Apple Inc is a leading company in the global personal computer and digital music players industry (Yoffie & Slind 2008, p. 1). The core business of the company involves the manufacture and distribution of personal computers and various digital music players.
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The company has enjoyed a steady growth in sales and market share over the years by implementing effective sales and marketing plans. This paper will analyze the competition in the computer and the digital music players industry in order to determine the industry that is associated with greater competition.
Porter’s Five Force Analysis
The Computer Industry
The threat that is caused by new entrants is low since the incumbent firms enjoy economies of scale. Besides, their products are highly differentiated (Yoffie & Slind 2008, p. 10). The threat is also low since the “capital requirements for joining the industry and the switching costs” (Hirschey 2008, p. 41) are very high. The bargaining power of the suppliers is high since they are very few as compared to buyers.
It is also high since the suppliers’ products are always differentiated and lack substitutes. This means that the buyers such as Apple Inc are “price takers and thus they can be exploited by the suppliers through high prices” (Hirschey 2008, p. 56). The buyers have a low bargaining power because they are very many as compared to the suppliers. Thus the buyers can not easily negotiate for the supply of their inputs at low prices.
The threat that is attributed to substitute products is low since there are very few products that can substitute computers in both office and other applications. The “intensity of competitive rivalry” (Hirschey 2008, p. 47) is low and this can be explained by the small number of competitors in the industry.
Besides, the growth rate of the industry is as high as 10% per annum (Yoffie & Slind 2008, p. 7). Thus the competition is not likely to adversely affect the performance of Apple.
The Digital Music Players Industry
The threat that is attributed to new entrants is low since the manufacturers enjoy economies of scale and their products are highly differentiated. Besides, the switching costs and the capital that is needed to join the industry are high. There are few suppliers as compared to buyers and the products of the former are highly differentiated. Thus “the power of the suppliers is high” (Hirschey 2008, p.78).
However, the buyers have a low bargaining power since their switching costs and product differentiation in the suppliers’ industry is high. There are also many buyers as compared to suppliers. Thus Apple and other firms are not likely to influence the price at which they obtain their inputs (Hirschey 2008, p.56). The substitute products pose a high threat because they are very many.
Some substitutes are also cheaper than the digital music players. Finally, the intensity of competition in the industry is high. This has been caused by two factors namely, the presence of many competitors and a slow growth rate in the industry. Thus the competition is likely to affect the performance of Apple in a negative manner.
The above analysis reveals the following similarities about the two industries. First, the new entrants pose a low threat in both industries. Second, the buyers have a low bargaining power in both industries. Finally, the suppliers have a high bargaining power in the computer and the digital music players industries. The threat that is attributed to substitute products and competitive rivalry is low in the computer industry.
However, the digital music players industry is associated with a high “threat of substitute products” (Hirschey 2008, p.79) and competitive rivalry. This means that the competition in the digital music players industry is more intense as compared to the computer industry. Thus Apple’s digital music players are likely to face more competition as compared to its computers.
Hirschey, M 2008, Managerial economics, Cengage Learning, New York.
Yoffie, D & Slind, M 2008, Apple Inc 2008, Harvard Business School Publishing, Boston.