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I decided to talk about Apple given the fact I am really fascinated by their way of operation in the tech market, and I thought it would be interesting for you to have more information regarding this big corporation that everyone knows. 

Strategy applied to Apple: 

Apple is a tech company launched in 1976 with a strategy well defined from the beginning. Apple is applying a price leadership strategy by selling products at a premium price compared to the rest of the market (Samsung, Android,..) (Ellie, 2022). It basically means that the products they propose have a higher price than the competitors. This is reinforced by a strong company brand mainly focused on innovation and justified by high quality products. 

Profit Maximization: 

Apple is driven with the profit maximization. By doing so, Apple make sure to provide more return on investment to its shareholders (Eassa, 2017). Apple has pretty low operating expenses which allows it to achieve a high profit margin percentage. 

During the third quarter of 2016, Apple managed to get 91% share of the mobile industry’s profit (Miller, 2016). 

From one side, Apple is able to maximize its profit by minimizing production costs. In fact, by minimizing domestic employment and prioritizing Asian employment, Apple participates to a decline in jobs in the US in the manufacturing industry. On the other hand, it gives to the company the possibility to lower labor costs, Asian salaries being highly lower than in the US (Vidal, 2012). 

On the other side, despites a decrease in sales, Apple is able to increase its profit. But how is it possible? On the table below, you can see the evolution of iPhone prices from 2007 to 2021 (Lepoix, 2022). (See attachment)

What is interesting to look at is first the evolution of the price on itself but also the iPhone diversification. In fact, in 2021 Apple came up with no less than 4 different iPhone within a price range of 1,000€ when in 2017 only 2 iPhone were proposed. 

iPhone is basically able to increase its profits by proposing different iPhone models with the most expensive ones being the most profitable ones (Lepoix, 2022). 

Market structure: 

To talk about Apple’s market structure, I will only focus on one product they propose: branded computers (UKEssays, 2022). In fact, Apple’s market structure is different for every product they propose. If we take only tablet computers, Apple is competing in a monopolistic market. However, all the sellers are proposing highly differentiated products. A monopolistic market has more competitors than an oligopolistic market given the fact there are more competitors. In terms of tablets, Apple is competing with DELL, HP, Samsung or HTC (UKEssays, 2022). 

Apple is exploiting its geographic advantages from being located in the United States. In fact, it gives the possibility to Apple to reach absolutely the entire world and to have a strong impact on customers. 

By having this Genuis Bar or the 24/7 Assistance, Apple is definitely offering an improved customer service not found in any other competitors business model. It gives Apple the advantage by showing care and attention to its customers. On this other hand, consumers are more likely to buy this product as they know that if they have any problem they can reach the company easily. 

However, Apple is not part of any larger cooperative as it is already big enough on its own. Apple does not need the help from anyone and understood that since the really beginning. 

Apple has a strategy of lowering its costs as it has been developed earlier. Apple is able to do so by lowering the production costs thanks to the economy of scale but also by its influence on suppliers. If Apple decides to do not work with a supplier anymore, it will have a enormous impact on this supplier given the fact that Apple produces a lot. 

Apple unique selling point regarding iPad comes from the compatibility with the other Apple devices. It is one of the most influent factor when customers are about to buy a tablet. On the other side, Apple has been able to develop such a strong brand identity that it can be consider as an unique selling point as well. 

Regarding advertisement, we all know how strong Apple is. Apple is advertising on the TV, on all kind of social media (such as Tiktok, Twitch, Youtube, Facebook, Instagram or even Twitter) but also on the streets with billboards. Among the competitors, Apple is the one advertising the most to stick to its strategy of price leadership.   

Finally, Apple differentiates its tablets from the competitors’. Anyone can recognise an iPad with the apple on the back or just by the design on itself. iPad look more expensive than the other tablets by its metallic cover but also with the screen quality that is always one step ahead of competitors’. On the other hand, Apple differentiates its product by a homepage common to any Apple’s products, for example. 

 

Market structure of Apple (2022)  UK Essays. Available at:  https://www.ukessays.com/essays/economics/market-structure-of-competitive.php  (Accessed: November 16, 2022). 

Ellie (2022)  Apple marketing strategy: 8 precious lessons to learn,  Mageplaza. Available at:  https://www.mageplaza.com/blog/apple-marketing-strategy.html#apple-marketing-strategy-8-precious-lessons-to-learn  (Accessed: November 14, 2022). 

Eassa, A. (2017)  Why Apple Inc.. is so profitable,  The Motley Fool. Available at:  https://www.fool.com/investing/2017/03/23/why-apple-inc-is-so-profitable.aspx  (Accessed: November 14, 2022). 

Miller, C. (2016)  Latest strategy analytics data shows Apple captured record 91% of smartphone industry profits during Q3,  9to5Mac. Available at:  https://9to5mac.com/2016/11/22/apple-smartphone-industry-profits/ (Accessed: November 14, 2022). 

Vidal, M. (2012)  Apple Economics: Maximize profit, minimize employment,  Work in Progress. Available at:  https://workinprogress.oowsection.org/2012/05/03/apple-economics-maximize-profit-minimize-employment/ (Accessed: November 14, 2022). 

Lepoix, J. (2022)  Évolution du prix des iPhone : du premier iPhone de 2007 à l'iPhone 13,  Selectra. Available at:  https://selectra.info/telecom/actualites/acteurs/evolution-prix-iphone-du-premier-iphone-de-2007-a-liphone-13  (Accessed: November 15, 2022). 

 

Example ： thank you Jeanne for this interesting report, when it comes to apple, they have a lot of strategies, and as you mentioned Product differentiation tactics are generated from the company's price strategies. Steve Jobs, co-founder of Apple Computers, aimed to build a high-quality product with a price appropriate to its degree of excellence while preserving large profit margins. Customers are ready to pay a premium for the excellent quality of the user experience, hence Apple's lowest-priced products are consistently in the mid-range. In addition to that, Apple has been one of the best successful technology businesses in terms of brand loyalty. Customers who are loyal to Apple will queue to buy the latest iPhone, download songs from iTunes, watch their favorite television shows on Apple TV, and play online games on their iPads. Apple's attempts to establish brand loyalty have enabled the corporation to separate itself from Microsoft, Samsung, and other competitors in its numerous domains. Apple has used the concept of brand distinction to create a virtual divide in the world of electronic devices: Apple devices vs. everyone else's. It has established an exclusive vision that offers Apple a competitive advantage in the market, allowing them to maintain their products at the top of innumerable must-have lists year after year. In addition, Apple revealed two substantial updates to the Mac in 2020.  Apple is shifting the Mac away from Intel processors and toward its own custom-designed chips. Apple's latest CPUs, which are based on those used in iPhones and iPads, are more energy-efficient. The new chips could provide Apple's laptops with better battery life and more processing power than PCs.

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What strategies are applied in the company?

Starbucks is the world's largest coffee company, with 72 locations worldwide. Starbucks café are effectively positioned as a "third place" apart from house and workplace, where individuals may spend time relaxing and socializing with friends or by themselves to get done with their work in a different place.

Starbucks' business strategy can be categorized as product differentiation. As a result, Starbucks places a premium on the quality of its products, and customers are willing to pay a premium for it. Outstanding customer service, which is one of Starbucks' strong sources of competitive advantage. In the coffee business sector, monopolistic are common. Many coffee brands are perfectly competing in a monopolistic competitive market framework, entrance into the market is simple, all what you required is to be distinctive from the others.

Starbucks and Dunkin Donuts look to be miles away in the market. (Dudovskiy, 2022)

The two companies control over 60% of the United States coffee market, with Dunkin' Donuts owning 24% and Starbucks owning 36%. Starbucks has effectively concentrated on building its customer relationships and developing a good store design for its products in order to increase sales in a monopolistic competitive market.

Is the company driven with the Profit maximisation, Revenue maximisation, or Sales (Market Share) maximisation?

According to (Campbell, 2022) It just requires a 1% rise in prices to improve earnings by 11% on average, Starbucks increased coffee prices by an average of 1% all over the United States. But this increase is difficult to notice as it is only applied on small size. As a result, from that increase the company have increased net income by 25% reaching $417,8M from $333.1M last year.

Starbucks is an expert at maximizing profits through value-based pricing, and they use research and customer analysis to develop targeted rising prices that collect the most amount that customers are willing to spend without driving them away.

Profit maximization is the technique through which a business calculates the best pricing and output level for its products.

In the case of Starbucks, price rises over the corporate history have already turned off the most price-sensitive clients, keeping a loyal, higher-income consumer base that views these coffee products as an affordable luxury. Starbucks increases prices to compensate for customers lost to cheaper rivals such as Dunkin Donuts, Starbucks strategy is to increase price to maximizing profit from those consumers who are insensitive about the slight changes in price in order to get their premium or high-quality coffee beverage, rather than competing with inexpensive competitors like Dunkin' Donuts, Starbucks employs price increases to differentiate itself and promote the premium image of its brand and products. 

Starbucks maintains a fairly inelastic demand curve since their loyal following isn't particularly price sensitive, therefore a minor price rise can have a large beneficial influence on company margins without diminishing demand for coffee. (Campbell, 2022)

 

Is this company approach compatible with the theoretic ideas on the success in such a market structure? (compare the basic theoretic suggestions for the company performance with the actual chosen direction; here, you need to compare the normative vs. positive approaches).

Starbucks have a unique positive approach in the monopolistic competition in order to be successful in such an easy market to enter.

Starbucks has worked with many groups to build and extend its business in several countries. Starbucks cooperated with firms such as Barnes & Noble, Nestlé, PepsiCo, iTunes, in addition to that. Tata Starbucks, which opened its doors in India for the first time in 2012, it is a joint venture between Starbucks and India's Tata Consumer Products. Starbucks advantages financially from these strategic alliances in a variety of ways. (Dias, 2022)

It helps the company increase client awareness of various products and extend its product selection. This method also simplifies the process to serve the company's products to various market segments and increases consumer satisfaction. As a result, retail sales and profitability increased for the brand. However, there are some normative approaches like most of the big companies. For instance, Starbucks purchases the majority of its Coffee beans directly from farmers at market prices. Starbucks' ethics in doing business with coffee producers are widely acknowledged by society due to its fair-trade policy. The majority of their coffee purchases come from third world nations where farmers and coffee producers are underpaid.

 

 References :

Dudovskiy, J. (2022)  Starbucks Business Strategy: An overview - research-methodology,  Business Research Methodology . Available at:  https://research-methodology.net/starbucks-coffee-business-strategy-2/

 (Accessed: November 17, 2022).  

Dawson, T. (2022)  How Starbucks uses pricing strategy for profit maximization,  How Starbucks Uses Pricing Strategy For Profit Maximization. ProfitWell. Available at:  https://www.priceintelligently.com/blog/bid/184451/how-starbucks-uses-pricing-strategy-for-profit-maximization

(Accessed: November 18, 2022). 

 Campbell, P. (2022)  Importance of pricing: Why pricing is important for SAAS and beyond,  Pricing Strategy Driven by Data. ProfitWell. Available at:  https://www.priceintelligently.com/blog/bid/157964/Two-Reasons-Why-Pricing-is-the-Most-Important-Aspect-of-Your-Business

 (Accessed: November 18, 2022). 

Dias, J. (2022)  6 successful marketing strategies of Starbucks,  IIM SKILLS. Available at:  https://iimskills.com/marketing-strategy-of-starbucks/

 (Accessed: November 22, 2022). 

Example：

Good evening Abdullah! Really interesting information was provided about Starbucks. I think you are totally right when you are saying that Starbucks put away customers that were only looking for a "normal" coffee at the time where Starbucks decided to increase their prices. In fact, we can say that, today, a Starbucks coffee is way higher than any competitors and only loyal customers are staying. It is actually a good strategy for the future to be able to estimate sales by having price-insensitive customers. On the other hand, Starbucks benefits from it by making a higher profit margin at the end of the day. However, you mentioned about the quality of the service and by having experienced Starbucks, I do not really agree. Most of the time I went to Starbucks, employees were not really friendly and I was feeling in something closer from a fast food than a restaurant if I have to compare. Therefore, I was wondering if Starbucks has any other competitive advantage than their supposedly "outstanding customer service"? Maybe the fact that they have their own coffee brand? In my opinion, it plays a big role in customers' mind thanks to their brand image that is almost as strong as Apple: everyone know Starbucks and everyone trust them. Anyway, thank you for your analysis!