Introduction
Apple is a well-recognizable brand with a bright identity expressed in innovation and simplicity. By continuously developing ideas, Apple offers the greatest products: for example, iPhone is the first smartphone with touchscreen technology. How do millions of people all over the world get their iPhones? Does Apple use direct or indirect distribution? Both. The company sells products in official Apple Stores as well as departments of big retail chains and Internet channels. In this connection, this paper aims to examine Apple’s distribution channels.
Objectives
Apple experts operating in the field of distribution management understood that the channels of promotion of iPhone products should be strikingly different from those used for the promotion of existing products such as Mac or iPod. In order to promote the former range of products, they used computer retail stores. Thus, well-established business processes in the field of distribution, logistics, advertising, and marketing related to new versions of existing products helped to keep sales at a high level. With this in mind, several objectives that are as follows represent the nature of iPhone distribution channels:
- To distribute the product aiming to achieve high market penetration;
- To provide versatile distribution;
- To ensure post-sales customer support.
Strategy
First, it is essential to point out the essence of the distribution channels. If one considers the entire process of products’ distribution in the form of a specific circuit with multiple outputs, where they indicate delivery and concrete products, it becomes evident that distribution channels are important for the company. However, Apple’s existing distribution channels could not provide the required volume of sales for the iPhone. Then Apple has taken an innovative strategy. It has established partnerships with leading mobile service providers in the various territorial markets. In the US, it was AT & T, a leading mobile operator in the US regarding users, which provided exclusive rights to the device for sale and Verizon Wireless, the second-largest mobile phone operator. In Europe, it was O2 presented at the five major regional markets of Western Europe.
As part of the partnership agreements, iPhone was sold for 35 percent of its market value provided that the end-user has concluded a contract with the mobile operator, in which the prescribed duration of the contract and a fixed minimum of use were agreed. The remaining cost of the iPhone was compensated by the mobile operators due to concluded contracts. In addition to the partners, Apple shifted part of the marketing costs, for example, by placing their logos at the end of TV commercials. At present, distribution partners are also willing to compensate for the difference in the cost of the iPhone as its additional services much more convenient and pleasant than those of other smartphones (Tobak par. 7). For instance, the Internet, music, games, and other applications might be noted. In turn, the incredible popularity of the iPhone serves as the ability for mobile operators to replenish the user base.
By the time of the first distribution of iPhone to market, users not satisfied with their mobile operator came to mobile operator offices. iPhone stood out among the presented models as the first smartphone, which is fully controlled using the touch of a finger on a touch screen, in other words, without unnecessary “intermediaries” such as a keyboard or stylus (Tobak par. 5). In addition, if one takes into account that iPhone has been recognized as the most convenient smartphone to access the Internet, then this type of control is perceived by users as direct and immediate control of the information contained in the device, or, indeed, in most IT environments. The above statement shows one more positive feature of the iPhone that, in turn, leads to the attraction of customers. At that, all the distribution channels except Apple’s online store provide the opportunity to test the device and enjoy its high quality. At that, Apple’s online store allows customers to select the most acceptable model, analyze its characteristics, and make the order remotely. As a result, the customers would have it delivered to the required address. This distribution channel is extremely convenient and essential in cases when there is no opportunity to visit the Apple store.
Apple Inc. also sells iPhones through a network of affiliated stores – so-called Apple Stores and retail stores of other companies. Also, there are the Internet channels of Apple Stores. Thus, the company uses both direct and indirect distribution channels. To gain the most market share, Apple is expanding cooperation with the American chain of stores, for example, Best Buy that sells smartphones as well as software and accessories for them. Apple stores have the advantage of providing test drive of iPhone. Plenty of people prefer to try the device before purchasing it in order to decide whether it suits their expectations or not. The attentive consultants are always ready to assist and answer any questions related to the product. After choosing the model, customers are free to sign a contract and pick up their purchase right away. At this point, the significance of this distribution channel cannot be overestimated.
Speaking of foreign markets, Apple tended to develop through the Independent Marketing Company (IMC) strategy, according to which independent companies receive the right to use the brand of Apple. These companies are investing their own capital in the business and, therefore, retain some independence from Apple. This form of organization of work is justified by the relatively small emerging markets, where it is required to establish a business. At the same time, Apple focuses on the construction of large stores, which bring a significant portion of profits. Currently, only Apple Authorized Distributors possess the right to sell iPhones as well as other Apple products. This agreement assumes the following aspects:
- Apple provides authorized partners with the limited right to use its trademarks for the promotion and sales of Apple products;
- Companies that do not have the status of an authorized partner of Apple cannot use symbols and brands provided by Apple;
- Authorized partners undertake to use the trademarks and symbols of Apple in strict accordance with the manufacturer’s requirements, not transferring these rights to third parties;
- Authorized partners cannot remove or alter trademarks and symbols and are not to add any other marks or signs on any materials provided by Apple including packaging products.
The described strategy helps to control and maintain the level of sales and enhance the customers’ loyalty to the brand.
Motivations
Unlike many other companies, initially, Apple used to consider its products avoiding philosophy, the concept of «i», or support of its image and employees. The company did not explain what motivations were the most important for it to implement. In other words, Apple was in no hurry to share its vision with the public. However, the motivation they have for iPhone might be identified as follows: the company strives to offer the best smartphone technology to students, teachers, people of creative professions, and consumers around the world through its innovative hardware solutions, software, and network applications.
Conflicts
Among the problems faced by the company, one might note the current decrease of profits. According to Goel, “in 2016, the company posted revenue of $42.4 billion, down 15 percent compared with the same quarter last year” (par. 3). However, Apple feels quite comfortable in a situation where the sale of smartphone device categories are losing share in the revenue (McGregor par. 1). Asked by the newspaper The Washington Post, Apple CEO Tim Cook argued that the fact that two-thirds of revenue come from iPhone is not a problem but an advantage. In 2011, for example, iPhone generated only 44 percent of Apple’s earnings (McGregor par. 1). Cook explained that the second-largest contribution to the revenues of the market is PCs and laptops while smartphones are close to becoming an indispensable device for every person all over the world. In addition to many emerging markets, such as portable devices and digital content distribution. And many things are not very good ones at the company’s affairs.
More to the point, Apple is currently experiencing significant problems. For the first time in many years, iPhone sales have fallen significantly against the backdrop of the lack of significant changes in the iOS and iPhone 6s. A considerable role in this was played by the desire of consumers to wait for the next version of the iPhone. However, the main thing here is the pressure from Android and cheap Chinese smartphones. According to the analysis of researchers from Gartner, in the first quarter of 2016, 349 million units were sold, which is 3.9 percent better in comparison with the same period of the last year (Waters par. 3). At that, overall sales accounted for 78 percent of the general mobile phone sales. According to Gartner research, changes in the first quarter of 2016 are related to the pressure from the Chinese producers. Thus, in the first quarter of 2015, in the list of the top five manufacturers, there were two Chinese giants with 11 percent of the market. In the first quarter of 2016, the list of the best performing brands was composed of Huawei, Oppo, and Xiaomi, which account for 17 percent of the world market. The presented information can be regarded as relevant as it was taken from credible sources such as New York Times, Financial Times, and Washington Post as well as others. Moreover, the credibility of the sources is ensured by various references to other reliable studies as well as by timeliness. Consequently, one may conclude that the goal desired by the authors was achieved as they provided an average reader with the useful and comprehensible information.
Power Relations
In order to analyze power relations, it is beneficial to apply Porter’s Five Forces theory that focuses on the competitive rivalry. The theory created by Porter can be proved. It could not be easily argued and denied as there is evidence of it being based on scholarly research. In this connection, the theory presented by the author appears to be accurate and trustworthy. Namely, the tool includes the four principal components: the threat of new entrants, bargaining power of suppliers, bargaining power of customers, and the threat of substitutes. First, there is a risk of new competitors’’ entrance and strengthening of the existing ones such as Blackberry or Nokia. From the other side, Android platform, being a partially free one, might compose a significant threat to iPhone. Second, Apple maintains balanced relationships with suppliers to remain successful. Nevertheless, a number of other companies supply microprocessor chips that control motion sensor, camera, and other functions. Third, as for customers, it should be noted that iPhone is characterized as a luxury product. Therefore, the price is the central issue to be discussed and frequently subjected to dissatisfaction. Fourth, it is difficult to imagine that iPhone might be substituted soon. It should be another revolution in the field of innovation to eclipse iPhone. Thus, it becomes clear where power relations lies in the company.
Channel Profitability
Speaking of the channel’s effectiveness, it seems appropriate to consider the latest profits of the company in the framework of iPhone sales. In 2016, Apple has announced its quarterly results. It turned out that net profit fell for the first time in the last thirteen years. During the second quarter of the current fiscal year, it was $ 9.5 billion revealing significant decrease compared with $ 11.6 billion a year earlier in the same period. The first reason is a decreased margin. This factor was noticed by Tim Cook who stated that such a situation was caused by iPad mini and iPhone 5. The data indirectly confirm his words in spite of the drop in net profit, revenue increased slightly from $ 39.2 billion to $ 43.6 billion (Cohan par. 5). Market shift in developing countries is another reason for decreasing profits. In previous years, United States was the paramount market. Nowadays the country has reached the phase where the market is growing very modestly. However, rapidly growing China shares had pressed the United States, ranking first in the world due to the number of smartphones in the country. It is expected that this gap will obviously increase soon due to a great potential and capabilities of China business related to the topic.
It is also quite important to point out that the following aspects related to distribution channels identify iPhone’s high performance:
- Continuous release of the new model;
- Relatively narrow range of products that spared from the erosion of Apple’s marketing resources and simplified the distribution channels.
- Having concluded mutually beneficial strategic agreements with sales partners and reducing the price, Apple made iPhone available without compromising the brand.
- iPhone is full of innovative applications designed to make life easy, fun, and unique. Installed applications are positioned to promote fun and easiness to save time and money – two of the most valuable resource today.
The example of iPhone smartphone shows how the synergy of the constructed relationship between the brand and distribution channel partners helps to achieve an effective performance, even in spite of the market situation in the global economy.
Sustainable Competitive Advantages
What is the reason for iPhone‘s incredible success? It should be understood that, despite the fact that iPhone hit the market, it was a unique product, yet the technology used in its development was available to its main competitors including Blackberry, Samsung, or Nokia. At that, iPhone was the first mobile phone released by Apple. A well-designed iPhone distribution channels are considered to be integral components of success. Considering the above scheme of cooperation with mobile operators, Apple immediately secured a hit on the shelves of most stores selling mobile phones. Each store makes a contract for sale with one or more mobile operators. Therefore, if the smartphone manufacturer enters into a contract with an operator for the supply of certain smartphone models, then its further sale is bundled with a particular tariff plan. Thus, it removes some problems associated with the search for the best distributors. That is, it shifts the problems to the mobile operator, which, in turn, is interested in selling the best models of smartphones.
The simplicity of product distribution also matters (DeMers par. 2). Along with uniqueness, one might note that Apple provides access to the iTunes Store to music lovers from all over the world. Users can also take in rent or buy movies from the iTunes store by major film studios including Paramount Pictures, Walt Disney Studios, and others. iTunes Store includes the revolutionary App Store, which presents more than 650 000 applications to users from 155 countries (Wakabayashi par. 2). In turn, iTunes Store is the best resource for users of iPhone to find, legally buy, and download music from the Internet. Such variety of entertainment creates greater interest in the product and serves as an additional channel of information distribution.
External Drivers on Channel
The external driving forces including technology, competition, and public policy influence distribution of iPhone. Apple continuously monitors the latest innovations and strives to implement them in products. The company has recently articulated its concern in both augmented and virtual realities. For instance, Apple enrolled a patent for a technology offering enhanced visual routing capabilities focused on camera. Apple could become the first company that would promote the augmented reality contact lenses, which are currently being developed by EP Global Communications. Both parties reached an agreement to discuss the probable integration of innovations.
The competition also affects the channel acting as an external driver contributing to the increased effectiveness of distribution. In particular, strong competition makes the company create new ideas in order to remain competitive. “Think different” is a slogan of the company. Apple’s iPhone is more expensive than its counterparts designed by companies. In this regard, the company loses some market share relying only on high-income people and brand lovers. At the same time, iPhone is recognized due to its brand loyalty as lots of customers think the price justifies the means. Also, developing iPhone as an integral device, Apple achieves high performance of their devices in comparison with the powerful Samsung devices, for example.
Recommendations
From the above observations, it becomes evident that iPhone distribution channels are multifaceted and based on comprehensive approach. First, I would recommend investing more resources in customer research related to distribution channels. This step is to improve the understanding of customers’ current requirements and discontent, if required. Knowing them, it is possible to outpace other companies both in production and strategy and remain increasingly competitive. Second, it seems beneficial to broaden the distribution channels. In particular, stock availability in Apple’s European, Asian, and other regions of the world would be useful. Third, I would recommend using the effect of simultaneous launching of iPhone all over the world. Launched at once, it will create the atmosphere of agiotage and subsequent demand anticipation as well as increased profits. Fourth, I would recommend enhancing the online distribution channel of iPhone by implementing additional options to the website. Namely, “share” button and the possibility of the user-generated content can considerably develop this channel. Finally, I guess that it is useful to widely employ the digital technology to enhance distribution channels. This recommendation concerns social networks, media, and other resources that can foster the distribution of iPhone.
Works Cited
Cohan, Peter. “5 Reasons Apple Is A Screaming Sell.” Forbes. Forbes Magazine, 2016. Web.
DeMers, Jayson. “Here’s The Simple Secret To Apple’s Marketing Success.” Forbes. Forbes Magazine, 2014. Web.
McGregor, Jena. “Tim Cook, the Interview: Running Apple ‘is Sort of a Lonely Job’.” The Washington Post. The Washington Post, 2016. Web.
Tobak, Steve. “How to Sell Like Apple.” CBS News. CBS Interactive, 2010. Web.
Goel, Vindu. “Apple’s IPhone Sales Drop Again, but Services Are a Bright Spot.” The New York Times. The New York Times, 2016. Web.
Wakabayashi, Daisuke. “Apple IPhone Sales Grow at Slowest Rate Ever.” WSJ. WSJ, 2016. Web.
Waters, Richard. “Smartphone Industry Set for Slower Growth.” Financial Times. Financial Times, 2013. Web.