Investors and market analysts often look to other perspectives for market analysis of companies in order to get a better picture of the positions and strengths of companies in their respective industries. A tool forfundamental analysisthis goes beyond the mere examination of financial figures such as e.gPrice to Book Ratio (P/B)is Michael Porter's Five Forces model.
The central theses
- Apple, Inc. has grown into one of the world's most valuable companies and respected brands.
- Porter's Five Forces model can be applied to Apple to understand its position within its industry and how it compares to its competitors.
- This type of analysis shows that Apple is still in a strong market position but faces multiple threats to its dominance.
The Porter 5 forces model
Michael Porter developed the Five Forces Analysis method in 1979.ThatFive Forces Modelaims to examine five key competitive forces within a given industry. The main force examined by Porter's model is the level of competition within an industry. One could even argue that Porter's model is essentially an analysis of the competitiveness or non-competitiveness of an industry.
The other four forces considered in Porter's model all affect the level of competition. These include the threat of new entrants, the threat of consumers choosing substitute products, the bargaining power of suppliers within the industry, and the bargaining power of buyers or consumers in the industry's marketplace.
Industry competition and bargaining power of buyers are the key market factors affecting Apple's profitability.
Apple in the market from a 5 forces perspective
Through its Macintosh computers and operating system, the iPad, iPhone and other products, Apple, Inc. (NASDAQ:AAPL) has achieved great success as a company since its inception in 1976, despite several cycles of ups and downs.In 2018, Apple achieved the remarkable distinction of being the first US company to ever launch amarket capitalizationmore than $1 trillion.
Apple's success is largely attributed to its ability to innovate and bring to market unique products that have generated significant profitsbrand loyalty.His product development and marketing strategies demonstrate an awareness of the need to engage with the major market forces that can impact Apple's market share and profitability.
A five forces analysis of Apple's position in the technology sector shows that industry competition and bargaining power of buyers are the two strongest market forces that can affect Apple's profitability. The bargaining power of suppliers, the threat of buyers opting for substitute products, and the threat of new entrants are all weaker elements among the industry's key forces.
Apple's industry dominance is largely unchallenged, but a strong challenger could emerge in the future, and the company must continue to innovate and build brand loyalty to keep any potential competitor at bay.
industry competition
The level of competition among the big companies that compete directly with Apple in the technology sector is high.Apple is in direct competition with companies such as Google, Inc., Hewlett-Packard Company, Samsung Electronics Co., Ltd. and Amazon, Inc.All of these companies are investing significant capitalResearch and Development(R&D) and marketing, just like Apple. Therefore, the competitive power within the industry is strong.
One thing that makes the industry so competitive is the relatively low cost of switching. It does not require a significant investment for a consumer to swap Apple's iPad for an Amazon Kindle or other tablet computer. The threat of market competition is an important issue for Apple, which the company has primarily addressed through the continuous development of new and unique products in order to increase and strengthen its market share position.
bargaining power of buyers
The low switching cost element mentioned above strengthens the bargaining power of buyers, as Apple should consider this as a key factor. Within this force there are essentially two further points of analysis: the individual bargaining power of the buyers and theirscollective bargainingEnergy. For Apple, individual bargaining power is a weak force because losing a single customer represents negligible revenue for Apple.
However, the collective market bargaining power of customers, the possibility of mass customer churn to a competitor, is a powerful force.
Apple counters this strong force by continuing to make substantialinvestmentsin R&D which allows it to continue to create new and unique products like the Airpods and the Apple Watch and build significant brand loyalty. Apple has been very successful in this competitive arena and has built a large customer base who wouldn't actually consider abandoning their iPhones in favor of another smartphone competitor.
The threat of new entrants
The threat of a new entrant that could seriously threaten Apple's market share is relatively small. This is mainly due to two factors: the extremely high cost of starting a business within the industry and the additional high cost of establishing brand awareness.
Any newcomer to the personal computing or smartphone market must have an enormous amount of capital just to invest it in R&D and manufacturing to design and produce their own devicesproduct portfoliobefore it ever launches its products and starts generating revenue. Such a market player faces the already identified strong competition within the industry that exists in betweenApple and its main competitors, all large, established companies.
The second challenge is establishing brand awareness in an industry where several companies such as Apple, Google and Amazon already have a very strong presencebrand perception.
While it's possible that a new company (perhaps a Chinese company with government financial backing) could eventually challenge Apple's position in the industry, the likelihood of such a challenger emerging in the immediate future is slim.
Nonetheless, it is important for Apple to continue to strengthen its competitive position through new product development and brand loyalty building in order to put potential new entrants at a greater competitive disadvantage.
bargaining power of suppliers
Supplier bargaining power is a relatively weak force in the market for Apple products. The negotiating position of suppliers is weakened by the high number of potential suppliers for Apple and the plentiful supply. Apple is free to choose from a large number of potential suppliers of component parts for its products. The industries of its parts suppliers, such as manufacturers of computer processors, are themselves highly competitive.
The switching costs for Apple to exchange one provider for another are relatively small and not a significant obstacle. Also, Apple is a key customer for most of its parts suppliers, and thus its suppliers are very reluctant to take the risk of losing the company's business. This strengthens Apple's negotiating position with suppliers and, in turn, weakens their positions. The bargaining power of component suppliers doesn't matter much to Apple or its main competitors.
The threat of shoppers opting for substitute products
Substitutes in Porter's Five Forces model are not products that compete directly with a firm's products, but are potential substitutes for them. In Apple's case, an example of a replacement product is a landline phone, which could replace owning an iPhone.
This market power is relatively small for Apple, as most potential replacement products have limited capabilities compared to Apple's products, as in the example of a landline phone versus an iPhone, which can do much more than just make calls.
FAQs
What is Porter's 5 forces analysis example? ›
Examples: High barrier to entry and high exit barrier (for example, telecommunications, energy) High barrier to entry and low exit barrier (for example, consulting, education) Low barrier to entry and high exit barrier (for example, hotels, ironworks)
Does Apple have high buyer power? ›Bargaining Power of Apple's Customers/Buyers (Strong Force)
The bargaining power of buyers is strong in affecting Apple's business. This component of Porter's Five Forces analysis model determines how buyers' purchase decisions and related preferences and perceptions impact businesses.
Apple's Ecosystem is the company's strongest competitive advantage, giving it unprecedented strength in withstanding disruption and competitive threats in its markets. Apple is fairly valued based on TTM P/E (4% / 16% undervaluation based Dividend Valuation / DCF Models).
What were the results of Porter's five forces model of scanning? ›Porter's Five Forces Analysis
Bargaining power of buyers—powerful buyers have a significant impact on prices. Bargaining power of suppliers—powerful suppliers can demand premium prices and limit your profit. Barriers to entry (threat of new entrants)—act as a deterrent against new competitors.
...
- Step 1 – Preparation is Key. ...
- Step 2 – Threat of New Entry. ...
- Step 3 – Threat of Substitution. ...
- Step 4 – Supplier Power. ...
- Step 5 – Buyer Power.
Porter's five forces is a widely used framework for analyzing industries. It refers to the competitive influences shaping the corporate strategies that are likely to be successful. The framework has held up well over time and continues to be a staple of the coursework for business classes.
Why is AAPL so strong? ›Apple's Growth
As long as Apple continues to innovate, there will be heightened demand for its products and services. This leads to pricing power, expanding profit margins, and improved cash flow, which help drive the stock price higher while also allowing Apple to return capital to shareholders.
Apple Target Audience
Apple's target audience consists of middle-class and upper-class users who can pay higher for products that provide them with an incredible user experience. This means that these users have a higher disposable income and are willing to pay more for as high-priced products as Apple's.
One of the biggest reasons people love their Apple products is because they can actually get better with time. Every single year Apple drops a new version of iOS, giving iPhone users access to new features and updates free-of-charge. Apple is also great about supporting iPhones for the long haul.
What makes Apple unique from its competitors? ›Apple is known for designing products that are atypical yet the best as well as unparalleled. Take the iPhone X for instance, the phone uses the A11 Bionic chip – the fastest and the smartest mobile phone in the world. Structurally, functionally and aesthetically, Apple leads in every way.
What competitive strategy does Apple use? ›
Apple Inc.'s generic strategy is broad differentiation. This generic strategy focuses on key features that differentiate the company and its information technology products from competitors. Through the broad differentiation generic strategy, Apple stands out in the market.
Is Apple growing perfectly competitive? ›apple growers sell an identical product and new firms are free to enter the market. Therefore, Apples R' Us is a perfectly competitive firm. In addition, marginal revenue is constant, which means that price must also be constant, and the demand curve facing Apples R' Us must be horizontal.
What is the main purpose of Porter's five forces model answer? ›Porter's five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organisation's current competitive position, and the strength of a position that an organisation may look to move into.
What is the main focus of the Porter's five forces model? ›What is the purpose of Porter's Five Forces? Porter's Five Forces model can help you to analyze the attractiveness of a particular industry, evaluate investment options, and assess the competitive environment in your market.
What is the main point of the five forces model? ›A Five Forces analysis can help companies assess industry attractiveness, how trends will affect industry competition, which industries a company should compete in—and how companies can position themselves for success.
Which company uses Porter's five forces? ›Key Takeaways. Apple, Inc. has grown to become one of the world's most valuable companies and respected brands. Porter's Five Forces Model can be applied to Apple to understand its position within its industry and how it compares to the competition.
How is Porter's five forces framework used in developing strategies? ›The five forces model was developed by Michael E. Porter to help companies assess the nature of an industry's competitiveness and develop corporate strategies accordingly. The framework allows a business to identify and analyze the important forces that determine the profitability of an industry.
Is Porter's five forces better than SWOT analysis? ›Both are strategic tools to assess the potential positioning within a market. While Porter's Five Forces is useful to address the state of competition within a market, the SWOT analysis helps address both internal and external factors affecting a company's competitiveness over time.
What are Apple's biggest weaknesses? ›Apple Inc's weaknesses include premium prices, incompatibility with other OS systems, and high dependency on iPhone and iPad. Apple Inc's opportunities include expanding distribution networks, using green technology, introducing smart wearable products, and offering self-driving car technology.
What was Apple biggest failure? ›Apple iPhone 6, Newton, U2 iPod, Apple III, FireWire, Lisa, Homepod were some of the biggest failures of Apple.
What are Apple's biggest challenges? ›
The first challenge would be to top the iPhone sales of 2021 which were unusually high as the first 5G device was launched. The second challenge is the chip shortage issue which can easily lead to a dip in unit sales by a couple of million units.
What are analysts saying about Apple? ›Apple Inc (NASDAQ:AAPL)
The 38 analysts offering 12-month price forecasts for Apple Inc have a median target of 176.50, with a high estimate of 200.00 and a low estimate of 122.00. The median estimate represents a +25.24% increase from the last price of 140.93.
Apple customer demographics include people aged 18 to 45. They are either single, married with no kids, or married with young children or teens. The Apple target audience skews strongly female, with around 66% female to 34% male customers. Among Apple primary customers, you'll find less older or retired individuals.
Who is Apple's biggest competitor and why? ›Amazon is a tech company and eCommerce giant. The company offers several services that compete with Apple Services. In 2021, Amazon had over 1,622,000 employees and generated $469 billion in revenues.
Why is Apple so successful at marketing? ›Apple Keeps Its Product Presentation and Marketing Simple
Apple follows the philosophy of simple is better through their products, they don't overwhelm their targeted customers with too many choices, options or even parameters. Apple lets its products speak for themselves and keeps it's messaging and visuals simple.
They make the consumer feel good about themselves
This is probably one of the biggest reasons why people love Apple. It's because they make the consumer feel like they're somehow a better person for having the product. The story that they convey throughout their marketing is a powerful one.
A Brand Built on Innovation
The main reason they manage to offer products like that is because they focus on innovation. By that, we don't mean they just create products that are new. They also make sure they are useful, they are likely to be adopted, and that they will lead to change.
Apple's success lies in a strategic vision that transcended simple desktop computing to include mobile devices and wearables. Both performance and design are key drivers of the Apple brand and its ongoing success.
How Apple differentiates itself from its competitors? ›Apple differentiates its products by pricing them higher than its competitors implying that the products are better quality and incorporate the latest technology. The company also stimulates consumer interest by introducing hype before product launches through clever marketing and distribution strategies.
How is Apple doing against its competitors? ›Comparing the results to its competitors, Apple Inc reported Total Revenue increase in the 3 quarter 2022 by 8.14 % year on year. The sales growth was above Apple Inc 's competitors average revenue growth of 6.15 %, recorded in the same quarter.
What is apples strategy to success? ›
Apple's growth could primarily be attributed to its business strategy. By combining its designing capabilities, hardware expertise, and software prowess, the company has built an ecosystem that a user doesn't want to leave. Vertical integration is another main reason that distinguishes Apple from the competition.
Is Apple a monopoly or perfect competition? ›Apple's continuous acquisitions of companies are great examples of the monopolistic control it exerts over tech. The company has made consistent purchases of other brands to control potential competition and innovations within the industry.
Does Apple compete more on price or quality? ›While at a glance, Apple products does look very expensive and premium, but when considering the build of material and built quality, Apple products are mostly price competitive.
Is Apple a monopoly or oligopoly? ›The nature of market structure which Apple company operates is an oligopoly. It has several distinctive characteristics, making it be differentiated from other competitive markets. - Limited companies are dealing with products similar to those produced by Apple company.
Is Apple almost a monopoly? ›And the judge ruled that Apple doesn't have monopoly power because customers can choose Android phones instead. She did find, however, that Apple's policies violated California's Unfair Competition Law.
Which of the five competitive forces is strongest and why? ›The rivalry among competitors is the strongest of the five forces. This rivalry may cause price wars between competing firms if the industry is centered on price competition. Other sectors compete on product offerings. In this situation, each company tries to market a product with the best selection of features.
What is the Porter's five forces model explain with an example? ›According to this framework, competitiveness does not only come from competitors. Rather, the state of competition in an industry depends on five basic forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and existing industry rivalry.
What is Porter's 5 Forces Analysis example quizlet? ›the Five Forces model helps business people understand the relative attractiveness of an industry and the industry's competitive pressure in terms of buyer power, supplier power, threat of substitute products and services, threat of new entrants, rivalry among existing competitors.
What are examples of competitive forces? ›- The threat of indirect competition—the availability of products that offer similar performance.
- The possibility of new entrants into the marketplace.
- Supplier pressure—where demand for inputs is high, suppliers can raise their prices.
A Five Forces analysis can help companies assess industry attractiveness, how trends will affect industry competition, which industries a company should compete in—and how companies can position themselves for success.
What is main goal of Porter's 5 forces analysis? ›
The objective of Porter's Five Forces model is to assess the overall competitive landscape of a particular business sector. Each of these five forces corresponds to a key component of market intensity.
What is Porter's main message? ›Porter theorized that understanding both the competitive forces at play and the overall industry structure are crucial for effective, strategic decision-making, and developing a compelling competitive strategy for the future.
What are Porter's five forces essay? ›According to Porter, the state of competition in any particular industry relies on five primary forces, which include the power and number of rivals, availability of substitute products, power of suppliers, the potential of fresh market entrants, and the bargaining power of consumers.
What is the most important force among the 5 forces? ›Porter Force 1: Rivalry between competitors
Regarded as the most expressive in Porter's 5 forces model, the rivalry between competitors is the major determining factor for market competitiveness.
Farmers' markets: The average farmers' market is perhaps the closest real-life example to perfect competition. Small producers sell nearly identical products for very similar prices.
Which of the 5 competitive forces is considered as the most powerful one? ›According to Porter, Rivalry among competing firms is usually the most powerful of the five competitive forces.