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)

Apple, Inc. (NASDAQ: AAPL) hardly needs an introduction. The popular $656 billion market-cap company is ubiquitous. The company makes iPhones, iPads, a series of laptops and desktops, and the software to run it all. In addition to the hardware it creates, Apple also designs its own software and deals in a range of media from e-books to music, movies and software applications. The company has a cloud storage service and a payment processing system.

Altogether, Apple has a broad range of products and that means its competitors are also varied. To understand what makes Apple profitable, it is necessary to understand the competitive forces the company faces. The model for this is called Porter's Five Forces, and it looks at a company’s relationship with its direct competitors, the bargaining power of its customers, the bargaining power of its suppliers, the threat of substitutes and the threat of new entrants. Analyzing the factors behind Apple's profitability can start with its degree of rivalry among its competitors.

The Unique Appeal of Product Differentiation

Competition in Apple’s industry is pretty intense. There are only a few rivals in each category, and they are constantly shuffling around for market share. However, Apple is unique in its industry. Its products simply work differently than other devices. They have a unique operating system and format. Moreover, the company has created systems that work together, pretty seamlessly, in a sort of ecosystem. While its competitors have similar ways of doing the same thing, the reality is that once a person buys Apple products, there is a unique appeal to stay within that ecosystem. With this in mind, Apple has an incentive to try to get users hooked on Apple products early on, and that starts with staying relevant.

Exclusive Is Better

Apple also manages the competitive rivalry within its industry through exclusivity. More than product differentiation, Apple products are on trend. You can tell an Apple product by first look; it is that distinctive in appearance, which is part of its brand and its appeal. Moreover, many of Apple's devices and media services are priced at premiums to its competitors and incorporate premium materials, such as aluminum instead of plastic casing for phones, tablets and laptops. This serves to differentiate Apple products as being premium and reinforces the exclusive concept.

At the same time, many popular applications and software programs are designed solely for Apple so you need an Apple device to access them. Then, there is the cross-branding, such as with Hermes and Apple Watch or Nike Plus. Together, these branding initiatives work with the Apple ecosystem to create an “Apple universe,” and to have products and systems outside this framework is to miss out on something. Customers pay premiums to be part of this exclusive system, much like a members-only area.

Managing Market Growth Through Innovation

Apple operates in a fairly saturated market. Just about everyone who is going to have a smartphone already does, except for younger consumers. To compete, Apple has to produce products that keep up with the zeitgeist of the industry while stimulating customer demand. There is still opportunity in the industry because a fair proportion of consumers wants the newest products, the most modern technology and the new features that make the products work better. Apple’s challenge is to keep up with these innovations and develop software that enables existing technologies to do more. To this end, the company maintains a focus on research and development while encouraging regular upgrades through timely releases of new models and purchasing assistance to make upgrading easy for its customers.

Analyzing Apple's Threat of New Entrants (AAPL)
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