Five Force Analysis of Apple iPod
The following is a case study on five force analysis of Apple iPod.
According to Michael E. Porter, there are five major forces responsible, determining the success of the segment of the market. They are industry competitors, potential entrants, substitutes, buyers and suppliers.
- Intra-Segment Competition: A market segment containing huge number of aggressive competitors is said to be unattractive. It is not wise to enter into such a segment where exit barriers are high, fixed costs are huge and market is either stable or declining. It leads to price wars, fierce advertising, making it expensive to stay in the competition. When Apple was in search for a consumer product, it did not ventured into digital cameras and camcorders, as there were already big players, who could have given it tough competition. Rather it entered into the digital music zone, a rather low entry point, but progressively captured the digital hub arena.
- Threat of Potential entrants: The industry where the entry barriers are high and exit barriers are relatively low is said to be most attractive from the outlook of business. Least no of competitors can enter in the field and the firms, performing below profit, can exit smoothly. When both the parameters for entry and exit are fixed at a height, all the firms face moderate competition and high profit. The scenario when to enter in a field the barriers are low, and exit is impossible, is the worst from business point of view. The firms enter easily but find it almost impossible to quit from the segment. This result in continuous overproduction and incurs loss for all the firms in the business. Apple was into making personal computers, IMac, Macbooks etc. but faced with economic downturn it changed its course toward digital hub industry.
- Substitute Threats: Even if the business field has got perfect entry and exit barriers, the firms may face loss if there is one or more substitute for the product under questions. The substitutes impose great threats to the already existing firms by not even staying in the competition. Pricing strategies varies greatly with the presence of substitutes. For Apple ipods, mobile phones became a strong substitute, which could have failed apple’s strategy. Motorola, Nokia, Samsung and other smart phone makers, offering products in cheaper price, and capturing broad based market share. But even before it could impose threats, apple came up with iphones, with internet, music, photos, videos, in short the whole entertainment package on the move strategy, and made it again an iconic one.
- Buyer Power: If the potential consumer rejects a product due to high bargain power, the market seems unattractive. It can happen due to presence of substitutes, or when the cost to switch is relatively low, or there are competitors who are selling the same product at a low or moderate price. Therefore it is important to differentiate a product form that of competitor’s. Apple again is a good example to create a marked difference in its people centric approach. It differentiated its product through simplicity and human touch.
- Supplier Power: If the vendors or the suppliers charges a greater cost for supplying materials, or make a reduction in the quantity supplied, the firms face a resource management problem. The variable cost is increased, reducing profit substantially. To reduce the collision of suppliers, Apple manufactured complete package of hardware and software with internet connectivity. I tune store, I movie, I photos, are great examples of that.