Consumers Take a Shine to Apple, Inc.* synopsis: Fw compari lave been able o mas the ats of paductinmvaien a 00 and ‘Se, and customer evangelism ike Apple. Mer nearly calapsing under a cout of barkwupey Mi mid-1990s, late Apple CED Steve bs was able fo save the company he created through Frodct moran, a mace marketing program, and an entrepreneurial compara culture, Tis | fate eviews Apes history and roma comeback. with an ee nwa the mar steels that creat the company’s sucess, The case also examines many ofthe challenges faced hy a = fompany that continually pushes the boundaries of marketing practice to stay on top of te consumer luctrnics and computer industes. ‘Themes: Product Innovatin, marketing program, prostige pricing, competion, changing technoloay, > terentiaton customer oy, foreign sourcing, intellectual property, privacy issues, corporate cule, sustainability Few companies have fans who sleep outside its doors in onder to be the first to snag iis newest products, but this is common at Apple Inc. For instance, 30 minutes after the release of the Apple Watch, most models were sold out. Headquartered in Cupertino, California, Apple went fron ncaa bankruptcy, with a 1097 share price of $8.0, to having f share price of $130 a share in the frst half of 2015. Apple is one of the world's mast ‘valuable companies and has a culblike status among tech enthusiasts. In 2016 it became the first $700 billion company in the United States. Many companies have tried to copy Apple's strategies, but none have discovered what it is that makes Apple such an icon. Some believe Apple's success stems front x combination of several factors, including the leadership qualities of former CEO Steve Jobs, a corporate culture of enthusiasm and innovation, and the revolutionary products or which Apple has become known. While every organization has to acquire resources and develop a business strategy to pursue its objectives, Apple has excelled in its uanagemen One of te company’s most important resources is its employees, and the company has effectively recruited, trained, and compensated employees to create Jovally. Another resource is suppliers, and Apple has created a highly efficient and eftective supply chain with most ofits production in Chink. Apple has also mastered ore research and development skills that have allowed the company to translate its technological capabilities into produets that consumers want and are willing to pay & premium price to acquire. The eapstone of Apple's strategy i its retail stores at have ecome a role model for its competitors to sell consumer electronics. Such factors have allowed Apple to revolutionize the technology and retail industries. “This case examines the marketing stralegies that Imive conbibuted to Apple's success, IL analyzes how Apple has used a combination of smart marketing, to Create an effective business and markting strategy. We start by providing a brief history Of Apple Ine, and its products. Next, this case examines how Apple uses certain pricing, promotion, and distibulion strategies to create Joyal fan base oF Apple users and how the comorate culture at Apple influences its marketing. We ther analyze several marketing callenses for Apple, including competition, privacy, pricing, intellectual property, supply, in rmanadement, and sustainability. Finally, we focus upon Apple asi moves forward ‘cilifar away, Univesity of New Mexico, and Tlarper Bai, University af New Mexico, prepared Fe ne atrceion of ©. C.Forrel for classroom discussion rater dato Mlstrate elective fr inetfective Handling of an adiinisraive situation. CASE382 Case 2» Consumers Take a Shine to Apple, Inc. THE HISTORY OF APPLE, INC. a When Apple was founded in 1976, It would have been untecognizable to its dichaiy fans of today. Apple's first product, the Apple I, was essentially a computer kit tha. lacked a graphic user interface as well as a keyboard and display (users had to provide their own). Co-founders Steve Jobs and Steve Wozniak released the Apple I for $066.64 Apple Inc., known then as Apple Computer, was officially bor, Jobs and Wormiay continued to create innovative products. Because Steve Jobs viewed Apple computers from the user’s point of view, these products resonated with consumers, A few years later, Apple had more than $1 rnllion in sales. The company was off to a promising stat Yet Apple's initial success did not last. Its downturn started during the 1980s with a | series of product flops and CEO changes. Steve Jobs was ousted in 1985 due to internal conflicts within the company. By the mid-1990s, the company was approaching bankruptcy. Dell Computer founder Michael Dell commented about Apple's future, saying, “Td shuvit down and give the money back to the shareholders.” j he retum of Steve Jobs in 1997 instituted major changes for Apple. The com- pany successfully adopted a market orientation in which it was able to gather intelli. gence about customers’ current and future needs for certain features—even before the customers themselves knew they needed them. Apple expanded into the elec- tronics industry and began to release innovative products that resonated deeply with customers. For instance, the creation of the iPod and iTunes met customer needs for an efficient way to download a variety of music and listen to it on the go. Apple has become skilled at recognizing strategic windows of opportunity and acting upon them before the jal ‘competition. In 2007 Jobs announced that Apple Computer, Inc. would be renamed Apple Inc, Some perceived this to be a shift away from computers toward consumer electron jes. However, it may be mre accurale (o say that Apple is reinventing computers. With the introduction of the iPad, Apple took market share away from top competi- tors in the computer industry. Is presence in the smart watch industry is expected to grab a large share of the market. ‘Thanks to its innovative products and marketing strategies, Apple has grown into one of the most adinired and successful brands in the world. To millions of cou sumers, the Apple brand embodies quality, prestige, and innovation. | APPLE’S PRODUCTS cf Although the Apple products of today are high in demand, this was not always the case. Apple went through its share of product failures in its past. Several of Sle these failures can be attributed to a failure to accurately predict consumer behavior. 2 For instance, even though Apple products are generally priced high, the Apple L and Cube were judged as too expensive for the mass market, Apple has become the leader in developing new products that enhance its prod. ole uct mix and depth to its product lines. While introducing new products is expensive Al and risky, Apple has reinvented the concept of a new product. While many Apple produets provide a function that was already on the market, Apple products are dif- erent, distinctive, and are often viewed as superior to the competition. After intro- ducing new products such as the iPod, iPhone, and iPad, these products undergo product modification, or changes to the products’ features, quality, or aesthetics, on a regular basis to create the illusion that consumers have to have the newest model. For example, each modified version of the Apple iPad has new features and creates new benefits and the perception of an improved product. The sixth generation of the iPad, the iPad Air 2, had a thinner frame than provious generations and had access to Apple's mobile payment service Apple Pay, Few companies have been able to exploit the concept of product modification as effectively as Apple.; ‘Case 2 + Consumers Take a Shine to Apple Inc. 333, Today, Apple has honed its ability to produce iconic products that consumers desire. ‘The company’s product strategy is based on innovative designs, ease-of-use, and seamless integration. Not only has Apple created highly successful products that have catapulted it into prominence, but also new products Keep coming, sometimes fo the surprise of consumers and competitors. Some of its popular products are described below. : Mac Computers Apple first made a name for itself in the personal computer industry, and even though it has since expanded into the consumer electronics industry, its Mac computers are | still a strong asset to Apple's product mix. Many computer owners identify themselves, as cither Mac or PC users. Major differences between Macs and PCs lie with their | __ processors and interfaces, Mac enthusiasts often prefer the superior video and graphic software as well as the look and feel of Macs. Mac laptops also tend to last longer than the average 2-year life span of other laptops. For these reasons, Macs are priced much | __ higher than other PCs. Apple sells two types of Macs: desktop and laptop computers, Desktop Macs include the iMac, Mac Pro, and Mac Mini, while its laptops include the MacBook, MacBook Pro, and MacBook Air. iPod and iTunes In 2001 Apple launched the iPod—a portable music player that forever changed the music industy. The company also introduced iTunes, a type of “jukebox” software that allows users to upload songs from CDs onto their Macs and then organize and manage their personalized song libraries. Two years later Apple introduced the {Tunes Store, In a which users could download millions of their favorite songs for $0.99 each online Both the iPod and iTunes became market leaders in their respective industries. There are approximately 800 million accounts on iTunes alone. However, iPod sales have declined in recent years as consumers have begun to favor more superior technology. Because Apple's iPhone can also play music, analysts say iPhones likely cannibalized some of the iPod sales. Even CEO Tim Cook has remarked that the “iPod is a declining business.” The current Apple iPod product line includes the sPod touch, iPod nano, and iPod shufile. iPhone ‘The Apple iPhone debuted in 2007 and quickly became a favorite among mobile phone users. The iPhone combined smartphone technology with a straightforward operating system, an easy-to-use touch screen, iPod features, and a simple design. Bach new generation is highly anticipated by Apple fans eager to use the iPhone's newest features. For example, the iPhone 4s and its successors include a built-in “personal assistant” called Siri. Siri recognizes voice commands and can answer f with the appropriate response. The iPhone has been a resounding success, especially in the United States and China. In 2016, iPhone market share was nearly tied with Android smartphones in the United States. The iPhone 6 comprised nearly half of A all new smartphone sales, China is the second largest: market for the iPhone. : iPad [ In April 2010 Apple introduced the iPad, a tablet computer designed for simple inter: action with electronic media and the Internet. Sometimes described as a larger iPhone, the iPad targets the product gap between smartphones and netbooks. It had a 9.7ineh touch screen, accelerometers, ambient light sensors, speakers, a microphone, and GPS capabilities. Newer generations included technology upgrades and two-way popular; Apple sold over 1 million cameras (or video calling. The iPad was incred(Case 2 * Consumers Take @ Shine to Appl, nc. {Pads in 4 weeks. Less than 6 months later, retailer Best Buy reported that the iPad ha reduced laptop sales by 50 percent. Less than 2 years after its release, consumers hn ) Purchased over 25 million iPads. However, the growth in tablet computers appa to be diminishing, While tablet computers like the iPad are convenies laptops still tend to be used more at workstations. Approximately 5 customers are first-time iPad buyers, The iPad Air 2 is the sixth iPad. The seventh generation is underway. App Store ‘The App Siore (105) was launched in 2008 to provide applications for Apple's mobi, products. In its first year, the App Store had 1.5 million downloads and then continued to grow rapidly. By 2014 the numnber had increased to 75 billon downloads, lar fueled by the growth of the iPhone, iPod touch, and iPad. The App Store made down. loading applications easier, which encouraged downloads. Smartphone conse between the ages of 25 and 44 use an average of 29 apps per month, The majority of | all apps cost les than $2, Independent developers can dsirbute thelr orgial pce through the App Store, and Apple shares proBis with them. In 2014 bilingsat Apehes App Store rose 60 percent and generated $10 billion for app developers, Other Products Apple has developed many other high-tech products that make ita formidable player in the technology field. ls newer products include cloud services, musie streaming, mobile payments, and smart watchs. I 2011 the company launched its iCloud service, which shares personal information acrass all Apple devices through cloud- based storage. The company reached agreements with record labels to allow consi. ‘mers to create and listen to their music enllections without having to upload individ, tual songs. The iCloud is also another incentive for users to buy more Apple products, Apple TV, a device that lets users stream a variety of digital media directly to their televisions, is another Apple product that connects to the cloud, Apple Music is an app offering that allows subscribers to stream inusic on demand. Released in 2015, the service provided users with free music for the first ure months. ‘Those who wanted to continue would be charged $9.99 per month. Apple Music soon drew the ive of musicians, particularly singer Taylor Swift, because it initially planned to avoid paying artists for the three-mouth free trial. Taylor Swift responded with an online letter criticizing Apple's decision. ‘The letter expressed. her belief that even though Apple was not being paid during the three-month Free tial, it \was still using artists! works to grow its business. The note prompted Apple to change iis mind and agree to compensate artists during the free wil. Rather than being a public Felations disaster for Apple, the incident helped create awareness about its new service offering. I also caused Taylor Swift to praise Apple for treating her work with respect. Apple Pay is a digital wallet service users can use to make payments through their smartphone devices. Introduced in 2014, Apple Pay is slowly being expanded throughout the United States and intemationally. ‘The service substitutes the need to carry around ¢ cards, When the consumer wants to check out, he or she can use the smartplione to communicate the payment information to the terminal and make the transaction, Bankes have been eager to offer Apple Pay and intially offered the service at a lower rate than traditionally accepted from credit card transactions. In spite of the promising opportunities of Apple Pay, Apple and its financial partners will have to work to ensure safeguards are in place to guid against hackers. Additionally, some relailers have rejected Apple Pay in favor of mother payment system that tives retailers more power in processing payments. A new product that has received much attention is the Apple Watch. The Apple Watch is a wearable computer (called a smart watch) as well as a fashion accessory.‘Case 2 » Consumers Take a Shine o Apple, Inc. 335 It can be used to track exercise and synes with other Apple products such as Apple Pay. Like a smartphone the Apple Watch has apps for different: activities, such as games and making travel reservations. It was in such high demand that it sold 2.5 million watches in pre-orders even before its official launch. Although these products do not yet generate much revenue for the company, they help to further differentiate Apple in a competitive marketplace. APPLE'S MARKETING STRATEGIES In addition to its revolutionary products, Apple’s success in pricing, promotion, and distribution have also contributed to its popularity. Marketing is such an important part of Apple that former CEO John Sculley once commented that Apple was, first and foremost, a marketing company. Apple has a clear sense of who its customers fare and what the brand represents, which helps it to align its pricing, promotion, and distribution with its overall goals. Pricing Apple products are traditionally priced high compared to competitors. For example, the iPad retails for $499 (although models with additional gigabytes are more expensive), while the Amazon Kindle Fire retails for $200. Apple's Mac computers often cost over $1,000. Most of Apple’s profit comes from the high margins on its hardware devices. Yet rather than dissuading consumers from adopting the products, the high price point provides Apple with an image of prestige. Apple also stresses the convenience of its products as well as the revolutionary new capabilities they have to offer. Thus, it attompts to create value for customers, prompting them to pay more for Apple brands than for its competitors. Promotion Apple encourages demand for its products through several types of promotion, including word-of-mouth marketing. The company relies on hit products and high- impact rollouts (often after months of rumors) to stimulate emotional buying ‘The company positions itself as the technology provider for creative people. Like Apple's products, its advertisements are often siraple, artistic, and instantly recognizable. For example, several brightly colored iPod commercials featured the silhouettes of dancers wearing the company’s iconic white earbuds. Apple's ads sometimes directly altack its competitors, as in the “I'm a Mac” television campaign. The ads pitted a cool, young Mac character against a Microsoft PC portrayed as a goofy businessman, ‘Apple also supports “evangelism” ofits products, even employing a chief evangelist, to spread awareness about Apple and spur demand. Corporate evangelists refer to people who extensively promote a corporation's products, acting as both employees and loyal customers, Successful evangelists spread enthusiasm about a company ‘among consumers. These consumers in turn convince other people about the value of the product. Through product evangelism, Apple created a “Mac cult"—loyal customers ager to share their enthusiasm about the company with others. ‘Apple's promotion strategy has led to a perception that Apple products are part of a consumer's identity, When asked why they would want to buy an iPad, over 42 percent of consumers responded that it has a cool factor. However, Apple products still remain a niche product; 95 percent of consumers do not consider Macs when buying new computers. Distribution Apple distributes its products to consumers via relailers, the company’s online store, and ‘Apple stores. Apple stores have enhanced the brand and changed Apple's distribution strategies, Originally created to give Apple more control over product displays and396 Case 2 + Consumers Take a Shine to Apple, Inc. customer experiences, the Apple store model was a huge success and grew fastep than any other retailer in history. It currently has over 450 locations. Apple stores differentiate themselves significantly from other retailers; in fact, Apple took the concept of retail in an entirely new direction. Apple stores are, place where customers ean both shop and play. Everything in the store is carefully planned to align with the company’s image, from the glass-and-steel design reminis. cent of the company’s technology to the stations where customers can try out Apple roduets. Customer service is also important to the Apple store image. Employees are expected to speak with customers within 2 minutes of them entering the store Each employee has received extensive training and often receives greater compensa, tion than those at other retail stores to encourage better customer service. Apple executives constantly look for ways to improve stores, enhance customes service, and increase the time that customers spend in-store. For instance, after the iPad came out the company began to install iPad stations within its stores. The iPads feature a customer service app designed to answer customer questions. If the cus. tomer requires additional assistance, he or she can press a help button on the app, ‘The app changes the customer service experience because rather than the customer Seeking out the sales representative, the representative comes straight to the ‘customer. APPLE'S CORPORATE CULTURE In addition to its products, pricing, promotion, and distribution, Applo'a coxporate cul ture is an important part of its marketing success. Many people attibute Apple's suc. «oss to Steve Jobs's remarkable leadership abilities, Apple's highly sllled employees, and its strong corporate culture, Apple markets itself a5 a fast paced, innovative, and collaborative environment committed toward doing things “the right way.” The organi- zation has a flat structure, lacking the layers of bureaucracy of other corporations, Apple also emphasizes that it does not adhere to normal work environments in which ‘employees are at their stations from 9:00 a.m. to 6:00 p.m, By offering both challenges and benefits to applicants, Apple hopes to attract those who fit best with ts corporate culture. i Successful evangelism can only oceur with dedicated, enthusiastic employees ‘who are willing to spread the word about Apple. When Jobs retumed to Apple, he instituted two cultural changes: he encouraged debate on ideas, and he created a vision that employees could believe in. By implementing these two changes, employees felt that their input was important and that they were a part of something bigger than themselves. Additionally, inorder to maintain its competitive advantage, Apple also fosters | a culture of secrecy. Secrecy is necessary to prevent damage to sales of existing Products because if consumers learn about a future upgrade, they may delay their purchases, Certain places at Apple are offlimits to most employees, and employees 1" are not allowed to discuss their work unless everyone in the room latows about the” | Droject. This lack of transparency challenges traditional conceptions of what makes a company successful. However, employees say that they remain passionate about their work and are part of a unique experience. | On the other hand, not all employees have been so satisfied with Apple. Former. employees filed a lawsuit against Apple claiming that it had made an agreoment with other tech firms not to “poach” or hire away each other's employees. According toa eB 2007 document that surfaced, Steve Jobs allegedly threatened the former CEO of J Palm with patent litigation if Palm did not cease hiting away Apple employees. Similar : a agreements appear to have occurred with Adobe, Google, Intel, Intuit, and Pixar. ll ‘The U.S, Department of Justice filed an antitrust lawsuit and forced the companies to disband the agreement as such behavior was deemed anticompetitive and unfair to | ‘employees, Interestingly, battery maker A123 Systems filed a lawsuit against Apple in(Case 2 + Consumers Take a Shine to Apple, Inc. 397 2015 accusing the company of aggressively poaching its employees amidst rumors that ‘Apple might enter the electric-car industry. APPLE’S MARKETING CHALLENGES Although Apple has consistently won first place as the World's Most Admired Com- pany, it has experienced several ethical issues within recent years. These issues could have a profound effect on the company's future success. Apple's sterling repu- tation could easily be damaged by serious misconduct or a failure to address risks appropriately. Competition Apple faces competition on a vatiety of fronts. Although a diverse product mix miti- gates the risk of any one product failing, it also increases Apple's number of competi- tors. Rivals include Hewlett-Packard Blackberry, Dell, Lenovo, and ASUS for computers; Samsung and Xiaomi for smartphones; Amazon, Sarnsung, and Lenovo for tablets; Google and Amazon for cloud storage services; and Samsung and Motorola for smart watches. Apple is a dominant player in the smartphone industry, with its Phone 6 and 6 Plus models surpassing Samsung in market share. Apple's superior products have also taken market sharé away from competitors such as BlackBerry Limited, Many BlackBerry users opted to exchange their Blackberrys for iPads when the tablet first emerged. However, rivals are striving to catch up. Chinese company Xiaom intends to become a top competitor for Apple. After celebrating a blockhnister year in 2014, Kiaomi became the third largest phone manufacturer in the world. Xiaomi. has announced its desire to expand beyond China and has released its first smartphone outside of the country, called the Mi 4i, With a value of $45 billion, Xiaomi does not intend to stop with smartphones. It also wants to compete against Apple in smart watches and headphones. Although Apple produets are highly successful in China, Xiaomi products are significantly less expensive and are more likely to appeal to the price-conscious consumer. ‘Samsung's Galaxy smartphones remain a formidable competitor to Apple's iPhones. The “dominant player” in the smartphone industry is often a toss-up between Samsung and Apple. In fact, the two companies have fought an outright legal war regarding whether Samsung had infringed on intellectual property rights held by Apple. Specifically, Apple claimed that Samsung had copied features ofits, iPad and iPhone. The legal battle lasted for years, and in 2014 Apple was awarded $119.6 million—a small fraction of the penalties it had sought against Samsung. Although it appears ftiction between the two rivals may decrease with Samsung agreeing to manufacture the main chip for the next iPhone, the intense competition in the smartphone industry will likely remain. Customer Privacy Privacy is another major concern for Apple. In 2011 Apple and Google disclosed that certain features of their cell phones collect data on the phones’ locations. Consumers and government officials saw this as an infringement on user privacy. The companies announced that users have the option to disable these features on their phones. However, this was not entirely true for Apple as some of its phones continued to collect location information even after users had disabled the feature. Apple attrib- uted this to a glitch that it remedied with new software. Both Google and Apple defend its data-collection mechanisms, but many government officials disagree. ‘The government is considering passing legislation on mobile privacy, actions which could have profound effects on Apple and other electronics companies. Apple Pay represents another risk area for Apple as it expands into the mobile payments indus- tay. The potential for hackers to steal information from mobile payment systems is a major area of concern for both companies and regulators,338 Case 2+ Consumers Take a Shine to Apple, Ine. Price Fixing @ 1m 2013 a judge found that Apple had conspired to fix prices on electronic booiy (e-books) with five major book publishers. The judge determined that Apple wat part of a deal requiring publishers to provide Apple's iTunes store with the bg) deals in the marketplace for e-books. More specifically, Apple allegedly allowey Publishers to set the e-book prices forthe iPad and received 30 percent of the proce, (anown as the “agency model"). The agency mode! is less competitive than the whol. sale model, in which retailers and publishers negotiate on pricing. Under the agreemeni! if'a competitor was found selling the e-book for less, Apple was to be offered the sania lower price. This scheme is more commonly referred to as a mostavored-natioy clause. Many believe that itis anticompetitive because companies can use it to keey, competitors out of the market. After striking the deal with Apple, publishers approached Amazon about participating in the contract. In court, Apple faced fines totaling $450 million as part of a settlement agreement. Apple denied wrongdoing and acknowledged only passive association with the deal to set e-book prices. As of 2015; the case was stil in the appeals process, Intellectual Property With the many products Apple releases each year, it makes sense for it to protect its technology from thef.. Apple is serious about keeping its proprietary information a secret to prevent other companies from stealing its ideas. This has led to many pat- ent and copyright lawsuits between Apple and other technology firms, including Frankdin Computer Corporation, Microsoft, Cisco Systems, Samsung, and HTC. However, Apple is also the target of lawsuits. Kodak filed a lawsuit against Apple and. Research in. Motion (now BlackBerry: Limited), alleging-that-the companies infringed on its patent on digital-imaging technology. In response, Apple countersued Kodak by claiming it violated Apple's patents. Kodak later sold 1,100 digital imaging and processing patents to Apple, Google, Facebook, and other technology firms, which resolved the lawsuits. Additionally, Proview Electronics filed a lawsuit alleging that Apple fraudulently acquired the iPad trademark by creating a fake company to purchase the trademark and not disclosing its intent. Apple paid Proview $60 million to settle the dispute. “ Apple's aggressiveness regarding patent protection has led it to file lawsuits against some powerful companies. As mentioned eatlier, the company filed a lawsuit against Samsung, claiming that Samsung had copied the designs of its iPhone and oq Pad for its own products. Italso filed a lawsuit against TTC Corporation, a Taiwanese ij smartphone manufacturer that makes phones for Google's Android products. Apple accused HTC of replicating a range of cellphone features protected under Apple's patents. The companies eventually settled the dispute and embarked on a 10-year licensing agreement. ort Although the outcomes of some of these lawsuits have provided technology J companies with more extensive intellectual property protections, they also bring attention to the legitimacy of Apple's claims. Is it pursuing companies that it honestly believes infringed on its patents, or is it simply trying to cast its competitors inabad | light so it can become the major player in the market? Although it might seem that Apple is being too aggressive, companies that do not set boundaries and protect their property can easily have it copied by thelr competitors, who can then use it to : gain market share. | Supply Chain Management | Many of Apple's product components are manufactured in countries with low labor costs. This means that the potential for misconduct is high due to varying labor stan- dards and less direct oversight. As.a result, Apple makes each of ts suppliers sign its sup. plier code of conduct and perform factory audits to ensure compliance. To eniphasize its ) jCase 2 + Consumers Take a Shine to Apple, nc. 339 ‘commitment toward responsible supplier conduct, Apple releases an annual Sup- plier Responsibility Progress Report that explains expectations for suppliers, the resulis of its audits, and corrective actions the company will take against facto- ries where violations have occurred. In addition, Apple claims it has empowered over 6 million workers by teaching them about their rights and increased the number of suppliers it audits each year. Apple discovered a correlation between improved compliance and the number of audits—facilities audited twice, instead of once, showed a 25 percent gain in compliance ratings, while three audits resulted in a 81 percent compliance score improvement. Despite these measures, Apple has faced scrutiny for its manufacturing processes. ‘Suppliers claim that Apple's manufacturing standards are hard to achieve because suppliers are only allowed slim profit margins. In contrast, competitors like Hewlett- Packard allow suppliers to keep more profits if they improve worker conditions. [Apple's focus on the bottom line can cause suppliers to find other ways to cut costs, usually by requiring employees to work longer hours and using less expensive but“ ‘more dangerous cheicals. Insuch an environment, mistakes and safety issues become more common. Past, problems at. Apple suppliers such as Foxconn, also known as Hon Hai Limited, have included noncompliance with working-hours limits, failure to prevent worker inju- ries, failure to follow hazardous-substance management practices, the use of under- age workers, falsified records, overcrowded worker dormitories, and other labor violations. Apple claims that suppliers who violate company policies have 90 days to address the problem. Apple has dropped 18 suppliers since 2007. Several high-profile events at Apple factories generated criticism of its supply chain and prompted Apple to take action to improve monitoring and compliance. In January 2010, over 135 workers fell ill aller usinny # poisonous chemical to clean iPhone screens. In 2011, alurninum dust and improper ventilation caused two explo- sions that Killed 4 people and injured 77. Additionally, over a dozen workers have committed suicide at Apple supplier factories. Much of the media attention focused on the conditions at Foxconn, Apple's largest supplier with a sordid background of labor violations and the site of one of the explosions and several of the suicides. Foxconn continues to assert that it is in compliance with all regulations, despite the reports. Apple claims it is significantly improving supplier conditions and becoming more transparent about its labor processes. CEO Tim Cook visited Foxconn personally to oversee conditions, However, some blamed Apple's culture of innovation and the need to release new or improved products each year, which requires suppliers to work quickly at the expense of safety standards. Foxconn and Pegatron, another Chinese supplier, are only a handful of facilities in the world with the capacity to build iPods and iPads, which makes it difficult for Apple to switch suppliers should noncompliance continue, Additionally, inconsistent international labor standards and high competition mean that virtually every major electronic producer faces similar ‘manufacturing issues “ ‘As media and consumer scrutiny increase, Apple must continue to address its supply chain management issues. However, as one current Apple executive told the ‘New York Times, "Customers care more about a new iPhone than working conditions in China.” In spite of the pressures to develop new products at low costs, Apple has been recognized by the Fair Labor Association (FLA) for dramatically improving the conditions at Foxconn and completing 280 of the FLA's recommendations. Sustainability ‘Apple has taken steps to become a greener company, such as reducing its environ. | 4 mental impact at its facilities. However, the company admits that the majority of its ge emissions (98 percent) came from the life cycle of its products. Apple's success hinges on constantly developing and launching new products, which leads to340 Case 2+ Consumers Take a Shine to Apple, Inc, plamed obsolescence—pushing people to replace or upgrade their technology ‘whenever Apple comes out with a updated version. Since Apple constantly release ‘upgraded products, this could result in older technology being tossed aside 4 Apple takes diferent approaches to this environmental problem. The company builds its products with materials that are suitable for recycling, it builds its prodiety to last, and it recycles responsibly. ‘To encourage its customers to recycle, Apple reat, an in stove recycling program where customers ean trade in old products and receiv various discounts. However, despite this recycling program, many consumers feel that tossing out their old products is more convenient, particularly if they have no valle, . waste will remain a significant issue as long as consumers continue to throw away ; their old electronics, Apple has also publicly stated its achievements in reducing toxic chemicals within its products. The company eliminated cathode-ray tubes—which contain Jead—from its products and constructs iPods with lightemitting diodes (LEDs) rather tan fluorescent lamps (which contain mercury). The company has also eliminated! the use of different toxic chemicals from its products Apple's Impact on Marketing Apple's corporate culture of innovation and loyalty has created a company that, massively impacts the marketing strategies of consumer electronics firms and other industries. Apple's iPhone increased competition in the stnartphone and tablet computer industries. It also popularized the concept of mobile marketing, ‘The Phone's easy-to-use features and applications allowed consumers to shop from home or instore. This provided new opportunities for retailers to introduce their uw. iPhone apps and create customized marketing messages delivered over mobile devices. Brands are ulilizing Apple's platform to create product awareness and/or generate repeat business. Apple's advances in mobile marketing have not only changed the way that customers interact with mobile devices but also enhance customer relationships between business and consumer. No company has mastered the concept of product differentiation better than Apple. While products such as the iPod and iPhone provided functions and benefits similar to competing products, Apple's technology and user-fiendly interface pro. vided a consumer perception of a completely new product. Apple retail stores and service help create a total product that was unlike any available in the marketplace. ‘The Apple brand name became a cultural icon with loyal followers devoied to Apple's products. Cultusal branding results in consumers exhibiting almost cultlike loyalty to products. Companies such as Coca-Cola, Harley Davidson, and Nike are ‘examples of companies with strong cultural branding. The product becomes a part f of their self-concept and image when interacting with others. Once a product | becomes so important to an individual, he or she is less sensitive to price and quickly adopt new Apple products that are brought to the market. Few companies have been able to develop cultural branding and a cult-ike following like Apple. Additionally, many companies are seizing upon the opportunity to learn from | Apple. Due to the immense suecess of Apple stores, other companies are attempting to imitate its retail model. Mterosoft and Sony opened some of their own stores. : Other companies now use Apple products to enhance their businesses as well. For a instance, some pharmaceutical and car salespeople have adopted the IPad to ail in mn business transactions, and sow restaurants even use the iPad to show menu items, THE FUTURE OF APPLE ‘The death of Steve Jobs concerned some people about the future of Apple, To many customers, Jobs appeared to be a savior who brought the company back from near i banleruptey and who was the driving force behind its innovative products. In the I eepast, whenever rumors of Jobs's health reached the public, Apple's share prices dropped. However, his entrepreneurial spirit remains embedded in Apple's culture, and the company remains optimistic. Although Tim Cook has a long road ahead in maintaining the high reputation Apple enjoyed under Jobs, the loyalty fans feel for the company remains high. The company has created a cult following of consumers intensely loyal to Apple products. ‘Apple's products are meant to olfer superior solutions to those of competitors, Seizing "upon new opportunites can increase Apple's share of the music and consumer electronics markets. . ‘Over the last decade, Apple has excelled at keeping pace with the quickly evolving industry of computers and consumer electronics. Its diversification, collaborative corporate culture, and product evangelism propelled it to heights that could not have been envisioned when Jobs and Wozniak sold their first computer lat in 1976. ‘The company shows no signs of stopping its momentum, while consumers have shown few signs of reducing their admiration for Apple. On the other hand, Apple will face many challenges in the future. Not only has it been criticized for violations in its supply chain, but it has also been questioned about why it offshores most of its production. Since Apple makes such high profits and reportedly received tax breals earlier init history, some politicians have suggested that ‘Apple bring production jobs back to the United States. As concems over outsourcing continue, Apple may experience increasing pressure from stakeholders to create more manufacturing opportunities in the United States QUESTIONS 1. How has Apple developed extreme loyalty among consumers that has resulted in an almost cult-like following? 2. Describe the role of Apple stores as an iraportant part ofits marketing strategy. 38. What will Apple need to do to maintain product innovation and customer loyalty? Case 2 + Consumers Take a Shine to Apple, Inc. aut