The company's best-known hardware products include the Macintosh line of computers, the iPod, the iPhone and the iPad.
Is Apple's Competitive Advantage Sustainable? The company has achieved this scale despite offering a relatively small number of products.
Apple has built one of the world's strongest brands through innovation and superior aesthetics, with transformative products such as the iPod, iPhone and iTunes.
This strong brand and first-mover status on several disruptive technologies has allowed Apple to charge a premium for its products, supporting high profit margins. The company maintained a wide economic moat in earlybut declining margins and returns on invested capital could indicate some contraction of competitive advantage in coming years.
Apple must lead its peers in innovation to maintain its moat going forward. Economic Moats An economic moat is established by competitive advantages that protect a company's place in its industry.
These factors create barriers for new entrants and limit other competitors' ability to accumulate market share. Economies of scale, network effects, regulation, intellectual property and brand strength are the five most important determinants of moat width and sustainability.
Companies that are not protected by at least one of these elements will be subject to intense competition, especially in mature industries. Apple's Qualitative Moat Analysis Apple established very strong brand loyalty through years of clever innovation, design and marketing.
Apple's products gained a reputation as high-quality personal electronics for savvy consumers with disposable income.
This made them aspirational items for conspicuous consumption, even though their market penetration was exceptionally high. When lower-priced competitors followed Apple into the portable digital music and smartphone markets, the perceived quality and brand recognition protected Apple's sales volume and margins.
The App Store and iTunes also helped create a network effectwith the marketplace becoming a more attractive medium for exchange. Content creators benefited from gaining access to a larger number of users on a single platform, whereas users benefited from a central location to consume and rate music or applications.
Apple also maintained a so-called walled garden, with its own operating systems, customer support and marketplaces, all of which were restrictive enough to maintain a more captive user base and facilitated the sale of value-added services.
Apple is a large company that benefits from economies of scale, but it does not have a distinct advantage in this regard over its largest competitors.
The existing competition includes massive firms that can match or surpass Apple's manufacturing, administrative or marketing efficiency. While Apple possesses intellectual property and patent protection, the array of comparable products across several major categories indicates just how narrow the moat is in this regard.
Apple exists in a highly competitive environment in which aesthetics can eventually be copied, and other firms will constantly innovate. To maintain this edge in a rapidly evolving environment, Apple has to periodically create a radically disruptive new product.
This is not an easy task to accomplish, and an inability to revolutionize new markets will eventually lead to margin compression and moat erosion. Quantitative Moat Analysis Economic moats can be quantitatively identified by the extent and stability of profit margins. Apple's ROIC was The company's WACC was 7.
Apple's gross margin was Operating margin of The quantitative threats to Apple's economic moat are evident, but there was little to indicate its systematic erosion as of March Trading Center Want to learn how to invest?
Get a free 10 week email series that will teach you how to start investing. Delivered twice a week, straight to your inbox.In other words, instead of being focused on being the superior brand in an established category, such as computers or snacks, create something so innovative that it surpasses your competitors.
Apple established very strong brand loyalty through years of clever innovation, design and marketing. The brand was ranked as the world's most valuable by Forbes in , and was worth an. 5) Strong brand of Apple is anyways a big strength – When you deal in a technology-oriented market and an established brand like Apple is what you have at your back, it automatically provides the required first push to customers to buy such a product.
Apple uses market development as the least significant of its intensive strategies for growth. Market development involves creating new markets for new products or entering entirely new markets.
Generic strategies after two decades: a reconceptualization of competitive strategy. Home Depot’s Generic Strategy, Intensive Growth Strategies;. Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley.
His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. May 07, · While those competing with Apple are just getting products to market that are competitive, Apple is already working on the products at least two years out.
For example, the new iPhone that will most likely go to market in October was designed and signed off on two years ago.