Apple Porter’s Five Forces Analysis

Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] represents five individual forces that shape the overall extent of competition in the industry. These forces are represented in figure below:

Apple Porter's Five Forces Analysis

Porter’s Five Forces

 

Threat of new entrants in Apple Porter’s Five Forces Analysis

Threat of new entrants into consumer electronics industry is not substantial. The following set of factors determine the threat of new entrants into the industry to compete with Apple:

1. Massive capital requirements. Manufacturing technological devices and producing operating systems require massive capital investments. Capital is needed to obtain resources in general and to attract human resources and talented employees in particular. Access to capital can prove to be a substantial entry barrier for new businesses.

2. Economies of scale. Economies of scale represent a substantial entry barrier to the industry due to the fact that new players will find it difficult to compete with established global brands such as Apple, Samsung, Google and HTC that are able to gain cost advantage via economies of scale.

3. The time of entry. The time of entry is another factor that can be listed as a barrier for new entrants. Specifically, global consumer technology industry in general and computers and smartphones in particular is highly saturated. Therefore, it will be difficult for new entrants to establish their customer base.

Nevertheless, there is a significant factor in favour of new market entrants and it relates to their innovation potential. To be specific, if new market entrants base their customer value proposition on innovative products and services, they can overcome all market entry barriers discussed above.

 

Bargaining power of buyers in Apple Porter’s Five Forces Analysis

Bargaining power of buyers in consumer electronics industry is generally huge. However, the bargaining power of Apple customers in particular is not less compared to the industry average. The following factors reduce the bargaining power of Apple customers:

1. High level of customer loyalty. Apple enjoys a high level of customer loyalty. Thanks to simple yet attractive design coupled with advanced features and capabilities of its products, Apple has created a large base of loyal fans. A study published by investment bank Morgan Stanley showed that 92 percent of iPhone users were “somewhat or extremely likely” to upgrade within 12 months intend to buy Apple.[2] Such a level of loyalty allows the world’s largest IT company by revenue to sell their products with high profit margins.

2. Apple ecosystem. All products belonging to Apple portfolio work well with each-other and there is no need to download or install anything. If you use iPhone and Mac, you can get phone calls to your computer even when your iPhone is nowhere near you and you can also send and receive phone text messages on your Mac. Apple ecosystem motivates customers to stick with the brand and reduces their bargaining power to a significant extent.

3. Absence of dependence on a few customers. Apple had no single customer that accounted for more than 10% of net sales in 2018, 2017 and 2016.[3] In other words, the company sells its products to a large numbers of customers and individual customers are not in the position to exercise their bargaining power to reduce prices or to affect Apple in any other ways.

 

Bargaining power of suppliers in Apple Porter’s Five Forces Analysis

Bargaining power of Apple suppliers is not significant in general. The following are main characteristics of the bargaining power of Apple suppliers:

1. There are different groups of Apple suppliers with different bargaining power. Although most components essential to Apple are generally available from multiple sources, a number of components are currently obtained from single or limited sources.[4] Generally, Apple suppliers can be broadly divided into the following four categories and the table below illustrates the bargaining power of each category

Supplier category Suppliers Supplier bargaining power
Processor and computer memory suppliers Motorola, IBM, Intel… Considerable
Movie and TV program suppliers Disney, ABC, Fox, Sony… Low
Music suppliers BMG, Sony, Warner, Universal… Low
Suppliers of parts and components Acbel Polytech Inc., Cheng Loong Corp., GoerTek Inc… Low

Apple suppliers and their bargaining power

 2. Apple exercises its bargaining power in relation to its suppliers. Apple is a major customer for the majority of its suppliers and supplier switching costs for the company is not substantial. Apple started to exercise its bargaining power in its relations with suppliers to a greater extent starting from 2012 by conducting supplier audit checks as part of its corporate social responsibility strategy.

3. Apple works systematically to further reduce the bargaining power of its suppliers. For example, the multinational technology company ensures the supply of raw materials and components to cover its need for the period of up to 150 days.[5]

Apple Inc Report contains a full analysis of Apple Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Apple. Moreover, the report contains analyses of Apple leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Apple marketing strategy, ecosystem and addresses issues of corporate social responsibility.

Apple-Inc.-Report-1

 

[1] Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review

[2] Campbell, M. (2017) “Apple’s iPhone scores 92% loyalty rate ahead of ‘iPhone 8’ launch, study finds” Apple Insider, Available at: https://appleinsider.com/articles/17/05/18/apples-iphone-scores-92-loyalty-rate-ahead-of-iphone-8-launch-study-finds

[3] Annual Report (2018) Apple Inc.

[4]Annual Report (2018) Apple Inc.

[5]Annual Report (2018) Apple Inc.

 

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