What Differentiates Apple from its competitors?

Apple’s strategy

Cook’s thoughts echoed those of his predecessor, Steve Jobs, whose strategy for Apple had
four pillars:

1. Offer a small number of products.

2. Focus on the high end.
3. Give priority to profits over market share.
4. Create a halo effect that makes people eager for new Apple products.

Differentiation

Apple attempts to increase market demand for its products through differentiation, which
entails making its products unique and attractive to consumers. The company’s products have
always been designed to be ahead of peers. Despite high competition, Apple has succeeded in
creating demand for its products. As a result, the company has power over prices through
product differentiation, innovative advertising, ensured brand loyalty, and hype around new
product launches. By focusing on customers willing to pay more and maintaining a premium
price at the cost of unit volume, Apple also set up an artificial entry barrier to competitors.

Apple sells its products and resells third-party products in most of its major markets. It sells
directly to consumers and small-to-midsized businesses through its retail and online stores.
The company also employs a variety of indirect distribution channels, such as third-party
cellular network carriers, wholesalers, retailers, and value-added resellers.

Retail pricing

Apple uses a MAP (minimum advertised price) retail strategy. MAP policies prohibit
resellers or dealers from advertising a manufacturer’s products below a certain minimum
price. MAPs are usually enforced through marketing subsidies offered by a manufacturer to
its resellers.

According to Macworld, Apple maintains its high-priced products’ popularity by only

offering retailers such as Walmart or Best Buy a marginal wholesale discount. This small
percentage in savings isn’t enough of a profit margin for retailers to offer big discounts on
Apple’s products. Therefore, customers end up paying a price close to the manufacturer’s
suggested retail price. However, a retailer could give up this small profit margin and offer
products at a discount to attract more customers. Apple prevents this scenario by offering
monetary incentives to retailers to sell goods at the MAPs fixed by the company.

This pricing strategy is effective, as it prevents retailers from competing directly with Apple’s
own stores. It also ensures that one reseller doesn’t have an advantage over another. Apple is
thereby able to keep its distribution channels clean while making more money on its direct
sales. Macworld also noted that iPhones weren’t under a strict pricing model. They are sold at
a lower price with wireless contract deals, as retailers gain a commission from carriers.

Apple’s premium products and pricing

Jobs’s vision for Apple was always to create a premier product and charge a premium price.
Apple’s cheapest product prices are usually midrange, but the products’ features ensure a
high-quality user experience. The hardware and user interface are designed to provide a lot of
value for the price, keeping profits high. However, a company can only charge a premium
price as long as it has a competitive advantage, and analysts believe Apple is on the way to
losing its “aspirational” status. With increasing competition from Android and low-cost
smartphones, as well as saturation in developed markets, the company could risk becoming a
high-end niche name.

Sales increasing

Smartphone prices falling significantly has boosted their sales over the last several years.
With advanced technology, smartphone companies have managed to reduce handset
costs. Global smartphone manufacturers, especially Chinese companies, have significantly
brought down smartphone prices, making them more accessible to mass markets. Android has
enabled a number of new manufacturers to enter the smartphone market, supported by a
variety of turnkey processing solutions. Many of these handset vendors have focused on low-
cost devices as a way to build brand awareness.

In comparison, Apple’s iPhone sales have recently fallen. In fiscal 2019’s first nine months,
Apple’s iPhone sales fell 15% year-over-year. With phones’ good quality and longer life,
consumers need not replace them frequently. Additionally, the newer versions aren’t offering
enough incremental features to justify an upgrade. 

However, Apple’s iPhone 11 and iPhone 11 Pro are getting a good response, according to the
company. While concerns over how Apple will grow in an increasingly competitive
smartphone market have hovered for more than five years, the company has always managed
to grow its bottom line. 
To learn about the global smartphone industry, read Global Smartphone Companies: An
Overview. For the latest updates on technology stocks, refer to Market Realist’s Tech &
Comm Services page.