PROJECT REPORT ON

MARKET SEGMENTATION OF
APPLE
 Introduction
Ever wondered why marketers only target certain markets or how these markets
are identified? Think about universities for a moment: how do they identify which
students to communicate with about degree schemes? What criteria do they use?
Do they base it on where you live, your age, your gender, or is it just about your
entrance scores? Do they market to postgraduate and undergraduate audiences
differently, what about international and domestic student groups—is this dif-
ference important for the effective marketing of higher education services to
prospective students?
In this chapter, we consider the way organizations determine the markets in
which they need to concentrate their commercial efforts. This process is referred
to as market segmentation and is an integral part of marketing strategy, discussed
in Chapter 5. After defining the principles of market segmentation this chapter
commences with an exploration of the differences between market segmentation
and product differentiation, as this helps clarify the underlying principles of seg-
mentation. Consideration is also given to the techniques and issues concerning
market segmentation within consumer and business-to-business markets.
The method by which whole markets are subdivided into different segments
is referred to as the STP process. STP refers to the three activities that should be
undertaken, usually sequentially, if segmentation is to be successful. These are
segmentation, targeting, and positioning, and this chapter is structured around
these key elements.

The STP Process

The growing use of the STP process has occurred as a direct result of the prevalence
of mature markets, the greater diversity in customer needs, and the ability to
reach specialized or niche segments. As such marketers are increasingly segment-
ing markets and identifying attractive segments (i.e. who to focus on and why?),
in order to identify new product opportunities, develop suitable positioning and
communications strategies (i.e. what message to communicate), and effectively
allocate resources to key marketing activities (i.e. how much should we spend
and where?). Organizations will often commission segmentation research when
they want to re-scope their marketing strategy, investigate a declining brand, launch a
new product, or restructure their pricing policy. Organizations operat-
ing in highly dynamic environments seek to conduct segmentation research at
regular intervals, to keep in touch with changes in the marketplace.
STP refers to the three activities segmentation, targeting, and positioning (Figure
6.1).
Key benefits of the STP process include:
• Enhancing a company‟s competitive position by providing direction and focus for
marketing strategies such as targeted advertising, new product development,
and brand differentiation. For example, Coca-Cola identified through market

research that its Diet Coke brand (also marketed as Coca-Cola Lite) was regarded as „girly‟
and „feminine‟ by male consumers. As a direct result the company developed a new
product, branded Coke Zero, which is targeted at the health-conscious male segment of the
soft drinks market.
• Examining and identifying growth opportunities in the market through the
identification of new customers, growth segments, or new product uses. For
example Arm & Hammer was able to attract new customers when existing consumers
identified new uses for their baking soda (Christensen, Cook, and Hall, 2005). Lucozade
also changed the positioning and targeting from its original marketing strategy positioned
for sick children and rebranded to target athletes as an energy drink.
• More effective and efficient matching of company resources to targeted
market segments promises the greatest return on marketing investment
(ROMI). For example, financial institutions like HSBC and Barclays and large retailing
multinationals such as Tesco and ASDA Wal-Mart are utilizing data-informed
segmentation strategies to effectively target direct marketing messages and rewards to
customers they have classified as offering long-term value to the company, i.e. they are
profitable customers.
 The Concept of
Market Segmentation
Market segmentation is the division of a market into different groups of customers with
distinctly similar needs and product/service requirements. Or to put it another way, market
segmentation is the division of a mass market into identifiable and distinct groups or
segments, each of which have common characteristics and needs and display similar
responses to marketing actions.
Market segmentation was first defined as „a condition of growth when core
markets have already been developed on a generalised basis to the point where additional
promotional expenditures are yielding diminishing returns‟ (Smith,
1956). There is now widespread agreement that they form an important founda-
tion for successful marketing strategies and activities (Wind, 1978; Hooley and
Saunders, 1993).
The purpose of market segmentation is to leverage scarce resources; in other
words, to ensure that the elements of the marketing mix, price, distribution, prod-
ucts and promotion, are designed to meet particular needs of different customer
groups. Since companies have finite resources it is not possible to produce all pos-
sible products for all the people, all of the time. The best that can be aimed for is
to provide selected offerings for selected groups of people, most of the time. This
process allows organizations to focus on specific customers‟ needs, in the most
efficient and effective way. As Beane and Ennis (1987) eloquently commented,
„a company with limited resources needs to pick only the best opportunities to
pursue‟.
The market segmentation concept is related to product differentiation. If you
aim at different market segments, you might adapt different variations of your
offering to satisfy those segments, and equally if you adapt different versions of
your offering, this may appeal to different market segments. Since there is less
competition, your approach is less likely to be copied and so either approach will do.
An example in the area of fashion retailing might be if you adapt your cloth-
ing range so that your skirts are more colourful, use lighter fabrics, and a very
short hemline, for instance, this styling is more likely to appeal more to younger
women. If alternatively, you decide to target older women, then you might need
to change the styling of your skirts to suit them by using darker, heavier fabrics,
with a longer hemline. This is exactly what Marks and Spencer (M&S) did to
attract a younger female shopper into their M&S stores and compete more directly
with Next and Debenhams for share of this market. The company launched a
range of female clothing called Per Una, and three years on the fashion range has
been a huge success reportedly generating annual sales of nearly £230 m—more
than 10 per cent of the total womenswear sales at M&S. If you start by adapting
new product variants, you are using a product differentiation approach. If you
start with the customer‟s needs, you are using a market segmentation approach.
This is illustrated more clearly in Figure 6.2 using offering rather than product to
indicate that the same concept may apply to a service.
A relational marketing perspective would replace the marketing mix—the 4Ps —either
with the 7Ps or with a discussion of the need to design, develop, and deliver the customer
experience.
The concept of market segmentation was first proposed as an alternative market
development technique in imperfectly competitive markets, that is, in markets
where there are relatively few competitors selling an identical product. Where
there are lots of competitors selling identical products, market segmentation and
product differentiation produce similar results as competitors imitate your strat-
egic approach more quickly and product differentiation approaches meet market
segment needs more closely.
With an increasing proliferation of tastes in modern society, consumers have
increased disposable incomes. As a result, marketers have sought to design prod-
uct and service offerings around consumer demand (market segmentation) more
than around their own production needs (product differentiation) and they use
market research to inform this process.
 A Tale of Two Approaches
Tale 1 is about Amway, a global company that manufactures and distributes over 450
different consumer products and invests heavily in research and development in order to
remain competitive and meet customer needs. For example, after several years of research
and development, Amway produced a new range of products called Satinique, which used
the „Ceramide Infusion System‟. The core attribute is that Satinique contains a moisturizing
agent, which can restore the nutrients in hair. Once Amway had developed the product they
then undertook market research to determine which group of consumers they should target.
Having identified a segment made up of professional women, who always want to look their
best and who want professional, salon- quality products and who rely on recommendations
from friends when making haircare purchase decisions, they then developed a marketing
strategy and implemented a successful marketing plan.
There are three main usage segments in the sun care market: protection (from harmful rays),
after sun (for relief and moisturizing after being in the sun), and self-tan (for those who want
an all year round „cosmetic‟ tan). Beiersdorf have developed their portfolio of NIVEA Sun
brands around these usage segments, but unlike Amway have used innovation
to develop products to meet customer needs identified through market research and
segmentation analysis. For example, market research has shown that awareness of the need
for protection from the sun does not necessarily lead to product purchase and usage. It was
also found that women enjoy the luxurious nature of sun care products, men prefer
convenience, and children don‟t enjoy the sun cream application process. As a result NIVEA
Sun developed and introduced a spray application device, designed specifically to appeal to
men and their preference for convenience. They also introduced a coloured formulation for
children‟s sun products in order to make the application process more fun.
1 Which of these two companies use a product differentiation approach and which uses a
market segmentation approach? Justify your selection.
2 Choose a beauty, fragrance, or grooming product that you like to use and determine likely
segments. 3 Do you believe Amway should change their approach? Justify your decision.
Market segmentation which put forward the idea that because neither supply nor demand
sides of marketing were homogeneous (i.e. different groups wanted to produce and
consume different things), a product differentiation approach which was concerned with
the bending of demand to the will of supply must also be accompanied by an alternative
mechanism of the bending of supply to the will of demand. This alternative marketing
strategy was termed market segmentation.

The Process of Market Segmentation

The intricacies involved in market segmentation are said to make it an exacting activity.
Griffith and Pol (1994) argue this point on the basis of multiple product applications,
greater customer variability, and problems associated with the identification of the key
differences between groups of customers. However, there have been numerous attempts to
define and describe business segmentation, using a variety of variables and ranging from
the severely product-based to customer needs-based orientation.
There are two main approaches to segmenting markets. The first adopts the
view that the market is considered to consist of customers which are essentially
the same, so the task is to identify groups which share particular differences.
This is referred to as the breakdown method. The second approach considers
a market to consist of customers that are all different, so here the task is to find
similarities. This is known as the build-up method. The breakdown approach is
perhaps the most established and well recognized and is the main method used
for segmenting consumer markets. The build-up approach seeks to move from
the individual level where all customers are different, to a more general level of
analysis based on the identification of similarities. The build-up method is customer
oriented as it seeks to determine common customer needs. The aim of both methods is to
identify segments in the market where identifiable differences exist between segments
(segment heterogeneity) and similarities exist between members within each segment
(member homogeneity).
Other segmentation researchers have distinguished between a priori or post hoc
segmentation methods (Green, 1979). In the former, segments are predetermined using
the judgement of the researchers beforehand (i.e. a priori). This approach typically
progresses along seven stages encompassing the following steps (Wind, 1978) including:
1 Selection of the base (a priori) for segmentation (e.g. demographics,
socio-economics).
2 Selection of segment descriptors (including hypotheses on the possible link
between these descriptors and the basis for segmentation).
3 Sample design—mostly using stratified sampling approaches and
occasionally a quota sample (see Chapter 4).
4 Data collection.
5 Formation of the segments based on a sorting of respondents into
categories.
6 Establishment of the profile of the segments using multivariate statistical
methods (e.g. multiple discriminate analysis, multiple regression analysis).
7 Translation of the findings about the segments‟ estimated size and profile into specific
marketing strategies, including the selection of target segments and the design or
modification of specific marketing strategy.
With the post hoc approach, the segments are deduced from the research and instead
pursue the following process:
1 Sample design—mostly using quota or random sampling approaches
2 Identification of suitable statistical methods of analysis. 3 Data collection.
4 Data analysis—formation of distinct segments using multivariate statistical
methods .
5 Establishment of the profile of the segments using multivariate statistical methods (e.g.
factor analysis) and selection of segment descriptors (based on the key aspects of the
profile for each segment).
6 Translation of the findings about the segments‟ estimated size and profile
into specific marketing strategies, including the selection of target segments and the design
or modification of specific marketing strategy.
Segmentation in business markets should reflect the relationship needs of the
parties involved and should not be based solely on the traditional consumer mar-
ket approach, which is primarily the breakdown method. Through use of both the
breakdown and the build-up approaches, a more accurate, in-depth, and poten-
tially more profitable view of industrial markets can be achieved (Crittenden,
Crittenden, and Muzyka, 2002). However, problems remain concerning the prac-
tical application and implementation of B2B segmentation. Managers report that
the analysis processes are reasonably clear, but it is not clear how they should
„choose and evaluate between the market segments‟ which have been determined
(Naudé and Cheng, 2003).
Much segmentation theory has been developed during the period when trans-
actional marketing was the principal approach to marketing, rather than the
more relational approaches adopted in today‟s service-dominated environment. Under
these circumstances, the allocation of resources to achieve the designated
marketing mix goals was of key importance. Freytag and Clarke (2001) have
quite rightly identified that market segmentation is not a static concept. In other words,
those customers who make up the various segments have needs which
may change, and consequently, those customers may no longer remain members
of the particular segment to which they originally belonged. Market segmentation
programmes must therefore use customer data which are current.
The segmentation process will therefore vary according to the prevailing conditions in the
marketplace and the changing needs of the parties involved, not simply the needs of the
selling organization.
To segment consumer goods and service markets, we use market information
we have collected based on certain key customer-, product-, or situation-related
criteria (variables). These are classified as segmentation bases and include profile
(e.g. who are my market and where are they?); behavioural (e.g. where, when,
and how does my market behave?); and psychological criteria (e.g. why does
my market behave that way?). These differing types of segmentation bases are
depicted in Figure 6.4. A fourth segmentation criterion that can be added is con-
tact data, a customer‟s name and full contact details beyond just their postcode
(e.g. postal address, email, mobile and home telephone number). The data are
useful for tactical-level marketing activities such as addressable direct marketing.
 Apple marketing strategy
As with all Apple marketing, the iPhone marketing strategy is very clear, simple
and clever. With the plain and simple apple icon, Apple focuses on the pure
innovative style of their products without all the "fluff". The iPhone was released
by Apple in June, 2007. The ground-breaking style of the iPhone was touted for
months before the initial release and has remained the best of the best when it
comes to cell phones over the past several years. Before the iPhone's official
release, Apple ran four television commercials promoting the new cell phone.

The first of the commercials portrays the new iPhone as the next step up from the
popular iPod. The iPod was all the rage up until this point, and the iPhone was
supposed to be the next-generation iPod, oh, and it's also a phone! The
advertisement displays all of the enhanced features available in the iPod, and more,
the point being "There's never been an iPod that can do this."

The first four iPhone commercials flaunted the convenience, innovation, and
usefulness of a single product with the functionality of not only a phone, or a
music device, but a product that can, among other things, listen to music, watch
videos, view photos, make conference calls, check e-mail, browse the web, and
view maps.

Not only does Apple utilize television for their marketing strategy, but they make
use of their website by posting videos, they also published a handful of press
releases that could have been released in one single document. Apple often uses
this tactic to build up hype and leave the consumer wanting more.

With Apple's brief press releases, giving the audience little to go off, "Apple
leveraged a law of social physics - news, like nature, abhors a vacuum. In the
absence of real information, those who care about a product will grasp at any
rumor that comes their way. Apple may publicly disavow the rumor Web sites that
scramble for scraps about the companies plans, but secretly their marketing
department must be delighted. It would cost a lot to buy that kind of Web
advertising." (Silverman, 2007)
The official iPhone website does more than just provide information about the
product. The website provides top tips and tricks for the use of an iPhone, as well
as a huge focus on apps. Almost the entire iPhone page displays images of apps,
provides the "App of the Week," the website also contains sections titled "Apps for
Everything," and the "Top Apps." Apple's website is a great marketing tool for
current iPhone users and consumers that have an interest in purchasing the iPhone.
The promotion of the apps will create a stronger source of revenue for Apple. As
customers see top rated applications, they are more likely to download the app,
rather than searching through 25,000+ apps to find one that may be of any value to
the consumer.

Successful younger men were the target audience that Apple had originally focused
on. Apple had hoped that with this target audience, and the fact that 48% of this
audience did not already own an Apple iPod, would allow them to reach their
forecast of 10 million sales by the end of 2008.

One month prior to the release of the iPhone, Solutions Research Group profiled a
cross-section of those aware of the phone. The forecast of potential buyers for the
day of the release ranked a majority of T-Mobile customers, AT&T's only GSM-
based product competitor, at 15%. The second largest group expected to purchase
the new iPhone was AT&T's existing customer base, at 12%. The Solutions
Research Group also found that 72% of males, versus 28% of women were most
likely to investigate the phone at its minimum price of $499. (Malley, 2007)

The obvious current target audiences for the Apple iPhone include young people
between the ages of 20 and 35, affluent teenagers, "jet-setters", and "mobile"
employees who work outside of the office.

Apple is known for their simplistic, but catchy commercials. In recent television
commercials for the Apple iPhone, "There's an App for that" is the new catch
phrase that places a strong focus on the apps available from the App Store. Apps,
or applications, are in "every category, from games to business, education to
entertainment, finance to health and fitness, productivity to social networking.
These applications have been designed to take advantage of iPhone features such
as Multi-Touch, the accelerometer, wireless, and GPS" (Apple, 2009). Apple
currently claims to have 25,000+ apps available, and counting.
The focus on the variation of apps offered opens up the target audience greatly.
There is essentially an app for everyone. As a few of the iPhone commercials
advertise, you can find the snow conditions on the mountain, track calories in your
lunch, find exactly where you parked your car. You can find a cab in a strange city,
find your share of the bill for a table of 5, or learn to fix a wobbly bookshelf. You
can read a restaurant review, read an MRI, or just read a regular old book. These
are just a few of the features that Apple has promoted through television
commercials. iPhone apps provide every functionality that one can imagine.

When the iPhone was initially released, it was priced at a hefty $599. Still,
hundreds of thousands of people rushed out to get the new phone, forking over a
third as much as they would have had they waited an extra 3 months. 3 months
after the initial release, Apple reduced the price of the iPhone to $399. This
enraged Apple's loyal customers and consumers who purchased the new phone just
months earlier. One year later, Apple again reduced the price of the iPhone to
$199, 66% less than the original price.

In July, 2007, the Apple iPhone was all the hype. I believe that Apple's decision to
release the phone at $599 was slightly based on greed. However, their product was
the most innovative out in the market place, giving Apple the freedom to price the
iPhone at whatever they wanted. Many believed that Apple had cut the price after
discovering lower than expected iPhone sales. Apple, however, states that the price
cut was made "to spur holiday sales and predicted that Apple would meet its stated
goal of selling its 1 millionth iPhone by the end of September." (Dalrymple, 2007)

As with the product life cycle of any cell phone or Apple product, including
Apple's iPod, prices are often reduced drastically months after the initially release.
Tech products are always competing against "the latest and greatest" while
maintaining a relevant price in the market place. Had Apple not reduced the price
of the iPhone, the customer base would have dwindled quickly as many consumers
are unwilling to spend $599 on a cell phone, no matter how many useful features
the phone may carry.

As the iPhone remains to be the number one smart phone around, the product
continues to grow, increasing size capabilities, increasing the number of
applications available, and providing new features that are released through new
iterations of the phone, continue to provide a greater value to the iPhone while the
pricing remains relevant.

At this time in the product life cycle, Apple continues to release enhanced
iterations of the iPhone. With most iPhone users un-willing to purchase a newer
version of the iPhone because of price, the target audience for the newer generation
phones is new iPhone customers. With Apple's installed base continuing to grow,
they have found a way bring in reoccurring revenue from their existing customers
through the sales of their application downloads. As more and more people
purchase the iPhone, Apple's audience for new customers continues to dwindle.
Fortunately for Apple, they have built in another source for revenue that continues
throughout the life of the product.

Apple's Branding Strategy

Apple Inc. uses the Apple brand to compete across several highly competitive
markets, including the personal computer industry with its Macintosh line of
computers and related software, the consumer electronics industry with products
such as the iPod, digital music distribution through its iTunes Music Store, the
smart phone market with the Apple iPhone, magazine, book, games and
applications publishing via the AppsStore for iPhone and the iPad tablet computing
device, and movie and TV content distribution with Apple TV. For marketers, the
company is also establishing a very strong presence to rival Google in the
advertising market, via its Apps business and iAd network.

Steve Jobs, Apple's co-Founder, described Apple as a "mobile devices company" -

the largest one in the world (Apple's revenues are bigger than Nokia, Samsung, or
Sony's mobility business).

For several years Apple's product strategy involved creating innovative products
and services aligned with a "digital hub" strategy, whereby Apple Macintosh
computer products function as the digital hub for digital devices, including the
Apple iPod, personal digital assistants, cellular phones, digital video and still
cameras, and other electronic devices. More recently, the full impact of a very well
throught out brand strategy has come into focus - and one in which customer
experience is central, and the Mac is no longer the hub of all things Apple. The
company now offers a harmonised, synchronised, and integrated user experience
across all of its main devices (iPad, iPhone, and Mac), using iCloud as the hub.

Apple's core competence is delivering exceptional experience through superb user

interfaces. The company's product strategy is based around this, with iTunes, the
iPhone with it's touch screen "gestures" that are re-used on the iPad, and the Apple
Apps store all playing key roles.

The Apple Brand Personality

Apple has a branding strategy that focuses on the emotions. The Apple brand
personality is about lifestyle; imagination; liberty regained; innovation; passion;
hopes, dreams and aspirations; and power-to-the-people through technology. The
Apple brand personality is also about simplicity and the removal of complexity
from people's lives; people-driven product design; and about being a really
humanistic company with a heartfelt connection with its customers.

Apple Brand Equity and Apple's

Customer Franchise
The Apple brand is not just intimate with its customers, it's loved, and there is a
real sense of community among users of its main product lines.

The brand equity and customer franchise which Apple embodies is extremely
strong. The preference for Apple products amongst the "Mac community", for
instance, not only kept the company alive for much of the 90's (when from a
rational economic perspective it looked like a dead duck) but it even enables the
company to sustain pricing that is at a premium to its competitors.

It is arguable that without the price-premium which the Apple brand sustains in
many product areas, the company would have exited the personal computer
business several years ago. Small market share PC vendors with weaker brand
equity have struggled to compete with the supply chain and manufacturing
economics of Dell. However, Apple has made big advances in becoming more
efficient with its manufacturing supply chain,logistics and operations, and it can be
assumed that as far as like-for-like hardware manufacturing comparisons are
comcerned, Apple's product costs are very similar to those of Dell. In terms of
price to the consumer, Apple's computer products have an additional cost
advantage: the company does not have to pay another company for operating
system licences..

The Apple Customer Experience

The huge promise of the Apple brand, of course presents Apple with an enormous
challenge to live up to. The innovative, beautifully-designed, highly ergonomic,
and technology-leading products which Apple delivers are not only designed to
match the brand promise, but are fundamental to keeping it.

Apple fully understands that all aspects of the customer experience are important
and that all brand touch-points must reinforce the Apple brand.

Apple has expanded and improved its distribution capabilities by opening its own
retail stores in key cities around the world in up-market, quality shopping venues.
Apple provides Apple Mac-expert retail floor staff staff to selected resellers' stores
(such as Australian department store David Jones); it has entered into strategic
alliances with other companies to co-brand or distribute Apple's products and
services (for example, HP who was selling a co-branded form of iPod and pre-
loading iTunes onto consumer PCs and laptops in the mid-2000s - though in
retrospect this may now just have been a stepping-stone). Apple has also increased
the accessibility of iPods through various resellers that do not currently carry
Apple Macintosh systems, and has increased the reach of its online stores.

The very successful Apple retail stores give prospective customers direct
experience of Apple's brand values. Apple Store visitors experience a stimulating,
no-pressure environment where they can discover more about the Apple family, try
out the company's products, and get practical help on Apple products at the shops'
Guru Bars. Apple retail staff are helpful, informative, and let their enthusiasm
show without being brash or pushy.
The overall feeling is one of inclusiveness by a community that really understands
what good technology should look and feel like - and how it should fit into people's
lives.

Apple Brand Architecture

From a brand architecture viewpoint, the company maintains a "monolithic" brand
identity - everything being associated with the Apple name, even when investing
strongly in the Apple iPod and Apple iTunes products.

Apple's current line-up of product families includes not just the iPod and iTunes,
but iMac, iBook, iLife, iWork, iPhone, iPad, and now iCloud. However, even
though marketing investments around iPod are substantial, Apple has not
established an "i" brand. While the "i" prefix is used only for consumer products, it
is not used for a large number of Apple's consumer products (eg Mac mini,
MacBook, Apple TV, Airport Extreme, Safari, QuickTime, and Mighty Mouse).

The list of Apple's Trademarks reflects something of a jumbled past. The

predominant sub-brand since the introduction of the Apple Macintosh in January
1984 has always been the Apple Mac. Products whose market includes Microsoft
computer users (for example MobileMe, QuickTime, Bonjour, and Safari) have
been named so they are somewhat neutral, and therefore more acceptable to
Windows users. Yet other product have been developed more for a professional
market (eg Aperture, the Final Cut family, and Xserve).

The iPod Halo Effect

Though Apple's iPhone and iTunes music business is profitable in its own right,
Apple's venture into these product areas was based on a strategy of using the music
business to help boost the appeal of Apple's computing business.

Apple is using iPod, iTunes, iPhone, and now iPad to reinforce and re-invigorate
the Apple brand personality. At the same time, these product initiatives are
growing a highly relevant, appealing brand image in the minds of consumer
segments that Apple has not previously reached.
In a so-called iPod halo effect, Apple hoped that the popularity of iPod and iTunes
among these new groups of customers would cause these segments to be interested
in Apple's computer products. This does seem to have happened. Since the take-off
of the iPod there has been a dramatic rise in Apple's computer sales and market
share.

A couple of years ago, Apple's aspirations for the iPod halo effect was was
highlighted most strongly when it used the slogan "from the creators of iPod" in its
promotion of iMac G5 computers. In this instance, the Apple brand came full-
circle - having been built into a branding system that originates in the personal
computer market, then leveraged into the consumer electronics market, and then
back into the consumer personal computer market.

This halo effect is extended with the hugely successful Apple iPad tablet computer.
Great customer experience with iPhone (and familiarity with Apple's touch screen
gesture controls), combined with a great product in its own right, has made iPod a
huge success that in turn is drawing even more people to Apple's Mac computer
products. In a move which brings matters full circle, the 2011 Lion version of Mac
OSX brought to the Mac the same touch screen gesture controls which iPad and
iPod users have learned.

This is extension of a common user experience across Apple products was further
strengthened by the introduction of the Apps Store to Mac OSX in mid-2011. Mac
users can now buy their OSX applications with the same convenience as iPad or
iPhone users can buy iOS Apps. Apple has announced that in mid-2012 it will
further harmonise the user experience of Mac and iPad users by introducing even
more features from iPad into the new Mountain Lion version of the Mac operating
system. With the introduction of Mountain Lion, Apple will drop the Mac part of
the name from the operating system, so that it will be called just "OS X", rather
than "Mac OS X". This small but important branding change opens the way for
Apple to consolidate, perhaps into a single Operating System, the software used
across its multiple devices.
 Expect the Halo to Speak - Siri and
beyond
Speech will be the next dimension in which Apple will gaining synery across its
product lines. Expect the natural language speech processing and interactivity
capabilities introduced in October 2011 on the iPhone 4S to be introduced first on
the iPad (which uses the same operating system and A5 processor as the iPhone
4S).

Apple is giving substance to speech interactivity by giving it a character - a

personal assistant called "Siri". Siri can be somewhat customised by using different
languages and idioms (for example, there are three versions of English speech
available with country-specific accents and pronunciation - US, UK and
Australian). Presumably other customisation or personalization features will also
be introduced (perhaps user choice of name and other "identity" characteristics).

Siri highlights the marketing genius of Apple: speech control and interactivity are
not new features on computers or phones. For example, smartphones running
Microsoft's Windows Mobile operating system have had very similar functionality
to Siri for some time. When Apple created the Siri "personal assistant" which gives
these otherwise rather hard to describe features a character, consumers were given
a hook around which they could finally understand what voice interactivity was all
about.

Having taught customers to use touch gestures, Apple is now going to teach us
how to speak to computers (almost unavoidably, in a specific Apple dialect of
speech interaction).
 Apple Brand Strength Now Creating
Financial Success
So far, Apples' branding strategy is bearing fruit. For example, Apple reports that
half of all computer sales through its retail channel are to people new to Macintosh,
the company's sales and margins have been growing strongly since 2006, and
Apple has achieved several "best ever" quarterly financial results in recent years,
and in early 2012 when Apple's share price passed $500 per share for the first time,
the company was the most valuable business in the world with a market
capitalization which exceeded oil company Exxon, the previous top business.

Leveraging the success of the iPod, Apple launched the iPhone (released in July
07) to extend the brand even further. Apple's buzz marketing efforts in the first half
of 2007 were truly superb, culminating in the release of one of the most highly
anticipated products for many years - and launching apple into a completely new
market: mobile handsets. By July 2008 the buzz about the 3G iPhone resulted in
over 1 million units being sold in the first 3 days of its release in over 20 countries
around the world. This success was repeated in 2010 with the introduction of the
iPad tablet computer, and in March 2011 with the launch of the iPad 2 which sold
1 million units within 24 hours.

Apple Re-entering the Corporate

Market via the iPhone and iPad Halo
Effect
Though no-one at Apple would say so today, the next phase of Apple's strategy
seems focused on the Corporate marketplace.

A long time ago, Apple had a fairly strong market share in large companies.

A long, long time ago (at the end of the 1970's) the first spreadsheet program
(VisiCalc) was launched on the Apple II. The first PC (the IBM PC) to run a
Microsoft operating system (PC DOS) did not appear until 1981. When Microsoft
launched its Excel spreadsheet in 1984 it appeared first on the just-released Apple
Mac, such was Apple's presence among accounting and finance departments.

Even though Apple effectively stopped competing for corporate business during
the 1990s, the Apple Mac is still used in corporate environments. Microsoft still
has a vigorous applications development team totally dedicated to writing business
software for the Apple Mac. New versions of Microsoft Office for Apple Mac still
come out approximately 2 years before similar functionality is placed in the next
version of Microsoft Office for the Windows operating system.

Over the next few years it seems likely that Apple will re-focus on the Corporate
marketplace: The company provides regular updates on the proportion of Fortune
500 companies which are either trialing or deploying iPhone (currently over 90%),
and the iPad. In 2009, when Apple announced "Snow Leopard" (the then-latest
version of the Apple Mac operating system) it included features allowing Mac
computers to fully support Microsoft Exchange. This enables corporate IT
departments to support business users who wish to use Apple Macs for their main
email clients. Apple's latest version, Mac OSX Lion (released in Summer 2011)
includes all the functionality needed to use a Mac as a business server.

Also, Microsoft continues to bring out advanced versions of Microsoft Office for
Apple Mac, and - very significantly - in mid-2008 Apple announced a software
upgrade for the iPhone which allows iPhones to be fully supported by Microsoft
Exchange email servers. Corporate IT departments can now include iPhones as
email clients.

One aspect of Apple's strategy seems clear: to use the popularity of the iPhone and
iPad to break back into large corporations, sell lots of those devices, and have
Apple Mac back on the desks of large businesses (or more probably - in the laptop
bags of middle and senior managers in most large businesses).

The Macbook Air and iPad are clearly designed for business markets as well as for
consumers, and Apple continues to display its mastery in smoothly morphing
customer experience and brand preference from one product category to another.
As we say; no one in Apple will currently admit to such ambitions, but Apple's
branding strategy is clearly expanding to include business and corporate markets
once again.

After Halos - Clouds

The next step in Apple's marketing strategy is the Apple iCloud, which delivers a
seamless experience for using and sharing content across all your Apple devices
(iPhone, iPod, iPad, or Mac). iCloud enables a common "it just works" experience
for using content across all of Apple's mainstream products. iCloud positions the
company for a future where customers experiences and their digtal lives transcend
the hardware devices which they use, and enables Apple to extend the brand
experience well beyond individual products.

Apple has invested in a 500,000 (soon to be one million) square foot Apple data
center in rural North Carolina. This data centre this will be used as the core of a
data repository for Apple's iCloud services, which will enable Apple to leverage
it's customer franchise into an even broader market space. Apple iCloud is one of
many ways in which Apple and Google are fast becoming arch rivals.

Once Apple hand-held device users have become acustomed to this style of
interactivity, presumably natural language speech interaction will also be extended
to the Mac - in whatever form-factor Apple's full-function computers have evolved
into by then. Perhaps longer-term, it can also be assumed that a user's Siri personal
assistant will be used to embody and create a feeling of continuous experience
across different devices, with Siri seemingly moving with us from device to
device.

This continuity across devices will be possible because Apple is using iCloud to
offer customers device-independence and multi-device synchronisation - so that
whichever Apple device you move to the experience continues because the new
one will "know" what you were doing on the last one and can pick up dialogues
such as chat messages where you left off.
 Apple's Original Apple Macintosh
Marketing Strategy
Stanford University has published contemporary records and original documents of
the marketing strategy for the Apple Macintosh launch in 1984, including the
original Apple marketing strategy and the Apple Macintosh product introduction
plan written by Regis McKenna.

It is now nearly 3 decades since the launch of the Apple Macintosh (on January 24,
1984). Having proven itself and already gained considerable popularity with the
Apple II, Apple chose to announce the Apple Mac in one of the most famous-ever
commercials, aired during the third quarter of Super Bowl XVIII on 22 January
1984.

The formal product release came a couple of days later on January 24th, 1984. In
addition to the innovative Apple Mac graphical user interface (based on concepts
from Xerox PARC), the Mac's industrial design - shown below - was revolutionary
for the time. Interestingly, it share's the same screen size (9 inch) as a relatively
new PC format: NetBooks, and had a just slightly smaller screen size than Apple's
10 inch iPad and Macbook Air products.

The original Mac graphical user

interface was revolutionary in its day.
It introduced the use of the mouse
and features such as icons, fonts,
folders, and audio to mainstream
The first Mac (above) had just compu
128KB of RAM and a 400KB 3.5-
inch floppy disk drive, and a 9
Apple's segmentation strategy, and
the folly of conventional wisdom
There is a myth, more of a meme actually, about the 'inevitability' of
commoditization. It is a view of the world that sees things linearly, in terms of
singularities, and the so-called "one right path."

In this realm, where commoditization is God, horizontal orientation (versus

vertical integration) rules the roost. How else to define consumers, not in flesh and
blood terms, not as spirits that aspire to specific outcomes, but rather, as a
composite set of loosely-coupled attributes.

This mindset is compelling because it is simple and familiar, but it also leads to
blind obsequiousness.

Historical edifices are held as indelible fact. "It's Microsoft v. Apple all over
again." "There has to be one absolute, dominant leader." "Open will always prevail
-- and should prevail -- over proprietary systems." "Market share matters above all
else. Even profits."

There is one small fly in the ointment to this ethos, however, and its name is
Apple. (For a historical perspective on tech industry architectural orientation,
check out "Waves of Power" by David Moschella.)

Apple's gaudy performance

relative to its industry peers
The following inconvenient facts must be an affront to the horizontal,
commoditized, open, market share zealots. Apple has launched three major new
product lines since 2001: the iPod (October, 2001); the iPhone (July, 2007); and
the iPad (April, 2010). The company's stock is up 3,000 percent since the launch of
iPod, 125 percent since the launch of iPhone, and 20 percent since the launch of
iPad.
In that same time period, the major devotees of the loosely coupled model --
Microsoft, Google, Intel and Dell -- have been, at best, outpaced by Apple 6X (in
the case of Google dating back to the launch of iPod) and at worst, either been
wiped out (in the case of Dell) or treaded water (in the cases of Microsoft and
Intel) in every comparison period.

Let me go a step further and make the forceful assertion that in the red hot mobile
computing segment (inclusive of smart phones, media players and tablet devices),
anything that Nokia, RIM/Blackberry and even Google Android are doing is
simply orthogonal to Apple's iOS-based device play (iPhone, iPod touch, iPad).
Checkers to chess.
That is why it's laughable that the latest meme du jour, "The Apps Lifestyle" -- and
believe me, it is a lifestyle -- is ridiculously framed as a trend of the multi-vendor
"cell phones" segment. Why? The clear-cut truth is that Apple's iOS device
platform is the staging ground of the Apps Lifestyle, something that ~90-percent
of iOS device owners "get" to the point of it being intrinsic, assumed and
embedded.

By contrast, maybe 15 percent of non-iOS device owners embrace The Apps

Lifestyle, or even know what it means, and that's probably being generous. Yet,
this composite translates to 29 percent of all users (according to Pew Research
Center).
The folly of conventional wisdom

Therein, lies the problem with conventional wisdom. Namely, that it's
conventional. It doesn't think outside the box in terms of strategic imperatives, like
building differentiation, growing margins or defensibility.

That explains why the top three mobile handset unit sales 'leaders' (Nokia,
Samsung, LG) are outselling Apple in raw units an astounding 23.5 to 1, yet for all
of that effort, combined they are garnering only 82 percent of Apple's profit level.
Is it surprising, then, that the reward for achieving such distinguished leadership
was for the CEOs at two of those companies (i.e., Nokia and LG) to get fired?

Analyzing Apple market

segmentation strategy
In the real world of building products and attacking market opportunities, market
segmentation is the process of defining and sub-dividing the aggregate,
homogeneous market into addressable, targeted needs and aspirations buckets.
Buckets that are in turn, thresholded by demographic, psychographic and/or
budgetary constraints.

Market segmentation strategy enables a company to drive complete, unified

product solutions that are harmonious with messaging, customer outreach, and
channel strategies for selling and supporting customers.

In this regard, Apple's product strategy is a study in market segmentation. Versus

merely trying to stuff a product, burrito-style, with as many different features as
possible, they target specific user experiences, and build the product around that
accordingly.

Consider the recent iPod event in September, where Apple completely rebooted the
iPod nano, rolled back the iPod shuffle to an earlier interaction model, and majorly
forked the iPod Touch in a way that also speaks to iPhone positioning.

Mind you, each of these efforts represent major strategic iterations of successful
products, not reboots of failed ones, so it speaks volumes about how the company
thinks about its users, their workflows and corresponding segments.

Moreover, it underscores the integral-ness of continuously re-calibrating on the

definition of the situation; not merely doing more for the sake of an added bullet
point or to support a desired price point.

Does Apple have a perfect crystal ball on these things? The history of the nano and
the degree of iteration of this generation's shuffle, suggests that no, in fact, they
don't always have a perfect read. But make no mistake: While they may not always
be right, they are never confused or haphazard in their approach, and that is the
hallmark of sound market segmentation strategy.

Apple segmentation from iPod

shuffle to MacBook
As such, the chart below is an attempt to logically organize Apple's product line so
as to better understand the company's approach to market segmentation:
So what does it all mean?
If (in football terms) we are now entering the second quarter of the age of mobile
computing, it helps to see the continuum of connected devices from the perspective
of their means of mobility; namely, whether they are wear-able, pocket-able, bag-
able or portable.

Similarly, the diverse set of device input methods that Apple embraces -- from
physical buttons, keyboards and mice to multi-touch and tilt -- provides a window
into the types of use cases and workflows that they are optimizing around.

Further, when you see how Apple has used its vertical integration of the iPod
media player and the iTunes marketplace across all of its devices to create a billing
relationship with 160 million consumers vis-à-vis simplified discovery, purchase
and distribution, it provides a window into how they've facilitated a market
segmentation approach that is simultaneously harmonious and discrete.

In the harmonious bucket is the way that iOS-based Apps and their corresponding
"ecosystem surround" directly overlay on top of iTunes and the iPod media player.
This approach is no doubt a business school study of how companies can marry
strategy and tactics across product lines and product lifecycles.

Ironically, it is the holistic approach that has given Apple the ability to be judicious
in its implementation of differentiating hardware components at the display, phone,
camera and video capture level.

Want the best build quality device that Apple makes? Get the iPhone 4. How do
we know this? While the iPod Touch has recently received iPhone 4 pixie dust, in
the form of a camera, HD video recording and a retina screen, the build quality is a
step below the iPhone 4, which feels like a jewel box forged by a craftsman.

To be sure, the iPod Touch is beautiful and solid, but its screen is slightly
diminished in effect, and the camera is intentionally hobbled. In other words, while
Steve Jobs himself may refer to the iPod Touch as the "iPhone without the phone,"
in truth, the functional segmentation keeps it a step below the iPhone.
Now, this is completely logical when you consider how much more expensive the
iPhone is. Pricing (and margins) that are hidden from the customer via carrier
subsidies.

That is also why recent analyst data that suggests that the iPad is "cannibalizing"
low-end MacBook sales -- versus simply swallowing the low-end Windows PC
and netbook segments for lunch -- is dubious at best. If you own an iPad and a
Mac, you know two things:

1. The iPad targets a set of "jobs" that are not dependent upon keyboards and
mice, but there are plenty of jobs for which a tablet is an unsatisfying
replacement for a traditional computer;
2. Apple doesn't make low-end MacBooks, or similarly hobbled devices, for
which an iPad would represent a practical alternative.

But then again, as I've stated before, Apple is a rare bird, pursuing non-linear,
high-orchestration, high-leverage strategies. Exactly the type of complex storyline
that is easily dismissed by simple-minded analysts, investors, competitors, media
and the like.

Keep that in mind the next time you come across a story citing "Apple" and
"inevitable" in the same context.

Steve Jobs and Steve Wozniak didn‟t realize they were developing today‟s
multibillion-dollar PC industry when they invented the Apple I in a garage on
April Fool‟s Day, 1976. Hobbyists, the initial target market, were not interested in
the product. However, when the Apple II was displayed at a computer trade show
in 1977, consumers loved it and Apple Computer was born. Typical of young
companies, Apple focused on its products and had little concern for its markets.
When IBM—“Big Blue”—entered the PC market in 1981, Apple was forced to
become a “real company,” much to the disappointment of its creative young
engineers who were likened to “Boy Scouts without adult supervision.”
Fast-forward to the twenty-first century. Jobs believed that the personal
computer entered the Age of the Digital Lifestyle in 2001. In a keynote address,
Jobs said that “the proliferation of digital devices—CD players, MP3 players, cell
phones, handheld organizers, digital cameras, digital camcorders, and more—will
never have enough processing power and memory to stand alone.” Jobs
enthusiastically proclaimed, “the Mac can become the digital hub of this new
digital lifestyle.” By repositioning Apple as the “digital hub” with “killer apps,”
such as iTunes, iMovie, iDVD, iPhoto, and GarageBand—now bundled as iLife—
Jobs believes consumers can take full advantage of the new digital lifestyle era.
Critiques questioned, If Steve Jobs and these market-product strategies for
his vision of the digital lifestyle era were on target. He was betting the company on
it. The rest is history.
Nevertheless, the grid shows below suggests the market segmentation
strategy Steve Jobs is using to compete in what he sees as the Age of the Digital
Lifestyle.

Companies can learn from this example, in most segmentation situations; a single
product does not fit into an exclusive market niche. Rather, there is overlap among
products in the product line and also among the markets to which they are directed.
But a market segmentation strategy enabled Apple to offer different products to
meet the needs of different market segments. However, marketing managers
responsible for developing a company‟s product line must balance both product
and marketing synergies as they try to increase the company‟s profits.
 How Apple Segments the Market
Apple has done a fabulous job in recent years of asserting itself as a major player
in the computer industry. One of their tools for accomplishing this has been a
fanatical commitment to high-quality products. They strive to make every product
they offer to be the best in its class, and they‟ve largely succeeded at doing
this. (And have used some very clever strategies to maintain this appearance when
their products weren‟t quite measuring up.) This has given them an incredibly
strong brand. But it also allows them to position themselves in an enviable place
in terms of market positioning.

Apple products are expensive. Apple gets high margins on its hardware, allowing
it to recoup large investments in NRE (non-recurring engineering) to design the
hardware and its accompanying software. This is a great place to be from a
competitive standpoint, because as a company they don‟t need to squabble over the
cheapest parts to try to deliver the best prices to consumers. So long as they can
maintain a sufficiently large customer base to support the practice, it is an easy
place to defend against competition from. Certainly a lot easier than being Dell
or HP, who struggle with operational efficiency to compete on price, and try to
innovate within a very narrow window defined by their platform.

Apple‟s success at selling high-end products has secondary benefits for the rest of
the ecosystem. Because the products are expensive, they tend to be purchased
by people with more disposable income. So the segment of the computer market
which buys Apple products self-selects to be very attractive demographic for
many other reasons. Advertisers love to get their products in front of people who
are more-willing-than-most to buy something expensive / unnecessary / fun.

Similarly, app developers know that if they write an app for iPhone / iPad, the
people who are able to buy it are much more likely to be willing to pay a couple
bucks for something silly than, say, somebody who bought the cheapest
smartphone they could afford because they felt they really need that
functionality. I had previously speculated that Apple‟s platform play required a
very large distribution base to attract developers, which is not quite correct. The
strategy is successful even with a relatively small market, provided that the market
is segmented properly. Which in this case it clearly is.

The company has amassed more cash than the US government, earns more than
two-thirds of the profits in the smart-phone industry, earns more than 50% of the
profits in the entire PC industry, and has become the number-one valued company
in the United States.

The basis of this business success is found in Apple‟s market segmentation

strategies—they‟ve segmented their products vertically (creating a product for each
use case) and sold them at the right price for only the most profitable market
segments. They also identified segments that are willing to pay “more” for the
specifics that Apple provides: the user experience, the quality of their products and
the often-seamless integration provided. In addition, which is very important, they
simply ignore prospects who are not willing to pay their price.

In fact, on the question of when Apple would bring out a $300 NetBook computer,
Steve Jobs famously replied “Never. I just don‟t know how to make a quality
product at that price”. In that short sentence he summed up Apple‟s whole business
pricing strategy and positioning. Apple makes quality products for customers who
are willing to pay more.

As a business strategy, market segmentation is one of the most powerful and

under-utilized weapons in the executive‟s arsenal. But segmentation is not only for
high tech manufacturers like Apple. It is just as important for companies as diverse
as restaurant chains, software vendors, medical equipment manufacturers, business
service vendors and stem cell companies. When companies look carefully at their
buyers‟ use cases, document the outcomes they wish to achieve, and define the
segments that represent the best business opportunities, they then orient their
products and services to serve these market segments better than anyone else. They
can then optimize their prices to capture the maximum of these buyers‟ willingness
to pay, and create bundles, options, services, content and unbundles, to serve them
better than anyone else in their market, and collect the rewards of superior
execution.