most of its production in China. Apple has also mastered core research and development skills that have allowed the company to translate its technological capabilities into products that consumers want and are willing to pay a premium price to acquire. The capstone of Apple's strategy is its retail stores that have become a role model for its competitors to sell consumer electronics. Such factors have allowed Apple to revolutionize the technology and retail industries.

This case examines the marketing strategies that have contributed to Apple's success. It analyzes how Apple has used a combination of smart marketing tactics to create an effective business and marketing strategy. We start by providing a brief history of Apple Inc. and its products. Next, this case examines how Apple uses certain pricing, promotion, and distribution strategies to create a loyal fan base of Apple users and how the corporate culture at Apple influences its marketing. We then analyze several marketing challenges for Apple, including competition, privacy, pricing, intellectual property, supply chain management, and sustainability. Finally, we focus upon Apple as it moves forward.

The History of Apple, Inc.

When Apple was founded in 1976, it would have been unrecognizable to its diehard fans of today. Apple's first product, the Apple I, was essentially a computer kit that lacked a graphic user interface as well as a keyboard and display (users had to provide their own). Co-founders Steve Jobs and Steve Wozniak released the Apple I for $666.66. Apple Inc., known then as Apple Computer, was officially born. Jobs and Wozniak continued to create innovative products. Because Steve Jobs viewed Apple computers from the user's point of view, these products resonated with consumers. A few years later, Apple had more than $1 million in sales. The company was off to a promising start.

Yet Apple's initial success did not last. Its downturn started during the 1980s with a series of product flops and CEO changes. Steve Jobs was ousted in 1985 due to internal conflicts within the company. By the mid-1990s, the company was approaching bankruptcy. Dell Computer founder Michael Dell commented about Apple's future, saying, "I'd shut it down and give the money back to the shareholders."

The return of Steve Jobs in 1997 instituted major changes for Apple. The company successfully adopted a market orientation in which it was able to gather intelligence about customers' current and future needs for certain features—even before the customers themselves knew they needed them. Apple expanded into the electronics industry and began to release innovative products that resonated deeply with customers. For instance, the creation of the iPod and iTunes met customer needs for an efficient way to download a variety of music and listen to it on the go. Apple has become skilled at recognizing strategic windows of opportunity and acting upon them before the competition. A terrific insight to this period at Apple can be seen in this video where Steve Jobs addresses Apple employees a couple of months after his return to Apple.

In 2007 Jobs announced that Apple Computer, Inc. would be renamed Apple Inc. Some perceived this to be a shift away from computers toward consumer electronics. However, it may be more accurate to say that Apple is reinventing computers. With the introduction of the iPad, Apple took market share away from top competitors in the computer industry. Its presence in the smart watch industry is expected to grab a large share of the market.

Thanks to its innovative products and marketing strategies, Apple has grown into one of the most admired and successful brands in the world. To millions of consumers, the Apple brand embodies quality, prestige, and innovation.

Apple's Products

Although the Apple products of today are high in demand, this was not always the case. Apple went through its share of product failures in its past. Several of these failures can be attributed to a failure to accurately predict consumer behavior. For instance, even though Apple products are generally priced high, the Apple Lisa and Cube were judged as too expensive for the mass market.

Apple has become the leader in developing new products that enhance its product mix and depth to its product lines. While introducing new products is expensive and risky, Apple has reinvented the concept of a new product. While many Apple products provide a function that was already on the market, Apple products are different, distinctive, and are often viewed as superior to the competition. After introducing new products such as the iPod, iPhone, and iPad, these products undergo product modification, or changes to the products' features, quality, or aesthetics, on a regular basis to create the illusion that consumers have to have the newest model. For example, each modified version of the Apple iPad has new features and creates new benefits and the perception of an improved product. The sixth generation of the iPad, the iPad Air 2, had a thinner frame than previous generations and had access to Apple's mobile payment service Apple Pay. Few companies have been able to exploit the concept of product modification as effectively as Apple.

Today, Apple has honed its ability to produce iconic products that consumers desire. The company's product strategy is based on innovative designs, ease-of-use, and seamless integration. Not only has Apple created highly successful products that have catapulted it into prominence, but also new products keep coming, sometimes to the surprise of consumers and competitors. Some of its popular products are described below.

Mac Computers

Apple first made a name for itself in the personal computer industry, and even though it has since expanded into the consumer electronics industry, its Mac computers are still a strong asset to Apple's product mix. Many computer owners identify themselves as either Mac or PC users. Major differences between Macs and PCs lie with their processors and interfaces. Mac enthusiasts often prefer the superior video and graphic software as well as the look and feel of Macs. Mac laptops also tend to last longer than the average 2-year life span of other laptops. For these reasons, Macs are priced much higher than other PCs. Apple sells two types of Macs: desktop and laptop computers. Desktop Macs include the iMac, Mac Pro, and Mac Mini, while its laptops include the MacBook, MacBook Pro, and MacBook Air.

iPod and iTunes

In 2001 Apple launched the iPod—a portable music player that forever changed the music industry. The company also introduced iTunes, a type of "jukebox" software that allows users to upload songs from CDs onto their Macs and then organize and manage their personalized song libraries. Two years later Apple introduced the iTunes Store, in which users could download millions of their favorite songs for $0.99 each online.

Both the iPod and iTunes became market leaders in their respective industries. There are approximately 800 million accounts on iTunes alone. However, iPod sales have declined in recent years as consumers have begun to favor more superior technology. Because Apple's iPhone can also play music, analysts say iPhones likely cannibalized some of the iPod sales. Even CEO Tim Cook has remarked that the "iPod is a declining business." The current Apple iPod product line includes the iPod touch, iPod nano, and iPod shuffle.

iPhone

The Apple iPhone debuted in 2007 and quickly became a favorite among mobile phone users. The iPhone combined smartphone technology with a straightforward operating system, an easy-to-use touch screen, iPod features, and a simple design. Each new generation is highly anticipated by Apple fans eager to use the iPhone's newest features. For example, the iPhone 4s and its successors include a built-in "personal assistant" called Siri. Siri recognizes voice commands and can answer with the appropriate response. The iPhone has been a resounding success, especially in the United States and China. In 2015, iPhone market share was nearly tied with Android smartphones in the United States. The iPhone 6 comprised nearly half of all new smartphone sales. China is the second largest market for the iPhone.

iPad

In April 2010 Apple introduced the iPad, a tablet computer designed for simple interaction with electronic media and the Internet. Sometimes described as a larger iPhone, the iPad targets the product gap between smartphones and netbooks. It had a 9.7-inch touch screen, accelerometers, ambient light sensors, speakers, a microphone, and GPS capabilities. Newer generations included technology upgrades and two-way cameras for video calling. The iPad was incredibly popular; Apple sold over 1 million iPads in 4 weeks. Less than 6 months later, retailer Best Buy reported that the iPad had reduced laptop sales by 50 percent. Less than 2 years after its release, consumers had purchased over 25 million iPads. However, the growth in tablet computers appears to be diminishing. While tablet computers like the iPad are convenient, desktops and laptops still tend to be used more at workstations. Approximately 50 percent of iPad customers are first-time iPad buyers. The iPad Air 2 is the sixth generation of the iPad. The seventh generation is underway.

App Store

The App Store (iOS) was launched in 2008 to provide applications for Apple's mobile products. In its first year, the App Store had 1.5 million downloads and then continued to grow rapidly. By 2014 the number had increased to 75 billion downloads, largely fueled by the growth of the iPhone, iPod touch, and iPad. The App Store made downloading applications easier, which encouraged downloads. Smartphone consumers between the ages of 25 and 44 use an average of 29 apps per month. The majority of all apps cost less than $2. Independent developers can distribute their original apps through the App Store, and Apple shares profits with them. In 2014 billings at Apple's App Store rose 50 percent and generated $10 billion for app developers.

Other Products

Apple has developed many other high-tech products that make it a formidable player in the technology field. Its newer products include cloud services, music streaming, mobile payments, and smart watches. In 2011 the company launched its iCloud service, which shares personal information across all Apple devices through cloud-based storage. The company reached agreements with record labels to allow consumers to create and listen to their music collections without having to upload individual songs. The iCloud is also another incentive for users to buy more Apple products. Apple TV, a device that lets user stream a variety of digital media directly to their televisions, is another Apple product that connects to the cloud.

Apple Music is an app offering that allows subscribers to stream music on demand. Released in 2015, the service provided users with free music for the first three months. Those who wanted to continue would be charged $9.99 per month. Apple Music soon drew the ire of musicians, particularly singer Taylor Swift, because it initially planned to avoid paying artists for the three-month free trial. Taylor Swift responded with an online letter criticizing Apple's decision. The letter expressed her belief that even though Apple was not being paid during the three-month free trial, it was still using artists' works to grow its business. The note prompted Apple to change its mind and agree to compensate artists during the free trial. Rather than being a public relations disaster for Apple, the incident helped create awareness about its new service offering. It also caused Taylor Swift to praise Apple for treating her work with respect.

Apple Pay is a digital wallet service users can use to make payments through their smartphone devices. Introduced in 2014, Apple Pay is slowly being expanded throughout the United States and internationally. The service substitutes the need to carry around credit and debit cards. When the consumer wants to check out, he or she can use the smartphone to communicate the payment information to the terminal and make the transaction. Banks have been eager to offer Apple Pay and initially offered the service at a lower rate than traditionally accepted from credit card transactions. In spite of the promising opportunities of Apple Pay, Apple and its financial partners will have to work to ensure safeguards are in place to guard against hackers. Additionally, some retailers have rejected Apple Pay in favor of another payment system that gives retailers more power in processing payments.

A new product that has received much attention is the Apple Watch. The Apple Watch is a wearable computer (called a smart watch) as well as a fashion accessory. It can be used to track exercise and syncs with other Apple products such as Apple Pay. Like a smartphone the Apple Watch has apps for different activities, such as games and making travel reservations. It was in such high demand that it sold 2.5 million watches in pre-orders even before its official launch. Although these products do not yet generate much revenue for the company, they help to further differentiate Apple in a competitive marketplace.

Apple's Marketing Strategies

In addition to its revolutionary products, Apple's success in pricing, promotion, and distribution have also contributed to its popularity. Marketing is such an important part of Apple that former CEO John Sculley once commented that Apple was, first and foremost, a marketing company. Apple has a clear sense of who its customers are and what the brand represents, which helps it to align its pricing, promotion, and distribution with the its overall goals.

Pricing

Apple products are traditionally priced high compared to competitors. For example, the iPad retails for $499 (although models with additional gigabytes are more expensive), while the Amazon Kindle Fire retails for $200. Apple's Mac computers often cost over $1,000. Most of Apple's profit comes from the high margins on its hardware devices. Yet rather than dissuading consumers from adopting the products, the high price point provides Apple with an image of prestige. Apple also stresses the convenience of its products as well as the revolutionary new capabilities they have to offer. Thus, it attempts to create value for customers, prompting them to pay more for Apple brands than for its competitors'.

Promotion

Apple encourages demand for its products through several types of promotion, including word-of-mouth marketing. The company relies on hit products and high-impact rollouts (often after months of rumors) to stimulate emotional buying.

The company positions itself as the technology provider for creative people. Like Apple's products, its advertisements are often simple, artistic, and instantly recognizable. For example, several brightly colored iPod commercials featured the silhouettes of dancers wearing the company's iconic white earbuds. Apple's ads sometimes directly attack its competitors, as in the "I'm a Mac" television campaign. The ads pitted a cool, young Mac character against a Microsoft PC portrayed as a goofy businessman.

Apple also supports "evangelism" of its products, even employing a chief evangelist to spread awareness about Apple and spur demand. Corporate evangelists refer to people who extensively promote a corporation's products, acting as both employees and loyal customers. Successful evangelists spread enthusiasm about a company among consumers. These consumers in turn convince other people about the value of the product. Through product evangelism, Apple created a "Mac cult"—loyal customers eager to share their enthusiasm about the company with others.

Apple's promotion strategy has led to a perception that Apple products are part of a consumer's identity. When asked why they would want to buy an iPad, over 42 percent of consumers responded that it has a cool factor. However, Apple products still remain a niche product; 95 percent of consumers do not consider Macs when buying new computers.

Distribution

Apple distributes its products to consumers via retailers, the company's online store, and Apple stores. Apple stores have enhanced the brand and changed Apple's distribution strategies. Originally created to give Apple more control over product displays and customer experiences, the Apple store model was a huge success and grew faster than any other retailer in history. It currently has over 450 locations.

Apple stores differentiate themselves significantly from other retailers; in fact, Apple took the concept of retail in an entirely new direction. Apple stores are a place where customers can both shop and play. Everything in the store is carefully planned to align with the company's image, from the glass-and-steel design reminiscent of the company's technology to the stations where customers can try out Apple products. Customer service is also important to the Apple store image. Employees are expected to speak with customers within 2 minutes of them entering the store. Each employee has received extensive training and often receives greater compensation than those at other retail stores to encourage better customer service.

Apple executives constantly look for ways to improve stores, enhance customer service, and increase the time that customers spend in-store. For instance, after the iPad came out the company began to install iPad stations within its stores. The iPads feature a customer service app designed to answer customer questions. If the customer requires additional assistance, he or she can press a help button on the app. The app changes the customer service experience because rather than the customer seeking out the sales representative, the representative comes straight to the customer.

Apple's Corporate Culture

In addition to its products, pricing, promotion, and distribution, Apple's corporate culture is an important part of its marketing success. Many people attribute Apple's success to Steve Jobs's remarkable leadership abilities, Apple's highly skilled employees, and its strong corporate culture. Apple markets itself as a fast-paced, innovative, and collaborative environment committed toward doing things "the right way." The organization has a flat structure, lacking the layers of bureaucracy of other corporations. Apple also emphasizes that it does not adhere to normal work environments in which employees are at their stations from 9:00 a.m. to 5:00 p.m. By offering both challenges and benefits to applicants, Apple hopes to attract those who fit best with its corporate culture.

Successful evangelism can only occur with dedicated, enthusiastic employees who are willing to spread the word about Apple. When Jobs returned to Apple, he instituted two cultural changes: he encouraged debate on ideas, and he created a vision that employees could believe in. By implementing these two changes, employees felt that their input was important and that they were a part of something bigger than themselves.

Additionally, in order to maintain its competitive advantage, Apple also fosters a culture of secrecy. Secrecy is necessary to prevent damage to sales of existing products because if consumers learn about a future upgrade, they may delay their purchases. Certain places at Apple are off-limits to most employees, and employees are not allowed to discuss their work unless everyone in the room knows about the project. This lack of transparency challenges traditional conceptions of what makes a company successful. However, employees say that they remain passionate about their work and are part of a unique experience.

On the other hand, not all employees have been so satisfied with Apple. Former employees filed a lawsuit against Apple claiming that it had made an agreement with other tech firms not to "poach" or hire away each other's employees. According to a 2007 document that surfaced, Steve Jobs allegedly threatened the former CEO of Palm with patent litigation if Palm did not cease hiring away Apple employees. Similar agreements appear to have occurred with Adobe, Google, Intel, Intuit, and Pixar. The U.S. Department of Justice filed an antitrust lawsuit and forced the companies to disband the agreement as such behavior was deemed anticompetitive and unfair to employees. Interestingly, battery maker A123 Systems filed a lawsuit against Apple in 2015 accusing the company of aggressively poaching its employees amidst rumors that Apple might enter the electric-car industry.

Apple's Marketing Challenges

Although Apple has consistently won first place as the World's Most Admired Company, it has experienced several ethical issues within recent years. These issues could have a profound effect on the company's future success. Apple's sterling reputation could easily be damaged by serious misconduct or a failure to address risks appropriately.

Competition

Apple faces competition on a variety of fronts. Although a diverse product mix mitigates the risk of any one product failing, it also increases Apple's number of competitors. Rivals include Hewlett-Packard Blackberry, Dell, Lenovo, and ASUS for computers; Samsung and Xiaomi for smartphones; Amazon, Samsung, and Lenovo for tablets; Googleand Amazon for cloud storage services; and Samsung and Motorola for smart watches. Apple is a dominant player in the smartphone industry, with its iPhone 6 and 6 Plus models surpassing Samsung in market share. Apple's superior products have also taken market share away from competitors such as BlackBerry Limited. Many BlackBerry users opted to exchange their Blackberrys for iPads when the tablet first emerged.

However, rivals are striving to catch up. Chinese company Xiaomi intends to become a top competitor for Apple. After celebrating a blockbuster year in 2014, Xiaomi became the third largest phone manufacturer in the world. Xiaomi has announced its desire to expand beyond China and has released its first smartphone outside of the country, called the Mi 4i. With a value of $45 billion, Xiaomi does not intend to stop with smartphones. It also wants to compete against Apple in smart watches and headphones. Although Apple products are highly successful in China, Xiaomi products are significantly less expensive and are more likely to appeal to the price-conscious consumer.

Samsung's Galaxy smartphones remain a formidable competitor to Apple's iPhones. The "dominant player" in the smartphone industry is often a toss-up between Samsung and Apple. In fact, the two companies have fought an outright legal war regarding whether Samsung had infringed on intellectual property rights held by Apple. Specifically, Apple claimed that Samsung had copied features of its iPad and iPhone. The legal battle lasted for years, and in 2014 Apple was awarded $119.6 million—a small fraction of the penalties it had sought against Samsung. Although it appears friction between the two rivals may decrease with Samsung agreeing to manufacture the main chip for the next iPhone, the intense competition in the smartphone industry will likely remain.

Customer Privacy

Privacy is another major concern for Apple. In 2011 Apple and Google disclosed that certain features of their cell phones collect data on the phones' locations. Consumers and government officials saw this as an infringement on user privacy. The companies announced that users have the option to disable these features on their phones. However, this was not entirely true for Apple as some of its phones continued to collect location information even after users had disabled the feature. Apple attributed this to a glitch that it remedied with new software. Both Google and Apple defend its data-collection mechanisms, but many government officials disagree. The government is considering passing legislation on mobile privacy, actions which could have profound effects on Apple and other electronics companies. Apple Pay represents another risk area for Apple as it expands into the mobile payments industry. The potential for hackers to steal information from mobile payment systems is a major area of concern for both companies and regulators.

Price Fixing

In 2013 a judge found that Apple had conspired to fix prices on electronic books (e-books) with five major book publishers. The judge determined that Apple was part of a deal requiring publishers to provide Apple's iTunes store with the best deals in the marketplace for e-books. More specifically, Apple allegedly allowed publishers to set the e-book prices for the iPad and received 30 percent of the proceeds (known as the "agency model"). The agency model is less competitive than the wholesale model, in which retailers and publishers negotiate on pricing. Under the agreement, if a competitor was found selling the e-book for less, Apple was to be offered the same lower price. This scheme is more commonly referred to as a most-favored-nation clause. Many believe that it is anticompetitive because companies can use it to keep competitors out of the market. After striking the deal with Apple, publishers approached Amazon about participating in the contract. In court, Apple faced fines totaling $450 million as part of a settlement agreement. Apple denied wrongdoing and acknowledged only passive association with the deal to set e-book prices. As of 2015, the case was still in the appeals process.

Intellectual Property

With the many products Apple releases each year, it makes sense for it to protect its technology from theft. Apple is serious about keeping its proprietary information a secret to prevent other companies from stealing its ideas. This has led to many patent and copyright lawsuits between Apple and other technology firms, including Franklin Computer Corporation, Microsoft, Cisco Systems, Samsung, and HTC.

However, Apple is also the target of lawsuits. Kodak filed a lawsuit against Apple and Research in Motion (now BlackBerry Limited), alleging that the companies infringed on its patent on digital-imaging technology. In response, Apple countersued Kodak by claiming it violated Apple's patents. Kodak later sold 1,100 digital imaging and processing patents to Apple, Google, Facebook, and other technology firms, which resolved the lawsuits. Additionally, Proview Electronics filed a lawsuit alleging that Apple fraudulently acquired the iPad trademark by creating a fake company to purchase the trademark and not disclosing its intent. Apple paid Proview $60 million to settle the dispute.

Apple's aggressiveness regarding patent protection has led it to file lawsuits against some powerful companies. As mentioned earlier, the company filed a lawsuit against Samsung, claiming that Samsung had copied the designs of its iPhone and iPad for its own products. It also filed a lawsuit against HTC Corporation, a Taiwanese smartphone manufacturer that makes phones for Google's Android products. Apple accused HTC of replicating a range of cellphone features protected under Apple's patents. The companies eventually settled the dispute and embarked on a 10-year licensing agreement.

Although the outcomes of some of these lawsuits have provided technology companies with more extensive intellectual property protections, they also bring attention to the legitimacy of Apple's claims. Is it pursuing companies that it honestly believes infringed on its patents, or is it simply trying to cast its competitors in a bad light so it can become the major player in the market? Although it might seem that Apple is being too aggressive, companies that do not set boundaries and protect their property can easily have it copied by their competitors, who can then use it to gain market share.

Supply Chain Management

Many of Apple's product components are manufactured in countries with low labor costs. This means that the potential for misconduct is high due to varying labor standards and less direct oversight. As a result, Apple makes each of its suppliers sign its supplier code of conduct and perform factory audits to ensure compliance. To emphasize its commitment toward responsible supplier conduct, Apple releases an annual Supplier Responsibility Progress Report that explains expectations for suppliers, the results of its audits, and corrective actions the company will take against factories where violations have occurred. In addition, Apple claims it has empowered over 6 million workers by teaching them about their rights and increased the number of suppliers it audits each year. Apple discovered a correlation between improved compliance and the number of audits—facilities audited twice, instead of once, showed a 25 percent gain in compliance ratings, while three audits resulted in a 31 percent compliance score improvement.

Despite these measures, Apple has faced scrutiny for its manufacturing processes. Suppliers claim that Apple's manufacturing standards are hard to achieve because suppliers are only allowed slim profit margins. In contrast, competitors like Hewlett-Packard allow suppliers to keep more profits if they improve worker conditions. Apple's focus on the bottom line can cause suppliers to find other ways to cut costs, usually by requiring employees to work longer hours and using less expensive but more dangerous chemicals.

In such an environment, mistakes and safety issues become more common. Past problems at Apple suppliers such as Foxconn, also known as Hon Hai Limited, have included noncompliance with working-hours limits, failure to prevent worker injuries, failure to follow hazardous-substance management practices, the use of underage workers, falsified records, overcrowded worker dormitories, and other labor violations. Apple claims that suppliers who violate company policies have 90 days to address the problem. Apple has dropped 18 suppliers since 2007.

Several high-profile events at Apple factories generated criticism of its supply chain and prompted Apple to take action to improve monitoring and compliance. In January 2010, over 135 workers fell ill after using a poisonous chemical to clean iPhone screens. In 2011, aluminum dust and improper ventilation caused two explosions that killed 4 people and injured 77. Additionally, over a dozen workers have committed suicide at Apple supplier factories. Much of the media attention focused on the conditions at Foxconn, Apple's largest supplier with a sordid background of labor violations and the site of one of the explosions and several of the suicides. Foxconn continues to assert that it is in compliance with all regulations, despite the reports.

Apple claims it is significantly improving supplier conditions and becoming more transparent about its labor processes. CEO Tim Cook visited Foxconn personally to oversee conditions. However, some blamed Apple's culture of innovation and the need to release new or improved products each year, which requires suppliers to work quickly at the expense of safety standards. Foxconn and Pegatron, another Chinese supplier, are only a handful of facilities in the world with the capacity to build iPods and iPads, which makes it difficult for Apple to switch suppliers should noncompliance continue. Additionally, inconsistent international labor standards and high competition mean that virtually every major electronic producer faces similar manufacturing issues.

As media and consumer scrutiny increase, Apple must continue to address its supply chain management issues. However, as one current Apple executive told the New York Times, "Customers care more about a new iPhone than working conditions in China." In spite of the pressures to develop new products at low costs, Apple has been recognized by the Fair Labor Association (FLA) for dramatically improving the conditions at Foxconn and completing 280 of the FLA's recommendations.

Sustainability

Apple has taken steps to become a greener company, such as reducing its environmental impact at its facilities. However, the company admits that the majority of its emissions (98 percent) come from the life cycle of its products. Apple's success hinges on constantly developing and launching new products, which leads to planned obsolescence—pushing people to replace or upgrade their technology whenever Apple comes out with an updated version. Since Apple constantly releases upgraded products, this could result in older technology being tossed aside.

Apple takes different approaches to this environmental problem. The company builds its products with materials that are suitable for recycling, it builds its products to last, and it recycles responsibly. To encourage its customers to recycle, Apple created an in-store recycling program where customers can trade in old products and receive various discounts. However, despite this recycling program, many consumers feel that tossing out their old products is more convenient, particularly if they have no value. E-waste will remain a significant issue as long as consumers continue to throw away their old electronics.

Apple has also publicly stated its achievements in reducing toxic chemicals within its products. The company eliminated cathode-ray tubes—which contain lead—from its products and constructs iPods with light-emitting diodes (LEDs) rather than fluorescent lamps (which contain mercury). The company has also eliminated the use of different toxic chemicals from its products.

Apple's Impact on Marketing

Apple's corporate culture of innovation and loyalty has created a company that massively impacts the marketing strategies of consumer electronics firms and other industries. Apple's iPhone increased competition in the smartphone and tablet computer industries. It also popularized the concept of mobile marketing. The iPhone's easy-to-use features and applications allowed consumers to shop from home or in-store. This provided new opportunities for retailers to introduce their own iPhone apps and create customized marketing messages delivered over mobile devices. Brands are utilizing Apple's platform to create product awareness and/or generate repeat business. Apple's advances in mobile marketing have not only changed the way that customers interact with mobile devices but also enhance customer relationships between business and consumer.

No company has mastered the concept of product differentiation better than Apple. While products such as the iPod and iPhone provided functions and benefits similar to competing products, Apple's technology and user-friendly interface provided a consumer perception of a completely new product. Apple retail stores and service help create a total product that was unlike any available in the marketplace. The Apple brand name became a cultural icon with loyal followers devoted to Apple's products. Cultural branding results in consumers exhibiting almost cult-like loyalty to products. Companies such as Coca-Cola, Harley Davidson, and Nike are examples of companies with strong cultural branding. The product becomes a part of their self-concept and image when interacting with others. Once a product becomes so important to an individual, he or she is less sensitive to price and quickly adopt new Apple products that are brought to the market. Few companies have been able to develop cultural branding and a cult-like following like Apple.

Additionally, many companies are seizing upon the opportunity to learn from Apple. Due to the immense success of Apple stores, other companies are attempting to imitate its retail model. Microsoft and Sony opened some of their own stores. Other companies now use Apple products to enhance their businesses as well. For instance, some pharmaceutical and car salespeople have adopted the iPad to aid in business transactions, and some restaurants even use the iPad to show menu items.

The Future of Apple

The death of Steve Jobs concerned some people about the future of Apple. To many customers, Jobs appeared to be a savior who brought the company back from near bankruptcy and who was the driving force behind its innovative products. In the past, whenever rumors of Jobs's health reached the public, Apple's share prices dropped. However, his entrepreneurial spirit remains embedded in Apple's culture, and the company remains optimistic.

Although Tim Cook has a long road ahead in maintaining the high reputation Apple enjoyed under Jobs, the loyalty fans feel for the company remains high. The company has created a cult following of consumers intensely loyal to Apple products. Apple's products are meant to offer superior solutions to those of competitors. Seizing upon new opportunities can increase Apple's share of the music and consumer electronics markets.

Over the last decade, Apple has excelled at keeping pace with the quickly evolving industry of computers and consumer electronics. Its diversification, collaborative corporate culture, and product evangelism propelled it to heights that could not have been envisioned when Jobs and Wozniak sold their first computer kit in 1976. The company shows no signs of stopping its momentum, while consumers have shown few signs of reducing their admiration for Apple.

On the other hand, Apple will face many challenges in the future. Not only has it been criticized for violations in its supply chain, but it has also been questioned about why it offshores most of its production. Since Apple makes such high profits and reportedly received tax breaks earlier in its history, some politicians have suggested that Apple bring production jobs back to the United States. As concerns over outsourcing continue, Apple may experience increasing pressure from stakeholders to create more manufacturing opportunities in the United States.

 

 

 

 

 

 

 

 

Jennifer Sawayda, University of New Mexico, and Harper Baird, University of New Mexico, prepared this case under the direction of O. C. Ferrell for classroom discussion rather than to illustrate effective or ineffective handling of an administrative situation.

How has Apple developed extreme loyalty among consumers that has resulted in an almost cult-like following?

 

Describe the role of Apple stores as an important part of its marketing strategy.

 

What will Apple need to do to maintain product innovation and customer loyalty?