1. Analyzing Apple's Bargaining Power of Buyers (AAPL)
  2. Analyzing Apple's Bargaining Supplier Power (AAPL)
  3. Analyzing Apple's Degree of Rivalry Among Competitors (AAPL)
  4. Analyzing Apple's Threat of New Entrants (AAPL)
  5. Analyzing Apple's Threat of Substitutes (AAPL)

When you consider the factors that make a company successful, you have to include internal factors and market demand, but of equal importance are the competitive forces facing the company. A Harvard Business School professor named Michael E. Porter developed a system for looking at these elements of competition in 1979, called Porter’s Five Forces. These five forces include the threat of new entrants, the threat of substitutes, the bargaining power of suppliers, the bargaining power of customers and the jockeying for position within the industry.

The framework is strictly qualitative, but it provides a useful checklist for understanding the competitive forces a company has to manage in order to be successful. Porter’s Five Forces is especially good at examining larger corporations, such as Apple, Inc. (NASDAQ: AAPL). Take a look at how Apple’s customers could affect its business strategy.

Buying Trends

One way Apple’s customers influence its profitability and, by extension, its business strategy is with what they buy. Apple sells a wide variety of products and services; each requires a different approach. As of December 2015, Apple has been releasing new iPads with roughly the same frequency as new iPhones. However, the two products have different buying patterns. According to TheStreet, tablet shipments are down over 8% for 2015 compared to 2014. The issue is there are not as many marked differences between tablet models as between smartphones, which may draw sales through increased memory, improved camera resolution and size differences.

Customer Preferences

Consumers may also impact Apple’s business strategy with their preferences. For instance, before an iPad of any size can really work well in business or for people who may have to work on documents on the fly, such as students, a USB port is practically a necessity. As of December 2015, Apple does not offer a tablet with a USB port. There are third-party adapters, some of which are compatible with iPads. Apple's only original equipment manufacturer OEM solution is an adapter that works with digital cameras but not documents. Going forward, customer preferences for USB ports could force Apple to develop a new iPad with that feature.

Switching Costs

The cost for buyers to switch between Apple and another provider can be significant, but the issue is not strictly about price. While some Apple products cost as much as $2,000 with certain features, many others are more affordable. For instance, an iPod Shuffle costs less than $50. Also, there is a variety of purchasing plans available, especially for mobile technology such as Apple's iPhones.

The real cost comes from going outside of the Apple ecosystem. Remember that Apple software and media only works with Apple devices. If an Apple user switches to a device made by a different company, the media purchased for the Apple device does not work, nor do any smartphone applications or software designed for Apple. In this sense, Apple’s customers’ bargaining power is low. It would cost so much for users to change operating systems that many would not unless quality became a major issue.

Fragmented Market

The bargaining power of Apple’s customers is also low because the market is fragmented. The company’s products and services appeal to a wide variety of individuals, and the products and services have a broad range of uses. Apple products can be found in corporate environments and high schools, government offices and home offices. No one demographic or subgroup has more influence than another.

However, collectively, Apple’s customers have some common demands. Issues such as operating stability, hardware quality, and the availability of applications and software programs are aspects that are paramount to Apple’s business. The company is vulnerable to quality problems that can harm its reputation and the availability of different third-party apps and content. Buyer bargaining power in this regard is very high.


Analyzing Apple's Bargaining Supplier Power (AAPL)
Related Articles
  1. Investing

    Apple’s Key Weaknesses

    While it seems that Apple is at the top of its game, several weaknesses have emerged that the company needs to address if it is going to stay on top.
  2. Small Business

    The Story Behind Apple's Success

    The marketing helps, and the media and fan frenzy never hurt; but it is the quality of the products that drive Apple's success.
  3. Investing

    What Moves Apple's Stock Price? (AAPL)

    The iPod, iPhone, and iPad propelled Apple stock to new heights. The Apple Watch is yet unproven. What will drive stock prices in the next year?
  4. Tech

    Is This the End of Apple's Growth Era? (AAPL)

    Find out why Berkshire Hathaway made an uncharacteristic purchase of Apple stock and whether it implies Apple is no longer perceived as a growth stock.
  5. Investing

    The Biggest Risks of Investing in Apple Stock (AAPL)

    Read about the biggest risks facing Apple, Inc., and why AAPL investors should always be prepared for the day when the tech giant starts to struggle.
  6. Insights

    Apple's First-Quarter Results: The Mother of All Earnings

    The fact that the market as a whole is becoming more realistic about Apple's growth can benefit the company long term.
  7. Investing

    What's Next After Apple’s (AAPL) Big Drop?

    What does the future hold for Apple following the recent drop of its stock?
Frequently Asked Questions
  1. What is PMI, and does everyone need to pay it?

    No – PMI is only required of those who can't make a 20% down payment on the home they're purchasing.
  2. Why is the 1982 AT&T breakup considered one of the most successful spinoffs in history?

    Find out why the breakup of AT&T into a number of spinoffs called the Baby Bells was one of the most successful spinoffs ...
  3. How does the required rate of return affect the price of a stock, in terms of the Gordon growth model?

    Find out how a change in the required rate of return adjusts the price an investor is willing to pay for a stock. Learn about ...
  4. What is the difference between the cost of capital and required return?

    Take a look at the primary conceptual differences between an investor's required rate of return and an issuing company's ...
Trading Center