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Apple Inc. Porter’s Five Forces Analysis

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Apple Inc. Porter’s Five Forces Analysis

Michael Porter’s five forces is a model that can be used to analyze the position of a firm

in the market and evaluate its competitive advantage. According to the model, there are five

forces that can affect a business including bargaining power of customers, threat of new entrants,

rivalry among existing competitors, bargaining power of suppliers and the threat of substitute

products or services (Porter, 2008). Apple Inc. is a giant firm in the PC industry and is

considered as one of the most valuable companies in the globe. Below is a five forces analysis

for the company that seeks to provide insights to the factors affecting the company and shed light

on the leadership style at Apple Inc.

Bargaining power of Buyers

The bargaining power of customer is a strong force affecting Apple Inc. because the force

determines the customers’ purchasing power and decisions. In this case, the customer’s strong

power depends on several factors which include; small customer size, low switching cost and

high level of information to customers (Aljafari, 2016). It is very easy for customer to switch to

other brands, making it hard for the company to satisfy and meet all its customers’ needs in every

aspect. At the same time, each customer’s purchase is small compared to the company’s total

revenues making customers weak at the individual level. However, since it is easy for buyers to

shift to other brands, the power of buyers still exerts a strong force.

Threat of new entrants

The threat of new entrants is a moderate force for Apple Inc. due to the high level of

capital required, high cost of brand development and the capacity of potential entrants. Creating

a business that can compete with Apple needs a lot of capital (Tan, 2013). Moreover, it is very
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costly for new entrants to build a brand that will be able to compete with a large firm like Apple.

Due to the above factors, the possibility of new entrants exerts a weak force. On the other hand,

there exist huge firms that have the capacity to enter the market, such as Samsung and Nexus

hence the threat of new entrants is a moderate force.

Competitive rivalry

Apple Inc. faces high competition from other technological companies such as Dell,

Google, BlackBerry, LG and Samsung. The component of competitive rivalry for Apple’s case is

determined by high aggressiveness among the firms and low switching cost. High aggressiveness

can be observed in Apple’s direct competitors such as Samsung and LG, through their

advertising strategies, innovations and imitation (Ferguson, 2019). At the same time, the

switching cost is low among the companies meaning that it is easy for customers to switch from

Apple products to other brands, hence toughening the competition even further.

Bargaining power of suppliers

The bargaining power of suppliers is a weak force for Apple Inc. especially due to the

high number of suppliers in the industry. The company therefore has the advantage of choosing

the suppliers they want to work with across the globe (Ferguson2019). At the same time, due to

the high number of suppliers, suppliers cannot put their demands as the priority.

Threats of substitutes

Similarly, the threat of substitutes is a weak force for the company. Although there exist

substitutes to Apple products, such as digital cameras instead of iPhone, the substitutes have low

performance due to limited features (Aljafari, 2016). Therefore, most people will still purchase
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Apple products due to their advanced features. From the analysis, Apple Inc. does not need to

prioritize their focus on the threat of substitutes because they have already created a strong brand

name for themselves.

Leadership at Apple Inc.

Although Apple Inc. has experience low times in its operation, under the leadership of its

founder and late Steve Jobs, and the current CEO, Tim Cook, the company has been able to

triumph all the challenges and emerge as an industrial leader. Apple’s company’s structural

characteristics follow a traditional hierarchy with a few elements of other organizational

structure. Its leadership model integrates various aspects such as democratic leadership

(Dudovskiy, 2019). Similar to its founder, Steve Jobs, Tim Cook believes in the importance of

building consensus among senior management in terms of crucial decisions affecting the

company. Tim Cook for instance, has granted greater autonomy to the product development

team, hence decreasing the direct participation of the CEO in the development process of any

new products.

At the same time, the leadership style is characterized by “quiet” leadership. Cook is

observed to be totally different from his predecessor. While Steve Jobs was a charismatic leader,

Cook is known for his quiet yet effective leadership style. Some industry analysts have

nicknamed him the “quiet leader” (Dudovskiy, 2019). However, the leader has faced criticisms

from analysts and the industry at large due to his lack of ambition and vigor that Steve Jobs

showed. There have been speculations that the leader is cautious about developing new products.

According to statistics, Steve Jobs introduced a variety of product categories including the
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iPhone, iMac, iTunes, iPod, iPad and App Store, while Cook has only managed to launch a few

products including the Apple watch, iPad Retina and iPad Mini.

The effectiveness of the company’s leadership style has been realized by the company’s

ability to strengthen its brand through its leadership. However, it is important to note that there is

no specific leadership style that paves way for success. Due to the difficulty to define the exact

roadmap to success, leaders must take deliberate steps to strengthen their leadership styles and

ensure that employees are empowered.

Recommendations

 The company should adapt an organizational structure that encourages organizational

flexibility. The current corporate structure at the company has low flexibility because all

the company’s division must wait for directives from the CEO or other top executives

before implementing changes (Meyer, 2019). At the same time, the structure does not

support rapid changes since everything must go through the top management.

 Apple Inc. should introduce moderately priced products for moderate and low income

earners too. As discussed in the case study, Apple faces the threat of losing their

customers to other brands due to low switching costs and availability of cheaper brands.

 At the same time, the company can use its strong marketing capabilities to enter into the

mobile advertising market. By doing so, the company will be able to reach out to new

customers and increase their profit margin.

References

Aljafari, A. (2016). Apple Inc. Industry Analysis Business Policy and Strategy. International

Journal of Scientific & Engineering Research, 7(3).

https://www.ijser.org/researchpaper/Apple-Inc-Industry-Analysis-Business-Policy-and-

Strategy.pdf

Dudovskiy, J. (2019, April 21). Apple Leadership: a brief overview - Research-Methodology.

Research-Methodology. https://research-methodology.net/apple-leadership-and-apple-

organizational-structure/

Ferguson, E. (2019, February 22). Apple Inc. Five Forces Analysis (Porter’s Model) - Panmore

Institute. Panmore Institute. http://panmore.com/apple-inc-five-forces-analysis-porters-

model-case-study

Meyer, P. (2019, February 14). Apple Inc.’s Organizational Structure & Its Characteristics (An

Analysis) - Panmore Institute. Panmore Institute. http://panmore.com/apple-inc-

organizational-structure-features-pros-cons

Porter, M. (2008). The Five Competitive Forces That Shape Strategy The Idea in Brief The Idea

in Practice. https://aggie-

horticulture.tamu.edu/faculty/hall/EAGL/Strategy_readings/Five_Forces_Update.pdf

Tan, J. (2013). A Strategic Analysis of Apple Computer Inc. & Recommendations for the Future

Direction. Management Science and Engineering, 7(2), 94–103.

https://doi.org/10.3968/j.mse.1913035X20130702.Z001